<PAGE>

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

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

                                   FORM 10-K

<Table>
<C>        <S>
   [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           FOR THE FISCAL YEAR ENDED DECEMBER 28, 2003

                                  OR

   [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           FOR THE TRANSITION PERIOD FROM           TO
</Table>

                          COMMISSION FILE NO. 0-18339

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

<Table>
<S>                                            <C>
                    NEVADA                                       25-1603408
       (State or other jurisdiction of                         (IRS Employer
        incorporation or organization)                      Identification No.)
 333 MAIN STREET, P.O. BOX 249, SAXONBURG, PA                    16056-0249
   (Address of principal executive offices)                      (Zip Code)
</Table>

              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (724) 352-7520

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<Table>
<Caption>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
<S>                                            <C>
                     None                                      Not applicable
</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 29, 2003 (the last day of the registrant's second fiscal
quarter of 2003) was approximately $35,190,000. As of that date, the last sale
price of the registrant's common stock was $10.58 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 March 11, 2004.

<Table>
<Caption>
                    CLASS                                       OUTSTANDING
                    -----                                       -----------
<S>                                            <C>
   Common Stock, par value $.001 per share                       5,155,131
</Table>

                      DOCUMENTS INCORPORATED BY REFERENCE

<Table>
<Caption>
                                                        PART OF FORM 10-K INTO WHICH
                   DOCUMENT                             THE DOCUMENT IS INCORPORATED
                   --------                             ----------------------------
<S>                                            <C>
       Proxy Statement to Shareholders             Part III, Items 10, 11, 12, 13 and 14
</Table>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

     Sylvan Inc. (Sylvan, the company) is the successor to the business of a
Pennsylvania corporation that was chartered in 1937. Sylvan, through its
subsidiaries, is an international 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, which operates
in the southeastern part of the United States.

     Spawn Operations:  Spawn products accounted for 69% of the company's total
sales in 2003 and 76% of its operating income. Spawn is produced by introducing
carefully maintained mushroom cultures 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, Australian
and Canadian plants function under arrangements whereby certain prominent
mushroom growers in each respective country possess minority ownership of the
operating company. In the course of examining site alternatives and operational
factors relating to the construction of a spawn plant in these countries, the
company undertook discussions with its mushroom-grower customers in each one.
These discussions resulted in indications of interest on the part of some of
these customers to become involved in the financing of the project in their
country and participating in the plant's operation. As a result, 51% of the
Australian production company, 25% of the Dutch production company, and 20% of
the Canadian production company are owned by such growers. The company owns the
remainder of each production company.

     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

                                        2
<PAGE>

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.

     Fresh Mushrooms Operations:  The Fresh Mushrooms Segment of Sylvan's
business accounted for 31% of the company's total sales in 2003 and 24% 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, C And C Carriage Mushroom Company, trading
as Modern Mushroom Sales Company and a wholly owned subsidiary of Modern
Mushrooms, Inc., which 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 28, 2003, Sylvan had approximately 890 full-time employees, of
whom about 740 were engaged in production activities and 150 in supervision,
sales and administration. On December 29, 2002, Sylvan had approximately 900
full-time employees, of whom about 745 were engaged in production activities and
155 in supervision, sales and administration.

     The employees of the company's French subsidiary are subject to a national,
industry-wide collective bargaining agreement and to two facility collective
bargaining agreements. 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 included 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 included as part of this annual report.

                                        3
<PAGE>

MAJOR CUSTOMER

     Most of Sylvan's Fresh Mushrooms Segment sales 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 $25.9 million, $24.1 million, and $23.0
million of fresh mushrooms that C And C purchased from the Quincy subsidiary for
fiscal years 2003, 2002, and 2001, respectively, represented 27% of Sylvan's
consolidated net sales for each year. C And C is not affiliated with Sylvan or
any of its subsidiaries and the purchase and marketing contract, dated January
14, 2000, carries an initial term of five years.

COMPETITIVE CONDITIONS

     Spawn Products:  Sylvan believes that there are seven companies in the
United States and three companies in Canada that produce and market almost all
of the spawn used by North American mushroom growers. Among these companies,
Sylvan's principal North American competitor is Lambert Spawn Company. In
addition, Amycel, Inc. (a division of Monterey Mushrooms, Inc.) is a major spawn
producer in the United States and Europe. Much of Amycel's production in the
United States is consumed by its mushroom production affiliates. In addition to
Amycel, Sylvan believes that its other principal European competitors are
Euromycel (France), 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 116 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.

                                        4
<PAGE>

RESEARCH

     In 2003, Sylvan's research and development expenditures totaled $1.5
million, as compared with $2.0 million in 2002 and $1.7 million in 2001. These
expenditures were focused on improving the consistency, reliability and customer
satisfaction for the company's existing products, the development of new
products, and the support of Sylvan's bioproducts operations. The company also
utilizes contracted research efforts for specific studies that may be
commercially useful, but fall outside of the scope of its expertise or
capabilities. None of these projects currently constitute a material proportion
of the company's ongoing business.

PATENTS

     The company does not believe that its ability to maintain or improve its
competitive position is dependent upon its patents. However, the company holds
several non-U.S. patents that cover a process and apparatus for the cultivation
of cells on solid substrates. The patents were issued in various years from 1982
to 1986. In addition, 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
approximately $50,000 per year over the past five years in environmental
compliance costs.

     On September 23, 2003, the company's Sylvan Bioproducts, Inc. subsidiary
received an administrative order from the Borough of Kennett Square,
Pennsylvania, alleging that Sylvan Bioproducts failed to comply with certain
wastewater sampling and reporting requirements under the terms of a water
contribution permit issued to the company for its facility in Kennett Square. A
fine of $105,109 was assessed by the order. The company believes that the
requirements were substantially fulfilled and it filed an appeal to the Order on
October 1, 2003. Discussions have been undertaken with the Borough and the
company believes that the dispute will be resolved in a manner that will have no
material impact on the company's financial statements or results of operations.

MERGER DISCLOSURE DISCUSSION

     As previously announced on November 16, 2003, Sylvan entered into a
definitive agreement with Snyder Associated Companies, Inc. of Kittanning,
Pennsylvania, which will result in a merger between Sylvan and a Snyder
affiliate. The Sylvan Board of directors, upon the unanimous recommendation of
its special committee of independent directors, approved the merger and the
agreement. The merger is subject to certain conditions, including the approval
by a majority of the shareholders of Sylvan. Sylvan expects to be able to
convene a meeting of its shareholders for that purpose in the second quarter of
2004 and, if approved by Sylvan's shareholders, the transaction is expected to
be completed shortly thereafter.

     The merger agreement currently provides for a termination date of May 1,
2004 if the merger has not been completed by that date. The company intends to
discuss an extension of this date with Snyder Associated Companies, Inc.

                                        5
<PAGE>

FINANCIAL INFORMATION

     Information regarding Sylvan's financial performance is set forth herein
beginning on page 21.

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.

ITEM 2.  PROPERTIES

     The following table lists by business segment the locations and floor areas
of Sylvan's principal operating properties. The company believes that each of
these properties is in good condition and suitable for the purposes for which
they are being utilized. Although it is not specifically detailed below, various
production facilities are used from time to time by the bioproducts division,
based on the nature of the work to be performed and the availability of
production capacity.

SPAWN PRODUCTS SEGMENT

<Table>
<Caption>
                                                                                     ACQUIRED/    EXPANDED/
                                         LOCATION             FLOOR AREA (FT.(2))   CONSTRUCTED   RENOVATED
                               ----------------------------   -------------------   -----------   ---------
<S>                            <C>                            <C>                   <C>           <C>
Spawn production:              Kittanning, Pennsylvania              50,000            1981         2001
                               Dayton, Nevada                        46,000            1992         2001
                               Langeais, France                     115,000            1991           --
                               Yaxley, England                       74,000            1992         1995
                               Horst, the Netherlands                54,500            1994         1997
                               Budapest, Hungary                     29,000            1997           --
                               Navan, Ireland                        26,000            1998         1999
                               Pretoria, South Africa                17,000            1999           --
                               Windsor, Australia                    12,000            1996           --
                               Leamington, Ontario, Canada           26,000            2001           --
Inoculum production and
  research:                    Kittanning, Pennsylvania              18,000            1996         2001
                               Langeais, France                      15,000            1998           --
Spawn distribution:            Kennett Square, Pennsylvania          41,000            1999         2002
Quality assurance:             Kittanning, Pennsylvania              20,000            1997           --
                               Langeais, France                      12,000            1991           --
Compost supplement
  production:                  Des Moines, Iowa                      18,000            1997           --
Mushroom casing production:    Budapest, Hungary                     20,000            2000           --

FRESH MUSHROOMS SEGMENT

Fresh mushroom production,
  including satellite farms:   Quincy, Florida                      465,000            1981         2002
</Table>

     The spawn plants in the Netherlands, Australia and Canada are owned by the
company along with joint venture partners in each country. The company is the
sole owner of the remainder of its principal operating properties, except for
the plants in Des Moines, Iowa, and Budapest, Hungary (the mushroom casing

                                        6
<PAGE>

production facility), which are leased, and the land on which the plants in
Ireland and South Africa are located. The company also leases small
administrative offices in Pennsylvania, California, and Switzerland, and some
supplemental cold storage facilities that serve several North American and
overseas market areas.

     The lease for the facility in Iowa provides for a rental payment of
$119,000 per year, with a month-to-month term. The land lease for the plant in
Ireland terminates in 985 years. Based on current exchange rates, the annual
lease payments approximate $2,000. The lease for the buildings that house
Sylvan's mushroom casing production operation in Hungary expires in September
2005 and is renewable for succeeding five-year terms. The current annual rent is
approximately $93,000. The land lease for the South African plant terminates in
2048 and is renewable for additional ten-year terms thereafter. Based on current
exchange rates, the current annual lease payment approximates $4,500. Payments
under this lease increase approximately $200 per year throughout the term.

     The company also owns four satellite mushroom growing facilities in Quincy,
Florida, that are leased to and operated by independent third parties.
Construction loans relating to the plants in Ireland and the Netherlands have
been collateralized with mortgages.

ITEM 3.  LEGAL PROCEEDINGS

     On November 17, 2003, a complaint was filed in the District Court, Clark
County, Nevada, by Alan Kahn, an alleged shareholder, on behalf of himself and
purportedly on behalf of similarly situated shareholders. The case has been
transferred by stipulation to the District Court, Washoe County, Nevada. The
complaint alleges generally that Sylvan and its directors breached their
fiduciary and other duties to the plaintiff, by entering into the merger
agreement with Snyder Associated Companies, Inc. that the company announced in
November 2003. The complaint further alleges that by entering into the merger
agreement, Sylvan and its directors failed to disclose material non-public
information relating to the valuation of Sylvan's assets, the extent of future
earnings and expected increases of profitability. The plaintiff seeks the
following relief: (a) an order that the action be certified as a class action;
(b) a declaration that the defendants have breached their fiduciary and other
duties; (c) an order requiring the defendants to undertake measures to assess
Sylvan's net worth; and (d) an injunction enjoining the consummation of the
merger. Sylvan is vigorously defending these allegations. On January 22, 2004,
Sylvan filed a motion to dismiss the complaint for failure to state a claim upon
which relief may be granted. The plaintiff filed a brief in opposition to
Sylvan's motion to dismiss on February 19, 2004. Sylvan filed a reply to
plaintiff's brief in opposition on March 12, 2004. The motion is pending before
the Court.

     On September 23, 2003, the company's Sylvan Bioproducts, Inc. subsidiary
received an administrative order from the Borough of Kennett Square,
Pennsylvania, alleging that Sylvan Bioproducts failed to comply with certain
wastewater sampling and reporting requirements under the terms of a water
contribution permit issued to the company for its facility in Kennett Square. A
fine of $105,109 was assessed by the order. The company believes that the
requirements were substantially fulfilled and it filed an appeal to the Order on
October 1, 2003. Discussions have been undertaken with the Borough and the
company believes that the dispute will be resolved in a manner that will have no
material impact on the company's financial statements or results of operations.

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

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

     There were no matters submitted to a vote of security holders during the
three months ended December 28, 2003. However, Sylvan Inc.'s annual meeting of
shareholders was held on December 29, 2003. At the meeting, the following
individuals, constituting the full board, were elected directors of the company
to serve for a term of one year, expiring in 2004.

                                        7
<PAGE>

<Table>
<Caption>
                                                                NUMBER OF VOTES
                                                              --------------------
                                                                 FOR      WITHHELD
                                                              ---------   --------
<S>                                                           <C>         <C>
William L. Bennett..........................................  3,577,417    39,325
Monir K. Elzalaki...........................................  3,235,248   381,494
Jeanine C. Heller...........................................  3,235,131   381,611
Virgil H. Jurgensmeyer......................................  3,577,417    39,325
Nelson Obus.................................................  3,556,917    59,825
Dennis C. Zensen............................................  3,235,248   381,494
</Table>

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following is a list of the names and ages of the executive officers of
the company, indicating the positions and offices currently held by each person.
There is no arrangement or understanding between any executive officer and any
other person pursuant to which he was selected as an officer and no family
relationship exists among the company's officers and directors.

<Table>
<Caption>
NAME                          AGE                             POSITION
----                          ---                             --------
<S>                           <C>   <C>
Dennis C. Zensen............  65    Chairman of the Board, President and Chief Executive Officer
                                    of Sylvan
Donald A. Smith.............  42    Chief Financial Officer of Sylvan
Fred Y. Bennitt.............  59    Secretary/Treasurer of Sylvan
Monir K. Elzalaki...........  48    President of Sylvan America, Inc.
Gregory J. Verhagen.........  43    President of Quincy Farms
Gary D. Walker..............  56    President of Sylvan Bioproducts, Inc.
Michael A. Walton...........  54    Managing Director of Sylvan's European Operations
</Table>

BIOGRAPHICAL INFORMATION

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

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

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

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

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

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

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

                                        8
<PAGE>

                                    PART II

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

     (a) Market Information

     Sylvan's common stock trades on The Nasdaq Stock Market under the symbol
"SYLN." Set forth below are the high and low sales prices for Sylvan's common
stock for 2003 and 2002, as reported by The Nasdaq Stock Market.

<Table>
<Caption>
                            2003                              HIGH PRICE   LOW PRICE
                            ----                              ----------   ---------
<S>                                                           <C>          <C>
1st Qtr.....................................................    $10.65       $8.85
2nd Qtr.....................................................     11.50        9.37
3rd Qtr.....................................................     10.61        9.85
4th Qtr.....................................................     12.25        9.75
</Table>

<Table>
<Caption>
                            2002                              HIGH PRICE   LOW PRICE
                            ----                              ----------   ---------
<S>                                                           <C>          <C>
1st Qtr.....................................................    $12.30      $11.05
2nd Qtr.....................................................     13.26       11.21
3rd Qtr.....................................................     14.00       11.69
4th Qtr.....................................................     12.23       10.18
</Table>

     (b) Holders of Common Equity

     As of March 8, 2004, there were approximately 800 shareholders of record of
Sylvan common stock.

     (c) Dividends

     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.

                                        9
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

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

                  FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

<Table>
<Caption>
                                                         FISCAL YEAR ENDED
                                   --------------------------------------------------------------
                                      2003         2002         2001         2000         1999
                                   ----------   ----------   ----------   ----------   ----------
                                                  (IN MILLIONS EXCEPT SHARE DATA)
<S>                                <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
  Net sales......................  $     95.0   $     88.2   $     85.9   $     85.9   $     89.8
  Operating income...............         5.7          9.1         11.0         11.5         10.6
  Net income.....................         2.8          4.7          5.8          6.7          6.1
  Net income per common share --
     basic (1)...................        0.55         0.86         1.06         1.18         1.00
  Net income per common share --
     diluted (1).................        0.55         0.86         1.05         1.18         1.00
  Weighted average
     shares -- basic.............   5,140,322    5,402,859    5,500,799    5,658,860    6,112,007
  Weighted average
     shares -- diluted...........   5,163,852    5,454,700    5,551,673    5,665,974    6,130,694
BALANCE SHEET DATA:
  Total assets...................  $    113.9   $    106.8   $    107.1   $    105.8   $    109.5
  Long-term debt and other long-
     term liabilities............        44.0         48.0         43.8         46.1         50.4
  Shareholders' equity...........        57.0         47.3         50.9         49.5         47.2
  Working capital................        26.9         24.6         23.2         23.0         22.8
  Net cash provided by
     operations..................         9.8         12.7         10.7          9.7         13.0
  Net cash used in investing.....         3.1          6.1          8.7          6.2         12.2
  Net cash (used in) provided by
     financing...................        (7.6)        (6.8)        (1.8)        (5.2)         1.4
  Cash dividends per common
     share.......................          --           --           --           --           --
</Table>

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

(1) Earnings per share for the year may be different than the sum of the
    quarterly earnings per share due to rounding.

                        QUARTERLY RESULTS OF OPERATIONS

<Table>
<Caption>
                                                 FIRST        SECOND       THIRD        FOURTH
                                                QUARTER      QUARTER      QUARTER      QUARTER
                                               ----------   ----------   ----------   ----------
                                                  (UNAUDITED, IN THOUSANDS EXCEPT SHARE DATA)
<S>                                            <C>          <C>          <C>          <C>
2003:
  Net sales..................................  $   22,382   $   23,587   $   23,822   $   25,197
  Gross profit...............................       8,591        8,548        8,683        9,699
  Net income.................................         833          467          839          700
  Net income per common share -- basic.......        0.16         0.09         0.16         0.14
  Net income per common share -- diluted.....        0.16         0.09         0.16         0.14
  Weighted average shares -- basic...........   5,131,131    5,132,345    5,144,131    5,153,680
  Weighted average shares -- diluted.........   5,144,419    5,161,591    5,160,833    5,191,580
2002:
  Net sales..................................  $   20,918   $   21,388   $   22,275   $   23,610
  Gross profit...............................       8,840        8,834        8,663        9,745
  Net income.................................       1,216          985        1,109        1,360
  Net income per common share -- basic.......        0.22         0.18         0.20         0.26
  Net income per common share -- diluted.....        0.22         0.18         0.20         0.25
  Weighted average shares -- basic...........   5,432,052    5,435,171    5,439,697    5,304,318
  Weighted average shares -- diluted.........   5,481,924    5,499,634    5,502,408    5,334,800
</Table>

                                        10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS

                             RESULTS OF OPERATIONS
                          COMPARISON OF 2003 WITH 2002

NET SALES

     Net sales for 2003 were $95.0 million, a $6.8 million increase from the
$88.2 million for 2002. Net sales in the Fresh Mushrooms Segment increased $4.0
million and net sales in the Spawn Products Segment increased $2.8 million. On
average, the U.S. dollar was approximately 16.9% weaker in 2003, when measured
against the company's applicable foreign currencies, than in 2002. The effect of
this weakening increased net sales during 2003, as compared with 2002, by
approximately $6.0 million. International sales, as a percentage of net sales,
were 48.9% in 2003 and 48.7% in 2002.

     Spawn Products:  Net sales of spawn and spawn-related products were $66.8
million, as compared with $64.0 million for 2002. Foreign currency translation
fluctuations had the effect of increasing sales on a year-over-year comparison
by $6.0 million. Sales of disease-control agents and nutritional supplements
decreased $0.5 million, or 2.9%, and accounted for 16.1% of Sylvan's
consolidated net sales. Spawn product sales volume decreased 4.6%, with a 6.8%
decrease in overseas markets and a 0.5% decrease in the Americas, decreasing net
sales by $2.0 million. Most of the volume decrease in the overseas markets was
associated with a reduction in sales in France due to competitive conditions and
in the United Kingdom due to mushroom farm closures. The average local market
price in international locations decreased 2.2% due to lower volumes sold in
territories with higher selling prices. The effect of this territorial shift in
2003 was a decrease in net sales of approximately $0.6 million. The average
overseas U.S. dollar equivalent selling price was 17.1% higher during 2003, as
compared with 2002, due to the weakening of the U.S. dollar. The selling price
in the Americas decreased 5.3% in 2003, as compared with 2002, due to
adjustments in the pricing structure of some products in order to compete with
the lower-priced offerings of other suppliers. Net sales of the bioproducts
division increased $1.4 million, from $1.3 million in 2002 to $2.7 million in
2003, primarily due to sales growth for the dried Agaricus mushroom product.

     On August 15, 2003, the U.S. Department of Agriculture released its annual
statistical report on mushrooms covering the fiscal year July 2002 through June
2003. The Department reported that the amount of Agaricus growing area planted
was virtually equal to the prior fiscal year and was 2.1% lower than the fiscal
year ended June 2001.

     Fresh Mushrooms:  Net sales of fresh mushrooms increased 15.7% during 2003
to $29.5 million, as compared with $25.5 million for 2002. This increase in
sales was primarily due to three factors. The completion of two additional
satellite farms caused sales of ready-to-grow mushroom compost to increase from
$1.3 million in 2002 to $3.6 million in 2003. Also, Quincy experienced a 5.2%
increase in the number of pounds sold and a 2.3% higher selling price per pound.

COST OF SALES

     The company's cost of sales, expressed as a percentage of net sales, was
62.6% for 2003 and 59.1% for 2002. 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 56.8%
for 2003, as compared with 54.0% for 2002. Spawn production during 2003 was 5.8%
lower than for 2002, spreading costs that are primarily fixed in nature over
fewer units. The overall discard rate for spawn production was 5.8% in 2003 and
4.8% in 2002.

     Fresh Mushrooms:  The cost of sales percentage was 72.9% for 2003 and 68.9%
for 2002. 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. Quincy purchased approximately $6.9 million of
high-quality mushrooms from its satellite farms in 2003, as compared with $2.9
million in 2002, which were

                                        11
<PAGE>

immediately resold to its third-party marketer. The segment's operating income
in 2003 was virtually equal to 2002. The positive performance of the company's
satellite farms, as well as the sale of ready-to-grow mushroom compost to the
satellite farms, helped minimize the adverse effect of higher labor costs.

SELLING AND ADMINISTRATIVE EXPENSES

     Selling and administrative expenses increased to $22.1 million, or 23.3% of
net sales, as compared with $19.4 million, or 22.0%, for 2002. This increase
consisted primarily of $1.4 million in professional fees related to merger
activities, and was partially offset by a $0.4 million decrease in salaries and
benefits expense that resulted from staffing reductions. In addition, the
weakening of the U.S. dollar had the effect of increasing selling and
administrative expenses by $1.1 million during 2003, as compared with 2002. The
variance also included an increase over the prior year of $0.8 million, from a
benefit of $0.1 million in 2002 to an expense of $0.7 million in 2003, in net
periodic benefit expense related to the pension plan of a former subsidiary. The
net periodic pension expense for 2004 is expected to be $0.5 million.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses decreased 22.3% in 2003 to $1.5 million,
when compared with $2.0 million in 2002, primarily due to the assignment of some
of European personnel to the performance of quality control duties, which is
included in cost of sales. The company expects Research and Development expenses
for 2004 to be similar to 2003 expenditures.

DEPRECIATION EXPENSE

     Depreciation expense was $6.1 million in 2003, an increase of 9.5% over the
$5.6 million reported for 2002. Most of this increase related to the relatively
weaker U.S. dollar.

OPERATING INCOME

     Operating income decreased $3.4 million, from $9.1 million in 2002 to $5.7
million in 2003, as a result of the cumulative effects of the items discussed
above. Also, the weakening of the U.S. dollar had the effect of increasing
operating income by approximately $0.9 million in 2003.

INTEREST EXPENSE

     Net interest expense for 2003 was $1.6 million, 16.4% lower than the
interest expense recorded for 2002. This decrease in interest expense was mainly
the result of a corresponding decrease in outstanding debt levels, which dropped
from $38.4 million in 2002 to $33.7 million in 2003. Also, the effective
interest rate for 2003 was 4.4%, as compared with 5.0% for 2002. During 2003,
the company recorded other comprehensive income of $175,000 net of tax related
to hedge instruments under SFAS No. 133. In 2003, the company had variable-
to-fixed interest rate swaps in place to manage interest rate risk that
increased the average borrowing rate 1.6%. Swaps increased the average borrowing
rate 1.5 % in 2002.

INCOME TAX EXPENSE

     The company's overall effective tax rate for 2003 was 33.0%. The effective
tax rate for 2002 was 33.5%. The lower effective tax rate for 2003 was the
result of a smaller portion of the company's taxable income being derived from
higher tax-rate jurisdictions. Included in net deferred tax liabilities as of
December 28, 2003 are unrealized tax benefits amounting to approximately $2.3
million related to net operating loss carryforwards. The realization of these
tax benefits is contingent on future taxable net income being generated by
certain foreign and domestic operations. 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 $2.0 million of net operating losses will expire between 2004 and
2018. The company has recognized a valuation allowance of $1.6 million 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.
                                        12
<PAGE>

                             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, as compared with 2001, by approximately $2.4
million. 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 increased competitive pressures. The volume decreases in the overseas
markets were 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.

     In its annual statistical report on mushrooms covering the fiscal year July
2001 through June 2002, the U.S. Department of Agriculture 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. Satellite farms are independently owned small scale mushroom
growing and harvesting facilities. The compost that they use to grow their
mushrooms is prepared, seeded, transported and sold to them by Quincy, but they
are geographically separated from the Quincy operation. The mushrooms are
harvested by the operators of the satellite facilities and transported to the
Quincy site where they are purchased from the operators and packaged and
distributed by C And C Carriage (Modern Mushrooms).

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

                                        13
<PAGE>

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.

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.

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.

OPERATING INCOME

     Operating income decreased $1.9 million, from $11.0 million in 2001 to $9.1
million in 2002, as a result of the cumulative effects of the items discussed
above. Also, the weakening of the U.S. dollar had the effect of increasing
operating income by approximately $0.2 million in 2002.

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.

                                        14
<PAGE>

                        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. See Item 7A. Quantitative and Qualitative Disclosures
about Market Risk on page 19 for a discussion of management of foreign currency
and interest rate risk. Available credit under the company's $50.0 million
revolving credit agreement was $17.6 million as of December 28, 2003. The
agreement originally provided for a total credit amount of $55.0 million with 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 $9.8 million in 2003, as
compared with $12.7 million in 2002 and $10.7 million for 2001. During the first
quarter of 2002, the company reduced "Other Current Assets" by approximately
$2.2 million due to the release of cash that had been collateralized to support
a loan from a European bank. This loan was repaid in the first quarter of 2002.

     Cash used in investing activities was $3.1 million for 2003, as compared
with $6.1 million and $8.7 million during 2002 and 2001, respectively. Most of
the cash used in investing activities was for capital expenditures, net of
proceeds from the sale of assets, which totaled $3.1 million in 2003, $6.1
million in 2002 and $8.6 million in 2001. The majority of the growth capital
expenditures for 2003 were related to Quincy's satellite farms ($0.4 million).
Maintenance capital for 2003 was $2.6 million.

     Net capital expenditures in 2004 are not expected to exceed $4.0 million
for existing operations, with additional expenditures as may be required for
acquisitions or new initiatives.

     During 2003, cash of $7.6 million was used in financing activities, as
compared with $6.8 million and $1.8 million during 2002 and 2001, respectively.
Net payments to reduce debt and revolving credit obligations were $7.9 million
in 2003, as compared with $3.6 million in 2002 and $0.7 million in 2001. The
decreases in outstanding debt related primarily to the positive cash flows from
operations in excess of capital additions. Sylvan purchased 333,321 and 107,271
shares of its stock at average prices of $10.60 and $11.37 during 2002 and 2001,
respectively. During 2003, the company purchased no shares of Sylvan stock. The
three-year stock buyback program to purchase a total of 1.3 million shares, that
was instituted in the fourth quarter of 2002, was suspended in 2003. 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 2004 capital expenditures.

     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.

                                        15
<PAGE>

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

     Below are tables that summarize the company's contractual obligations and
commercial commitments on December 28, 2003:

<Table>
<Caption>
                                                               PAYMENTS DUE BY PERIOD
                                                -----------------------------------------------------
                                                          LESS THAN                            AFTER
                                                 TOTAL     1 YEAR     1-3 YEARS   4-5 YEARS   5 YEARS
                                                -------   ---------   ---------   ---------   -------
                                                                   (IN THOUSANDS)
<S>                                             <C>       <C>         <C>         <C>         <C>
Contractual Obligations:
Long-Term Debt................................  $33,658    $  110      $32,917      $148       $483
Interest on Long-Term Debt....................    2,539     1,392          918        95        134
Capital Lease Obligations.....................       --        --           --        --         --
Operating Lease Obligations...................    1,660       738          804       100         18
Purchase Obligations..........................      733       733           --        --         --
Other Long-Term Obligations...................      872       235          220       200        217
Research Contract.............................    1,011       301          609       101         --
                                                -------    ------      -------      ----       ----
TOTAL CONTRACTUAL CASH OBLIGATIONS............  $40,473    $3,509      $35,468      $644       $852
                                                =======    ======      =======      ====       ====
</Table>

<Table>
<Caption>
                                                       AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                                  ----------------------------------------------------
                                                           LESS THAN                            AFTER
                                                  TOTAL     1 YEAR     1-3 YEARS   4-5 YEARS   5 YEARS
                                                  ------   ---------   ---------   ---------   -------
<S>                                               <C>      <C>         <C>         <C>         <C>
Other Commercial Commitments:
Standby Letter of Credit........................  $1,000      $--       $1,000        $--        $--
</Table>

     The tables above include all the company's contractual obligations and
off-balance sheet arrangements and associated interest when appropriate. The
company used contractual and variable interest rates existing at December 28,
2003 to determine interest obligations associated with Long-Term Debt. The
interest rates range from 2.5% to 8.5%. Variable interest rates are subject to
changes based on interest rate market conditions.

RECENT ACCOUNTING PRONOUNCEMENTS

     In November 2002, the Financial Accounting Standards Board (FASB) issued
Financial Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 clarifies the requirements of SFAS No. 5, "Accounting for
Contingencies," relating to a guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. FIN 45 also requires enhanced
disclosures in the company's interim and annual filings. The provisions of FIN
45 are effective for financial statements issued or modified after December 31,
2002. The disclosure requirements were effective for financial statements of
both interim and fiscal years after December 15, 2002. The adoption of FIN 45
did not have a material impact on the company's financial statements or results
of operations.

     In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." In December 2003, the FASB revised FIN 46 to clarify certain
provisions and modify its effective date. FIN 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 46, and which company is the primary
beneficiary of the variable interest entity's activities. The requirements of
FIN 46 apply to all variable interest entities held no later than the end of the
interim reporting period ending after March 15, 2004. Variable interest entities
held in special purpose entities shall apply FIN 46 no later than the end of the
reporting period ending after December 15, 2003. The company is currently
evaluating the impact of this interpretation.

                                        16
<PAGE>

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
except in certain instances, and for hedging relationships designated after June
30, 2003. In addition, except in those certain instances, all provisions of this
Statement should be applied prospectively. The application of SFAS No. 149 did
not have a material effect on the company's financial statements or results of
operations.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." The
provisions of SFAS No. 150 require issuers to classify as liabilities, or assets
in some circumstances, certain classes of freestanding financial instruments
that embody obligations for the issuer. The provisions of SFAS No. 150 are
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise shall be effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a
material effect on the company's financial statements or results of operations.

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.

                                        17
<PAGE>

     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 28, 2003, a variance of 10% in the related interest rate
would cause annual interest expense related to this debt to change by
approximately $50,000.

     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's outstanding environmental liability at
December 28, 2003 was $25,000.

     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. 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 28, 2003 by approximately
$2.1 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. Included in net deferred tax
liabilities as of December 28, 2003 are unrealized tax benefits amounting to
approximately $2.3 million related to net operating loss carryforwards. The
realization of these tax benefits is contingent on future taxable net income
being generated

                                        18
<PAGE>

by certain foreign and domestic operations. 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 $2.0 million of net operating losses will expire between 2004 and
2018. The company has recognized a valuation allowance of $1.6 million that
reduces the carrying value of unrealized net deferred tax benefits relating to
net operating loss carryforward to offset the deferred tax benefits that may not
be realized.

MERGER DISCLOSURE DISCUSSION

     As previously announced on November 16, 2003, Sylvan entered into a
definitive agreement with Snyder Associated Companies, Inc. of Kittanning,
Pennsylvania, which will result in a merger between Sylvan and a Snyder
affiliate. The Sylvan Board of directors, upon the unanimous recommendation of
its special committee of independent directors, approved the merger and the
agreement. The merger is subject to certain conditions, including the approval
by a majority of the shareholders of Sylvan. Sylvan expects to be able to
convene a meeting of its shareholders for that purpose in the second quarter of
2004 and, if approved by Sylvan's shareholders, the transaction is expected to
be completed shortly thereafter.

     The merger agreement currently provides for a termination date of May 1,
2004 if the merger has not been completed by that date. The company intends to
discuss an extension of this date with Snyder Associated Companies, Inc.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

     Foreign Currency Exchange Rate Risk:  Note 8 of the consolidated financial
statements sets forth revenues for three years based on the location of the
company's customers. Sylvan has foreign currency exposures related to buying,
selling and financing in currencies other than the U.S. dollar. This exposes the
company's future earnings, assets, liabilities, cash flow and financial
instruments that are denominated in foreign currencies.

     Sylvan believes that its most significant financial instrument rate
exposure relates to its activities in Europe. As of December 28, 2003, the net
fair value liability of euro denominated financial instruments was approximately
$11.1 million. The potential fair value loss of a hypothetical 10% adverse
change in the currency exchange rate would be approximately $1.1 million.

     Interest Rate Risk:  The company is subject to market risk from exposure to
changes in interest rates based on its financing practices. This risk is managed
by entering into a variety of financial instruments to maintain a desired level
of exposure. The net fair value liability at December 28, 2003 of all financial
instruments subject to interest rate exposures was approximately $32.4 million.
The table below provides information about the company's financial instruments
that are sensitive to interest rates. For debt obligations, the table presents
principal cash flow and related weighted average interest rates according to
their expected maturity dates. For interest rate swaps, the table presents
notional amounts and weighted average interest rates according to their expected
maturity dates. Weighted average interest rates are based on the LIBOR rate in
effect at the reporting date. No future rate assumptions have been made. The
average received rate for interest

                                        19
<PAGE>

rate swaps in 2003 was 1.24%, as compared with 1.60% for 2002. This decrease was
the result of market rate reductions.

<Table>
<Caption>
                                        EXPECTED MATURITY DATE FOR PERIODS ENDED DECEMBER
                         --------------------------------------------------------------------------------
                          2004     2005      2006      2007     2008    THEREAFTER    TOTAL    FAIR VALUE
                         ------   -------   -------   -------   -----   ----------   -------   ----------
                                                          (IN THOUSANDS)
<S>                      <C>      <C>       <C>       <C>       <C>     <C>          <C>       <C>
Liabilities
Long-term debt
  Fixed rate...........  $  110   $   456   $    74   $    74   $  74      $483      $ 1,271    $ 1,271
  Average interest
    rate...............    6.20%     6.66%     6.20%     6.20%   6.20%     6.20%
  Variable rate........      --    32,387        --        --      --        --      $32,387    $32,223
  Average interest
    rate...............      --      2.81%       --        --      --        --
Interest rate swaps
  Fixed-to-variable
    rate...............  $5,000                       $10,000                        $15,000    $(1,029)
  Average pay rate.....    1.35%                         5.48%                          3.65%
  Average receive
    rate...............    1.18%                         1.27%
</Table>

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

     From time to time in this annual report, references are made to
expectations capable of influencing Sylvan's future financial performance, such
as the profit contribution and cost of sales impact of the satellite farms,
changes in capital expenditures and in research and development expenditures,
the continuation of the company's share purchase program, cash flows from
operations and bank borrowings, and future interest rate sensitivity. Events
could turn out to be significantly different from what is expected. The
following factors, among others, in some cases have affected and in the future
could affect the company's financial performance and could cause actual results
to differ materially from those expressed or implied in such forward-looking
statements:

     - pricing or product initiatives of the company's competitors;

     - changes in exchange risks with respect to currencies used in the
       company's markets;

     - the loss of key executives or other employees of the company;

     - failure to achieve production yield expectations;

     - the loss of a major customer;

     - market-driven fluctuations of the asset values in the defined benefit
       plan of a former subsidiary of the company; and

     - acts of terrorism, war or concerns of the public about such acts or
       threats of such acts.

                                        20
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of Sylvan Inc:

     We have audited the accompanying consolidated balance sheets of Sylvan Inc.
and subsidiaries (the Company) as of December 28, 2003 and December 29, 2002,
and the related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. Our audits also included the financial statement
schedule for the years ended December 28, 2003 and December 29, 2002 listed in
the index in Item 15(a) of this Registration Statement. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. The financial statements and schedule of Sylvan
Inc. and subsidiaries as of December 30, 2001, and for the year then ended were
audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those financial statements and schedule in their
reports dated February 1, 2002.

     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 financial statements referred to above present fairly,
in all material respects, the financial position of Sylvan Inc. and subsidiaries
as of December 28, 2003 and December 29, 2002, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States. Also in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic 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, the Company 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 year 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
included (a) agreeing the previously reported net income to the previously
issued financial statements and the adjustment 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 in Note 1 are appropriate. However, we were
not engaged to audit, review, or apply any procedures to the 2001 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 financial statements taken as a whole.

                                                /s/ ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
February 2, 2004

                                        21
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

     We have audited the accompanying consolidated balance sheets of Sylvan Inc.
(a Nevada corporation) and Subsidiaries as of December 30, 2001 and December 31,
2000, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 30, 2001. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sylvan Inc.
and Subsidiaries as of December 30, 2001 and December 31, 2000, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 30, 2001, in conformity with accounting principles
generally accepted in the United States.

                                               /s/ ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
February 1, 2002

     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 this Annual Report Form 10-K. See Information Regarding
the Consent of Arthur Andersen LLP (page 47) for further discussion.

                                        22
<PAGE>

                          SYLVAN INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                              DEC. 28, 2003      DEC. 29, 2002
                                                              --------------     --------------
                                                              (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                           <C>                <C>
                                            ASSETS
Current Assets:
  Cash and cash equivalents.................................     $  5,849           $  5,624
  Trade accounts receivable, net of allowance for doubtful
     accounts of $1,059 and $795, respectively..............       15,901             14,399
  Inventories...............................................       12,514             11,425
  Prepaid income taxes and other expenses...................        1,868              1,495
  Other current assets......................................        1,468              1,494
                                                                 --------           --------
     TOTAL CURRENT ASSETS...................................       37,600             34,437
                                                                 --------           --------
Property, Plant and Equipment:
  Land and improvements.....................................        4,420              3,987
  Buildings.................................................       48,034             43,699
  Equipment.................................................       63,760             56,895
                                                                 --------           --------
                                                                  116,214            104,581
Less -- Accumulated depreciation............................      (55,080)           (45,794)
                                                                 --------           --------
     TOTAL PROPERTY, PLANT AND EQUIPMENT, NET...............       61,134             58,787
                                                                 --------           --------
INTANGIBLE ASSETS, net of accumulated amortization of $5,472
  and $4,691, respectively..................................       13,999             12,321
OTHER ASSETS, net of accumulated amortization of $694 and
  $597, respectively........................................        1,132              1,261
                                                                 --------           --------
     TOTAL ASSETS...........................................     $113,865           $106,806
                                                                 ========           ========

                             LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current portion of long-term debt.........................     $    110           $    223
  Accounts payable -- trade.................................        5,739              3,895
  Accrued salaries, wages and employee benefits.............        2,649              2,771
  Other accrued liabilities.................................        1,164              1,413
  Income taxes payable......................................          999              1,545
                                                                 --------           --------
     TOTAL CURRENT LIABILITIES..............................       10,661              9,847
                                                                 --------           --------
LONG-TERM AND REVOLVING-TERM DEBT...........................       33,548             38,162
                                                                 --------           --------
Other Long-Term Liabilities:
  Other employee benefits...................................       10,208              9,538
  Other.....................................................          230                256
                                                                 --------           --------
     TOTAL OTHER LONG-TERM LIABILITIES......................       10,438              9,794
                                                                 --------           --------
MINORITY INTEREST...........................................        2,195              1,741
Shareholders' Equity:
  Common stock, voting, par value $.001, 10,000,000 shares
     authorized, 6,752,405 and 6,728,405 shares issued in
     2003 and 2002, respectively............................            7                  7
  Additional paid-in capital................................       17,524             17,284
  Retained earnings.........................................       67,804             64,965
Less -- Treasury stock, at cost, 1,597,274 shares in 2003
  and 2002..................................................      (16,669)           (16,669)
                                                                 --------           --------
                                                                   68,666             65,587
Accumulated other comprehensive loss........................      (11,643)           (18,325)
                                                                 --------           --------
     TOTAL SHAREHOLDERS' EQUITY.............................       57,023             47,262
                                                                 --------           --------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............     $113,865           $106,806
                                                                 ========           ========
</Table>

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

                                        23
<PAGE>

                          SYLVAN INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                              2003         2002         2001
                                                           ----------   ----------   ----------
                                                             (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                        <C>          <C>          <C>
NET SALES................................................  $   94,988   $   88,192   $   85,911
                                                           ----------   ----------   ----------
Operating Costs and Expenses:
  Cost of sales..........................................      59,467       52,109       49,818
  Selling and administrative.............................      22,134       19,416       18,006
  Research and development...............................       1,526        1,965        1,721
  Depreciation...........................................       6,179        5,642        5,375
                                                           ----------   ----------   ----------
                                                               89,306       79,132       74,920
                                                           ----------   ----------   ----------
OPERATING INCOME.........................................       5,682        9,060       10,991
INTEREST EXPENSE, NET....................................       1,560        1,865        2,532
OTHER INCOME (EXPENSE)...................................         417           (3)         (19)
                                                           ----------   ----------   ----------
INCOME BEFORE INCOME TAXES...............................       4,539        7,192        8,440
                                                           ----------   ----------   ----------
Provision for Income Taxes:
  Current................................................       1,455        2,082        2,216
  Deferred...............................................          43          324          274
                                                           ----------   ----------   ----------
                                                                1,498        2,406        2,490
                                                           ----------   ----------   ----------
INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED
  SUBSIDIARIES...........................................       3,041        4,786        5,950
                                                           ----------   ----------   ----------
MINORITY INTEREST IN INCOME OF CONSOLIDATED
  SUBSIDIARIES...........................................         202          117          121
                                                           ----------   ----------   ----------
NET INCOME...............................................  $    2,839   $    4,669   $    5,829
                                                           ==========   ==========   ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES.................   5,140,322    5,402,859    5,500,799
                                                           ==========   ==========   ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
  SHARES.................................................   5,163,852    5,454,700    5,551,673
                                                           ==========   ==========   ==========
NET INCOME PER SHARE -- BASIC............................  $     0.55   $     0.86   $     1.06
                                                           ==========   ==========   ==========
NET INCOME PER SHARE -- DILUTED..........................  $     0.55   $     0.86   $     1.05
                                                           ==========   ==========   ==========
</Table>

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

                                        24
<PAGE>

                          SYLVAN INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<Table>
<Caption>
                                        ADDITIONAL                                                    TOTAL
                               COMMON     PAID-IN     RETAINED   TREASURY    ACCUMULATED OTHER    SHAREHOLDERS'
                               STOCK      CAPITAL     EARNINGS    STOCK     COMPREHENSIVE LOSS       EQUITY
                               ------   -----------   --------   --------   -------------------   -------------
                                                       (IN THOUSANDS EXCEPT SHARE DATA)
<S>                            <C>      <C>           <C>        <C>        <C>                   <C>
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
Net income...................      --          --       2,839          --              --              2,839
Foreign currency translation
  adjustment.................      --          --          --          --           6,884              6,884
Unrealized gains on
  derivatives designated and
  qualified as cash flow
  hedges, net of tax flow
  hedges, net of tax.........      --          --          --          --             175                175
Minimum pension liability
  adjustment, net of tax.....                                                        (377)              (377)
                                                                                                     -------
    Comprehensive income.....                                                                          9,521
Exercise of 24,000 stock
  options and compensation
  expense, net of tax........      --         240          --          --              --                240
                               ------     -------     -------    --------        --------            -------
BALANCE, Dec. 28, 2003.......  $    7     $17,524     $67,804    $(16,669)       $(11,643)           $57,023
                               ======     =======     =======    ========        ========            =======
</Table>

The accompanying notes to consolidated financial statements are an integral part
                              of these statements.
                                        25
<PAGE>

                          SYLVAN INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                               2003      2002      2001
                                                              -------   -------   -------
                                                                    (IN THOUSANDS)
<S>                                                           <C>       <C>       <C>
CASH FLOWS FROM OPERATIONS:
  Net income................................................  $ 2,839   $ 4,669   $ 5,829
Adjustments to reconcile net income to net cash provided by
  operations:
  Depreciation and amortization.............................    6,394     5,872     6,114
  Employee benefits.........................................      140       216       373
  Trade accounts receivable.................................      (76)     (152)     (753)
  Inventories...............................................       81      (470)        1
  Prepaid expenses and other assets.........................      138     3,008      (852)
  Accounts payable, accrued expenses and other
     liabilities............................................      342       620       (35)
  Income Taxes Payable......................................     (126)     (634)      152
  Derivatives...............................................     (200)     (521)     (336)
  Minority interest.........................................      261       108       157
  Other.....................................................       35        22        29
                                                              -------   -------   -------
  NET CASH PROVIDED BY OPERATIONS...........................    9,828    12,738    10,679
                                                              -------   -------   -------
CASH FLOWS FROM INVESTING:
  Expenditures for property, plant and equipment............   (3,109)   (6,144)   (8,744)
  Proceeds from sale of fixed assets........................       --        --       145
  Earn-out payment on prior period acquisition..............       --        --      (125)
                                                              -------   -------   -------
  NET CASH USED IN INVESTING................................   (3,109)   (6,144)   (8,724)
                                                              -------   -------   -------
CASH FLOWS FROM FINANCING:
  Principal payments on long-term debt......................     (254)   (2,393)     (285)
  Proceeds from long-term debt borrowings...................       --        --        49
  Net repayments under revolving credit loan................   (7,600)   (1,224)     (509)
  Proceeds from exercise of stock options...................      240       335       134
  Purchase of treasury shares...............................       --    (3,533)   (1,219)
                                                              -------   -------   -------
  NET CASH USED IN FINANCING................................   (7,614)   (6,815)   (1,830)
                                                              -------   -------   -------
EFFECT OF EXCHANGE RATES ON CASH............................    1,120       773      (424)
                                                              -------   -------   -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........      225       552      (299)
CASH AND CASH EQUIVALENTS, BEGINNING OF FISCAL YEAR.........    5,624     5,072     5,371
                                                              -------   -------   -------
CASH AND CASH EQUIVALENTS, END OF FISCAL YEAR...............  $ 5,849   $ 5,624   $ 5,072
                                                              =======   =======   =======
Supplemental Disclosure of Cash Flow Data:
  Interest paid.............................................  $ 1,758   $ 1,942   $ 2,402
  Income taxes paid.........................................    2,024     2,052     2,394
</Table>

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

                                        26
<PAGE>

                          SYLVAN INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 2003, 2002 and 2001 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.

  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:

<Table>
<S>                                                            <C>
Land improvements...........................................   10-20 years
Buildings...................................................   30-40 years
Equipment...................................................    2-15 years
</Table>

     The company owns four satellite mushroom growing facilities, which have an
aggregate cost of $3.8 million and accumulated depreciation of $304,000, 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 $3.6 million of ready-to-grow mushroom
compost in 2003 and $1.3 million in 2002. The satellites also sold to Quincy,
for immediate resale to its third-party marketer, $6.9 million of high-quality
mushrooms in 2003 and $2.9 million in 2002.

                                        27
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  REPAIR AND MAINTENANCE

     Repair and maintenance costs are expensed as incurred.

  RESEARCH AND DEVELOPMENT

     Research and development costs are expensed as incurred and were $1.5
million, $2.0 million and $1.7 million for 2003, 2002 and 2001, respectively.

  WARRANTY COSTS

     Warranty costs are accrued based on management's best estimates of the
replacement costs related to spawn products and historical warranty experience.
Actual costs will vary from these estimates. The following table reconciles the
changes in the company's spawn product warranty reserves:

<Table>
<Caption>
                                                  DEC. 28, 2003   DEC. 29, 2002   DEC. 30, 2001
                                                  -------------   -------------   -------------
                                                                 (IN THOUSANDS)
<S>                                               <C>             <C>             <C>
Beginning Balance...............................      $275            $281            $221
Expense Accrual.................................       323             112              70
Warranty Expenditures...........................       323             118              10
                                                      ----            ----            ----
Ending Balance..................................      $275            $275            $281
                                                      ====            ====            ====
</Table>

  REVENUE RECOGNITION

     The company recognizes revenue when it is realized and earned. The company
considers revenue realized or realizable and earned when it has persuasive
evidence of an arrangement, the product has been shipped to the customer and
title and risk of loss of the goods has passed to the customer, the sales price
is fixed or determinable and collectibility is reasonably assured. 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.

                                        28
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table reflects the calculation of earnings per share:

<Table>
<Caption>
                                                                FISCAL YEAR ENDED
                                                  ---------------------------------------------
                                                  DEC. 28, 2003   DEC. 29, 2002   DEC. 30, 2001
                                                  -------------   -------------   -------------
                                                        (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                               <C>             <C>             <C>
Basic Earnings Per Share:
Net income......................................   $    2,839      $    4,669      $    5,829
Average shares outstanding......................    5,140,322       5,402,859       5,500,799
                                                   ----------      ----------      ----------
Earnings per share..............................   $     0.55      $     0.86      $     1.06
                                                   ==========      ==========      ==========
Diluted Earnings Per Share:
Net income......................................   $    2,839      $    4,669      $    5,829
Average shares outstanding......................    5,140,322       5,402,859       5,500,799
Effect of stock options.........................       23,530          51,841          50,874
                                                   ----------      ----------      ----------
Diluted average shares outstanding..............    5,163,852       5,454,700       5,551,673
                                                   ----------      ----------      ----------
Earnings per share..............................   $     0.55      $     0.86      $     1.05
                                                   ==========      ==========      ==========
</Table>

     Options to purchase approximately 446,000, 295,000 and 305,000 shares of
common stock for the fiscal years ended 2003, 2002 and 2001, 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 28, 2003, the company had no
outstanding foreign currency exchange contracts.

  INTEREST RATE RISK MANAGEMENT

     The company uses interest rate swap agreements to convert a portion of its
floating rate debt to a fixed-rate basis, thus reducing the impact of interest
rate changes on future results. The company has these agreements with its banks
as counterparties. The agreements replace the floating (euro rate) LIBOR basis
with a fixed LIBOR basis as described in the table below. 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 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

                                        29
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payable under these swap agreements are recorded as an adjustment to interest
expense. The company's contractual swap agreements as of December 28, 2003 are
as follows:

<Table>
<Caption>
                                                                                          LIBOR
                                                                                 FIXED   MAXIMUM
NOTIONAL AMOUNT         EFFECTIVE DATE     EXPIRATION DATE   FAIR MARKET VALUE   RATE     RATE
---------------        -----------------   ---------------   -----------------   -----   -------
<S>                    <C>                 <C>               <C>                 <C>     <C>
$10,000,000            February 25, 2000   August 25, 2007       $(969,310)      5.48%   7.00%
$5,000,000                March 14, 2003   March 14, 2004        $  (5,120)      1.35%      --
</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 2004 related to these derivative instruments, based on
interest rates at December 28, 2003.

  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>
                                                              DEC. 28, 2003   DEC. 29, 2002
                                                              -------------   -------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>             <C>
Fair value..................................................     $33,494         $37,809
Carrying amount.............................................      33,658          38,385
</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>
                                                              DEC. 28, 2003   DEC. 29, 2002
                                                              -------------   -------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>             <C>
Foreign currency translation adjustments....................    $ (1,074)       $ (7,958)
Unrealized losses on derivatives and qualified cash flow
  hedges, net of tax of $350 and $441, respectively.........        (680)           (855)
Minimum pension liability adjustment, net of tax of $5,095
  and $4,902, respectively..................................      (9,889)         (9,512)
                                                                --------        --------
Total accumulated other comprehensive income................    $(11,643)       $(18,325)
                                                                ========        ========
</Table>

  INTANGIBLE ASSETS

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 eliminates amortization of
goodwill and amortization of indefinitely lived intangible assets and provides
for an impairment test to be performed at least annually. The impairment test is

                                        30
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 then compared to 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 annual assessments to test for goodwill impairment as of the first day
of the fiscal fourth quarter of 2002 and 2003. No impairment loss resulted from
the assessments. In all assessments, step one of the process determined fair
value exceeded book value.

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

<Table>
<Caption>
                                           GROSS CARRYING          ACCUMULATED
                                               AMOUNT             AMORTIZATION
                                         -------------------   -------------------
                                                    CULTURES              CULTURES
                                                      AND                   AND
                                         GOODWILL    OTHER     GOODWILL    OTHER       NET
                                         --------   --------   --------   --------   -------
                                                           (IN THOUSANDS)
<S>                                      <C>        <C>        <C>        <C>        <C>
December 29, 2002......................  $ 15,998    $1,014    $ (4,262)   $(429)    $12,321
Additions..............................        --        --          --     (127)       (127)
Currency Translation...................     2,457         2        (654)      --       1,805
                                         --------    ------    --------    -----     -------
December 28, 2003......................  $ 18,455    $1,016    $ (4,916)   $(556)    $13,999
                                         ========    ======    ========    =====     =======
</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 seven to ten
years and the other intangible assets range from two to five years.

     Amortization expense for intangible assets was $127,000 for the fiscal year
ended December 28, 2003. Estimated amortization expense for the five succeeding
years is as follows:

<Table>
<Caption>
                                                               (IN THOUSANDS)
<S>                                                            <C>
2004........................................................        $122
2005........................................................          67
2006........................................................          67
2007........................................................          65
2008........................................................          59
</Table>

                                        31
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Actual results of operations for the fiscal years ended December 28, 2003
and December 29, 2002 and the pro forma results for the fiscal year ended
December 30, 2001, had Sylvan applied the non-amortization provisions of SFAS
No. 142, "Goodwill and Other Intangible Assets" in 2001, are as follows:

<Table>
<Caption>
                                                                FISCAL YEAR ENDED
                                                  ---------------------------------------------
                                                  DEC. 28, 2003   DEC. 29, 2002   DEC. 30, 2001
                                                  -------------   -------------   -------------
                                                      (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                               <C>             <C>             <C>
Reported net income.............................     $2,839          $4,669          $5,829
Add back: Goodwill amortization, Net of tax.....         --              --             363
                                                     ------          ------          ------
  Adjusted net income...........................     $2,839          $4,669          $6,192
                                                     ======          ======          ======
Basic earnings per share:
  Reported net income...........................     $ 0.55          $ 0.86          $ 1.06
  Add back: Goodwill amortization...............         --              --            0.07
                                                     ------          ------          ------
Adjusted net income.............................     $ 0.55          $ 0.86          $ 1.13
                                                     ======          ======          ======
Diluted earnings per share:
  Reported net income...........................     $ 0.55          $ 0.86          $ 1.05
  Add back: Goodwill amortization...............         --              --            0.07
                                                     ------          ------          ------
Adjusted net income.............................     $ 0.55          $ 0.86          $ 1.12
                                                     ======          ======          ======
</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. However, the company does recognize compensation expense, as
required, if the initial term of an award is extended. Compensation expense
recorded related to term extensions has been immaterial.

     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>
                                                              2003     2002     2001
                                                             ------   ------   ------
                                                                  (IN THOUSANDS
                                                              EXCEPT PER SHARE DATA)
<S>                                                          <C>      <C>      <C>
Net income as reported.....................................  $2,839   $4,669   $5,829
  Total stock-based employee compensation determined under
     the fair value method for all awards..................    (191)    (102)  (1,142)
     Tax benefit of fair value method......................      63       34      337
                                                             ------   ------   ------
Pro forma net income.......................................  $2,711   $4,601   $5,024
Basic earnings per share
  As reported..............................................  $ 0.55   $ 0.86   $ 1.06
  Pro forma................................................  $ 0.53   $ 0.85   $ 0.91
Diluted earnings per share
  As reported..............................................  $ 0.55   $ 0.86   $ 1.05
  Pro forma................................................  $ 0.53   $ 0.84   $ 0.91
</Table>

                                        32
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 November 2002, the Financial Accounting Standards Board (FASB) issued
Financial Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 clarifies the requirements of SFAS No. 5, "Accounting for
Contingencies," relating to a guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. FIN 45 also requires enhanced
disclosures in the company's interim and annual filings. The provisions of FIN
45 are effective for financial statements issued or modified after December 31,
2002. The disclosure requirements were effective for financial statements of
both interim and fiscal years after December 15, 2002. The adoption of FIN 45
did not have a material impact on the company's financial statements or results
of operations.

     In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." In December 2003, the FASB revised FIN 46 to clarify certain
provisions and modify its effective date. FIN 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 46, and which company is the primary
beneficiary of the variable interest entity's activities. The requirements of
FIN 46 apply to all variable interest entities held no later than the end of the
interim reporting period ending after March 15, 2004. Variable interest entities
held in special purpose entities shall apply FIN 46 no later than the end of the
reporting period ending after December 15, 2003. The company is currently
evaluating the impact of this interpretation.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
except in certain instances, and for hedging relationships designated after June
30, 2003. In addition, except in those certain instances, all provisions of this
Statement should be applied prospectively. The application of SFAS No. 149 did
not have a material effect on the company's financial statements or results of
operations.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." The
provisions of SFAS No. 150 require issuers to classify as liabilities, or assets
in some circumstances, certain classes of freestanding financial instruments
that embody obligations for the issuer. The provisions of SFAS No. 150 are
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise shall be effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a
material effect on the company's financial statements or results of operations.

                                        33
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2.  INVENTORIES:

     Inventories are summarized as follows:

<Table>
<Caption>
                                                              DEC. 28, 2003   DEC. 29, 2002
                                                              -------------   -------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>             <C>
Growing crops and compost material..........................     $ 5,683         $ 4,975
Stores and other supplies...................................       2,005           2,039
Finished products...........................................       4,826           4,411
                                                                 -------         -------
                                                                 $12,514         $11,425
                                                                 =======         =======
</Table>

3.  LONG-TERM DEBT, LEASE AND COMMERCIAL COMMITMENTS:

     The company has a Revolving Credit Agreement with two commercial banks,
dated August 6, 1998, and amended, in part, December 29, 2002. It provides for
revolving credit loans on which the aggregate outstanding balance available to
the company could not initially exceed $55.0 million. The average borrowings
under this agreement were $35.5 million during 2003. The maximum aggregate
outstanding balance declines over the life of the agreement as follows:

<Table>
<Caption>
                                                                MAXIMUM AGGREGATE
PERIOD 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 28, 2003, the company had outstanding borrowings under the agreement of
$32.4 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. In
the first quarter of 2003, the company and the banks signed an amendment to the
revolving credit agreement to adjust for the recording of the minimum pension
liability adjustment and waiving the loan covenant violation. The adjustment and
waiver were effective as of December 29, 2002 and continue through August 5,
2005.

     The company has several additional loan obligations. The outstanding
balances related to these loans, 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, totaled
approximately $1.3 million as of December 28, 2003 and $1.4 million as of
December 29, 2002. 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 $1.6 million in gross interest expense
during 2003, including $187,000 of interest income related to interest hedges
accounted for under SFAS No. 133. The weighted

                                        34
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

average interest rate was 4.4%. The contractual principal payments due under the
company's loan agreements are as follows:

<Table>
<Caption>
                                                               IN THOUSANDS
<S>                                                            <C>
2004........................................................     $   110
2005........................................................      32,843
2006........................................................          74
2007........................................................          74
2008........................................................          74
Thereafter..................................................         483
                                                                 -------
TOTAL.......................................................     $33,658
                                                                 =======
</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 28, 2003, December 29, 2002
and December 30, 2001, rental expense included in the statements of income was
$485,000, $461,000, and $590,000, respectively.

4.  ACCRUED SALARIES, WAGES AND EMPLOYEE BENEFITS:

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

<Table>
<Caption>
                                                              DEC. 28, 2003   DEC. 29, 2002
                                                              -------------   -------------
                                                                      IN THOUSANDS
<S>                                                           <C>             <C>
Accrued compensation........................................     $1,783          $2,086
Accrued vacation............................................        671             622
Other.......................................................        195              63
                                                                 ------          ------
TOTAL.......................................................     $2,649          $2,771
                                                                 ======          ======
</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, since the company assumes
that there will be no repatriation.

     Undistributed earnings of the company's foreign subsidiaries amounted to
approximately $40 million at December 28, 2003. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided. Upon distribution of those earnings in the
form of dividends or otherwise, the company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculation; however,
unrecognized foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability.

                                        35
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                                FISCAL YEAR ENDED
                                                  ---------------------------------------------
                                                  DEC. 28, 2003   DEC. 29, 2002   DEC. 30, 2001
                                                  -------------   -------------   -------------
                                                                  IN THOUSANDS
<S>                                               <C>             <C>             <C>
Domestic........................................     $ (645)         $2,180          $3,405
Foreign.........................................      5,184           5,012           5,035
                                                     ------          ------          ------
TOTAL...........................................     $4,539          $7,192          $8,440
                                                     ======          ======          ======
</Table>

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

<Table>
<Caption>
                                                                FISCAL YEAR ENDED
                                                  ---------------------------------------------
                                                  DEC. 28, 2003   DEC. 29, 2002   DEC. 30, 2001
                                                  -------------   -------------   -------------
                                                                  IN THOUSANDS
<S>                                               <C>             <C>             <C>
Current:
  Federal.......................................     $   13          $  819          $  970
  State.........................................         45               2              23
  Foreign.......................................      1,521           1,261           1,223
Deferred........................................       (281)            419             192
Change in Valuation Allowance...................        200             (95)             82
                                                     ------          ------          ------
                                                     $1,498          $2,406          $2,490
                                                     ======          ======          ======
</Table>

     The foreign tax provision is for local country taxes. The company does not
provide for federal income taxes on unremitted earnings of non-U.S. subsidiaries
since the company assumes that there will be no repatriation.

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

<Table>
<Caption>
                                                                FISCAL YEAR ENDED
                                                  ---------------------------------------------
                                                  DEC. 28, 2003   DEC. 29, 2002   DEC. 30, 2001
                                                  -------------   -------------   -------------
                                                                  IN THOUSANDS
<S>                                               <C>             <C>             <C>
Income tax at U.S. federal statutory rate.......     $1,543          $2,445          $2,869
State income taxes, net of federal income tax
  benefit.......................................         45              97              37
Foreign taxes at rates other than effective U.S.
  rates.........................................       (241)           (201)           (488)
Net (permanent benefits) nondeductible
  charges.......................................        (49)            (35)            (24)
Change in tax valuation allowance...............        200             (95)             82
Other, net......................................         --             195              14
                                                     ------          ------          ------
TOTAL PROVISION FOR INCOME TAXES................     $1,498          $2,406          $2,490
                                                     ======          ======          ======
</Table>

                                        36
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Temporary differences which generate significant portions of the company's
deferred tax assets and liabilities as of December 28, 2003 and December 29,
2002 were as follows:

<Table>
<Caption>
                                                              DEC. 28, 2003   DEC. 29, 2002
                                                              -------------   -------------
                                                                      IN THOUSANDS
<S>                                                           <C>             <C>
Postretirement benefits other than pensions.................     $   306         $   347
Depreciation................................................      (3,336)         (3,122)
Pension liability...........................................       2,934           2,637
Net operating loss carryforwards............................       2,305           1,981
Other, net..................................................         (95)             12
                                                                 -------         -------
Total.......................................................       2,114           1,855
Less-Valuation allowance....................................      (1,557)         (1,357)
                                                                 -------         -------
NET DEFERRED TAX ASSETS.....................................     $   557         $   498
                                                                 =======         =======
</Table>

     Included in net deferred tax liabilities as of December 28, 2003 are
unrealized tax benefits amounting to approximately $2.3 million related to net
operating loss carryforwards. The realization of these tax benefits is
contingent on future taxable net income being generated by certain foreign and
domestic operations. 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 $2.0
million of net operating losses will expire between 2004 and 2018. The company
has recognized a valuation allowance of $1.6 million 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.

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>
                                                                FISCAL YEAR ENDED
                                                  ---------------------------------------------
                                                  DEC. 28, 2003   DEC. 29, 2002   DEC. 30, 2001
                                                  -------------   -------------   -------------
                                                       IN THOUSANDS EXCEPT PER SHARE DATA
<S>                                               <C>             <C>             <C>
Reported net income.............................     $2,839          $4,669          $5,829
  Deduct: Stock option compensation cost, net of
     tax........................................       (128)            (68)           (805)
                                                     ------          ------          ------
  Pro forma net income..........................     $2,711          $4,601          $5,024
                                                     ======          ======          ======
Diluted earnings per share:
  Reported net income...........................     $ 0.55          $ 0.86          $ 1.05
  Deduct: Stock option compensation cost........       (.02)           (.02)           (.14)
                                                     ------          ------          ------
  Pro forma net income..........................     $ 0.53          $ 0.84          $ 0.91
                                                     ======          ======          ======
</Table>

                                        37
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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
1,277,084 shares through December 28, 2003 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 and 2001, respectively: risk-free
interest rates of 3.17% and 3.62%; no expected dividend yields; expected lives
of 8.0 years; expected volatility of 34% and 34%. No grants were made in 2003.

     A summary of the status of the company's stock option plans as of December
28, 2003, December 29, 2002, and December 30, 2001, and changes during the years
then ended, is presented in the tables below:

<Table>
<Caption>
                                                 2003                2002                2001
                                           -----------------   -----------------   -----------------
                                                    WEIGHTED            WEIGHTED            WEIGHTED
                                                    AVERAGE             AVERAGE             AVERAGE
                                                    EXERCISE            EXERCISE            EXERCISE
                                           SHARES    PRICE     SHARES    PRICE     SHARES    PRICE
                                           ------   --------   ------   --------   ------   --------
                                                              SHARES IN THOUSANDS
<S>                                        <C>      <C>        <C>      <C>        <C>      <C>
Outstanding at beginning of year.........   791      $11.27     827      $11.22     841      $11.21
Granted..................................    --          --      22       11.40       3       12.50
Exercised................................   (24)       8.77     (34)       9.18     (13)      10.05
Forfeited................................   (10)      11.87     (24)      12.14      (4)      12.74
                                            ---      ------     ---      ------     ---      ------
OUTSTANDING AT END OF YEAR...............   757       11.35     791       11.27     827       11.22
                                            ---      ------     ---      ------     ---      ------
Exercisable at end of year...............   751       11.36     747       11.42     703       11.60
Weighted average fair value of options
  granted................................            $   --              $ 5.12              $ 5.73
</Table>

     As of December 28, 2003, 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...................................................      572,469         185,000
  Weighted average exercise price..........................     $  10.53        $  13.95
  Weighted average remaining contractual life (in years)...          4.3             4.6
Exercisable Options:
  Number...................................................      566,142         185,000
  Weighted average exercise price..........................     $  10.52        $  13.95
Nonexercisable Options:
  Number...................................................        6,327              --
  Weighted average exercise price..........................     $  11.20        $     --
</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

                                        38
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 28, 2003 and December
29, 2002 were $36.1 million and $33.4 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.

PLAN ASSET ALLOCATION

     The weighted average asset allocations, as of November 2, 2003, 2002, 2001,
by asset category, are as follows:

<Table>
<Caption>
                                                              2003   2002   2001
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Equity Securities...........................................   60%    59%    43%
Debt Securities.............................................   39%    40%    56%
Real Estate.................................................   --     --     --
Other.......................................................    1%     1%     1%
                                                              ---    ---    ---
TOTAL.......................................................  100%   100%   100%
                                                              ===    ===    ===
</Table>

INVESTMENT POLICY

     To develop the expected long-term rate of return on assets assumption, the
company considered the historical returns and the future expectations for
returns for each asset class, as well as the target asset allocation of the
pension portfolio. This resulted in the selection of the 8.5% long-term rate of
return on assets assumptions.

<Table>
<Caption>
                                                              POLICY TARGET   POLICY RANGE
                                                              -------------   -------------
<S>                                                           <C>             <C>
ASSET CLASS
Large Capitalization Stocks.................................        25%         15%-35%
Mid Capitalization Stocks...................................        10%         5%-15%
Small Capitalization Stocks.................................         5%           5%
International Equities......................................        10%           10%
Core Bonds..................................................        50%         30%-60%
                                                                   ---
TOTAL.......................................................       100%
                                                                   ===
</Table>

     The above asset mix will be net of cash equivalents, used as appropriate
for distribution and/or liquidity needs. This asset mix may drift from the
target allocations due to market movements. The total portfolio is rebalanced
regularly to achieve the manager's target allocations.

     The plan does not invest in shares of Sylvan Inc. common stock.

CONTRIBUTIONS

     The minimum required contribution for 2004 is expected to be $114,912. This
assumes that pension funding relief is granted effective for the 2004 plan year.
Sylvan expects to contribute approximately $115,000 to the pension plan during
2004.

                                        39
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PLAN STATUS

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

<Table>
<Caption>
                                               PENSION BENEFITS                  OTHER BENEFITS
                                        ------------------------------   ------------------------------
                                        DEC. 28,   DEC. 29,   DEC. 30,   DEC. 28,   DEC. 29,   DEC. 30,
                                          2003       2002       2001       2003       2002       2001
                                        --------   --------   --------   --------   --------   --------
                                                                 IN THOUSANDS
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>
Change in benefit obligation:
Benefit obligation at beginning of
  year................................  $33,369    $30,085    $30,252     $ 735      $ 931      $ 985
Interest cost.........................    2,181      2,171      2,174        45         53         69
Actuarial (gain) loss.................    2,961      3,481         --        97       (164)       (17)
Benefits paid.........................   (2,387)    (2,368)    (2,341)     (120)       (85)      (106)
                                        -------    -------    -------     -----      -----      -----
BENEFIT OBLIGATION AT END OF YEAR.....  $36,124    $33,369    $30,085     $ 757      $ 735      $ 931
                                        =======    =======    =======     =====      =====      =====
Change in plan assets:
Fair value of plan assets at beginning
  of year.............................  $25,612    $30,220    $33,849     $  --      $  --      $  --
Actual return on plan assets..........    3,902     (2,240)    (1,288)       --         --         --
Employer contributions................      200         --         --       120         85        106
Benefits paid.........................   (2,387)    (2,368)    (2,341)     (120)       (85)      (106)
                                        -------    -------    -------     -----      -----      -----
FAIR VALUE OF PLAN ASSETS AT END OF
  YEAR................................  $27,327    $25,612    $30,220     $  --      $  --      $  --
                                        =======    =======    =======     =====      =====      =====
Reconciliation of funded status:
Funded status.........................  $(8,797)   $(7,757)   $   135     $(757)     $(735)     $(931)
Unrecognized net actuarial
  (gain)/loss.........................   14,984     14,414      6,372         5       (117)        43
Unrecognized prior service cost.......       --         --         --       (59)       (44)       (49)
                                        -------    -------    -------     -----      -----      -----
PREPAID (ACCRUED) BENEFIT LIABILITY...  $ 6,187    $ 6,657    $ 6,507     $(811)     $(896)     $(937)
                                        =======    =======    =======     =====      =====      =====
</Table>

                                        40
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                               PENSION BENEFITS                  OTHER BENEFITS
                                        ------------------------------   ------------------------------
                                        DEC. 28,   DEC. 29,   DEC. 30,   DEC. 28,   DEC. 29,   DEC. 30,
                                          2003       2002       2001       2003       2002       2001
                                        --------   --------   --------   --------   --------   --------
                                                                 IN THOUSANDS
<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     $   --     $   --     $  --
Accrued benefit liability (included in
  "Other Employee Benefits" in the
  Consolidated Balance Sheet).........   (8,797)    (7,757)        --         --         --        --
     Additional minimum pension
       liability......................   14,984     14,414         --         --         --        --
                                        -------    -------    -------     ------     ------     -----
NET AMOUNT............................  $ 6,187    $ 6,657    $ 6,507     $   --     $   --     $  --
                                        =======    =======    =======     ======     ======     =====
Weighted-average assumptions as of
  October 31 of each fiscal year:
Discount rate.........................     6.10%      6.80%      7.50%      6.10%      6.80%     7.50%
Expected return on plan assets........     8.50%      8.50%      9.00%        --         --        --
Components of net periodic pension
  cost (income):
Interest cost.........................  $ 2,181    $ 2,171    $ 2,174     $   46     $   53     $  69
Expected return on plan assets........   (1,927)    (2,450)    (2,778)        --         --        --
Amortization of prior service cost....       --         --         --         (6)        (6)       (6)
Recognized net actuarial
  (gain)/loss.........................      416        129         --         (4)        (4)       --
                                        -------    -------    -------     ------     ------     -----
NET PERIODIC BENEFIT COST (INCOME)....  $   670    $  (150)   $  (604)    $   36     $   43     $  63
                                        =======    =======    =======     ======     ======     =====
Assumed health care cost trend:
Initial trend rate....................                                     11.00%     10.00%     6.56%
Ultimate trend rate...................                                      5.00%      5.00%     5.00%
Year ultimate trend reached...........                                      2011       2008      2005
A one-percentage-point change in the
  assumed health care cost trend rates
  would have the following effects:
</Table>

<Table>
<Caption>
                                                   ONE PERCENTAGE         ONE PERCENTAGE
                                                   POINT INCREASE         POINT DECREASE
                                                   --------------         --------------
<S>                                                <C>                    <C>
Effect on total of service and interest
  cost components for 2003................               $1                    $(1)
Effect on 2003 postretirement benefit
  obligation..............................                5                     (5)
</Table>

     The Medicare Prescription Drug, Improvement and Modernization Act of 2003
was signed into law on December 8, 2003. It introduces a prescription drug
benefit under Medicare (Medicare Part D) that provides several options for
Medicare eligible participants and employers, including a federal subsidy to
companies that elect to provide a retiree prescription drug benefit which is at
least actuarially equivalent to Medicare Part D. The Act establishes a two-year
transitional period to allow for the possibility that companies may amend
existing plans. There are many uncertainties regarding the eventual regulations
required to implement the Act as well as the Act's overall affect on plan
participant's health care costs. Therefore, the effects of the Act are

                                        41
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not reflected in the accumulated postretirement benefit obligation as of
December 28, 2003 or in the 2003 net periodic postretirement benefit cost.
Sylvan is currently evaluating the provisions of the Act and its potential
impact to our postretirement medical plans. Because of the fixed and limited
nature of the plans, Sylvan does not believe the Act will result in any material
obligation or cost change.

     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 2003, 2002 and 2001 were $24,000,
$35,000 and $38,000, 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. No expense was recorded in 2003.

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.

                                        42
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                SPAWN PRODUCTS     FRESH MUSHROOMS    TOTAL REPORTABLE
                                                   SEGMENT             SEGMENT            SEGMENTS
                                               ----------------   -----------------   ----------------
                                                                    IN THOUSANDS
<S>                                     <C>    <C>                <C>                 <C>
Total Revenues........................  2003       $66,768             $29,544            $ 96,312
                                        2002       $63,996             $25,517            $ 89,513
                                        2001       $63,559             $23,621            $ 87,180
Intersegment Revenues.................  2003       $ 1,324             $    --            $  1,324
                                        2002       $ 1,321             $    --            $  1,321
                                        2001       $ 1,269             $    --            $  1,269
Depreciation Expense..................  2003       $ 4,605             $ 1,546            $  6,151
                                        2002       $ 4,195             $ 1,409            $  5,604
                                        2001       $ 3,793             $ 1,549            $  5,342
Operating Income......................  2003       $ 9,186             $ 2,849            $ 12,035
                                        2002       $10,567             $ 2,879            $ 13,446
                                        2001       $11,849             $ 2,642            $ 14,491
Net Fixed Asset Expenditures..........  2003       $ 1,739             $ 1,370            $  3,109
                                        2002       $ 3,219             $ 2,925            $  6,144
                                        2001       $ 6,330             $ 2,236            $  8,566
Assets................................  2003       $92,597             $19,640            $112,237
                                        2002       $85,166             $19,812            $104,978
                                        2001       $79,700             $19,040            $ 98,740
</Table>

                                        43
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  RECONCILIATION TO CONSOLIDATED FINANCIAL DATA

<Table>
<Caption>
                                                                2003       2002       2001
                                                              --------   --------   --------
                                                                       IN THOUSANDS
<S>                                                           <C>        <C>        <C>
Revenues:
Total for reportable segments...............................  $ 96,312   $ 89,513   $ 87,180
Elimination of intersegment revenues........................    (1,324)    (1,321)    (1,269)
                                                              --------   --------   --------
TOTAL CONSOLIDATED REVENUES.................................  $ 94,988   $ 88,192   $ 85,911
                                                              ========   ========   ========
Depreciation Expense:
Total for reportable segments...............................  $  6,151   $  5,604   $  5,342
Unallocated corporate expenses..............................        28         38         33
                                                              --------   --------   --------
TOTAL CONSOLIDATED DEPRECIATION EXPENSE.....................  $  6,179   $  5,642   $  5,375
                                                              ========   ========   ========
Operating Income:
Total for reportable segments...............................  $ 12,035   $ 13,446   $ 14,491
Unallocated corporate expenses..............................    (6,353)    (4,386)    (3,500)
                                                              --------   --------   --------
TOTAL CONSOLIDATED OPERATING INCOME.........................  $  5,682   $  9,060   $ 10,991
                                                              ========   ========   ========
Net Fixed Asset Expenditures:
Total for reportable segments...............................  $  3,109   $  6,144   $  8,566
Unallocated corporate expenditures..........................        --         --         33
                                                              --------   --------   --------
TOTAL CONSOLIDATED NET FIXED ASSET EXPENDITURES.............  $  3,109   $  6,144   $  8,599
                                                              ========   ========   ========
Assets:
Total for reportable segments...............................  $112,237   $104,978   $ 98,740
Prepaid pension asset from former operation.................        --         --      6,507
Unallocated corporate assets................................     1,628      1,828      1,843
                                                              --------   --------   --------
TOTAL CONSOLIDATED ASSETS...................................  $113,865   $106,806   $107,090
                                                              ========   ========   ========
</Table>

  GEOGRAPHIC ANALYSIS OF NET LONG-LIVED ASSETS

<Table>
<Caption>
                                                                       OTHER FOREIGN
                               UNITED STATES   FRANCE    NETHERLANDS     COUNTRIES      TOTAL
                               -------------   -------   -----------   -------------   -------
                                                        IN THOUSANDS
<S>                            <C>             <C>       <C>           <C>             <C>
2003.........................     $25,780      $12,871     $5,344         $17,139      $61,134
2002.........................      26,994       11,202      4,896          15,695       58,787
2001.........................      26,161        9,219      4,457          14,439       54,276
</Table>

  GEOGRAPHIC ANALYSIS OF REVENUES BASED ON LOCATION OF CUSTOMER

<Table>
<Caption>
                                                                       OTHER FOREIGN
                                UNITED STATES   FRANCE   NETHERLANDS     COUNTRIES      TOTAL
                                -------------   ------   -----------   -------------   -------
                                                         IN THOUSANDS
<S>                             <C>             <C>      <C>           <C>             <C>
2003..........................     $52,580      $4,863     $11,113        $26,432      $94,988
2002..........................      45,273       6,390       9,536         26,993       88,192
2001..........................      40,660       6,779       8,880         29,592       85,911
</Table>

                                        44
<PAGE>
                          SYLVAN INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 28, 2003, December 29, 2002 or December 30,
2001. The majority of the company's $15.9 million in trade accounts receivable
are from regional mushroom growers and composters. Approximately $2.3 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 2003, 2002 and 2001, a nonemployee director's business
interests purchased spawn and spawn-related products at fair market value
totaling $766,000, $493,000 and $589,000, respectively. These business interests
purchased mushrooms and services at fair market value totaling $5,000 in 2001
from the company's subsidiaries.

10.  MERGER DISCLOSURE DISCUSSION

     As previously announced on November 16, 2003, Sylvan entered into a
definitive agreement with Snyder Associated Companies, Inc. of Kittanning,
Pennsylvania, which will result in a merger between Sylvan and a Snyder
affiliate. The Sylvan Board of directors, upon the unanimous recommendation of
its special committee of independent directors, approved the merger and the
agreement. The merger is subject to certain conditions, including the approval
by a majority of the shareholders of Sylvan. Sylvan expects to be able to
convene a meeting of its shareholders for that purpose in the second quarter of
2004 and, if approved by Sylvan's shareholders, the transaction is expected to
be completed shortly thereafter.

     The merger agreement currently provides for a termination date of May 1,
2004 if the merger has not been completed by that date. The company intends to
discuss an extension of this date with Snyder Associated Companies, Inc.

                                        45
<PAGE>

                          CONSENT OF ERNST & YOUNG LLP

The Board of Directors and Stockholders
Sylvan Inc.

     We consent to the incorporation by reference in the Registration Statements
(Forms 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 report dated February 2, 2004, with respect to the consolidated
financial statements and schedule of Sylvan Inc. included in this Annual Report
(Form 10-K) for the year ended December 28, 2003.

                                          /s/ ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
March 23, 2004

                                        46
<PAGE>

              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.

                                        47
<PAGE>

                                    PART III

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

     None

ITEM 9A.  CONTROLS AND PROCEDURES

     (a) Evaluation of Disclosure Controls and Procedures

         Sylvan's principal executive officer and principal financial officer
         have evaluated the effectiveness of Sylvan's "disclosure controls and
         procedures," as such term is defined in Rule 13a-15(e) under the
         Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of
         December 29, 2003. Based upon their evaluation, the principal executive
         officer and principal financial officer concluded that Sylvan's
         disclosure controls and procedures are effective to provide reasonable
         assurance that information required to be disclosed by Sylvan in the
         reports filed or submitted by it under the Exchange Act is recorded,
         processed, summarized and reported within the time periods specified in
         the SEC's rules and forms, and to provide reasonable assurance that
         information required to be disclosed by Sylvan in such reports is
         accumulated and communicated to Sylvan's management, including the
         principal executive officer and principal financial officer, as
         appropriate to allow timely decisions regarding required disclosure.

     (b) Changes in Internal Controls

         There was no change in Sylvan's "internal control over financial
         reporting" (as such term is defined in Rule 13A-15(f) under the
         Exchange Act) that occurred during the quarter ended December 29, 2003,
         and that has materially affected, or is reasonably likely to materially
         affect, Sylvan's internal control over financial reporting.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

     Sylvan has not adopted a Code of Ethics for Senior officers as defined in
Item 406 of Regulation S-K because of the proposed merger with an affiliate of
Snyder Associated Companies, which will result in Sylvan being a privately held
company. Sylvan expected that the merger would be completed sooner than is
currently anticipated.

ITEM 11.  EXECUTIVE COMPENSATION

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is set forth under the captions
"Common Stock Ownership of Certain Beneficial Owners" and "Common Stock
Ownership of Directors and Executive Officers" in Sylvan's Proxy Statement to be
filed pursuant to Regulation 14A and is incorporated herein by reference.

                                        48
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

                                    PART IV

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

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

     Included as Item 8

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

<Table>
<Caption>

<C>      <S>
 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 (as 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*)
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*)
</Table>

                                        49
<PAGE>

<Table>
<Caption>

<C>      <S>
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*)
10.41    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 (Exhibit 10.48 to the
         Company's Form 10-K filed for the year ended December 29,
         2002*)
10.49    Agreement and Plan of Merger, dated November 16, 2003, among
         Sylvan Inc., Snyder Associated Companies, Inc. and SAC
         Holding Co., filed herewith
10.50    Collective Bargaining Agreement, dated January 21, 2004,
         between Quincy Corporation and the United Farm Workers of
         America, AFL-CIO, filed herewith
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
31       Rule 13a-14(a) Certification of Donald A. Smith
32       Section 1350 Certification of Dennis C. Zensen
32       Section 1350 Certification of Donald A. Smith
</Table>

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

 * Incorporated by reference.

** Management contract.

                                        50
<PAGE>

(B)  REPORTS ON FORM 8-K

     During the three months ended December 28, 2003, Sylvan filed and furnished
the following reports on Form 8-K:

     On November 13, 2003, the company furnished a current report containing a
press release, dated November 12, 2003, reporting earnings for the quarter ended
September 28, 2003, and providing a financial outlook.

     On November 17, 2003, the company filed a current report containing a press
release, dated November 16, 2003, announcing that Sylvan had entered into a
definitive agreement with Snyder Associated Companies, Inc. that will result in
a merger between Sylvan and a Snyder affiliate.

     On November 18, 2003, the company filed a current report containing a
merger agreement, dated November 16, 2003, among Sylvan Inc., Snyder Associated
Companies, Inc. and SAC Holding Co.

                                        51
<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/ DENNIS C. ZENSEN                                          March 26, 2004
    ----------------------------------
    Dennis C. Zensen
    President and CEO

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
              SIGNATURE                                TITLE                       DATE
              ---------                                -----                       ----
<S>     <C>                              <C>                                  <C>

         /s/ DENNIS C. ZENSEN                 Chairman of the Board of        March 26, 2004
--------------------------------------     Directors, President and Chief
           Dennis C. Zensen                 Executive Officer (Principal
                                                 Executive Officer)


         /s/ DONALD A. SMITH             Chief Financial Officer (Principal   March 26, 2004
--------------------------------------   Financial and Accounting Officer)
           Donald A. Smith


        /s/ WILLIAM L. BENNETT                        Director                March 26, 2004
--------------------------------------
          William L. Bennett


        /s/ MONIR K. ELZALAKI             President, Sylvan America, Inc.     March 26, 2004
--------------------------------------                Director
          Monir K. Elzalaki


        /s/ JEANINE C. HELLER                         Director                March 26, 2004
--------------------------------------
          Jeanine C. Heller


      /s/ VIRGIL H. JURGENSMEYER                      Director                March 26, 2004
--------------------------------------
        Virgil H. Jurgensmeyer


           /s/ NELSON OBUS                            Director                March 26, 2004
--------------------------------------
             Nelson Obus
</Table>

                                        52
<PAGE>

             INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

<Table>
<Caption>
EXHIBIT NO.                          DESCRIPTION                            PAGE NO.
-----------                          -----------                            --------
<C>          <S>                                                            <C>
             Report of Independent Auditors (Ernst & Young LLP)                21
             Report of Independent Public Accountants (Arthur Andersen         22
             LLP)
             Consolidated Balance Sheets at December 28, 2003 and              23
             December 29, 2002
             Consolidated Statements of Income for the Years Ended             24
             December 28, 2003, December 29, 2002 and December 30, 2001
             Consolidated Statements of Changes in Shareholders' Equity        25
             for the Years Ended December 28, 2003, December 29, 2002,
             and December 30, 2001
             Consolidated Statements of Cash Flows for the Years Ended         26
             December 28, 2003, December 29, 2002, and December 30, 2001
             Notes to Consolidated Financial Statements                        27
             Consent of Independent Auditors (Ernst & Young LLP)               46
             Information Regarding the Consent of Independent Auditor          47
             (Arthur Andersen LLP)
             Schedule II -- Valuation and Qualifying Accounts for the          55
             Years Ended December 28, 2003, December 29, 2002 and
             December 30, 2001
   3.3       Articles of Incorporation of S. F. Nevada, Inc.                   (a)
   3.4       Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods         (a)
             Holdings, Inc. with exhibit
   3.5       Bylaws                                                            (a)
  10.1.2     Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan           (b)
  10.1.3     Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for            (c)
             Nonemployee Directors
  10.12      Sylvan Inc. 1990 Stock Option Plan, as amended and restated       (a)
  10.2.1     Revolving Credit Agreement, dated as of August 6, 1998, by        (d)
             and among Sylvan Inc., a Nevada corporation, and Sylvan
             Foods (Netherlands) B.V., a Dutch corporation, as Borrowers;
             the Banks party thereto from time to time and Mellon Bank,
             N.A., a national banking association, as issuing bank and as
             agent for the Banks thereunder, together with various
             annexes, exhibits, and schedules
  10.2.2     Revolving Credit Note, dated August 6, 1998, payable to           (d)
             Mellon Bank, N.A. in the amount of $25,000,000
  10.2.3     Revolving Credit Note, dated August 6, 1998, payable to ABN       (d)
             AMRO Bank, Pittsburgh Branch, in the amount of $25,000,000
  10.2.4     Promissory Note, dated August 6, 1998, payable to Mellon          (d)
             Bank, N.A. in the amount of $5,000,000
  10.2.5     Mellon Global Cash Management ABS Agreement, dated August 6,      (d)
             1998, by and between Sylvan Inc. and Mellon Bank, N.A.
  10.2.6     Guaranty and Suretyship Agreement, dated August 6, 1998, by       (d)
             and between Sylvan Inc. and Mellon Bank, N.A.
  10.2.7     Guaranty and Suretyship Agreement, dated August 6, 1998, by       (d)
             and between Sylvan Foods, Inc. and Mellon Bank, N.A.
  10.2.8     Guaranty and Suretyship Agreement, dated August 6, 1998, by       (d)
             and between Sylvan America, Inc. (a Pennsylvania
             corporation) and Mellon Bank, N.A.
  10.2.9     Guaranty and Suretyship Agreement, dated August 6, 1998, by       (d)
             and between Sylvan America, Inc. (a Nevada corporation) and
             Mellon Bank, N.A.
  10.2.10    Guaranty and Suretyship Agreement, dated August 6, 1998, by       (d)
             and between Quincy Corporation and Mellon Bank, N.A.
  10.2.11    Index of Other Exhibits to the Revolving Credit Agreement         (d)
             referenced in Exhibit 10.2.1
  10.5.1     Agreement, dated January 14, 2000, by and between C And C         (e)
             Carriage Mushroom Co., t/a Modern Sales Company, and Quincy
             Corporation
</Table>

                                        53
<PAGE>

<Table>
<Caption>
EXHIBIT NO.                          DESCRIPTION                            PAGE NO.
-----------                          -----------                            --------
<C>          <S>                                                            <C>
  10.5.2     Index of Exhibits to the Agreement referenced in Exhibit          (e)
             10.5.1
  10.41      Notification letter, dated October 12, 2001, regarding            (f)
             Mellon Bank's transfer to Citizens Financial Group, Inc. of
             its right, title and interest in the Revolving Credit
             Agreement, dated August 6, 1998
  10.43      Employment Continuation Agreement with Dennis C. Zensen,          (g)
             dated September 24, 2002
  10.44      Employment Continuation Agreement with Monir K. Elzalaki,         (g)
             dated September 21, 2002
  10.45      Employment Continuation Agreement with Donald A. Smith,           (g)
             dated September 19, 2002
  10.46      Employment Continuation Agreement with Gary D. Walker, dated      (g)
             September 24, 2002
  10.47      Manager's Service Agreement with Michael A. Walton, dated         (g)
             April 17, 1988
  10.48      Amendment No. 1 to Revolving Credit Agreement, dated as of        (h)
             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
  10.49      Agreement and Plan of Merger, dated November 16, 2003, among      56
             Sylvan Inc., Snyder Associated Companies, Inc. and SAC
             Holding Co.
  10.50      Collective Bargaining Agreement, dated January 21, 2004,         118
             between Quincy Corporation and the United Farm Workers of
             America, AFL-CIO
  21         Subsidiaries of the Registrant                                   138
  31         Rule 13a-14(a) Certification of Dennis C. Zensen                 139
  31         Rule 13a-14(a) Certification of Donald A. Smith                  140
  32         Section 1350 Certification of Dennis C. Zensen                   141
  32         Section 1350 Certification of Donald A. Smith                    142
</Table>

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

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

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

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

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

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

(f) This exhibit was previously filed with the company's Form 10-K for the year
    ended December 30, 2001 and is incorporated herein by reference.

(g) This exhibit was previously filed with the company's Form 10-Q for the
    quarter ended September 29, 2002 and is incorporated herein by reference.

(h) This exhibit was previously filed with the company's Form 10-K for the year
    ended December 29, 2002 and is incorporated herein by reference.

                                        54
<PAGE>

                                                                     SCHEDULE II

                   SYLVAN INC. AND SUBSIDIARIES (THE COMPANY)

                       VALUATION AND QUALIFYING ACCOUNTS
            FOR THE YEARS ENDED DECEMBER 28, 2003, DECEMBER 29, 2002
                             AND DECEMBER 30, 2001

<Table>
<Caption>
                                                      ADDITIONS
                                               -----------------------
                                  BALANCE AT   CHARGED TO                DEDUCTIONS                BALANCE
                                  BEGINNING    COSTS AND                    FROM                   AT END
DESCRIPTION                       OF PERIOD     EXPENSES    RECOVERIES   RESERVES(A)   OTHER(B)   OF PERIOD
-----------                       ----------   ----------   ----------   -----------   --------   ---------
                                                               (IN THOUSANDS)
<S>                               <C>          <C>          <C>          <C>           <C>        <C>
Year ended December 28, 2003 --
     Allowance for doubtful
       accounts.................     $795         $239          $0          $ (99)       $124      $1,059
                                     ====         ====          ==          =====        ====      ======
Year ended December 29, 2002 --
     Allowance for doubtful
       accounts.................     $440         $492          $0          $(194)       $ 57      $  795
                                     ====         ====          ==          =====        ====      ======
Year ended December 30, 2001 --
     Allowance for doubtful
       accounts.................     $497         $107          $0          $(125)       $(39)     $  440
                                     ====         ====          ==          =====        ====      ======
</Table>

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

(a) Represents uncollected accounts charged against the allowance.

(b) Represents the effect of currency translation adjustments.

                                        55