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

                          FORM 10-K/A (AMENDMENT NO.2)

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 29, 2002

                                       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 Identification No.)
   incorporation or organization)

 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

<TABLE>
<S>                                                              <C>
Securities registered pursuant to Section 12(b) of the Act:      Name of each exchange on which registered:
                  Title of each class                                         Not applicable
                  -------------------
                          None
</TABLE>

           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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

                          Yes [ ]          No [X]

The aggregate market value of voting stock held by non-affiliates of the
registrant at June 30, 2002 (the last day of the registrant's second fiscal
quarter of 2002) was approximately $47,081,398. As of that date, the last sale
price of the registrant's common stock was $13.00 per share. Solely for purposes
of this calculation, shares beneficially owned by directors and executive
officers have been excluded.

Indicated below is the number of shares outstanding of each of the registrant's
classes of common stock as of February 28, 2003.

                 Class                              Outstanding
                 -----                              -----------
COMMON STOCK, PAR VALUE $.001 PER SHARE              5,131,131

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>

                                   EXPLANATION

Set forth in this Form 10-K/A Amendment No. 2 are amendments relating to Item 1
of Part I, Items 7 and 8 of Part II and Item 15 of Part IV of the Annual Report
of Sylvan Inc. on Form 10-K for the fiscal year ended December 29, 2002. The
amendments are in response to comments made by the Securities and Exchange
Commission during the first quarter of 2004 in the course of the Commission's
review of the information provided in the registrant's Form 10-K. In connection
with these amendments, the registrant is also amending the Exhibit Index in Item
15(a)(3) to include the certifications required by 18 U.S.C., Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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                                     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 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.

Spawn Operations: Spawn products accounted for 71% of the company's total sales
in 2002 and 79% 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 plastic bags
and the filled bags are incubated in environmentally controlled growing rooms.
Once the incubation is complete, the bags 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 2003
with respect to the Canadian plant.

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, a nutraceutical product which is sold at wholesale and
retail 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 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.

                                       3

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Fresh Mushrooms Operations: The Fresh Mushrooms Segment of Sylvan's business
accounted for 29% of the company's total sales in 2002 and 21% 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. The facility includes a computer-controlled production system and it
serves a strategic role for Sylvan as a resource for production process
innovations. Included as part of the Quincy operation are four satellite
mushroom growing facilities; two commenced operations in mid-2001 and two
commenced operations in early 2003. Each facility is leased to an independent
third party. These parties are obligated to purchase their requirements of
ready-to-grow mushroom compost 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 mideastern and
southeastern United States. The value of backlog orders for mushroom products is
insignificant.

PERSONNEL

On December 29, 2002, Sylvan had approximately 850 full-time employees, of whom
about 720 were engaged in production activities and 130 in supervision, sales
and administration. 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.

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 8
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 8 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 2002, 2001, and 2000 were to
one customer. C And C Carriage Mushroom Company became the purchaser and
marketer of the company's mushrooms beginning in January 2000. The $24.1
million, $23.0 million, and $20.8 million of fresh mushrooms that C And C
purchased from the Quincy subsidiary for fiscal years 2002, 2001, and 2000,
represented 27%, 27%, and 24%, respectively, of Sylvan's consolidated net sales.
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.

                                       4

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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 Italspawn (Italy) and Le
Lion (France). 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 a 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 10 regional producers of substantial size.
The balance of the U.S. industry is fragmented, comprised of 118 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 2002, Sylvan's research and development expenditures totaled $2.0 million, as
compared with $1.7 million in 2001 and $1.8 million in 2000. 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.

                                       5

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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, Sylvan has patented several new mushroom strains,
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.

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. Quincy averaged $50,000
per year over the past five years in environmental compliance costs.

FINANCIAL INFORMATION

Information regarding Sylvan's financial performance is set forth herein
beginning on page 24.

AVAILABILITY OF INFORMATION ON THE COMPANY'S WEBSITE

Sylvan maintains a multipurpose Internet website. Its address is
www.sylvaninc.com. A link to a third-party SEC filings website is maintained on
the Sylvan website with access provided through the "Investors" tab. The
company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports that are filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act are available as soon as
they are posted by the SEC. In addition, individuals wanting copies of the
company's annual report to shareholders and any other reports filed or furnished
by the company with the SEC may request copies. The reports will be furnished
free of charge. Requests should be made in writing to the company at P.O. Box
249, Saxonburg, PA 16056-0249.

                                     PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS

                              RESULTS OF OPERATIONS
                          COMPARISON OF 2002 WITH 2001

NET SALES

Net sales for 2002 were $88.2 million, a $2.3 million increase from the $85.9
million for 2001. Net sales in the Fresh Mushrooms Segment increased $1.9
million and net sales in the Spawn Products Segment increased $0.4 million. On
average, the U.S. dollar was approximately 4.5% weaker in 2002, when measured
against the company's applicable foreign currencies, than in 2001. The effect of
this weakening increased net sales and operating income during 2002, as compared
with 2001, by approximately $2.4 million and $200,000, respectively.
International sales, as a percentage of net sales, were 48.7% in 2002 and 50.2%
in 2001.

Spawn Products: Net sales of spawn and spawn-related products were $64.0
million, as compared with $63.6 million for 2001. Foreign currency translation
fluctuations had the effect of increasing sales on a year-over-year comparison
by $2.4 million. Sales of disease-control agents and nutritional supplements
increased $1.5 million, or 10.9%, and accounted for 17.9% of Sylvan's
consolidated net sales. Spawn product sales volume decreased 3.7%, with a 6.7%
decrease in the Americas and a 2.0% decrease in overseas markets, decreasing net
sales by $1.9 million. The volume decrease in the Americas related to the
continued changing of market conditions in the mushroom industry, which began in
2001 and

                                       6

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increased competitive pressures. The volume decreases in the overseas markets
related to the closure of mushroom farms in the United Kingdom and a reduction
in plantings during the fourth quarter of 2002 in the Netherlands. The average
local market price in international locations decreased 1.9% due to lower
volumes sold in territories with higher selling prices. The effect of this
territorial shift in 2002 was a decrease in net sales of approximately $0.7
million. The average overseas U.S. dollar equivalent selling price was 3.4%
higher during 2002, as compared with 2001, due to the weakening of the U.S.
dollar. The selling price in the Americas was essentially unchanged. Net sales
of the bioproducts division decreased $0.7 million due to increased Chinese
competition for sales of a specialized variety of mushroom.

On August 16, 2002, the U.S. Department of Agriculture released its annual
statistical report on mushrooms covering the fiscal year July 2001 through June
2002. The Department reported that the amount of Agaricus growing area planted
was virtually equal to the prior fiscal year and 9.6% lower than the fiscal year
ended June 2000. Sylvan experienced additional price and payment-term
competition in the United States during the second half of 2001 coinciding with
the reduction in the growing area planted. The competitive situation intensified
during the second half of 2002.

Fresh Mushrooms: Net sales of fresh mushrooms increased 8.1% during 2002 to
$25.5 million, as compared with $23.6 million for 2001. This increase was due to
a 4.3% increase in the number of pounds sold and a 0.6% higher selling price per
pound. Quincy Farms generated 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 $1.3
million of ready-to-grow mushroom compost and sold approximately $3.0 million of
high-quality mushrooms to Quincy for immediate resale to its third-party
marketer. In December 2002 and January 2003, Quincy completed two additional
satellite farms. These additions are expected to improve operating profit for
2003.

COST OF SALES

The company's cost of sales, expressed as a percentage of net sales, was 59.1%
for 2002 and 58.0% for 2001. Lower margins were experienced in the Fresh
Mushrooms Segment and in the Spawn Products Segment.

Spawn Products: The cost of sales, as a percentage of net sales, was 54.0% for
2002, as compared with 53.2% for 2001. Spawn production during 2002 was 4.0%
lower than for 2001, spreading costs that are primarily fixed in nature over
fewer units. The company also increased sales of disease-control agents and
nutritional supplements, which have a lower margin than mushroom spawn. The
overall discard rate for spawn production was 4.8% in 2002 and 5.8% in 2001.

Fresh Mushrooms: The cost of sales percentage was 68.9% for 2002 and 67.7% for
2001. The cost of sales percentage increased due to an increase in the purchase
and immediate resale of mushrooms from the satellite farms which provide a small
gross margin. However, Quincy was able to improve yield efficiencies and
increase operating income in 2002. In addition, the sale of ready-to-grow
mushroom compost to the satellite farms contributed to the improved financial
performance. The cost of sales percentage is expected to increase for 2003
correlating to the increase in the purchase and immediate resale of mushrooms
from the satellite farms, but the company anticipates an increase in operating
income related to this structure.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses increased to $19.4 million, or 22.0% of net
sales, as compared with $18.0 million, or 21.0%, for 2001. Of the increase in
selling and administrative expenses for 2002 versus 2001, $1.1 million consisted
primarily of a $0.4 million increase in the allowance for doubtful accounts, a
$0.4 million increase in salaries, benefits and insurance, and an approximately
$0.3 million increase for professional fees related to the strategic evaluation
completed during 2002. In addition, the weakening of the U.S. dollar had the
effect of increasing selling and administrative expenses by $0.3 million during
2002, as compared with 2001. The company also recorded $0.2 million of net
periodic benefit income during 2002 from a pension plan of a former subsidiary.
The net periodic pension expense for 2003 is expected to be $0.7 million.

                                       7

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RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased 14.2% in 2002 to $2.0 million, when
compared with $1.7 million in 2001. The company increased mushroom breeding
activities during 2002 in cooperation with a Dutch research organization. The
company expects Research and Development expenses for 2003 to be similar to 2001
expenditures.

DEPRECIATION EXPENSE

Depreciation expense was $5.6 million in 2002, an increase of 5.0% over the $5.4
million reported for 2001. Most of this increase related to the relatively
weaker U.S. dollar.

INTEREST EXPENSE

Net interest expense for 2002 was $1.9 million, 26.3% lower than the interest
expense recorded for 2001. The effective interest rate for 2002 was 5.0%, as
compared with 6.7% for 2001. Also during 2002, the company recorded interest
income of $12,000 related to hedge instruments under SFAS No. 133. During 2002,
the company had variable-to-fixed interest rate swaps in place to manage
interest rate risk that increased the average borrowing rate 1.5%. During 2001,
swaps increased the average borrowing rate 0.6%.

INCOME TAX EXPENSE

The company's overall effective tax rate for 2002 was 33.5%. The effective tax
rate for 2001 was 29.5%. The higher effective tax rate for 2002 was the result
of a larger portion of the company's taxable income being derived from higher
tax-rate jurisdictions.

                              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 50% 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.

The August 17, 2001 U.S. Department of Agriculture annual statistical report on
mushrooms, covering the fiscal year July 2000 through June 2001, reported a 10%
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, was
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%.

                                       8

<PAGE>

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 generated 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 compost and sold approximately $1.3 million of
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 compost to the satellite farms contributed to the
improved financial performance.

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%.

                                       9

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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.

                         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 $18.0 million as of December 29, 2002. The
agreement provides for a $5.0 million reduction of the total credit amount in
2003 and an additional $5.0 million reduction in 2004.

Net cash provided by operating activities was $12.7 million in 2002, as compared
with $10.7 million in 2001 and $9.7 million for 2000. As of December 30, 2001,
the company maintained 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 was reported under "Other Current Assets" in the
accompanying consolidated balance sheets as of December 30, 2001. This reduction
of the cash balance increased net cash provided by operating activities by $2.2
million.

Cash used in investing activities was $6.1 million for 2002, as compared with
$8.7 million and $6.2 million during 2001 and 2000, respectively. Most of the
cash used in investing activities was for capital expenditures, net of proceeds
from the sale of assets, which totaled $6.1 million in 2002, $8.6 million in
2001 and $6.1 million in 2000. Most of the growth capital expenditures for 2002
and 2001 were related to two business-growth projects: Quincy's satellite farms
($3.0 million) and the Canadian spawn plant ($2.7 million). Maintenance capital
for 2002 was $3.4 million.

Net capital expenditures in 2003 are not expected to exceed $4.0 million for
existing operations, with additional expenditures as may be required for
acquisitions or new initiatives.

During 2002, cash of $6.8 million was used in financing activities, as compared
with $1.8 million and $5.2 million during 2001 and 2000, respectively. During
2002, the company purchased 333,321 shares of Sylvan stock at an average price
of $10.60 per share. By comparison, 107,271 and 215,235 shares were purchased at
average prices of $11.37 and $9.37 during 2001 and 2000, respectively. In the
fourth quarter of 2002, the company announced a three-year stock buyback program
to purchase a total of 1.3 million shares. The company purchased 310,000 shares
under this program in 2002. Management expects to continue the purchase program
during 2003, subject to price and share availability conditions that make such
purchases financially beneficial and appropriate.

Net payments to reduce debt and revolving credit obligations were $3.6 million
in 2002, as compared with $0.7 million in 2001 and $3.3 million in 2000. The
decreases in outstanding debt related primarily to the positive cash flows from
operations in excess of capital additions and Sylvan share purchases. 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 2003 capital expenditures.

The recent declines in equity markets and interest rates have had a negative
impact on the company's pension plan liability and fair value of plan assets. As
a result, the accumulated benefit obligation exceeded the fair value of plan
assets at the end of 2002, which resulted in a $9.5 million charge to
shareholders' equity.

The company was not in compliance with one of the financial covenants of its
revolving credit agreement as of December 29, 2002 due to the recording of the
$9.5 million minimum pension liability adjustment to "Accumulated Other
Comprehensive Income" during 2002. In the first quarter of 2003, the company and
its banks signed an amendment to the revolving credit agreement to adjust for
the recording of the minimum pension liability adjustment and waive the loan
covenant violation. The adjustment and waiver are effective as of December 29,
2002 and continue through August 5, 2005.

                                       10

<PAGE>

Sylvan has never paid and does not intend to pay cash dividends in the future.
The company 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.

Below are tables that summarize the company's contractual obligations and
commercial commitments at December 29, 2002:

<TABLE>
<CAPTION>
                                                      Payments Due by Period (in thousands)
       Contractual Obligations              Total    Less than 1 year   1-3 years   4-5 years   After 5 years
<S>                                        <C>       <C>                <C>         <C>         <C>
Long-Term Debt                             $38,385   $            223   $  37,572   $     124   $         466
      Interest on Long-Term Debt             4,345              1,576       2,531          90             148
      Capital Lease Obligations                  -                  -           -           -               -
      Operating Lease Obligations              650                485         165           -               -
      Purchase Obligations                       -                  -           -           -               -
      Other Long-Term Obligations                -                  -           -           -               -
      Research Contract                        943                281         568          94               -
      Total Contractual Cash Obligations   $44,323   $          2,565   $  40,836   $     308   $         614
</TABLE>

<TABLE>
<CAPTION>
                                         Amount of Commitment Expiration Per Period (in thousands)
Other Commercial Commitments          Total    Less than 1 year   1-3 years   4-5 years   After 5 years
<S>                                  <C>       <C>                <C>         <C>         <C>
Standby Letter of Credit             $ 1,000                      $   1,000
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing
accounting pronouncements. While the technical corrections to existing
pronouncements are not substantive in nature, they may change accounting
practice. The provisions of this standard related to SFAS No. 13 are effective
for transactions occurring after May 15, 2002. The provisions of this standard
related to the rescission of SFAS No. 4 should be applied in fiscal years
beginning after May 15, 2002. All other provisions of this standard must be
applied for financial statements issued on or after May 15, 2002. The adoption
of this pronouncement did not have a material impact on the company.

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
requires that liabilities associated with exit or disposal activities initiated
after adoption be recognized and measured at fair value when incurred as opposed
to on the date an entity commits to the exit or disposal plans. The provisions
of this standard are effective for activities initiated after December 31, 2002.
The adoption of this pronouncement is not expected to have a material impact on
the company.

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based compensation. While the Statement does not amend SFAS
No. 123 to require companies to account for employee stock options using the
fair value method, the disclosure provisions of the Statement are applicable to
all companies with stock-based compensation. The provisions of this standard are
effective for fiscal years ending after December 15, 2002. The adoption of this
pronouncement did not have a material impact on the company as no change was
made to the method of accounting for stock-based compensation.

In January 2003, the Financial Accounting Standards Board issued FIN No. 46,
"Consolidation of Variable Interest Entities." FIN No. 46 expands upon and
strengthens existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. It requires that companies determine whether a non-consolidated
entity is a variable interest entity, as defined by FIN No. 46, and which
company is the primary beneficiary of the variable interest entity's activities.
The consolidation requirements of Interpretation 46 apply immediately to
variable interest entities created after January 31, 2003 and apply to older
entities in the first fiscal year or interim period beginning after June 15,
2003. Certain of the disclosure requirements apply in all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. The company is currently evaluating the impact of adopting this
interpretation.

                                       11

<PAGE>

EURO 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.

CRITICAL ACCOUNTING POLICIES

The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make judgments, estimates,
and assumptions regarding uncertainties that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Areas of uncertainty that require
judgments, estimates, and assumptions include the accounting for derivatives,
environmental matters, the testing of goodwill and other intangible assets for
impairment, pensions and other postretirement benefits, and tax matters.
Management uses historical experience and all available information to make
these judgments and estimates, and actual results will differ from those
estimates and assumptions that are used to prepare the company's financial
statements. Despite these inherent limitations, management believes that
Management's Discussion and Analysis (MD&A) and the financial statements and
related footnotes provide a fair presentation. A discussion of the judgments and
uncertainties associated with accounting for derivatives can be found in Item
7A. Quantitative and Qualitative Disclosures about Market Risk.

A summary of the company's significant accounting policies is included in Note 1
to the Consolidated Financial Statements, included herein. Management believes
that the application of these policies on a consistent basis enables the company
to provide the users of the financial statements with useful and reliable
information about the company's operating results and financial condition.

In addition to the significant accounting policies described in Note 1 to the
Consolidated Financial Statements, the company believes the following discussion
addresses its critical accounting policies:

-     the company recognizes revenue when the title and risk of loss of the
      goods pass to the customers at the time of shipment;

-     the company maintains an allowance for doubtful accounts for estimated
      losses resulting from the inability of customers to make required
      payments. If the financial condition of the company's customers were to
      deteriorate, resulting in an inability to make payments, additional
      allowances may be required;

-     the company writes down its inventory to the lower of cost (first-in,
      first-out method) or market, which includes an estimate for obsolete or
      excess inventory based upon assumptions about future demand and market
      conditions; and

-     the company monitors the recoverability of the carrying value of its
      long-lived assets. An impairment charge would be recognized when the
      expected net undiscounted future cash flows from an asset's use (including
      any proceeds from disposition) are less than the asset's carrying value,
      and the asset's carrying value exceeds its fair value.

In order to manage interest rate exposure, the company utilizes interest rate
swaps under its fair value hedging strategy in order to convert a portion of its
floating rate debt to fixed-rate basis. Accordingly, changes in the fair value
of these derivatives, along with changes in the fair value of the hedged debt
obligations that are attributable to the hedged risk, are recognized in current
period earnings. Based on the amount of floating rate debt converted to fixed as
of December 29, 2002, a variance of 10% in the related interest rate would cause
annual interest expense related to this debt to change by approximately $75,000.

The company is subject to various environmental laws and regulations that govern
the discharge of wastewater, which may require that we investigate and remediate
the effects of such discharge at our operations. Environmental liabilities are
recorded when our liability is probable and the costs are reasonably estimable.

The company believes that an accounting estimate related to asset impairment is
a "critical accounting estimate" as it is susceptible to change from period to
period, because it requires management to make assumptions about cash flows over
future years. These assumptions impact the amount of an impairment, which would
have an impact on the income statement.

                                       12

<PAGE>

Management's assumptions about future cash flows require significant judgment
because actual operating levels have fluctuated in the past and are expected to
do so in the future.

Goodwill and indefinitely lived intangible assets are reviewed annually for
impairment, or more frequently if impairment indicators arise. The company
performs this annual impairment test in the fourth quarter of each fiscal year.
The goodwill impairment test requires a comparison of the fair value of the
company's reporting unit that has goodwill associated with its operations with
its carrying amount, including goodwill. If this comparison reflects impairment,
then the loss would be measured as the excess of recorded goodwill over its
implied fair value. Implied fair value is the excess of the fair value of the
reporting unit over the fair value of all recognized and unrecognized assets and
liabilities. The company believes that an accounting estimate related to the
goodwill impairment is a "critical accounting estimate" because the underlying
assumptions used for the discounted cash flow can change from period to period
and these changes could cause a material impact to the income statement.
Management's assumptions about discount rates, inflation rates and other
internal and external economic conditions require significant judgment based on
fluctuating rates and anticipated future revenues. Additionally, SFAS No. 142
requires that the goodwill be analyzed for impairment on an annual basis using
the assumptions that apply at the time the analysis is updated.

Other areas of significant judgments and estimates include the liabilities and
expenses for pensions and other postretirement benefits. These amounts are
determined using actuarial methodologies and incorporate significant
assumptions, including the rate used to discount the future estimated liability
and the long-term rate of return on plan assets. The rate used to discount
future estimated liabilities is determined considering the rates available at
year-end on debt instruments that could be used to settle the obligations.
Lowering the discount rate by 0.5% (from 6.10% to 5.60%) would increase the
company's projected benefit obligation as of December 29, 2002 by approximately
$2.0 million. The long-term rate of return is estimated by considering
historical returns and expected returns on current and projected asset
allocations and is generally applied to a five-year average market value of
assets. Effective October 31, 2002, Sylvan reduced the assumption for the
expected long-term return on plan assets to 8.5% from 9.0%. Pension expense
increases as the expected long-term rate of return decreases. Therefore, had
Sylvan assumed an expected long-term rate of return of 8.5% for all of 2002, the
company's pension expense for 2002 would have been approximately $145,000 higher
than the amount recorded.

Sylvan is a global company and records an estimated liability for income taxes
based on what it determines will likely be paid in the various tax jurisdictions
in which it operates. Management uses its best judgment in the determination of
these amounts; however, the liabilities ultimately realized and paid are
dependent upon various matters and may differ from the amounts recorded. An
adjustment to the estimated liability would be recorded through income in the
period in which it becomes probable that the amount of the actual liability
differs from the amount recorded.

                                       13

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-46797 and No. 33-86332) pertaining to the 1990 Stock Option
Plan of Sylvan Inc., and in the Registration Statement (Form S-8 No. 33-83962)
pertaining to the 1993 Stock Option Plan for Nonemployee Directors of Sylvan
Inc. of our reports dated January 31, 2003, with respect to the consolidated
financial statements and schedule of Sylvan Inc. included in the Annual Report
for the fiscal year ended December 29, 2002.

/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
June 4, 2004

              INFORMATION REGARDING CONSENT OF ARTHUR ANDERSEN LLP

Section 11 (a) of the Securities Act of 1933, as amended (the "Securities Act"),
provides that if part of a registration statement at the time it becomes
effective contains an untrue statement of a material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading, any person acquiring a security pursuant to such registration
statement (unless it is proved that at the time of such acquisition such person
knew of such untruth or omission) may assert a claim against, among others, an
accountant who has consented to be named as having certified any part of the
registration statement or as having prepared any report for use in connection
with the registration statement.

Sylvan Inc. dismissed Arthur Andersen LLP ("Arthur Andersen") as its independent
auditors, effective May 31, 2002. For additional information, see the company's
current report on Form 8-K dated May 31, 2002. After reasonable efforts, the
company has been unable to obtain Arthur Andersen's written consent to the
incorporation by reference into the company's registration statements (Form S-8
File No.s 33-46797, 33-86332 and 33-83962) and the related prospectuses (the
"Registration Statements") of Arthur Andersen's audit report with respect to the
company's consolidated financial statements as of December 30, 2001 and for the
two years in the period then ended. Under these circumstances, Rule 437 under
the Securities Act permits the company to file the Annual Report on Form 10-K,
which is incorporated by reference into the Registration Statements, without a
written consent from Arthur Andersen. As a result, with respect to transactions
in the company's securities pursuant to the Registration Statements that occur
subsequent to the date this Annual Report is filed with the Securities and
Exchange Commission, Arthur Andersen will not have any liability under Section
11(a) of the Securities Act for any untrue statements of a material fact
contained in the financial statements audited by Arthur Andersen or any
omissions of a material fact required to be stated therein and thus no claim
could be asserted against Arthur Andersen under Section 11(a) of the Securities
Act.

                                       14

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheet of Sylvan Inc. and
subsidiaries as of December 29, 2002, and the related consolidated statements of
income, shareholders' equity and cash flows for the fiscal year then ended. Our
audit also included the financial statement schedule listed in the index in Item
15(a)(2) for the year ended December 29, 2002. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Sylvan Inc. and subsidiaries as of December 30, 2001, and for the
two fiscal years then ended were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated February 1, 2002.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (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
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 overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sylvan Inc. and subsidiaries as
of December 29, 2002, and the results of their operations and their cash flows
for the fiscal year then ended in conformity with U. S. generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As more fully discussed in Note 1 to the consolidated financial statements,
effective December 31, 2001, Sylvan Inc. adopted the provisions of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142).

As discussed above, the consolidated financial statements of Sylvan Inc. as of
December 30, 2001, and for the two fiscal years then ended were audited by other
auditors who have ceased operations. As described in Note 1, these financial
statements have been revised to include the transitional disclosures required by
SFAS No. 142, which was adopted by the company as of December 31, 2001. Our
audit procedures with respect to the disclosures in Note 1 with respect to 2001
and 2000 included (a) agreeing the previously reported net income to the
previously issued financial statements and the adjustments to reported net
income representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill as a result of initially
applying Statement No. 142 to the company's underlying records obtained from
management, and (b) testing the mathematical accuracy of the reconciliation of
adjusted net income to reported net income, and the related earnings-per-share
amounts. In our opinion, the disclosures for 2001 and 2000 in Note 1 are
appropriate. However, we were not engaged to audit, review, or apply any
procedures to the 2001 and 2000 financial statements of the company other than
with respect to such disclosures and, accordingly, we do not express an opinion
or any other form of assurance on the 2001 and 2000 financial statements taken
as a whole.

/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania

January 31, 2003

                                       15

<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

This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with the company's Annual Report on Form 10-K for the year ended
December 30, 2001. This audit report has not been reissued by Arthur Andersen
LLP in connection with our Annual Report on Form 10-K.

                                       16

<PAGE>

CONSOLIDATED BALANCE SHEETS
SYLVAN INC. AND SUBSIDIARIES

ASSETS
IN THOUSANDS

<TABLE>
<CAPTION>
                                                           DEC. 29, 2002   DEC. 30, 2001
                                                           -------------   -------------
<S>                                                        <C>             <C>
Current Assets:
Cash and cash equivalents                                  $       5,624   $       5,072
Trade accounts receivable, net of allowance for doubtful
   accounts of $795 and $440, respectively                        14,399          13,133
Inventories                                                       11,425          10,119
Prepaid income taxes and other expenses                            1,495           1,437
Other current assets                                               1,494           4,206
                                                           -------------   -------------

TOTAL CURRENT ASSETS                                              34,437          33,967
                                                           -------------   -------------

Property, Plant and Equipment:
Land and improvements                                              3,987           3,711
Buildings                                                         43,699          38,021
Equipment                                                         56,895          51,014
                                                           -------------   -------------
                                                                 104,581          92,746

Less-Accumulated depreciation                                    (45,794)        (38,470)
                                                           -------------   -------------

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET                          58,787          54,276
                                                           -------------   -------------

INTANGIBLE ASSETS, net of accumulated amortization
   of $4,691 and $4,078, respectively                             12,321          11,036

OTHER ASSETS, net of accumulated amortization
   of $597 and $491, respectively                                  1,261           7,811
                                                           -------------   -------------

TOTAL ASSETS                                               $     106,806   $     107,090
                                                           =============   =============
</TABLE>

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

                                       17

<PAGE>

CONSOLIDATED BALANCE SHEETS
SYLVAN INC. AND SUBSIDIARIES

LIABILITIES AND SHAREHOLDERS' EQUITY
IN THOUSANDS EXCEPT SHARE DATA

<TABLE>
<CAPTION>
                                                           DEC. 29, 2002   DEC. 30, 2001
                                                           -------------   -------------
<S>                                                        <C>             <C>
Current Liabilities:
Current portion of long-term debt                          $         223   $       2,430
Accounts payable - trade                                           3,895           3,833
Accrued salaries, wages and employee benefits                      2,771           2,635
Other accrued liabilities                                          1,413             905
Income taxes payable                                               1,545             942
                                                           -------------   -------------

TOTAL CURRENT LIABILITIES                                          9,847          10,745
                                                           -------------   -------------

LONG-TERM AND REVOLVING-TERM DEBT                                 38,162          37,255
                                                           -------------   -------------

Other Long-Term Liabilities:
Other employee benefits                                            9,538           1,362
Other                                                                256           5,162
                                                           -------------   -------------

TOTAL OTHER LONG-TERM LIABILITIES                                  9,794           6,524
                                                           -------------   -------------

MINORITY INTEREST                                                  1,741           1,680

Shareholders' Equity:
Common stock, voting, par value $.001, 10,000,000 shares
    authorized, 6,728,405 and 6,694,272 shares issued
    in 2002 and 2001, respectively                                     7               7
Additional paid-in capital                                        17,284          17,055
Retained earnings                                                 64,965          60,296
Less-Treasury stock, at cost, 1,597,274 and 1,263,953
    shares in 2002 and 2001, respectively                        (16,669)        (13,136)
                                                           -------------   -------------
                                                                  65,587          64,222

Accumulated other comprehensive loss                             (18,325)        (13,336)
                                                           -------------   -------------

TOTAL SHAREHOLDERS' EQUITY                                        47,262          50,886
                                                           -------------   -------------

TOTAL LIABILITIES AND SHAREHOLDERS'
  EQUITY                                                   $     106,806   $     107,090
                                                           =============   =============
</TABLE>

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

                                       18

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME
SYLVAN INC. AND SUBSIDIARIES
IN THOUSANDS EXCEPT SHARE DATA

<TABLE>
<CAPTION>
                                                               2002            2001            2000
                                                           -------------   -------------   -------------
<S>                                                        <C>             <C>             <C>
NET SALES                                                  $      88,192   $      85,911   $      85,947
                                                           -------------   -------------   -------------

Operating Costs and Expenses:
Cost of sales                                                     52,109          49,818          47,937
Selling and administrative                                        19,416          18,006          19,500
Research and development                                           1,965           1,721           1,763
Depreciation                                                       5,642           5,375           5,233
                                                           -------------   -------------   -------------

                                                                  79,132          74,920          74,433
                                                           -------------   -------------   -------------

OPERATING INCOME                                                   9,060          10,991          11,514

INTEREST EXPENSE, NET                                              1,865           2,532           2,529

OTHER EXPENSE                                                          3              19             155
                                                           -------------   -------------   -------------

INCOME BEFORE INCOME TAXES                                         7,192           8,440           8,830
                                                           -------------   -------------   -------------

Provision (Benefit) for Income Taxes:
Current                                                            2,082           2,216           2,206
Deferred                                                             324             274            (226)
                                                           -------------   -------------   -------------
                                                                   2,406           2,490           1,980
                                                           -------------   -------------   -------------

INCOME BEFORE MINORITY INTEREST IN INCOME OF
 CONSOLIDATED SUBSIDIARIES                                         4,786           5,950           6,850
                                                           -------------   -------------   -------------

MINORITY INTEREST IN INCOME OF
 CONSOLIDATED SUBSIDIARIES                                           117             121             168
                                                           -------------   -------------   -------------

NET INCOME                                                 $       4,669   $       5,829   $       6,682
                                                           =============   =============   =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES                       5,402,859       5,500,799       5,658,860
                                                           =============   =============   =============

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
 EQUIVALENT SHARES                                             5,454,700       5,551,673       5,665,974
                                                           =============   =============   =============

NET INCOME PER SHARE - BASIC                               $        0.86   $        1.06   $        1.18
                                                           =============   =============   =============
NET INCOME PER SHARE - DILUTED                             $        0.86   $        1.05   $        1.18
                                                           =============   =============   =============
</TABLE>

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

                                       19

<PAGE>

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

IN THOUSANDS EXCEPT SHARE DATA

<TABLE>
<CAPTION>
                                                                                         ACCUMU-
                                                                                         LATED
                                                      ADDI-                               OTHER        TOTAL
                                                     TIONAL                              COMPRE-      SHARE-
                                           COMMON    PAID-IN     RETAINED   TREASURY     HENSIVE      HOLDERS'
                                           STOCK     CAPITAL     EARNINGS    STOCK        LOSS         EQUITY
                                           ------   ---------    --------   --------    ---------    ---------
<S>                                        <C>      <C>          <C>        <C>         <C>          <C>
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

Net income                                      -           -       4,669          -            -        4,669

Foreign currency translation
   adjustment                                   -           -           -          -        5,042        5,042
Unrealized losses on derivatives
   designated and qualified as cash
   flow hedges, net of tax                      -           -           -          -         (519)        (519)
Minimum pension liability
   adjustment, net of tax                       -           -           -          -       (9,512)      (9,512)
                                           ------   ---------    --------   --------    ---------    ---------
     Comprehensive loss                         -           -           -          -            -         (320)
Exercise of 34,133 stock options and
   compensation expense, net
   of tax                                       -         229           -          -            -          229
Purchase of treasury stock                      -           -           -     (3,533)           -       (3,533)
                                           ------   ---------    --------   --------    ---------    ---------
BALANCE, DEC. 29, 2002                     $    7   $  17,284    $ 64,965   $(16,669)   $ (18,325)   $  47,262
                                           ======   =========    ========   ========    =========    =========
</TABLE>

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

                                       20

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
SYLVAN INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
IN THOUSANDS                                                  2002      2001      2000
                                                            -------    -------   -------
<S>                                                         <C>        <C>       <C>
CASH FLOWS FROM OPERATIONS:
Net income                                                  $ 4,669    $ 5,829   $ 6,682

Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization                                 5,872      6,114     5,998
Employee benefits                                               216        373      (193)
Trade accounts receivable                                      (152)      (753)     (183)
Inventories                                                    (470)         1      (697)
Prepaid expenses and other assets                             3,008       (852)     (900)
Accounts payable, accrued expenses and other liabilities        620        (35)   (1,072)
Minority interest                                               108        157       319
Other                                                        (1,133)      (155)     (212)
                                                            -------    -------   -------
NET CASH PROVIDED BY OPERATIONS                              12,738     10,679     9,742
                                                            -------    -------   -------
CASH FLOWS FROM INVESTING:
Expenditures for property, plant and equipment               (6,144)    (8,744)   (7,012)
Proceeds from sale of fixed assets                                -        145       908
Earn-out payment on prior period acquisition                      -       (125)     (125)
                                                            -------    -------   -------
NET CASH USED IN INVESTING                                   (6,144)    (8,724)   (6,229)
                                                            -------    -------   -------
CASH FLOWS FROM FINANCING:
Principal payments on long-term debt                         (2,393)      (285)      (72)
Proceeds from long-term debt borrowings                           -         49       172
Net repayments under revolving credit loan                   (1,224)      (509)   (3,350)
Proceeds from exercise of stock options                         335        134        87
Purchase of treasury shares                                  (3,533)    (1,219)   (2,017)
                                                            -------    -------   -------
NET CASH USED IN FINANCING                                   (6,815)    (1,830)   (5,180)
                                                            -------    -------   -------
EFFECT OF EXCHANGE RATES ON CASH                                773       (424)     (563)
                                                            -------    -------   -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            552       (299)   (2,230)

CASH AND CASH EQUIVALENTS, BEGINNING OF FISCAL YEAR           5,072      5,371     7,601
                                                            -------    -------   -------

CASH AND CASH EQUIVALENTS, END OF FISCAL YEAR               $ 5,624    $ 5,072   $ 5,371
                                                            =======    =======   =======
Supplemental Disclosure of Cash Flow Data:
Interest paid                                               $ 1,942    $ 2,402   $ 2,651
Income taxes paid                                             2,052      2,394     2,153
</TABLE>

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

                                       21

<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 2002, 2001 and 2000 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
intercompany transactions and balances have been eliminated in consolidation.

BASIS OF PRESENTATION

The financial statements are prepared in conformity with generally accepted
accounting principles in the United States and require 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. As of December 30, 2001, the company
maintained 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 was reported under "Other Current Assets" in the
accompanying consolidated balance sheets as of December 30, 2001.

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

The company owns four satellite mushroom growing facilities, which have an
aggregate cost of $3.4 million and accumulated depreciation of $117,000, based
on a 20-year estimated useful life. Each of the facilities is leased to an
unrelated third party for $140,000 per year. The leases have a 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.

The satellite farms purchased $1.3 million of ready-to-grow mushroom compost in
2002 and $0.7 million in 2001. The satellites also sold to Quincy, for immediate
resale to its third-party marketer, $3.0 million of high-quality mushrooms in
2002 and $1.3 million in 2001.

REPAIR AND MAINTENANCE

Repair and maintenance costs are expensed as incurred.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

                                       22

<PAGE>

REVENUE RECOGNITION

The company recognizes revenue when the title and risk of loss of the goods sold
pass to the customer at the time of shipment. Any allowances or discounts are
reflected as a reduction to sales at the time of shipment and any returns are
reflected as a reduction to sales at the time of return.

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:

IN THOUSANDS EXCEPT SHARE DATA

<TABLE>
<CAPTION>
                                                    FISCAL YEAR ENDED
                                      -----------------------------------------------
                                      DEC. 29, 2002    DEC. 30, 2001    DEC. 31, 2000
                                      -------------    -------------    -------------
<S>                                   <C>              <C>              <C>
Basic Earnings Per Share:
Net income                            $       4,669    $       5,829    $       6,682
Average shares outstanding                5,402,859        5,500,799        5,658,860
                                      -------------    -------------    -------------

Earnings per share                    $        0.86    $        1.06    $        1.18
                                      =============    =============    =============

Diluted Earnings Per Share:
Net income                            $       4,669    $       5,829    $       6,682
Average shares outstanding                5,402,859        5,500,799        5,658,860
Effect of stock options                      51,841           50,874            7,114
                                      -------------    -------------    -------------
Diluted average shares outstanding        5,454,700        5,551,673        5,665,974
                                      -------------    -------------    -------------

Earnings per share                    $        0.86    $        1.05    $        1.18
                                      =============    =============    =============
</TABLE>

Options to purchase approximately 295,000, 305,000 and 638,000 shares of common
stock for the fiscal years ended 2002, 2001 and 2000, 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.

FOREIGN CURRENCY EXCHANGE RISK MANAGEMENT

The company evaluates and hedges foreign currency exchange risk exposure on a
transaction-by-transaction basis. As of December 29, 2002, the company had no
outstanding foreign currency exchange contracts.

                                       23

<PAGE>

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 29, 2002 are as follows:

<TABLE>
<CAPTION>
                                                        FAIR                   LIBOR
 NOTIONAL        EFFECTIVE            EXPIRATION       MARKET        FIXED    MAXIMUM
  AMOUNT           DATE                  DATE           VALUE         RATE     RATE
-----------   -----------------    ---------------   ------------    ------   -------
<S>           <C>                  <C>               <C>             <C>      <C>
$10,000,000   February 25, 2000    August 25, 2007   $ (1,141,789)     5.48%     7.00%

  5,000,000     October 4, 1999    October 6, 2003       (179,960)     5.02%        -
</TABLE>

Effective January 1, 2001, the company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended. The transition
adjustment on January 1, 2001 resulted in a net charge of $56,000 (after tax),
which was recorded in "Accumulated Other Comprehensive Loss."

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 2003 related to these derivative instruments, based on
interest rates at December 29, 2002.

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.

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. 29, 2002         DEC. 30, 2001
                         -------------         -------------
<S>                      <C>                   <C>
Fair value               $      37,809         $      39,162
Carrying amount                 38,385                39,685
</TABLE>

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

COMPREHENSIVE LOSS

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

<TABLE>
<CAPTION>
IN THOUSANDS                                     DEC. 29, 2002    DEC. 30, 2001
                                                 -------------    --------------
<S>                                              <C>              <C>
Foreign currency translation adjustments         $      (7,958)   $      (13,000)
Unrealized losses on derivatives and qualified
 cash flow hedges, net of tax of $441                     (855)             (336)
Minimum pension liability adjustment, net of
 tax of $4,902                                          (9,512)                -
                                                 -------------    --------------
Total accumulated other comprehensive income     $     (18,325)   $      (13,336)
                                                 =============    ==============
</TABLE>

                                       24

<PAGE>

INTANGIBLE ASSETS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 eliminates the amortization
of goodwill and amortization of indefinitely lived intangible assets and
provides for an impairment test to be performed annually. The impairment test is
a two-step process performed to analyze whether or not goodwill has been
impaired. Step one requires the fair value be compared to book value. If the
fair value is higher than the book value, no impairment is indicated and there
is no need to perform the second step of the process. If the fair value is lower
than the book value, step two must be evaluated. Step two requires that a
hypothetical purchase price allocation analysis be done to reflect a current
book value of goodwill. This current value is compared to the book value of
the goodwill. If the current fair value is lower than the book value, an
impairment is recorded. Sylvan adopted this pronouncement on December 31, 2001,
which was the first day of Sylvan's 2002 fiscal year. During the quarter ended
March 31, 2002, a professional services firm retained by the company conducted
an assessment to test the transitional goodwill impairment. The company also
completed it annual assessment to test for goodwill impairment as of September
29, 2002. No impairment loss resulted from either assessment. In both
assessments step one of the process determined that fair value exceeded book
value.

Sylvan's intangible assets, which relate solely to its Spawn Products Segment,
are as follows:

<TABLE>
<CAPTION>
                             Gross Carrying Amount     Accumulated Amortization
                                           Cultures                   Cultures
(in thousands)                Goodwill     and Other   Goodwill       and Other      Net
                           -------------   ---------   ---------      ---------   --------
<S>                        <C>             <C>         <C>            <C>         <C>
December 30, 2001          $      14,107   $   1,007   $  (3,776)     $    (302)  $ 11,036
Additions                              -           7           -           (127)      (120)
Currency Translation       $       1,891           -        (486)             -      1,405
                           -------------   ---------   ---------      ---------   --------
December 29, 2002          $      15,998   $   1,014   $  (4,262)     $    (429)  $ 12,321
                           =============   =========   =========      =========   ========
</TABLE>

In connection with the adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets," Sylvan reassessed the useful lives and the classification of its
identifiable intangible assets and determined that they continue to be
appropriate. The remaining useful lives of the cultures range from eight to
eleven years and the other intangible assets range from three to six years.

Amortization expense for intangible assets was $127,000 for the fiscal year
ended December 29, 2002. Estimated amortization expense for the five succeeding
years is as follows:

(in thousands)

<TABLE>
<S>             <C>
2003            127
2004            122
2005             67
2006             67
2007             65
</TABLE>

                                       25

<PAGE>

Actual results of operations for the fiscal year ended December 29, 2002 and the
pro forma results for the fiscal years ended December 30, 2001 and December 31,
2000, had Sylvan applied the non-amortization provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" in 2001 and 2000, are as follows:

<TABLE>
<CAPTION>
                                                    FISCAL YEAR ENDED
(in thousands except per share data)   DEC. 29, 2002   DEC. 30, 2001   DEC. 31, 2000
                                       -------------   -------------   -------------
<S>                                    <C>             <C>             <C>
Reported net income                    $       4,669   $       5,829   $       6,682
Add back:  Goodwill amortization,
  Net of tax                                       -             363             361
                                       -------------   -------------   -------------
  Adjusted net income                  $       4,669   $       6,192   $       7,043
                                       =============   =============   =============
Basic earnings per share:
  Reported net income                  $        0.86   $        1.06   $        1.18
  Add back:  Goodwill amortization                 -            0.07            0.06
                                       -------------   -------------   -------------
Adjusted net income                    $        0.86   $        1.13   $        1.24
                                       =============   =============   =============
Diluted earnings per share:
  Reported net income                  $        0.86   $        1.05   $        1.18
  Add back:  Goodwill amortization                 -            0.07            0.06
                                       -------------   -------------   -------------
Adjusted net income                    $        0.86   $        1.12   $        1.24
                                       =============   =============   =============
</TABLE>

STOCK OPTIONS

The company uses the intrinsic-value method of accounting for stock-based awards
granted to employees and, accordingly, does not recognize compensation expense
for its stock-based awards to employees in the Consolidated Statements of
Income.

The following table reflects pro forma net income and earnings per share had the
company elected to adopt the fair value approach of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation":

<TABLE>
<CAPTION>
(in thousands except per share data)                          2002        2001       2000
<S>                                                        <C>          <C>        <C>
Net income as reported                                     $   4,669    $  5,829   $   6,682
   Total stock-based employee compensation
    determined under the fair value method for all awards       (102)     (1,142)       (921)
         Tax benefit of fair value method                         34         337         203
                                                           ---------    --------   ---------
Pro forma net income                                       $   4,601    $  5,024   $   5,964

Basic earnings per share
   As reported                                             $    0.86    $   1.06   $    1.18
   Pro forma                                               $    0.85    $   0.91   $    1.05

Diluted earnings per share
   As reported                                             $    0.86    $   1.05   $    1.18
   Pro forma                                               $    0.84    $   0.91   $    1.05
</TABLE>

                                       26

<PAGE>

These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in the future.

RECENT PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing
accounting pronouncements. While the technical corrections to existing
pronouncements are not substantive in nature, they may change accounting
practice. The provisions of this standard related to SFAS No. 13 are effective
for transactions occurring after May 15, 2002. The provisions of this standard
related to the rescission of SFAS No. 4 should be applied in fiscal years
beginning after May 15, 2002. All other provisions of this standard must be
applied for financial statements issued on or after May 15, 2002. The adoption
of this pronouncement did not have a material impact on the company.

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
requires that liabilities associated with exit or disposal activities initiated
after adoption be recognized and measured at fair value when incurred as opposed
to on the date an entity commits to the exit or disposal plans. The provisions
of this standard are effective for activities initiated after December 31, 2002.
The adoption of this pronouncement is not expected to have a material impact on
the company.

In November 2002, the Financial Accounting Standards Board issued FIN No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Guarantees of Others." FIN No. 45 clarifies and expands on existing disclosure
requirements for guarantees including loan guarantees. It would also require
that, at the inception of a guarantee, the Company must recognize a liability
for the fair value, of its obligation under that guarantee. The initial fair
value recognition and measurement provisions will be applied on a prospective
basis to certain guarantees issued or modified after December 31, 2002. The
disclosure provisions are effective for financial statements of periods ending
after December 15, 2002. The adoption of FIN 45 will not have a material impact
on the company's financial position, results of operations or cash flow.

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based compensation. While the Statement does not amend SFAS
No. 123 to require companies to account for employee stock options using the
fair value method, the disclosure provisions of the Statement are applicable to
all companies with stock-based compensation. The provisions of this standard are
effective for fiscal years ending after December 15, 2002. The adoption of this
pronouncement did not have a material impact on the company as no change was
made to the method of accounting for stock-based compensation.

In January 2003, the Financial Accounting Standards Board issued FIN No. 46,
"Consolidation of Variable Interest Entities". FIN No. 46 expands upon and
strengthens existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. It requires that companies determine whether a non-consolidated
entity is a variable interest entity, as defined by FIN No. 46, and, second,
which company is the primary beneficiary of the variable interest entity's
activities. The consolidation requirements of Interpretation 46 apply
immediately to variable interest entities created after January 31, 2003 and
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The company is currently evaluating
the impact of adopting this interpretation.

2. INVENTORIES:

Inventories are summarized as follows:

<TABLE>
<CAPTION>
IN THOUSANDS                         DEC. 29, 2002   DEC. 30, 2001
                                     -------------   -------------
<S>                                  <C>             <C>
Growing crops and compost material   $       4,975   $       5,466
Stores and other supplies                    2,039           1,493
Finished products                            4,411           3,160
                                     -------------   -------------
                                     $      11,425   $      10,119
                                     =============   =============
</TABLE>

                                       27

<PAGE>

3. 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 $34.7 million during
2002. The maximum aggregate outstanding balance will decline over the life of
the agreement as follows:

<TABLE>
<CAPTION>
  PERIOD           MAXIMUM AGGREGATE
 BEGINNING        OUTSTANDING BALANCE
--------------    -------------------
<S>               <C>
August 6, 2003    $      50.0 million
August 6, 2004           45.0 million
</TABLE>

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
29, 2002, the company had outstanding borrowings under the agreement of $37.0
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.

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.

The company was not in compliance with one of the financial covenants as of
December 29, 2002 due to the recording of a $9.5 million minimum pension
liability adjustment to "Accumulated Other Comprehensive Income" during 2002. On
March 21, 2003, the company and its banks signed an amendment to the revolving
credit agreement to adjust for the recording of the minimum pension liability
adjustment and waive the loan covenant violation. The adjustment and waiver are
effective as of December 29, 2002 and continue through August 5, 2005.

The company has several additional loan obligations consisting primarily of a
mortgage on the company's Netherlands facility for $0.8 million and a loan from
the minority shareholders of the company's Netherlands subsidiary for $0.4
million. The outstanding balances related to these loans totaled approximately
$1.4 million as of December 29, 2002 and as of December 29, 2001. Interest rates
on these loans vary.

The company had a French-franc denominated loan of FF16.2 million ($2.2 million)
that was repaid in January 2002.

The company incurred approximately $1.9 million in gross interest expense during
2002, including $12,000 of interest income related to interest hedges accounted
for under SFAS No. 133. The weighted average interest rate was 5.0%. The
contractual principal payments due under the company's loan agreements are as
follows:

IN THOUSANDS

<TABLE>
<S>               <C>
2003              $    223
2004                    87
2005                37,486
2006                    62
2007                    62
Thereafter             465
                  --------
TOTAL             $ 38,385
                  ========
</TABLE>

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 fiscal years ended December 29, 2002, December 30, 2001 and
December 31, 2000, rental expense included in the statements of income was
$461,000, $590,000, and $567,000, respectively.

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

IN THOUSANDS

<TABLE>
<S>               <C>
2003              $  485
2004                 116
2005                  49
</TABLE>

                                       28
<PAGE>

4. ACCRUED SALARIES, WAGES AND EMPLOYEE BENEFITS:

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

IN THOUSANDS

<TABLE>
<CAPTION>
                                  DEC. 29, 2002     DEC. 30, 2001
                                  -------------     -------------
<S>                               <C>               <C>
Accrued compensation                  $2,086            $2,030
Accrued vacation                         622               533
Other                                     63                72
                                      ------            ------

TOTAL                                 $2,771            $2,635
                                      ======            ======
</TABLE>

5. 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 because the company assumes that
there will be no repatriation. The foreign tax provision is for local country
taxes.

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

IN THOUSANDS

<TABLE>
<CAPTION>
                                                  FISCAL YEAR ENDED
                                    ----------------------------------------------
                                    DEC. 29, 2002    DEC. 30, 2001   DEC. 31, 2000
                                    -------------    -------------   -------------
<S>                                 <C>              <C>             <C>
Domestic                               $2,180           $3,405          $3,308
Foreign                                 5,012            5,035           5,522
                                       ------           ------          ------

TOTAL                                  $7,192           $8,440          $8,830
                                       ======           ======          ======
</TABLE>

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

IN THOUSANDS

<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED
                                        ----------------------------------------------
                                        DEC. 29, 2002    DEC. 30, 2001   DEC. 31, 2000
                                        -------------    -------------   -------------
<S>                                     <C>              <C>             <C>
Current:
  Federal                                  $   819          $   970         $   861
  State                                          2               23             (78)
  Foreign                                    1,261            1,223           1,423

Deferred                                       419              192             266

Change in Valuation Allowance                  (95)              82            (492)
                                           -------          -------         -------
                                           $ 2,406          $ 2,490         $ 1,980
                                           =======          =======         =======
</TABLE>

                                       29
<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:

IN THOUSANDS

<TABLE>
<CAPTION>
                                                                      FISCAL YEAR ENDED
                                                        ---------------------------------------------
                                                        DEC. 29, 2002    DEC. 30, 2001  DEC. 31, 2000
                                                        -------------    -------------  -------------
<S>                                                     <C>              <C>            <C>
Income tax at U.S. federal statutory rate                   $ 2,445         $ 2,869         $ 3,002
State income taxes, net of federal income tax benefit            97              37              (5)
Foreign taxes at rates other than effective U.S. rates         (201)           (488)           (462)
Net (permanent benefits) nondeductible charges                  (35)            (24)            (67)
Change in tax valuation allowance                               (95)             82            (492)
Other, net                                                      195              14               4
                                                            -------         -------         -------

TOTAL PROVISION FOR INCOME TAXES                            $ 2,406         $ 2,490         $ 1,980
                                                            =======         =======         =======
</TABLE>

Temporary differences which generate significant portions of the company's
deferred tax assets and liabilities as of December 29, 2002 and December 30,
2001 were as follows:

IN THOUSANDS

<TABLE>
<CAPTION>
                                                  DEC. 29, 2002   DEC. 31, 2001
                                                  -------------   -------------
<S>                                               <C>             <C>
Postretirement benefits other than pensions          $   347        $   344
Depreciation                                          (3,122)        (3,407)
Pension liability (asset)                              2,637         (2,213)
Net operating loss carryforwards                       1,981          2,285
Other, net                                                12            247
                                                     -------        -------
Total                                                  1,855         (2,744)
Less-Valuation allowance                              (1,357)        (1,452)
                                                     -------        -------

NET DEFERRED TAX ASSETS (LIABILITIES)                $   498        $(4,196)
                                                     =======        =======
</TABLE>

Included in net deferred tax liabilities as of December 29, 2002 are unrealized
tax benefits amounting to approximately $2.0 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 $0.3 million of the net operating losses has an indefinite
carryforward period. The remaining $1.7 million of net operating losses will
expire between 2003 and 2017. The company has recognized a valuation allowance
of approximately $1.4 million at December 29, 2002 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.

                                       30
<PAGE>

6. 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)                    2002           2001         2000
<S>                                                      <C>           <C>           <C>
Net income as reported                                   $   4,669     $   5,829     $   6,682
   Total stock-based employee compensation determined
          under the fair value method for all awards          (102)       (1,142)         (921)
         Tax benefit of fair value method                       34           337           203
                                                         ---------     ---------     ---------
Pro forma net income                                     $   4,601     $   5,024     $   5,964

Basic earnings per share
   As reported                                           $    0.86     $    1.06     $    1.18
   Pro forma                                             $    0.85     $    0.91     $    1.05

Diluted earnings per share
   As reported                                           $    0.86     $    1.05     $    1.18
   Pro forma                                             $    0.84     $    0.91     $    1.05
</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
1,287,081 shares through December 29, 2002 under the 1990 Plan and 88,000 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 2002, 2001 and 2000, respectively: risk-free
interest rates of 3.17%, 3.62% and 5.74%; no expected dividend yields; expected
lives of 8.0 years; expected volatility of 34%, 34% and 34%.

                                       31
<PAGE>

A summary of the status of the company's stock option plans as of December 29,
2002, December 30, 2001, and December 31, 2000, and changes during the years
then ended, is presented in the tables below:

SHARES IN THOUSANDS

<TABLE>
<CAPTION>
                                                2002                     2001                      2000
                                        --------------------      -------------------      ---------------------
                                                    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         827        $  11.22      841        $  11.21       859         $  11.54
Granted                                   22           11.40        3           12.50       132             8.75
Exercised                                (34)           9.18      (13)          10.05       (10)            8.75
Forfeited                                (24)          12.14       (4)          12.74      (140)           11.08
                                        ----        --------      ---        --------      -----        --------
OUTSTANDING AT END OF YEAR               791           11.27      827           11.22       841            11.21
                                        ----        --------      ---        --------      -----        --------
Exercisable at end of year               747           11.42      703           11.60       570            11.64
Weighted average fair value of
  options granted                                   $   5.12                 $   5.73                   $   4.50
</TABLE>

As of December 29, 2002, 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                                                      603,540             188,000
    Weighted average exercise price                       $       10.46       $       13.93
    Weighted average remaining
       contractual life (in years)                                  5.1                 5.6
 Exercisable Options:
    Number                                                      559,240             188,000
    Weighted average exercise price                       $       10.57       $       13.93
 Nonexercisable Options:
    Number                                                       52,300                   -
    Weighted average exercise price                       $        9.25       $           -
</TABLE>

7.  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 as of December 29, 2002 and December 30,
2001 were $33.4 million and $30.1 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.

                                       32
<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:

IN THOUSANDS

<TABLE>
<CAPTION>
                                              PENSION BENEFITS                                OTHER BENEFITS
                                  --------------------------------------------    --------------------------------------------
                                  DEC. 29, 2002    DEC. 30, 2001 DEC. 31, 2000    DEC. 29, 2002   DEC. 30, 2001  DEC. 31, 2000
                                  -------------    ------------- -------------    -------------   -------------  -------------
<S>                               <C>              <C>           <C>              <C>             <C>            <C>
Change in benefit obligation:
Benefit obligation at
  beginning of year                 $ 30,085        $ 30,252        $ 30,109        $    931        $    985        $  1,044
Interest cost                          2,171           2,174           2,176              53              69              71
Actuarial (gain) loss                  3,481               -             302            (164)            (17)            (41)
Benefits paid                         (2,368)         (2,341)         (2,335)            (85)           (106)            (89)
                                    --------        --------        --------        --------        --------        --------
BENEFIT OBLIGATION AT END OF
  YEAR                              $ 33,369        $ 30,085        $ 30,252        $    735        $    931        $    985
                                    ========        ========        ========        ========        ========        ========

Change in plan assets:
Fair value of plan assets at
  beginning of year                 $ 30,220        $ 33,849        $ 34,362        $      -        $      -        $      -
Actual return on plan assets          (2,240)         (1,288)          1,822               -               -               -
Employer contributions                     -               -               -              85             106              89
Benefits paid                         (2,368)         (2,341)         (2,335)            (85)           (106)            (89)
                                    --------        --------        --------        --------        --------        --------
FAIR VALUE OF PLAN ASSETS AT
  END OF YEAR                       $ 25,612        $ 30,220        $ 33,849        $      -        $      -        $      -
                                    ========        ========        ========        ========        ========        ========

Reconciliation of funded status:
Funded status                       $ (7,757)       $    135        $  3,597        $   (735)       $   (931)       $   (985)
Unrecognized net actuarial
  (gain)/loss                         14,414           6,372           2,307            (117)             43              60
Unrecognized prior service
   Cost                                    -               -               -             (44)            (49)            (56)
                                    --------        --------        --------        --------        --------        --------
PREPAID (ACCRUED)
   BENEFIT LIABILITY                $  6,657        $  6,507        $  5,904        $   (896)       $   (937)       $   (981)
                                    ========        ========        ========        ========        ========        ========
</TABLE>

                                       33
<PAGE>

IN THOUSANDS

<TABLE>
<CAPTION>
                                              PENSION BENEFITS                                OTHER BENEFITS
                                 --------------------------------------------  --------------------------------------------
                                 DEC. 29, 2002   DEC. 30, 2001  DEC. 31, 2000  DEC. 29, 2002   DEC. 30, 2001  DEC. 31, 2000
                                 -------------   -------------  -------------  -------------   -------------  -------------
<S>                              <C>             <C>            <C>            <C>             <C>            <C>
AMOUNTS RECOGNIZED ON THE
  CONSOLIDATED BALANCE SHEET
Prepaid pension cost
(included
    in "Other Assets" in the
    Consolidated Balance Sheet)  $           -   $      6,507   $       5,904  $           -   $           -  $           -
Accrued benefit liability
    (included in "Other
    Employee Benefits" in the
    Consolidated Balance
    Sheet)                              (7,757)             -               -              -               -              -
Accumulated other
    comprehensive loss                  14,414              -               -              -               -              -
                                 -------------   ------------   -------------  -------------   -------------  -------------

NET AMOUNT                       $       6,657   $      6,507   $       5,904  $           -   $           -  $           -
                                 =============   ============   =============  =============   =============  =============

Weighted-average assumptions
as of October 31 of each
fiscal year:
Discount rate                             6.80%          7.50%           7.50%          6.80%           7.50%          7.50%
Expected return on plan assets            8.50%          9.00%           9.00%             -               -              -

Components of net periodic
pension cost (income):
Interest cost                    $       2,171  $       2,174   $       2,176  $          53   $          69  $          71
Expected return on plan assets          (2,450)        (2,778)         (2,824)             -               -              -
Amortization of prior service
  Cost                                       -              -               -             (6)             (6)            (6)
Recognized net actuarial
  (gain)/loss                              129              -               -             (4)              -              -
                                 -------------   ------------   -------------  -------------   -------------  -------------
NET PERIODIC
   BENEFIT COST
   (INCOME)                      $        (150) $        (604)  $        (648) $          43   $          63  $          65
                                 =============   ============   =============  =============   =============  =============

Assumed health care cost trend:
Initial trend rate                                                                     10.00%           6.56%          6.95%
Ultimate trend rate                                                                     5.00%           5.00%          5.00%
Year ultimate trend reached                                                             2008            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>                 <C>
Effect on total of service and
   interest cost components
   for 2002                            $           1       $          (1)
Effect on 2002 postretirement
   benefit obligation                              6                  (5)
</TABLE>

                                       34
<PAGE>

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 2002, 2001 and 2000 were $35,000,
$38,000 and $30,000, 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 was $23,000 during 2002 and $85,000
during 2001.

8. 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.

IN THOUSANDS

<TABLE>
<CAPTION>
                                                       SPAWN                FRESH              TOTAL
                                                      PRODUCTS            MUSHROOMS          REPORTABLE
                                                      SEGMENT              SEGMENT            SEGMENTS
                                                  --------------       --------------       -------------
<S>                                  <C>          <C>                  <C>                  <C>
Total Revenues                       2002         $       63,996       $       25,517       $     89,513
                                     2001         $       63,559       $       23,621       $     87,180
                                     2000         $       65,199       $       22,035       $     87,234

Intersegment Revenues                2002         $        1,321       $            -       $      1,321
                                     2001         $        1,269       $            -       $      1,269
                                     2000         $        1,287       $            -       $      1,287

Depreciation Expense                 2002         $        4,195       $        1,409       $      5,604
                                     2001         $        3,793       $        1,549       $      5,342
                                     2000         $        3,578       $        1,623       $      5,201

Operating Income                     2002         $       10,567       $        2,879       $     13,446
                                     2001         $       11,849       $        2,642       $     14,491
                                     2000         $       13,368       $        2,135       $     15,503

Net Fixed Asset Expenditures         2002         $        3,219       $        2,925       $      6,144
                                     2001         $        6,330       $        2,236       $      8,566
                                     2000         $        5,191       $          911       $      6,102

Assets                               2002         $       85,166       $       19,812       $    104,978
                                     2001         $       79,700       $       19,040       $     98,740
                                     2000         $       76,462       $       21,565       $     98,027
</TABLE>

                                       35
<PAGE>

RECONCILIATION TO CONSOLIDATED FINANCIAL DATA

IN THOUSANDS

<TABLE>
<CAPTION>
                                                 2002           2001          2000
                                               ---------     ---------     ---------
<S>                                            <C>           <C>           <C>
Revenues:
Total for reportable segments                  $  89,513     $  87,180     $  87,234
Elimination of intersegment revenues              (1,321)       (1,269)       (1,287)
                                               ---------     ---------     ---------
TOTAL CONSOLIDATED REVENUES                    $  88,192     $  85,911     $  85,947
                                               =========     =========     =========
Depreciation Expense:
Total for reportable segments                  $   5,604     $   5,342     $   5,201
Unallocated corporate expenses                        38            33            32
                                               ---------     ---------     ---------
TOTAL CONSOLIDATED DEPRECIATION
   EXPENSE                                     $   5,642     $   5,375     $   5,233
                                               =========     =========     =========
Operating Income:
Total for reportable segments                  $  13,446     $  14,491     $  15,503
Unallocated corporate expenses                    (4,386)       (3,500)       (3,989)
                                               ---------     ---------     ---------
TOTAL CONSOLIDATED OPERATING
   INCOME                                      $   9,060     $  10,991     $  11,514
                                               =========     =========     =========
Net Fixed Asset Expenditures:
Total for reportable segments                  $   6,144     $   8,566     $   6,102
Unallocated corporate expenditures                     -            33             2
                                               ---------     ---------     ---------
TOTAL CONSOLIDATED NET FIXED
   ASSET EXPENDITURES                          $   6,144     $   8,599     $   6,104
                                               =========     =========     =========
Assets:
Total for reportable segments                  $ 104,978     $  98,740     $  98,027
Prepaid pension asset from former operation            -         6,507         5,904
Unallocated corporate assets                       1,828         1,843         1,843
                                               ---------     ---------     ---------
TOTAL CONSOLIDATED ASSETS                      $ 106,806     $ 107,090     $ 105,774
                                               =========     =========     =========
</TABLE>

GEOGRAPHIC ANALYSIS OF NET LONG-LIVED ASSETS

IN THOUSANDS

<TABLE>
<CAPTION>
                                                              OTHER FOREIGN
           UNITED STATES       FRANCE         NETHERLANDS       COUNTRIES           TOTAL
           -------------      --------        -----------     -------------       --------
<S>        <C>                <C>             <C>             <C>                 <C>
2002          $26,994          $11,202          $ 4,896          $15,695          $58,787
2001           26,161            9,219            4,457           14,439           54,276
2000           25,225            8,560            5,089           13,662           52,536
</TABLE>

                                       36
<PAGE>

GEOGRAPHIC ANALYSIS OF REVENUES BASED ON LOCATION OF CUSTOMER

IN THOUSANDS

<TABLE>
<CAPTION>
                                                             OTHER FOREIGN
           UNITED STATES        FRANCE        NETHERLANDS       COUNTRIES          TOTAL
           -------------       -------        -----------    --------------       --------
<S>        <C>                 <C>            <C>            <C>                  <C>
2002       $   45,273          $ 6,390        $   9,536      $    26,993          $88,192
2001           40,660            6,779            8,880           29,592           85,911
2000           41,703            7,440            8,778           28,026           85,947
</TABLE>

Most of Sylvan's Fresh Mushrooms Segment sales were to C And C Carriage Mushroom
Company. C And C began purchasing and marketing all of Quincy's production in
January 2000. 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
fiscal years ended December 29, 2002, December 30, 2001 or December 31, 2000.
The majority of the company's $14.4 million in trade accounts receivable are
from regional mushroom growers and composters. Approximately $2.2 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.

9.  RELATED-PARTY TRANSACTIONS:

During fiscal years 2002, 2001 and 2000, a nonemployee director's business
interests purchased spawn and spawn-related products at fair market value
totaling $493,000, $589,000 and $621,000, respectively. These business interests
purchased mushrooms and services at fair market value totaling $5,000 in 2001
from the company's subsidiaries.

                                       37
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

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

      The financial statements and financial statement schedules are included in
Item 8 of this annual report.

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

     3.3        Articles of Incorporation of S. F. Nevada, Inc. (Exhibit 3.3 to
                the company's Form 10-Q for the quarter ended October 3, 1999*)

     3.4        Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods
                Holdings, Inc. with exhibit (Exhibit 3.4 to the company's Form
                10-Q for the quarter ended October 3, 1999*)

     3.5        Bylaws (Exhibit 3.5 to the company's Form 10-Q for the quarter
                ended October 3, 1999*)

                Compensation Plans and Arrangements

     10.1.2     Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan (Exhibit
                3.3.2 to the company's Form 10-K for the year ended January 3,
                1993*)

     10.1.3     Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for
                Nonemployee Directors (Exhibit 10.1.3 to the company's Form 10-K
                for the year ended January 2, 1994*)

     10.12      Sylvan Inc. 1990 Stock Option Plan (amended and restated)
                (Exhibit 10.12 to the company's Form 10-Q for the quarter ended
                October 3, 1999*)

                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 (Exhibit 10.1 to the company's Form 10-Q
                for the quarter ended September 27, 1998*)

     10.2.2     Revolving Credit Note, dated August 6, 1998, payable to Mellon
                Bank, N.A. in the amount of $25,000,000 (Exhibit 10.2 to the
                company's Form 10-Q for the quarter ended September 27, 1998*)

     10.2.3     Revolving Credit Note, dated August 6, 1998, payable to ABN AMRO
                Bank, Pittsburgh Branch, in the amount of $25,000,000 (Exhibit
                10.3 to the company's Form 10-Q for the quarter ended September
                27, 1998*)

     10.2.4     Promissory Note, dated August 6, 1998, payable to Mellon Bank,
                N.A. in the amount of $5,000,000 (Exhibit 10.4 to the company's
                Form 10-Q for the quarter ended September 27, 1998*)

     10.2.5     Mellon Global Cash Management ABS Agreement, dated August 6,
                1998, by and between Sylvan Inc. and Mellon Bank, N.A. (Exhibit
                10.5 to the company's Form 10-Q for the quarter ended September
                27, 1998*)

     10.2.6     Guaranty and Suretyship Agreement, dated August 6, 1998, by and
                between Sylvan Inc. and Mellon Bank, N.A. (Exhibit 10.6 to the
                company's Form 10-Q for the quarter ended September 27, 1998*)

                                       38
<PAGE>

     10.2.7     Guaranty and Suretyship Agreement, dated August 6, 1998, by and
                between Sylvan Foods, Inc. and Mellon Bank, N.A. (Exhibit 10.7
                to the company's Form 10-Q for the quarter ended September 27,
                1998*)

     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. (Exhibit 10.8 to the company's Form 10-Q for
                the quarter ended September 27, 1998*)

     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. (Exhibit 10.9 to the company's Form 10-Q for the
                quarter ended September 27, 1998*)

     10.2.10    Guaranty and Suretyship Agreement, dated August 6, 1998, by and
                between Quincy Corporation and Mellon Bank, N.A. (Exhibit 10.10
                to the company's Form 10-Q for the quarter ended September 27,
                1998*)

     10.2.11    Index of Other Exhibits to the Revolving Credit Agreement
                (Exhibit 10.11 to the company's Form 10-Q for the quarter ended
                September 27, 1998*)

     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 (Exhibit 10.5.1 to the company's Form 10-K for the
                year ended January 2, 2000*)

     10.5.2     Index of Exhibits to the C And C Agreement referenced above
                (Exhibit 10.5.2 to the company's Form 10-K for the year ended
                January 2, 2000*)

     10.40      Collective Bargaining Agreement, dated January 21, 2001, between
                Quincy Corporation and the United Farm Workers of America,
                AFL-CIO (Exhibit 10.40 to the company's Form 10-K for the year
                ended December 31, 2000*)

     10.41      Letter dated October 12, 2001 from Mellon Bank, advising the
                company of Mellon's assignment and transfer to Citizens
                Financial Group, Inc. 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 (Exhibit 10.41 to the
                company's Form 10-K filed for the year ended December 30, 2001*)

     10.43      Employment Continuation Agreement with Dennis C. Zensen, dated
                September 24, 2002 (Exhibit 10.43 to the company's Form 10-Q
                filed for the quarter ended September 29, 2002**)

     10.44      Employment Continuation Agreement with Monir K. Elzalaki, dated
                September 21, 2002 (Exhibit 10.44 to the company's Form 10-Q
                filed for the quarter ended September 29, 2002**)

     10.45      Employment Continuation Agreement with Donald A. Smith, dated
                September 19, 2002 (Exhibit 10.45 to the company's Form 10-Q
                filed for the quarter ended September 29, 2002**)

     10.46      Employment Continuation Agreement with Gary D. Walker, dated
                September 24, 2002 (Exhibit 10.46 to the company's Form 10-Q
                filed for the quarter ended September 29, 2002**)

     10.47      Manager's Service Agreement with Michael A. Walton, dated April
                17, 1988 (Exhibit 10.47 to the company's Form 10-Q filed for the
                quarter ended September 29, 2002**)

     10.48      Amendment No. 1 to Revolving Credit Agreement, dated as of
                December 29, 2002, among Sylvan Inc., a Nevada corporation,
                Sylvan Foods (Netherlands) BV, a Dutch corporation, the banks
                listed on the signature page and Citizens Bank of Pennsylvania,
                as agent for the Banks and for the Issuing Bank under the
                Original Agreement, filed herewith

                                       39
<PAGE>

      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

     31         Rule 13a-14(a) Certification of Dennis C. Zensen        42

     31         Rule 13a-14(a) Certification of Donald A. Smith         43

     32         Section 1350 Certification of Dennis C. Zensen          44

     32         Section 1350 Certification of Donald A. Smith           45

------------------

*    Incorporated by reference.

**   Management contract.

(b)  REPORTS ON FORM 8-K

None

                                       40
<PAGE>

                                   SIGNATURES

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

SYLVAN INC.

By: /s/ FRED Y. BENNITT
    ----------------------------------
    Fred Y. Bennitt                                                 June 7, 2004
    Secretary/Treasurer

                                       41