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

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999       COMMISSION FILE NUMBER 0-19890

                              LIFECELL CORPORATION

     A  DELAWARE                                     IRS EMPLOYER IDENTIFICATION
     CORPORATION                                     NO.  76-0172936

                               ONE MILLENNIUM WAY
                          BRANCHBURG, NEW JERSEY  08876

                         Telephone Number (908) 947-1100

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

                                      NONE

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

                          Common Stock, $.001 Par Value

     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.  [  ]

Aggregate  market value of the voting stock (Common Stock and Series B Preferred
Stock,  assuming  conversion  of  such  Preferred Stock into Common Stock at the
current  conversion  rate)  held by non-affiliates of registrant as of March 17,
2000:  $117,282,428.

Number  of shares of registrant's Common Stock outstanding as of March 17, 2000:
13,667,361.  (If the Series B Preferred Stock had converted into Common Stock as
of  such  date,  there  would be 17,089,973 shares of Common Stock outstanding.)

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions  of  registrant's  proxy  statement  relating  to the June 2, 2000
annual meeting of stockholders have been incorporated by reference into Part III
hereof.
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<PAGE>
<TABLE>
<CAPTION>
                                          TABLE OF CONTENTS

                                             DESCRIPTION


Item                                                                                               Page
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<S>         <C>                                                                                    <C>

PART I                                                                                              3
  Item 1.   Business                                                                                3
            General                                                                                 3
            Technology                                                                              3
            Strategy                                                                                4
            Products and Product Development Activities                                             5
            Marketing                                                                              10
            Sources of Materials                                                                   10
            Government Regulation                                                                  10
            Research and Development                                                               14
            Competition                                                                            15
            Environmental Matters                                                                  16
            Employees                                                                              16
            Special Note Regarding Forward-Looking Statements                                      16
            Risk Factors                                                                           16
  Item 2.   Properties                                                                             23
  Item 3.   Legal Proceedings                                                                      23
  Item 4.   Submission of Matters to a Vote of Security Holders                                    23

PART II                                                                                            24
  Item 5.   Market for the Registrant's Common Equity and Related Stockholder Matters              24
            Dividend Policy                                                                        24
  Item 6.   Selected Financial Data                                                                25
  Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations  26
            General and Background                                                                 26
            Results of Operations                                                                  26
            Liquidity and Capital Resources                                                        28
  Item 7A.  Quantitative and Qualitative Disclosure About Market Risk                              29
  Item 8.   Financial Statements and Supplementary Data                                            29
  Item 9.   Changes and Disagreements with Accountants on Accounting and Financial Disclosure      29

PART III                                                                                           29
  Item 10.  Directors and Executive Officers of the Registrant                                     29
  Item 11.  Executive Compensation                                                                 29
  Item 12.  Security Ownership of Certain Beneficial Owners and Management                         29
  Item 13.  Certain Relationships and Related Transactions                                         30

PART IV                                                                                            30
  Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K                       30
</TABLE>


                                        2
<PAGE>
PART  I

     This  Annual  Report  on  Form  10-K  contains,  in  addition to historical
information,  "forward-looking statements" (within the meaning of Section 27A of
the  Securities  Act  of  1933,  as  amended,  and Section 21E of the Securities
Exchange  Act  of  1934,  as amended) that involve risks and uncertainties.  See
"Business-Special  Note  Regarding  Forward-Looking  Statements."

ITEM  1.     BUSINESS

GENERAL

     LifeCell Corporation is a bioengineering company engaged in the development
and  commercialization  of  tissue  regeneration and cell preservation products.
Our  core  preservation  technology  produces  an acellular tissue matrix, which
retains the essential biochemical and structural components necessary for normal
tissue  regeneration.  We  currently  market  three  products  based  on  this
technology: AlloDerm(R) for the reconstructive plastic, burn and dental markets;
Cymetra(TM),  micronized  AlloDerm  tissue  for  the  reconstructive plastic and
dermatology markets; and  Repliform(TM)acellular  tissue  for  the  urology  and
gynecology  market.  We  believe  that  our  products  are the only commercially
available  tissue  transplant  products that provide a complete template for the
regeneration  of  normal  human soft tissue.  We estimate that AlloDerm has been
transplanted  in  more  than  50,000  patients.  We  also are developing several
additional  products, including small diameter vascular grafts as an alternative
to  autografted  blood  vessels, orthopedic applications of our acellular tissue
matrix,  and  ThromboSol(TM),  a formulation for  extended  storage of platelets
("ThromboSol".)

     We were incorporated in the State of Delaware in 1992 as the successor to a
Delaware corporation that was incorporated in 1986.

TECHNOLOGY

     Our  product  development  programs  have been generated from the following
     proprietary  technologies:

     -     a method for producing an  extracellular  tissue matrix  by  removing
           antigenic  cellular  elements  while  stabilizing the  matrix against
           damage;

     -     a method for cell preservation  by manipulating  cells through signal
           transduction (i.e., manipulation of cellular metabolism) to protect
           cells during prolonged  storage;  and

     -     a method for freeze-drying  biological cells  and tissues without the
           damaging  effects  of  ice  crystals.

     TISSUE  PROCESSING  TECHNOLOGY

     Our  tissue  processing  technology removes antigenic cells from the tissue
matrix  to  eliminate  the  potential for specific rejection of the transplanted
tissue.  Our  tissue  processing  technology  also

     -     stabilizes  the tissue  matrix  by  preserving  its natural structure
           and  biochemical  properties  that  promote  cell  repopulation  and

     -     allows  for  extended  storage  by freeze-drying  the  tissue  matrix
           without significant ice crystal damage  thus  avoiding a non-specific
           immune response upon transplantation.

     Soft  tissue  contains a complex, three-dimensional structure consisting of
multiple  forms  of  collagen,  elastin,  proteoglycans,  other proteins, growth
factors  and  blood  vessels (the "tissue matrix").  Together, the tissue matrix
and  the  cells  that  populate  it  form  the soft tissues of the body, such as
dermis,  heart  valves, blood vessels, nerve connective tissue, and other tissue
types.  As  part of the body's natural remodeling process, cells within a tissue
continuously  degrade  and, in the process, replace the tissue matrix.  However,
in  the  event  that  a  large portion of the tissue matrix is destroyed or lost
because  of  trauma  or surgery, the body cannot regenerate the damaged portion.
The  only  method  of  replacing  large sections of the tissue matrix is through
transplantation.

     Soft  tissue  transplants  from one part of the  patient's  body to another
(autograft)  generally are  successful;  however,  the procedure  results in the
creation of an additional  wound site.  Historically,  the ability to transplant
tissue  from one person to another  (allograft)  has been  limited  because  the
donor's  cells within the  transplanted  tissue may trigger an immune  response,
resulting in  rejection of the  transplanted  tissue.  We believe that  previous
attempts to remove cells from soft tissue grafts before  performing an allograft
transplant  have resulted in disruption or damage of the tissue matrix,  causing
an inflammatory response and rejection of the tissue following transplantation.


                                        3
<PAGE>
     We believe our tissue processing  technology offers the following important
     benefits:

          Natural Tissue  Regeneration.  Tissue grafts  produced with our tissue
     processing technology retain the structural and biochemical properties that
     stimulate normal cell repopulation and normal soft tissue regeneration.  In
     addition,  our clinical studies with dermis and preliminary  animal studies
     with heart valve leaflets,  nerve  connective  tissue grafts,  and vascular
     grafts  processed  with our  technology  indicate  that such tissues can be
     remodeled  by  the  recipient's   own  cells  and  eventually   become  the
     recipient's own tissue.

          Multiple Potential Applications. We believe that our tissue processing
     technologies  have the  potential  to  generate  additional  products  with
     multiple applications.  In addition to the current commercial  applications
     of  AlloDerm  (i.e.,  reconstructive  plastic,  dental  and burn  surgery),
     Repliform  and Cymetra,  we believe that our  acellular  tissue  matrix may
     provide additional benefits in neurosurgery and orthopedic surgery. We also
     are evaluating the  applicability  of our technologies to other tissues and
     are  conducting  animal  studies  with  blood  vessels  processed  with our
     technology.

          Safety.  Our  tissue  processing  technology  is  designed  to produce
     products that will revascularize and integrate into the body's own tissues.
     The patient's immune cells also are able to penetrate into the transplanted
     tissue  and  thus  aid  in  preventing  infections.  In  contrast,  certain
     synthetic  implants do not allow penetration of the patient's immune cells,
     thereby  compromising  the  body's  natural  ability  to fight  infections.
     AlloDerm  has a proven  safety  record of over seven  years and over 50,000
     grafts have been transplanted to date.

          Prolonged Shelf Life. Our  proprietary  tissue  processing  technology
     allows extended storage and ease of  transportation  of products.  AlloDerm
     and Repliform are validated for storage at normal refrigerated temperatures
     for up to two years. In contrast,  traditionally  processed skin allografts
     require low temperature (-80 C) storage and shipping with dry ice.

          Compatibility  with  Other  Technologies.  Several  types  of  tissues
     processed with our technology retain important biochemical components, such
     as proteoglycans  including  hyaluronic acid. These biochemical  components
     bind growth  factors that  stimulate  tissue  regeneration.  Therefore,  we
     believe it may be possible to use our  technology  to develop  tissue-based
     delivery vehicles for these factors and cells.

     CELL  PRESERVATION  TECHNOLOGY

     Blood  cells  circulating  within  the body are exposed to multiple factors
that  maintain  their  stability  and  prevent activation.  When blood cells are
removed  from  the body for storage, these stabilizing influences are absent and
result  in  the destabilization and irreversible activation of the cells.  These
damaging  events  currently limit the shelf life of transfusable red blood cells
to  42  days  under  refrigeration  and  blood  platelets  to  five days at room
temperature.

Our  cell  preservation  technology  mimics  the stabilizing influences that are
present  in the body through manipulation of signal transduction mechanisms that
control cellular metabolism, combined with either low temperature storage or our
patented  freeze-drying  technology.  If  successfully  implemented,  our  cell
preservation  technology  could result in multiple products for the preservation
of  directly  transfusable  blood cells with extended shelf life, which could be
stored  in  a  manner  consistent  with  current  blood  banking  practices.

STRATEGY

     Our  vision  is  to  be  a  leader  in  the  emerging field of regenerative
medicine,  by  developing  and  marketing  biologic  solutions  for  the repair,
replacement  and  preservation of human cells and tissue.  Our strategy includes
the  following  principal  elements:

     EXPANDING  PENETRATION  OF  ALLODERM(R)  INTO  CURRENT  TARGET  MARKETS

     Our  direct marketing effort  focuses on the use of AlloDerm(R) in head and
neck,  and  plastic and reconstructive procedures.  We see great opportunity for
sales  growth  in this area, in which AlloDerm  is used as an alternative to the
current standard  of  care,  autografts.  We have initiated numerous programs to
achieve  this  goal.  These  include:

     -     conducting additional clinical  studies  to  demonstrate the benefits
           of  AlloDerm(R)  compared  to  autografts;

     -     supporting publications in leading scientific journals describing the
           uses and  benefits  of  AlloDerm;

     -     utilizing our expanded sales and marketing staff to call on a broader
           audience  of  hospital-based  surgeons;


                                        4
<PAGE>
     -     participating at trade shows and sponsoring  educational and surgical
           training  workshops  on  the  use  of  AlloDerm.

     We  currently  market  AlloDerm  for use in reconstructive plastic and burn
surgery  in  domestic  markets  through  our  own  sales  force.  For  dental
applications and selected international markets, we market through distributors.

     FULL  LAUNCH  OF  REPLIFORM  IN  UROGYNECOLOGY  MARKET

     Repliform , introduced in 1999, is the application of our matrix technology
within  the  urology  and  gynecology  market.  We market Repliform  through our
partnership  with  Boston  Scientific,  a  worldwide developer, manufacturer and
marketer  of  medical  devices with a well-established marketing presence in the
urology  field.

     In  February 2000, we, in conjunction with Boston Scientific, initiated the
full launch of Repliform following  the  successful  completion  of  a  targeted
introduction  of the product to thought leaders in the United States.  We intend
to  increase  the  penetration  of Repliform in this market by demonstrating the
benefits  of  Repliform  compared to other products when used as a bladder sling
for  the  treatment  of  urinary  incontinence.

     LAUNCH  CYMETRA(TM)  IN  RECONSTRUCTIVE  PLASTIC  AND  DERMATOLOGY  MARKETS

     In December 1999, we  introduced  Cymetra, a micronized AlloDerm tissue to
selected  plastic and reconstructive surgeons.  In February 2000, we announced a
co-promotion  agreement with Obagi Medical Products ("Obagi") that granted Obagi
exclusive  promotion  rights  to  market  to  office-based  plastic surgeons and
dermatologists.  Our  sales  force  will  focus  its  efforts  on hospital-based
reconstructive  plastic  surgeons.

     LEVERAGING  TECHNOLOGY  PLATFORMS  TO  DEVELOP  NEW  PRODUCTS

     Research  continues  into  uses  of  our  technology in vascular grafts and
orthopedics.  Our  vascular  graft  research  has  shown promise in pre-clinical
feasibility  studies.  We  intend  to  seek  a corporate partner for the further
development  and  commercialization  of  this  product  during  2000.

     Pre-clinical studies  suggest that our  acellular  tissue  matrix  may also
remodel into  tendons,  cartilage and bone. We intend to investigate further the
use  of  our  acellular  tissue  and  micronized  acellular  tissue  for  use in
orthopedics.

We  are using our proprietary cell preservation technology in the development of
solutions that would extend the shelf life of platelets and red blood cells.  We
plan  to  establish  collaborative  out-licensing  arrangements with appropriate
partners  to  fund  the  development  and  commercialization of certain of these
products.

PRODUCTS  AND  PRODUCT  DEVELOPMENT  ACTIVITIES

     ACELLULAR  TISSUE  PRODUCTS

     ALLODERM(R)

     AlloDerm(R)  is acellular tissue  processed  with  our  proprietary  tissue
processing  technology  using  donated  human (cadaveric) skin.  We believe that
AlloDerm is the only transplant tissue product on the market today that promotes
the  regeneration  of  normal  human  soft  tissue.  Following  transplant,  the
AlloDerm  graft  becomes  repopulated  with  the  patient's  own  cells  and  is
revascularized  (i.e.,  blood  supply  is restored), becoming engrafted into the
patient.  AlloDerm is a versatile tissue and has multiple surgical applications.
AlloDerm  is  predominately used in reconstructive plastic, periodontal and burn
surgery.

     We receive  donated  human skin from tissue banks in the United States that
comply  with the  FDA's  human  tissue  regulations.  In  addition,  we  require
supplying  tissue  banks to comply with  procedural  guidelines  outlined by the
American  Association  of Tissue  Banks.  We conduct  microbiological  and other
rigorous  quality  assurance  testing before our acellular  tissue  products are
released for  shipment.  AlloDerm has a proven safety record of over seven years
and over 50,000 grafts have been  transplanted  to date.  AlloDerm is shipped at
ambient   temperature  by  overnight   delivery  services  and  has  a  two-year
refrigerated shelf life.

     We have  established what we believe to be adequate sources of donated skin
tissue at  acceptable  costs to satisfy  the  foreseeable  demand for all of our
commercialized  tissue  products.  However,  there can be no assurance  that the
future  availability of donated human skin will be sufficient to meet our demand
for such materials.


                                        5
<PAGE>
     RECONSTRUCTIVE  PLASTIC  SURGERY.  AlloDerm is  marketed to  reconstructive
plastic  surgeons  as  an  "off-the-shelf"   alternative  to  autograft.  Within
reconstructive  plastic  surgery,  AlloDerm is used  primarily in the  following
types of surgical procedures:

     -    as an  implant  for  soft  tissue  reconstruction  or  tissue  deficit
          correction;

     -    as an interpositional graft for tissue coverage or closure;

     -    as a graft or implant for scar  revision or the dermal  component of a
          skin graft; and

     -    as a sling to support tissue following nerve or muscle damage.

     Based  on industry sources, we estimate there are approximately one million
reconstructive  surgical  procedures  performed annually in the United States in
which  AlloDerm  could  be  used.  We  estimate that our target market for sheet
AlloDerm  is  241,000 procedures. These procedures include various head and neck
aesthetic and reconstructive surgeries, cancer reconstruction, scar revision and
oral  cavity  reconstruction.  In  these  procedures,  the  greatest competitive
pressures  to  AlloDerm  are  from autologous tissue, synthetic and biosynthetic
materials.  The  disadvantages  of  using autologous tissue is the creation of a
separate  donor  site  wound and the associated pain, healing, and scarring from
this  additional  wound.  The disadvantages of using synthetic materials are the
susceptibility  of  synthetics  to  infection,  the  graft  moving away from the
transplanted  area  (mobility),  and  erosion  of  the  graft  through  the skin
(extrusion).  Additionally,  some  biosynthetic  materials  may  include  bovine
collagen,  which  requires  patient  sensitivity  testing.

     PERIODONTAL  SURGERY.  We began  marketing  AlloDerm  to  periodontists  in
September 1995. Lifecore  Biomedical,  Inc. is our exclusive  distributor in the
United  States  and  select  international   markets  of  AlloDerm  for  use  in
periodontal  applications.  Periodontal  surgeons  use  AlloDerm to increase the
amount of attached gum tissue  supporting  the teeth.  Until the  development of
AlloDerm,  these procedures were predominately  performed with autologous tissue
excised from the roof of the patient's mouth and then transplanted to the gum.

     AlloDerm also is used in periodontal  procedures for covering exposed tooth
roots. This procedure involves placing AlloDerm underneath gum tissue,  which is
then lifted up to cover the exposed  root.  AlloDerm  allows for the coverage of
multiple  exposed  roots  in a  single  surgery  without  being  limited  by the
availability  of autologous  palatal  tissue.  AlloDerm has been  evaluated in a
clinical study of 50 patients in which AlloDerm proved  equivalent to autologous
connective  tissue grafts for covering roots.  The patients were also spared the
pain and discomfort associated with the excision of the palatal autograft.

     In mid 1998, in association  with Lifecore  Biomedical,  we began marketing
AlloDerm for use in root  coverage  procedures.  Based on industry  sources,  we
estimate  250,000 root coverage  procedures in which  AlloDerm could be used are
performed annually in the United States.

     AlloDerm tissue products also are used as barrier  membranes in guided bone
regeneration.  In this  function,  the AlloDerm  tissue serves as a barrier over
allograft bone grafts or bone substitutes, which are used to restore degenerated
alveolar bone.

     According to the most  recently  published  data from the  American  Dental
Association,  there were  approximately  480,000 soft tissue  grafts and 230,000
bone-related  grafts  performed  in  1990  in  the  United  States.  Competitive
procedures use autologous tissue as well as synthetic material.  We believe that
AlloDerm has advantages over autologous  tissue because of the reduced trauma to
the patient,  and over certain  non-resorbable  synthetic  materials  because it
integrates into the patient's  tissue and does not require a separate  procedure
for removal.

     BURNS.  During 1994, we began  commercial  sales of AlloDerm for use in the
treatment of third-degree and deep second-degree  burns requiring skin grafting.
Skin is the  body's  largest  organ and is the  first  line of  defense  against
invasion of foreign  substances.  It contains two functional  layers,  the upper
surface consisting primarily of cells (epidermis) and an underlying foundational
layer  consisting  primarily  of  extracellular  matrix  proteins  and  collagen
(dermis).  The epidermis  functions as a water barrier and maintains  hydration.
The dermis provides other important skin properties  including tensile strength,
durability and elasticity.  Dermis,  like many other tissues of the body, is not
capable of de novo  regeneration.  The most  conservative  and  common  surgical
treatment of third-degree and deep second-degree burns use split-thickness  skin
autografts  (the  epidermal  layer  and a  portion  of the  dermis)  taken  from
uninjured  areas of the  patient's  body.  The  surgical  procedure  when  using
AlloDerm in treating  these  patients is to place  AlloDerm where the patient is
missing  dermis and cover the AlloDerm with an ultra-thin  split-thickness  skin
autograft (the epidermal layer and a much thinner  portion of the dermis).  This
procedure  has  produced   comparable   results  to  normal   autografts   while
significantly reducing donor site trauma.


                                        6
<PAGE>
     The use of AlloDerm  in burn  grafting  has  clinically  shown  performance
equivalent  to  autograft  in  reducing  the  occurrence  and  effects  of  scar
contracture.  Scar  contracture is a progressive  tightening of scar tissue that
can cause skin and joint  immobility.  Severe scar contracture can limit the use
and function of all mobile joints, such as the arms, legs, feet, hands and neck.
Burn patients commonly undergo or need repetitive  reconstructive  surgeries for
scar  contracture.  We believe that AlloDerm  provides  significant  therapeutic
value when used in burn grafting over a patient's mobile joints.

     Based on industry sources, we estimate that approximately 80,000 people are
hospitalized  each  year in the  United  States  due to burns and that more than
20,000 of such patients are admitted with major burns requiring skin grafts.  We
believe AlloDerm could be used effectively with all of these patients.

     POTENTIAL ORTHOPEDIC  APPLICATIONS OF ALLODERM. We have been advised that a
small number of surgeons have used  AlloDerm to reinforce the capsular  ligament
surrounding  certain joints.  Based on these surgeons'  preliminary  results,  a
product  development  plan has been implemented for orthopedic uses of AlloDerm.
We intend to conduct  pre-clinical  studies  investigating  the potential of our
acellular  tissue  matrix to remodel  into  orthopedic  tissues  such as tendon,
ligament, cartilage, meniscus and bone.

     If  successfully  developed,  an acellular  tissue product for  orthopedics
could be used in more than 620,000 procedures.

     REPLIFORM(TM)

     UROLOGY AND GYNECOLOGY SURGERY. Since 1997, surgeons have used Repliform or
AlloDerm in urological and gynecological  procedures in the treatment of urinary
incontinence  and to repair damaged or inadequate  female pelvic tissues.  Since
March  1999,  Boston  Scientific  has been our  exclusive  worldwide  sales  and
marketing representative for Repliform for use in urology and gynecology.

     Urinary  incontinence  affects  approximately 13 million Americans,  85% of
whom are women.  Fewer than half of these  individuals seek treatment due to the
combined factors of embarrassment and a lack of acceptable  therapeutic  options
for some  types of  incontinence.  Some  forms of  urinary  incontinence  can be
treated  with a sling  procedure,  which  involves  lifting and  supporting  the
bladder neck to provide urethral support and compression.

     Cystocele,   rectocele  and  other  pelvic  floor   conditions  also  occur
frequently in women and require soft tissue surgical  repair.  These  conditions
are  particularly  common after multiple  vaginal  births and cause  significant
discomfort  to the  patient.  It is common that these  conditions  exist with or
cause urinary  incontinence.  Therefore,  it is becoming the current standard of
care to  correct  pelvic  floor  conditions  at the  same  time  as a  sling  or
suspension  procedure to ensure that there are no conditions  that can adversely
affect patient outcome.

     Currently,  materials  used for slings and pelvic  floor  repair  surgeries
include  autologous  tissue,  synthetic  materials  and  cadaveric  fascia.  The
autologous  tissue often is taken from the patient's thigh or abdomen  resulting
in a painful donor site. The greatest  drawback of using synthetic  materials is
the  occurrence of erosion  through the urethra or vaginal wall causing pain and
infection,  necessitating repeat surgery. Cadaveric fascia commonly is used with
minimal complications but currently is undergoing supply constraints. We believe
that Repliform used as a sling  provides a safe and effective  alternative  that
eliminates  the need for a donor site,  will  repopulate  as the  patient's  own
tissue,  will not erode  through the soft pelvic  tissues,  and is  available in
adequate supply.

     Annually in the United States,  there are approximately  190,000 retropubic
suspensions,  bladder neck suspensions,  and sling procedures performed of which
approximately  75,000 are bladder  slings that could use  Repliform as the sling
material.   Also,  there  are  approximately  240,000  pelvic  floor  procedures
performed annually in the United States of which 200,000 could use Repliform for
the soft tissue repair. Repliform has already been used in over 300 patients for
the treatment of  incontinence  and various  pelvic floor repair  surgeries.  We
believe that the use of Repliform in slings and pelvic floor repair falls within
the FDA classification of "human tissue" intended for transplantation.  However,
there can be no assurance that the FDA would agree.


     FDA STATUS OF  ALLODERM.  The FDA has  notified us that the use of AlloDerm
for replacement or repair of damaged or inadequate integumental tissue is "human
tissue" within the meaning of the human tissue for transplantation  regulations.
The FDA has notified us that AlloDerm  should be regulated as a Class II medical
device when it is labeled and promoted as a dura mater replacement.  However, it
is unclear whether the FDA would agree that the following  indications for which
AlloDerm  has been  used by  physicians  (and for  which we may want to  promote
AlloDerm  in the  future)  is human  tissue or  whether  the FDA would  regulate
AlloDerm under its medical device authorities for these indications:


                                        7
<PAGE>
     -    graft for guided bone regeneration;

     -    oncological reconstruction;

     -    urological and gynecological applications;

     -    orthopedic surgeries; and

     -     general  surgeries.

     There  is  risk  that  the  FDA  will  require  the submission of premarket
approval applications supported by extensive clinical data for the marketing and
promotion  of  some  or  all  of  these  indications.

     MICRONIZED  ALLODERM  PRODUCTS

     CYMETRA(TM)


     We have developed  Cymetra,  the brand name for Micronized  AlloDerm(TM) (a
particulate  form of  AlloDerm)  for  use in  multiple  applications,  including
reconstructive and dermatological applications.  We believe that the delivery of
Cymetra  non-surgically  will create  additional market  opportunities  that are
impenetrable  by AlloDerm or Repliform.  We have  conducted  various  animal and
clinical studies aimed at demonstrating  the efficacy and safety of Cymetra.  We
began  marketing  Cymetra on a limited basis to thought  leaders in the field of
reconstructive and facial plastic surgery in December 1999.

     In February 2000, we signed an agreement  granting  Obagi Medical  Products
the  exclusive  right to promote  Cymetra  to  office-based  dermatologists  and
plastic  surgeons.  We will market and distribute  Cymetra directly to hospitals
and a subset of private office accounts through our own sales force.

     Cymetra offers a new non-surgical alternative in reconstructive plastic and
dermatological  procedures,  such as  correction  of facial and body soft tissue
deficits, the revision of acne scars and wrinkle correction.  Unlike intradermal
fillers such as bovine and human collagen,  Cymetra is delivered  subdermally to
replace tissue that has been lost or eroded for various  reasons.  Some of these
procedures  currently use bovine  collagen  injections.  In 1998 there were over
400,000  collagen  injection  procedures  performed in the United  States.  This
represents  a  significant   market   opportunity  for  Cymetra.   The  greatest
competitive pressure will be from injectable bovine collagen.  The disadvantages
of bovine  collagen  include  the  requirement  for  pre-procedural  sensitivity
testing and its limited  persistence  of two to three months due to  resorption.
Cymetra will not require  sensitivity testing and may potentially persist longer
than bovine collagen, offering greater patient and surgeon satisfaction.

     MICRONIZED  ALLODERM(TM)

     In  addition  to  the  applications  targeted  by  Cymetra, we believe that
micronized  AlloDerm  may  have  urological  uses  such  as for the treatment of
urethral  sphincter  deficiency,  a  common  cause  of urinary incontinence, and
vesicoureteric  reflux,  which  is  the  most  common  cause of renal failure in
children.  One treatment for these conditions has been injecting bovine collagen
to  bulk  the sphincter muscle or to recreate the proper angle of the urethra or
the  ureter.  Based  on an independent market research report, we estimate there
were  approximately  118,000  injections  of  bovine  collagen  in 1996 to treat
urinary  conditions  for 33,000 individuals in the United States.  A significant
drawback  of bovine collagen in these procedures is that the body recognizes the
bovine  collagen  as  a  foreign  material  and  eventually resorbs the injected
material  requiring  repeated  injections  to  maintain  continence  or  reflux
correction.  We  currently  are  testing the persistence of micronized acellular
tissue  in  animals  for  the  treatment  of  urological  disorders.

     The FDA  regulatory  status of  micronized  acellular  tissue in the United
States is  uncertain.  Although we believe that this form of AlloDerm  should be
classified  as  human  tissue  intended  for  transplantation,  there  can be no
assurance that the FDA would agree. Additionally, even if some configurations or
uses of  micronized  acellular  tissue are  classified  as human  tissue,  other
configurations  such as those packaged to facilitate  use by the  physician,  as
well as certain clinical applications,  may be regulated by the FDA as a medical
device.  If the product is classified as a device by the FDA,  extensive  delays
may  be  encountered  before  the  time,  if  ever,  that  the  product  may  be
commercially distributed.

     CARDIOVASCULAR  TISSUE  PRODUCTS

     We  are conducting pre-clinical studies to evaluate small-diameter vascular
graft  products  for  potential  use in cardiovascular and vascular surgery.  If
successfully developed, a vascular graft could be used in coronary artery bypass
procedures  or  used  to  restore  peripheral blood circulation in patients with


                                        8
<PAGE>
vascular  insufficiency,  such  as below-knee bypass procedures. According to an
independent  market  research report, replacement vascular conduits are required
for the 320,000 coronary artery bypass surgeries and 250,000 peripheral vascular
reconstructions  that  are  performed  annually in the United States.  There are
additional  requirements  for  construction of arterio-venous (A-V) fistulas for
venous  access  in  hemodialysis,  patches  for  closure  following  carotid
endarterectomy  and  microvascular conduits for microsurgical repair techniques.

     Veins harvested from the patient for use as a replacement graft continue to
be the mainstay of therapy,  yet these vessels are frequently donor site limited
as a result of the condition of the patient.  When available,  autologous vessel
harvest  leads to  significant  patient  discomfort  and an increase in risk for
complications.  To address these drawbacks, there is a severe requirement for an
"off-the-shelf"   small  diameter  vascular  graft,  which  is  non-immunogenic,
non-thrombotic  and  has  compliance  characteristics  and  handling  properties
equivalent to native vessels.

     Our processed grafts are  decellularized  to circumvent an immune response,
and they are  freeze-dried  to allow shelf storage for immediate  use.  Handling
characteristics  and physical  properties are equivalent to the native vessel. A
pre-clinical  study has  demonstrated  our  processed  graft  has an  equivalent
patency to the animal's  autologous  vein.  This study also showed the graft was
repopulated  with the animal's own cells and hence,  remodeled into the animal's
own tissue.


     BLOOD  CELL  PRESERVATION

     We  are developing ThromboSol platelet storage solution to extend the shelf
life of transfusable platelets and other methods to extend the shelf life of red
blood  cells,  white  blood  cells  and  stem  cells.

     THROMBOSOL(TM)  . We are  developing  ThromboSol;  a  patented  biochemical
formulation  designed  to protect  transfusable  platelets  from  damage  during
storage at low  temperatures.  The expected use of the product would be by blood
banks  to  increase  the  safety  and  extend  the  shelf-life  of  transfusable
platelets,  thereby increasing the supply of available platelets,  as well as to
store  autologous  platelets  in advance for  individuals  expecting  to undergo
surgery or  chemotherapy.  There were  approximately  7.9 million platelet units
transfused in the United States in 1994, according to an industry survey.

     Platelets are blood cells that initiate clotting.  Untreated  platelets are
sensitive to storage at low temperatures and cannot be refrigerated effectively.
Presently,  platelets  are stored at room  temperature  and,  due to the risk of
microbial  contamination,  have a limited shelf life of five days. We have shown
in laboratory  tests that the addition of ThromboSol  solution  preserves the in
vitro  functional  aspects  of  refrigerated  platelets  for up to nine days and
frozen platelets for more than one year.

     During 1999,  we  successfully  completed  biocompatability  testing on the
ThromboSol  solutions.  A  pilot  clinical  study  under  a  physician-sponsored
Investigational  New Drug ("IND") was conducted  during 1998 and the study found
that ThromboSol treated  cryopreserved  platelets performed better than standard
cryopreserved  platelets.  A second  physician-sponsored  IND has been initiated
which  involves a "standard of care"  transfusion  of  ThromboSol  cryopreserved
platelets  into  oncology  patients.  This study should be completed in 2000. We
intend to license this product to major  pharmaceutical  and or other  companies
for commercial development.

     RED BLOOD CELLS. We are conducting research to develop procedures to freeze
and freeze-dry red blood cells. Such technology would be used by blood banks for
long-term  storage of donated units of red blood cells,  extending the available
blood  supply,  and for storage of  autologous  red blood cells for  individuals
expecting to require blood transfusions as part of planned surgery.

     Approximately 13 million units of blood are donated each year in the United
States.   Red  blood  cells  currently  may  be  stored  up  to  42  days  under
refrigeration.  Current  procedures to freeze red blood cells require the use of
cryoprotectant  solutions that are toxic to the recipient and must be removed by
washing  the  cells   prior  to   transfusion.   This   removal   procedure   is
labor-intensive and requires the immediate  transfusion of the thawed and washed
blood.  We believe that the successful  development of non-toxic low temperature
methods of storage could simplify the use of frozen blood and potentially  allow
widespread storage of autologous blood.

     Numerous companies are attempting to develop blood substitute  products and
others are  developing  simple  closed loop cell washing  methods or  developing
technologies  to inactivate  bacterial or viral  contaminants  in donated blood.
Successful  development  of these  products  could  affect  the  demand  for any
products   developed  by  us.  Any  product  developed  will  require  extensive
regulatory  approvals,  including  approval  of an  IND by  the  FDA to  conduct
clinical trials.


                                        9
<PAGE>
MARKETING

     We  currently  distribute  AlloDerm in the United States for reconstructive
plastic  and  burn surgical applications through our network of direct technical
sales  representatives.  Periodontal  applications  of  AlloDerm  in  the United
States  are  marketed  through our exclusive United States distributor, Lifecore
Biomedical,  Inc.  In  March 1999, we entered an exclusive agreement with Boston
Scientific for the worldwide sales and marketing of Repliform for use in urology
and gynecology.  In  February  2000,  we entered an agreement with Obagi Medical
Products  granting  them  the  exclusive  right  for  promotion  of  Cymetra  to
office-based  dermatologists  and  plastic  surgeons.

     For  several  years  before  1999,  we  used  a  network  of  regional  and
international distributors to augment our sales efforts. We currently maintain a
network of international distributors,  but during the first quarter of 1999, we
eliminated the use of regional  distributors in favor of using distributors only
on an  exclusive  field  of use  basis.  We  currently  intend  to  develop  and
commercialize   additional  tissue  products   processed  from   cardiovascular,
neurological and other tissues in conjunction with corporate marketing partners.

     As of March 6,  2000,  we had a sales and  marketing  staff of 39  persons,
including  25 domestic  sales  personnel,  and 14 domestic  marketing  and other
personnel.  Our sales  representatives  are  responsible  for  interacting  with
surgeons,  primarily  plastic  surgeons  and burn  surgeons and  educating  them
regarding the use and anticipated  benefits of AlloDerm.  We also participate in
national and international  conferences and trade shows,  participate in or fund
certain  educational  symposia or fellowship  programs and advertise in industry
trade publications.

SOURCES  OF  MATERIALS

     We pay a procurement  fee to obtain  allograft  skin and other tissues from
contracted  tissue  banks in the United  States.  We are  expanding  our current
procurement of skin and other tissues to include any of approximately 150 tissue
banks,  including  approximately  36 skin banks.  Procurement  of certain  human
organs and  tissue for  transplantation  is subject to the  restrictions  of the
National  Organ  Transplant  Act,  which  prohibits  purchase  and sale of human
organs, skin, and related tissue for "valuable consideration."

     Pursuant  to  contractual  arrangements,  we  reimburse  tissue  banks  for
expenses  incurred  that are  associated  with the  recovering  and  shipping of
donated human skin suitable for processing into AlloDerm, Repliform, Cymetra and
allograft skin as a temporary  wound  dressing.  In obtaining  such tissues,  we
compete  with  treatment  centers  that use  donated  skin for  temporary  wound
dressings.

     We believe we have established adequate sources of donor skin at acceptable
costs to satisfy the  foreseeable  demand for  AlloDerm  products  during  2000.
Although we have not experienced any material  difficulty in procuring  adequate
supplies of donor skin,  there is risk that the future  availability  of donated
human skin will not be  sufficient  to meet our demand for such  materials.  Any
supply shortage of available  tissues in the future would likely have a material
adverse effect on our financial condition and results of operations.

     We currently do not have procurement arrangements for other tissues related
to products under  development,  and do not intend to develop such  arrangements
until the products approach commercialization.

     We are accredited by the American Association of Tissue Banks ("AATB"). The
AATB is recognized for the development of industry  standards and its program of
inspection and  accreditation.  The AATB provides a  standards-setting  function
similar to the FDA's quality system  regulations  for medical device  companies,
and has  procedures for  accreditation  similar to the  International  Standards
Organization ("ISO") standards.  The license was granted to us in 1997 following
a detailed audit by the AATB of our operations and procedures. The accreditation
must be  renewed  every  three  years  and is for the  processing,  storage  and
distribution of tissue used in AlloDerm, Repliform, Cymetra and allograft skin.

GOVERNMENT  REGULATION

     Overview

     Government  regulation,  both domestic and foreign, is a significant factor
in the  manufacturing and marketing of our current and developing  products.  In
the United States, our AlloDerm products are subject to regulation by the United
States Food and Drug  Administration  (the  "FDA").  The FDA applies the Federal
Food,  Drug, and Cosmetics Act (the "FDC Act") and the Public Health Service Act
(the "PHS Act"). These rules provide the regulations which apply to the testing,
manufacture,  labeling,  storage,  record  keeping,  approval,  advertising  and
promotion of our products.

     The FDA does not  apply a single  regulatory  scheme to human  tissues  and
products  derived from human tissue.  On a case by case basis, FDA may choose to
regulate  such  products as  transplanted  human  tissue,  biologics  or medical


                                       10
<PAGE>
devices.  A  fundamental  difference  in the  treatment of products  under these
various  classifications  is that the FDA generally permits  transplanted  human
tissue to be commercially  distributed without premarket approval.  In contrast,
products  regulated as devices or biologics  usually require such approval.  The
process  of  obtaining  premarket  approval  for a device or  biologic  is often
expensive, lengthy and uncertain.

     Once on the  market,  all of our  products  are  subject to  pervasive  and
continuing  regulation  by the FDA. We are subject to  inspection at any time by
the FDA and state agencies for compliance with regulatory requirements.  FDA may
impose a wide of range of enforcement sanctions if we fail to comply, including:

     -    fines,

     -    injunctions,

     -    civil penalties,

     -    recall or seizure of our products,

     -    total or partial suspension of production,

     -    refusal of the  government  to authorize the marketing of new products
          or to allow us to enter into supply contracts, and

     -    criminal prosecution.


     Tissue Regulation

     In 1996,  correspondence  from the FDA stated  that  AlloDerm  used for the
replacement  or repair of damaged or  inadequate  integumental  tissue  would be
regulated as human tissue under an interim regulation governing human tissue for
transplantation  then in effect. This letter reversed the FDA's initial position
that AlloDerm for these indications  should be regulated as a medical device. In
1997, the FDA issued a final regulation that became effective in 1998 regulating
"human tissue." The rule defines human tissue as any tissue derived from a human
body  which  is (i)  intended  for  administration  to  another  human  for  the
diagnosis, cure, mitigation, treatment or prevention of any condition or disease
and (ii) recovered,  processed, stored or distributed by methods not intended to
change tissue function or characteristics.  The FDA definition  excludes,  among
other  things,  tissue that  currently is regulated as a human drug,  biological
product or medical device and excludes vascularized human organs.

     The final tissue rule requires  establishments  engaged in the procurement,
processing,  and  distribution  of human tissue to conduct  donor  screening and
infectious  disease testing and to maintain records available for FDA inspection
documenting  that the procedures  were followed.  The rule also provides the FDA
with authority to conduct  inspections of tissue  establishments  and to detain,
recall,  or destroy tissue where the procedures were not followed or appropriate
documentation of the procedures is not available.

     Relying on the 1996  letter,  we have not  obtained  prior FDA approval for
commercial  distribution  of  AlloDerm  for  use  in  the  treatment  of  burns,
periodontal  surgical  procedures  (such as  free-gingival  grafting  and guided
tissue  regeneration),  and  reconstructive  plastic surgery procedures (such as
atrophic lip reconstruction and scar revision). We believe that the final tissue
regulation did not alter the provisions of the interim  regulation  that was the
foundation of the FDA's decision not to regulate  AlloDerm as a device when sold
for these indications. Therefore, we continue to believe that AlloDerm for these
uses is regulated as human tissue. However, because the FDA's approach to tissue
regulation  is  evolving,  we  cannot  assure  you that FDA will  adhere to this
position.  In the future,  the FDA could choose to impose  device  regulation on
AlloDerm for these indications.

     The FDA also stated in the 1996 letter that their decision  applied only to
AlloDerm when intended for use in transplantation to repair or replace damaged
or  inadequate integumental tissue and that the regulatory status of the product
when  it  is promoted for other uses, such as a void filler for soft tissue, for
cosmetic  augmentation  or  as  a  wound healing agent, would be determined on a
case-by-case  basis.  After  the  initial  1996  letter,  additional  FDA
correspondence  stated  that  we  would  need  to  seek  a  regulatory  status
determination  on  AlloDerm  for  any  other  uses.

     We recently began marketing Cymetra (a micronized  version of AlloDerm) for
plastic reconstructive procedures. We also are marketing Repliform (an acellular
tissue matrix) for urological and gynecological  surgery (bladder sling;  pelvic
floor repair). We believe that these products all meet the regulatory definition


                                       11
<PAGE>
of human tissue,  and therefore,  have not sought guidance from the FDA. The FDA
could choose to regulate any or all of these uses under the device  regulations,
requiring us to cease marketing  and/or recall product already sold until 510(k)
clearance or PMA approval is obtained.  The FDA also could impose  sanctions for
our failure to obtain premarket clearance or approval.

     In May 1998,  the FDA  issued a proposed  rule  requiring  registration  of
tissue banking establishments and the listing of tissue products.  This proposal
(which has not been finalized) may be a first step toward  imposing  significant
additional regulatory requirements upon tissue products. Such requirements could
cause us to incur significant additional costs.

     The National  Organ  Transplant  Act ("NOTA")  prohibits  the  acquisition,
receipt or transfer of certain human organs, including skin and heart valves and
vascular  grafts,  for  "valuable  consideration",  but  permits  the payment of
"reasonable" expenses associated with the removal,  transportation,  processing,
preservation,  quality  control and storage of human tissue and skin.  We cannot
assure you that NOTA will not be  interpreted  to limit the  prices  that we may
charge for processing and transporting such products.

     Our pricing  structure  for  AlloDerm,  Repliform and Cymetra also includes
certain  educational costs associated with the processing and  transportation of
human  tissue.  Although  we  believe  that  recovery  of  educational  costs is
permitted under NOTA, a future  inability to pass these costs on could adversely
affect our  financial  condition and  operations.  We cannot assure you that the
government will not adopt  interpretations  of NOTA that would adversely  affect
our pricing structure or otherwise call into question one or more aspects of our
method of operation.  Certain states and foreign  countries have laws similar to
NOTA.  These laws may restrict  the amount that we can charge for our  products,
and may restrict the  importation  or  distribution  of AlloDerm,  Repliform and
Cymetra to licensed not-for-profit organizations.

     In 1997,  the FDA also issued a  comprehensive  "proposed  approach" to the
regulation of cellular and  tissue-based  products,  including  human tissue for
transplantation. The FDA proposal set forth a tiered approach to cell and tissue
regulation that ranges from no regulatory  requirements for cells or tissue that
are  removed  and  transplanted  into the  same  patient  in a  single  surgical
procedure to full  premarket  approval  requirements  as  biologics  and medical
devices for products that raise potential health,  safety or efficacy  concerns.
Thus, FDA's approach to the regulation of tissue continues to evolve.

     Medical Device Regulation

     A medical  device  generally may be marketed in the United States only with
the FDA's prior authorization. Devices classified by the FDA as posing less risk
are placed in class I or class II. Class II devices require the  manufacturer to
seek "510(k)  clearance" from the FDA prior to marketing through the filing of a
"premarket  notification,"  unless exempted from this requirement by regulation.
Such clearance  generally is granted based upon a finding that a proposed device
is "substantially  equivalent" in intended use and safety and effectiveness to a
"predicate device," which is a legally marketed class II device that already has
510(k)   clearance  or  a   "preamendment"   class  III  device  (in  commercial
distribution  prior to May 28,  1976) for which the FDA has not  called  for PMA
applications  (defined below).  We believe that it usually takes from four to 12
months from the date of submission to obtain 510(k)  clearance,  but it may take
longer.  No assurance can be given that any 510(k)  submission will ever receive
clearance. After a device receives 510(k) clearance, any modification that could
significantly  affect its safety or  effectiveness,  or that would  constitute a
major  change in the  intended  use of the  device,  will  require a new  510(k)
submission.

     A medical  device that does not qualify for 510(k)  clearance  is placed in
class III,  which is reserved  for devices  classified  by the FDA as posing the
greatest risk (e.g., life-sustaining, life-supporting or implantable devices, or
devices that are not substantially  equivalent to a predicate  device).  A class
III device generally must undergo the premarket approval ("PMA") process,  which
requires the manufacturer to prove the safety and effectiveness of the device to
the FDA's satisfaction. A PMA application must provide extensive preclinical and
clinical  trial  data  and  information  about  the  device  and its  components
regarding, manufacturing, labeling and promotion. As part of the PMA review, the
FDA will inspect the  manufacturer's  facilities for compliance with the Quality
System  Regulation   ("QSR"),   which  includes  elaborate   testing,   control,
documentation and other quality assurance procedures.  Upon submission,  the FDA
determines if the PMA application is sufficient to permit a substantive  review,
and, if so, the  application  is accepted for filing.  The FDA then commences an
in-depth review of the PMA application,  which we believe typically takes one to
three years, but may take longer.

     If the  FDA's  evaluation  of the PMA  application  is  favorable,  the FDA
typically  issues an "approval  letter"  requiring the applicant's  agreement to
comply  with  specific  conditions  (e.g.,  changes  in  labeling)  or to supply
specific  additional data (e.g., longer patient follow up) or information (e.g.,
submission  of final  labeling)  in order to secure  final  approval  of the PMA
application.  Once the approval  letter is  satisfied,  the FDA will issue a PMA
order  for the  approved  indications,  which  can be more  limited  than  those
originally  sought by the manufacturer.  The PMA order can include  postapproval
conditions   that  the  FDA   believes   necessary  to  ensure  the  safety  and
effectiveness of the device including, restrictions on labeling, promotion, sale
and  distribution.  Failure to comply with the conditions of approval can result


                                       12
<PAGE>
in enforcement action, including withdrawal of the approval. The PMA process can
be expensive and lengthy, and no assurance can be given that any PMA application
will ever be approved for marketing.  Even after approval of a PMA, a new PMA or
PMA supplement is required in the event of a modification to the device.

     A clinical study in support of a PMA application or 510(k) submission for a
"significant risk" device requires an  Investigational  Device Exemption ("IDE")
application approved in advance by the FDA for a limited number of patients. The
IDE  application  must be  supported  by  appropriate  data,  such as animal and
laboratory  testing  results.  The  clinical  study may begin if the FDA and the
appropriate  institutional  review  board  ("IRB") at each  clinical  study site
approve the IDE application.  If the device presents a "nonsignificant  risk" to
the patient, a sponsor may begin the clinical study after obtaining IRB approval
without the need for FDA  approval.  In all cases,  the  clinical  study must be
conducted under the auspices of an IRB pursuant to FDA's regulatory requirements
intended for the protection of subjects and to assure the integrity and validity
of the data.

     Once  on the  market,  our  medical  device  products  will be  subject  to
pervasive  and  continuing  regulation.  We  will  have  to  comply  with  these
requirements,  including the FDA's  labeling  regulations,  the QSR, the Medical
Device Reporting ("MDR")  regulations (which require that a manufacturer  report
to the FDA certain  types of adverse  events  involving its  products),  and the
FDA's  general   prohibitions  against  promoting  products  for  unapproved  or
"off-label"  uses.  In addition,  class II devices can be subject to  additional
special controls (e.g., performance standards, postmarket surveillance,  patient
registries, and FDA guidelines) that do not apply to class I devices.

     In 1997, the FDA told us that NeoDura (an acellular  tissue matrix) for use
in dura mater  replacement  procedures  would be classified as a medical  device
requiring 510(k)  clearance.  In March 1999, we withdrew this 510(k)  submission
with the  intent to submit a new  510(k)  notification  after we have  addressed
several issues raised by the FDA. We cannot assure you that we will submit a new
510(k) notice for NeoDura or that it will ultimately receive 510(k) clearance.

     Based  upon  relevant  precedents,  it is not  clear  whether  the FDA will
regulate our vascular  products now in development as medical devices  requiring
510(k)  clearance or PMA approval or as human tissue.  However,  we will seek to
persuade the FDA that our vascular  products should be regulated as human tissue
similar to other vascular products previously marketed.

     Biologics Regulation

     Biologic products are regulated under the FDC Act and the Section 351(a) of
the PHS Act.  The PHS Act imposes a special  additional  licensing  requirement,
known as a Biologic  License.  This license  imposes very specific  requirements
upon the facility and the  manufacturing  and marketing of licensed  products to
assure their safety,  purity, and potency. Some licensed biological products are
also subject to batch  release by the FDA.  That is, the  products  from a newly
manufactured batch cannot be shipped until the FDA has evaluated either a sample
or the specific batch records and given permission to ship the batch of product.
The PHS Act also grants the FDA authority to impose  mandatory  product  recalls
and provides for civil and criminal penalties for violations.

     Before conducting the required clinical testing of a biological product, an
applicant must submit an  investigational  new drug  application  ("IND") to the
FDA,  containing  preclinical data  demonstrating  the safety of the product for
human  investigational  use,  information about the manufacturing  processes and
procedures and the proposed  clinical  protocol.  Clinical  trials of biological
products  typically are conducted in three sequential  phases,  but may overlap.
Phase 1 trials test the product in a small number of healthy subjects, primarily
to  determine  its safety and  tolerance  at one or more  doses.  In Phase 2, in
addition to safety,  the efficacy,  optimal dose and side effects of the product
are evaluated in a patient  population  somewhat  larger than the Phase 1 trial.
Phase 3 involves  further  safety and  efficacy  testing on an expanded  patient
population at geographically dispersed test sites.

     All clinical  studies must be  conducted  in  accordance  with FDA approved
protocols  and  are  subject  to the  approval  and  monitoring  of one or  more
Institutional Review Boards. In addition,  clinical investigators must adhere to
good clinical practices.  Completion of all three phases of clinical studies may
take  several  years,  and the FDA may  temporarily  or  permanently  suspend  a
clinical study at any time.

     Upon completion and analysis of clinical  trials,  the applicant  assembles
and  submits  a  Product  License  Application  and  an  Establishment   License
Application or a Biologic License Application containing,  among other things, a
complete  description of the manufacturing  process.  Before the licenses can be
granted, we must undergo a successful establishment  inspection.  FDA review and


                                       13
<PAGE>
approval of a biological  product can take several  years.  We cannot assure you
that we will  obtain the  required  approval  for  ThromboSol  platelet  storage
solution or any other proposed biological products.

     Other Regulation

     We are subject to various  federal,  state and local laws,  regulations and
recommendations relating to such matters as safe working conditions,  laboratory
and manufacturing  practices, and the use, handling and disposal of hazardous or
potentially  hazardous  substances  used and  produced  in  connection  with our
research  and  development  work.  We cannot  assure  you that we will not incur
significant  additional  costs to comply with these laws or  regulations  in the
future.

     International Regulation

     Sales of medical devices and biological  products outside the United States
are subject to foreign regulatory  requirements that vary widely from country to
country.  Approval of a product by comparable regulatory  authorities of foreign
countries  must be obtained prior to  commercialization  of the product in those
countries.  Certain  countries  regulate  AlloDerm as a pharmaceutical  product,
requiring  extensive  filings and  regulatory  approvals  to market the product.
Certain  countries  classify  AlloDerm as "human  tissue  transplant"  which may
restrict its  commercialization.  Other countries have no applicable regulations
regarding  the  commercialization  of  products  similar to  AlloDerm,  creating
uncertainty about the import or sale of the product.

     The inability to classify  AlloDerm as a medical  device has restricted our
ability to obtain an  appropriate  regulatory  designation  for the  product for
Western  Europe,  which would provide a clearer  marketing  path in the European
Union.  The time required to obtain  foreign  approvals may be longer or shorter
than that required for FDA approval and there can be no assurance that approvals
would be obtained for any of our products.  AlloDerm currently is being marketed
in certain foreign  countries,  and we are actively pursuing clearance to market
AlloDerm in certain  additional  countries.  There can be no assurance  that the
uncertainty  of  regulations  in each  country  will  not  delay or  impede  the
marketing  of  AlloDerm  or  impede  our  ability  to   negotiate   distribution
arrangements on favorable terms.

     RESEARCH AND DEVELOPMENT

     We  have  historically  funded  the  development of our tissue products and
blood cell preservation products primarily through external sources, including a
corporate  alliance  and government grants and contracts, as well as through the
proceeds  from  equity  offerings.  See "Management's Discussion and Analysis of
Financial  Condition and Results of Operations-Liquidity and Capital Resources."
Our  research  and  development  costs  in 1997, 1998 and 1999 for all programs,
including  those  programs funded through corporate and government support, were
approximately  $2.0  million  $3.4  million  and  $3.9  million  respectively.

     We have received a substantial portion of our government grant funding from
the United States  government's  Small  Business  Innovation  Research  ("SBIR")
program.  The SBIR grant program provides funding to evaluate the scientific and
technical  merit and  feasibility  of an idea.  To date,  we have  been  awarded
approximately  $6.3  million  through  15  approved  SBIR  program  awards  and
Department of Defense contracts.  We  intend to continue to seek funding through
the SBIR programs, as well as to pursue additional government grant and contract
programs. Generally, we  have  the  right to patent any  technologies  developed
from government grants and  contract   funding,   subject  to the  United States
government's right to receive  a  royalty-free  license  for  federal government
use  and to require licensing  to  others  in  certain  circumstances.

     PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS

     Our  ability  to  compete  effectively  with  other  companies is dependent
materially  upon  the proprietary nature of our technologies.  We rely primarily
on  patents,  trade  secrets  and  confidentiality  agreements  to  protect  our
technologies.  We  currently  license  the exclusive right to nine United States
patents  and  related  foreign  patents and the non-exclusive right to 14 United
States  patents.  In  addition,  we  have been issued five United States utility
patents,  one  United  States design patent and have seven pending United States
patent  applications.

     Our technology is protected by three primary families of patents and patent
applications.   One  United  States  patent  covers  methods  of  producing  our
tissue-based  products.  Two  United  States  patents  and  two  pending  patent
applications  cover methods of extending the shelf-life of platelets,  red blood
cells and other blood cells.  Nine additional  United States patents  supplement
our other  patents  and cover  methods of  freeze-drying  without  the  damaging
effects of ice crystal formation.


                                       14
<PAGE>
     We also have applied for patent  protection in several  foreign  countries.
Because  of the  differences  in  patent  laws and laws  concerning  proprietary
rights,  the  extent  of  protection   provided  by  United  States  patents  or
proprietary  rights  owned by or  licensed  to us may differ  from that of their
foreign counterparts.

     In general,  the patent position of biotechnology and medical product firms
is  highly  uncertain  and  involves  complex  legal,   scientific  and  factual
questions.  There is risk that other  patents may not be granted with respect to
the patent applications filed by us. Furthermore, there is risk that one or more
patents issued or licensed to the Company will not provide commercial benefit to
us or will be  infringed,  invalidated  or  circumvented  by others.  The United
States Patent and Trademark Office currently has a significant backlog of patent
applications,  and the approval or rejection of patents may take several  years.
Prior to actual issuance,  the contents of United States patent applications are
generally not made public. Once issued, a patent would constitute prior art from
its filing date,  which might predate the date of a patent  application on which
we rely. Conceivably,  the issuance of such a prior art patent, or the discovery
of "prior art" of which we are currently  unaware,  could invalidate a patent of
ours or our licensor or discourage commercialization of a product claimed within
such patent.

     No assurances may be given that our products or planned products may not be
the subject of additional  infringement actions by third parties. Any successful
patent  infringement  claim  relating to any products or planned  products could
have a  material  adverse  effect on our  financial  condition  and  results  of
operations.  Further,  there can be no assurance that any patents or proprietary
rights  owned  by or  licensed  to  us  will  not  be  challenged,  invalidated,
circumvented,   or  rendered   unenforceable   based  on,  among  other  things,
subsequently  discovered  prior art, lack of  entitlement  to the priority of an
earlier,  related application or failure to comply with the written description,
best mode, enablement or other applicable requirements.

     We conduct a cursory review of issued patents prior to engaging in research
or development activities.  Accordingly,  we may be required to obtain a license
from others to commercialize any of our products under development. There can be
no assurance  that any such  license  that may be required  could be obtained on
favorable terms or at all.

     We may decide for  business  reasons to retain  certain  knowledge  that we
consider  proprietary as confidential and elect to protect such information as a
trade secret,  as business  confidential  information,  or as know-how.  In that
event,  we must rely upon trade secrets,  know-how and continuing  technological
innovation to maintain our competitive position.  There can be no assurance that
others  will not  independently  develop  substantially  equivalent  proprietary
information or otherwise gain access to or disclose such information.

     We have federal trademark or service mark  registrations  that we currently
use for LifeCell , which concerns processing and preserving tissue samples,  and
AlloDerm , which concerns our commercial acellular dermal graft product. We have
filed  trademark  applications  for the  protection  of the  phrases  Micronized
AlloDerm  , the  particulate  form of  AlloDerm,  Cymetra , the  brand  name for
Micronized  AlloDerm,  Repliform , the AlloDerm product designed for urology and
gynecology and for NeoDura , the AlloDerm product designed for neurosurgery.

COMPETITION

     The  biomedical  field  is  undergoing  rapid and significant technological
change.  Our  success  depends upon our ability to develop and commercialize our
technology.  There are many companies and academic institutions that are capable
of  developing products based on similar technology, and that have developed and
are capable of developing products based on other technologies, which are or may
be  competitive  with  our  products.  Many  of  those  companies  and  academic
institutions  are  well-established,  have  substantially  greater financial and
other  resources,  research  and development capabilities and more experience in
conducting  clinical  trials,  obtaining regulatory approvals, manufacturing and
marketing  than  us.  These  companies  and academic institutions may succeed in
developing  competing products that are more effective than our products or that
receive  government  approvals  more quickly than our products, which may render
our  products  or  technology  uncompetitive,  uneconomical  or  obsolete.

     For most current applications of AlloDerm and Repliform, the principal form
of competition is with the use of the patient's autologous tissue. We anticipate
direct  competition  for  AlloDerm  tissue  products  and  all of  our  proposed
transplantable tissue products, as well as indirect competition from advances in


                                       15
<PAGE>
therapeutic agents, such as growth factors now used to enhance wound healing. We
believe that  therapeutic  growth  factors may be used in  conjunction  with our
proposed products and may potentially enhance the products' efficacy.  There can
be no  assurance  that  we  will  be able  to  compete  effectively  with  other
commercially  available  products or that development of other technologies will
not detrimentally affect our commercial opportunities or competitive advantage.

ENVIRONMENTAL  MATTERS

     Our  research and development and processing techniques generate waste that
is classified as hazardous by the United States Environmental Protection Agency,
the  Texas  Natural  Resources  Commission  and  the  New  Jersey  Department of
Environmental  Protection.  We  segregate  such  waste and dispose of it through
licensed  hazardous waste transporters.  Although we believe we are currently in
compliance  in  all material respects with applicable environmental regulations,
our  failure  to  comply  fully  with  any  such regulations could result in the
imposition of penalties, fines or sanctions that could have an adverse effect on
our  financial  condition  and  results  of  operations.

EMPLOYEES

     At March 14, 2000, we had 154 full-time and 12 part-time employees of which
39  were  employed  in  sales  and  marketing, 85 in engineering, production and
quality  assurance,  17 in research and development and clinical studies, and 25
in administration and accounting.  Also, at such date, we employed, full-time, 3
persons  with  M.D.  degrees  and  9  persons  with  Ph.D.  degrees.

SPECIAL  NOTE  REGARDING  FORWARD-LOOKING  STATEMENTS

     This  Annual  Report  on  Form  10-K  includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section  21E  of  the  Securities Act of 1934, as amended.  All statements other
than  statements  of  historical  facts  included  herein,  including,  without
limitation,  statements  regarding  our  financial  position, business strategy,
products,  products under development, markets, budgets, plans and objectives of
management  for  future  operations and Year 2000 Readiness, are forward-looking
statements.  Although  we  believe  that  the  expectations  reflected  in  such
forward-looking  statements  are  reasonable, we can give no assurance that such
expectations  will  prove  to  be  correct.  Important  factors that could cause
actual  results  to  differ  materially  from  our  expectations  ("Cautionary
Statements") are disclosed under "Risk Factors" and elsewhere herein, including,
without  limitation, in conjunction with the forward-looking statements included
herein.  All subsequent written and oral forward-looking statements attributable
to  us or persons acting on our behalf are expressly qualified in their entirety
by  the  Cautionary  Statements.

RISK  FACTORS

     In  addition  to  the other information in this Annual Report on Form 10-K,
the  following factors should be considered carefully in evaluating the Company.
Special  Note:  Certain  statements  set forth below constitute "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  and  Section  21E  of the Securities Exchange Act of 1934, as amended.

     WE  HAVE  A  HISTORY  OF  OPERATING  LOSSES  AND  A SUBSTANTIAL ACCUMULATED
EARNINGS  DEFICIT

     Since  our  inception in 1986, we have generated only limited revenues from
product  sales  and  have  incurred  substantial  losses,  including  losses  of
approximately  $6.1  million,  $7.3 million and $9.2 million for the years ended
December  31,  1997, 1998, and 1999, respectively.  At December 31, 1999, we had
an  accumulated  deficit  of  approximately  $54.4  million.  We expect to incur
additional  operating  losses  as  well  as  negative  cash flow from operations
through the middle of 2000 as we continue to use substantial resources to expand
our  marketing  efforts  with  respect  to  AlloDerm  and  to expand our product
development programs. Our ability to increase revenues and achieve profitability
and  positive  cash  flows  from  operations  will  depend  on  increased market
acceptance and sales of AlloDerm, Repliform and Cymetra and commercialization of
products  under  development.

     WE  MAY NEED ADDITIONAL CAPITAL TO MARKET ALLODERM AND DEVELOP NEW PRODUCTS

     The  development  and  commercialization  of  new  products  will  require
additional  development,  sales  and  marketing,  manufacturing  and  other
expenditures.  We  intend  to  expend  substantial  funds  for:

     -    product research and development,

     -    expansion of sales and marketing activities,

     -    expansion of manufacturing capacity,

     -    product education efforts, and

     -    other working capital and general corporate purposes.


                                       16
<PAGE>
     We   may need additional capital, depending on:

     -    the costs and progress of our research and development efforts;

     -    the number and types of product development programs undertaken;

     -    the costs and timing of expansion of sales and marketing activities;

     -    the costs and timing of expansion of manufacturing capacity;

     -    the amount of revenues from sales of our existing and new products;

     -    changes  in,  termination  of,  and the  success of  existing  and new
          distribution arrangements;

     -    the cost of  maintaining,  enforcing and  defending  patents and other
          intellectual property rights;

     -    competing technological and market developments;

     -    developments  related  to  regulatory  and  third-party  reimbursement
          matters; and

     -    other factors.

     Any  additional  equity financing may be dilutive to stockholders, and debt
financing,  if  available,  may  involve  significant  restrictive  covenants.
Collaborative  arrangements, if necessary to raise additional funds, may require
us  to  relinquish  our  rights  to  certain  of  our  technologies, products or
marketing  territories.  If  adequate funds are not available, we expect that we
will  be  required  to delay, scale back or eliminate one or more of our product
development  programs.


     OUR  FAILURE TO COMPLY  WITH  APPLICABLE  REGULATION  COULD LEAD THE FDA TO
     IMPOSE ENFORCEMENT SANCTIONS.


     Significant  government regulation,  both domestic and foreign,  applies to
the manufacturing and marketing of our current and developing  products.  In the
United  States,  our AlloDerm  products are subject to  regulation by the United
States Food and Drug  Administration.  Noncompliance with the FDA's requirements
can result in:

     -    fines,

     -    injunctions,

     -    civil penalties,

     -    recall or seizure of products,

     -    total or partial suspension of production,

     -    refusal of the  government  to authorize the marketing of new products
          or allow us to enter into supply contracts, and

     -    criminal prosecution.


     THE  FDA  MAY  DECIDE  TO  IMPOSE  MEDICAL  DEVICE  REGULATION  RULES  UPON
     ALLODERM'S  CURRENT TISSUE  PRODUCTS FOR  RECONSTRUCTIVE  PLASTIC  SURGERY,
     PERIODONTAL  SURGERY  AND BURN  GRAFTS,  WHICH  WOULD  REQUIRE US TO OBTAIN
     510(K) CLEARANCE OR PMA APPROVAL.


     The FDA  generally  permits  transplanted  human tissue to be  commercially
distributed  without  510(k)  clearance or PMA approval.  In contrast,  products
regulated as medical  devices  usually  require such approval.  In 1996, the FDA
determined  that  AlloDerm  used for the  repair or  replacement  of  damaged or
inadequate  integumental  tissue,  including  gingiva,  would  be  regulated  as
transplanted  human tissue.  On that basis, we began commercial  distribution of


                                       17
<PAGE>
this product for reconstructive  plastic surgery,  periodontal  surgery and burn
grafts without 510(k) clearance or PMA approval from the FDA. However, the FDA's
regulatory approach to tissue products continues to evolve. There is a risk that
the FDA could alter its regulatory approach and decide that this product is more
appropriately  regulated as a medical device. If so, the FDA could require us to
obtain  510(k)  clearance  or PMA approval  for these  products.  The process of
obtaining  510(k)  clearance  or PMA  approval  may be  expensive,  lengthy  and
unpredictable and/or may require collection of extensive clinical data.



     THE  FDA  MAY  DECIDE  TO  REGULATE  ALLODERM  FOR  OTHER  USES,  INCLUDING
     MICRONIZED  ALLODERM,  AS A  MEDICAL  DEVICE  AND  COULD  ORDER US TO CEASE
     MARKETING  AND/OR RECALL PRODUCT ALREADY SOLD UNTIL 510(K) CLEARANCE OR PMA
     APPROVAL IS OBTAINED;  THE FDA ALSO COULD IMPOSE ENFORCEMENT  SANCTIONS FOR
     MARKETING THESE PRODUCTS WITHOUT CLEARANCE OR APPROVAL.



     Although  the  FDA  determined   that  AlloDerm  used  for  the  repair  or
replacement of damaged or inadequate integumental tissue,  including gingiva, is
regulated as tissue,  the agency  stated in that  decision  that the  regulatory
status of any  different  uses would  need to be  determined  on a  case-by-case
basis.  In recent months,  we began marketing  Cymetra (a micronized  version of
AlloDerm) for plastic and  reconstructive  procedures.  We also began  marketing
Repliform (an acellular tissue matrix) for urological and gynecological  surgery
(bladder sling; pelvic floor repair) procedures.



     Because we believe that these  products meet the  regulatory  definition of
human tissue,  we have not sought a determination of this question from the FDA.
There is a risk that FDA could  determine that AlloDerm for one or more of these
new uses is more appropriately regulated as a medical device. Pursuant to such a
decision,  the FDA could require us to cease  marketing  and/or  recall  product
already sold until 510(k) clearance or PMA approval is obtained.  We do not know
if such clearance or approval could be obtained in a timely fashion,  or at all,
or if the FDA would  require  extensive  clinical  data to support  clearance or
approval.  The FDA also could seek to impose enforcement sanctions for marketing
these products without 510(k) clearance or PMA approval.



     IF WE DO NOT PASS THE FDA'S INSPECTIONS OF OUR TISSUE FACILITIES, FDA COULD
     REQUIRE THE RECALL OR DESTRUCTION OF OUR TISSUE PRODUCTS.



     Our involvement in the processing and distribution of human tissue requires
us to ensure that proper donor screening and infectious  disease testing is done
appropriately  and  conducted  under strict  procedures.  In  addition,  we must
maintain  records,  which are available for FDA inspectors  documenting that the
procedures were followed. The FDA has authority to conduct inspections of tissue
establishments  and to detain,  recall, or destroy tissue if the procedures were
not followed or appropriate documentation is not available.


     THERE IS A RISK THAT LAWS WILL LIMIT OUR ABILITY TO SELL OUR  PRODUCTS AT A
     PROFIT.


     The National  Organ  Transplant Act prohibits the  acquisition,  receipt or
transfer of certain human organs,  including  skin and heart valves and vascular
grafts,  for  valuable  consideration,  but permits  the  payment of  reasonable
expenses associated with the removal, transportation,  processing, preservation,
quality  control  and  storage  of human  tissue  and skin.  We  include  in our
AlloDerm,  Repliform and Cymetra  pricing  structure  certain of its educational
costs and  reasonable  processing  expenses.  There is a risk that NOTA  payment
allowances may be interpreted differently in the future for our products, and if
it is, it would limit profits,  by limiting  recovery of  educational  costs and
processing expenses.


                                       18
<PAGE>
     OUR PRODUCTS MAY BE SUBJECT TO EXPORT RESTRICTIONS.


     FDA export  restrictions  may apply to our products  that have not yet been
cleared or approved for domestic distribution. There can be no assurance that we
will receive on a timely basis,  if at all, any FDA export  approvals  necessary
for the marketing of our products abroad.


     OUR PROPOSED BLOOD CELL PRESERVATION PRODUCTS WILL BE SUBJECT TO REGULATION
     AS BIOLOGICS.


     Biologic    products    require   FDA   premarket    licensing   prior   to
commercialization  in the United States. To obtain licensing  approval for these
products,  we must submit proof of their  safety,  purity and potency.  Testing,
preparation of necessary  applications and the processing of those  applications
by the FDA is expensive and time  consuming.  We do not know if the FDA will act
favorably  or quickly in making such  reviews and  significant  difficulties  or
costs may be  encountered  by us in our efforts to obtain FDA licenses.  The FDA
may  also  place  conditions  on  clearances  that  could  restrict   commercial
applications of such products.  Product approvals may be withdrawn if compliance
with  regulatory  standards are not  maintained or if problems  occur  following
initial  marketing.  Delays imposed by the FDA licensing  process may materially
reduce the period  during  which we have the  exclusive  right to  commercialize
patented products.


     OUR PRODUCTS ARE SUBJECT TO PERVASIVE AND CONTINUING REGULATION.


     Products marketed by us pursuant to FDA or foreign approval will be subject
to  pervasive  and  continuing  regulation.  In the United  States,  devices and
biologics must be manufactured in registered establishments and must be produced
in accordance  with the Quality System  Regulation  for medical  devices or Good
Manufacturing  Practices  regulations for biologics.  Tissue establishments must
engage in donor  screening,  infectious  disease  testing and  stringent  record
keeping. Our facilities and processes are subject to periodic FDA inspection for
compliance with all requirements.  Labeling and promotional  activities are also
subject to scrutiny by the FDA and, in certain  instances,  by the Federal Trade
Commission.  From time to time, the FDA may modify such  requirements,  imposing
additional or different requirements.  Failure to comply with any applicable FDA
requirements  could result in civil and criminal  enforcement  actions and other
penalties that would have a material  adverse  effect on us. In addition,  there
can be no assurance  that the various states in which our products are sold will
not impose additional regulatory requirements or marketing impediments.


     We are subject to various  federal,  state and local laws,  regulations and
recommendations  relating to such matters as safe working condition,  laboratory
and manufacturing  practices, and the use, handling and disposal of hazardous or
potentially  hazardous  substances  used and  produced in  connections  with our
research and  development  work. We may incur  significant  additional  costs to
comply with these laws or regulations in the future.


     WE ARE SUBJECT TO VARYING AND EXTENSIVE REGULATION BY FOREIGN GOVERNMENTS.


     The  regulation  of AlloDerm  outside the United  States varies by country.
Certain  countries  regulate  AlloDerm as a  pharmaceutical  product,  requiring
extensive  filings  and  regulatory  approvals  to market the  product.  Certain
countries  classify  AlloDerm as a transplant tissue but may restrict its import
or sale. Other countries have no applicable  regulations regarding the import or
sale of products similar to AlloDerm,  creating uncertainty regarding the import
or sale of the product.


     AlloDerm  currently  is being marketed in certain foreign countries, and we
are  pursuing  clearance  to  market  AlloDerm  in  additional  countries.  The


                                       19
<PAGE>
uncertainty of the regulations in each country may delay or impede the marketing
of  AlloDerm  or  impede  our  ability to negotiate distribution arrangements on
favorable  terms.  Certain  foreign  countries  have  laws similar to the United
States'  National  Organ Transplant Act. These laws may restrict the amount that
we  can  charge for AlloDerm and may restrict the importation or distribution of
AlloDerm  to  licensed  not-for-profit  organizations.


     OUR PRODUCTS  REPRESENT NEW METHODS OF TREATMENT  WHICH MAY NOT BE ACCEPTED
     BY DOCTORS.


     Much  of  our ability to increase revenues and to achieve profitability and
positive  cash  flow  will depend on expanding the use and market penetration of
our  AlloDerm  products  and  the  successful  introduction  of  our products in
development.  Products  based  on  our  technologies  represent  new  methods of
treatment.  Physicians  will not use our products unless they determine that the
clinical benefits to the patient are greater than those available from competing
products  or  therapies. Even if the advantage of our products is established as
clinically  significant,  physicians  may not elect to use such products for any
number  of  reasons. As such, there can be no assurance that any of our AlloDerm
products  or  products  under  development  will  gain any significant degree of
market  acceptance  among  physicians,  health  care  payers and patients. Broad
market  acceptance  of  our  products  may  require  the  training  of  numerous
physicians  and clinicians, as well as conducting or sponsoring clinical studies
to  demonstrate  the  benefits  of such products. The amount of time required to
complete  such training and studies could result in a delay or dampening of such
market  acceptance.  Moreover, health care payers' approval of reimbursement for
our  products  in  development may be an important factor in establishing market
acceptance.

     WE  WILL  NEED  TO  DEVELOP  NEW  PRODUCTS  TO  BE  SUCCESSFUL.

     Our  growth  and  profitability  will  depend, in part, upon our ability to
complete  development  of  and  successfully  introduce  new products. We may be
required  to undertake time-consuming and costly development activities and seek
regulatory  clearance  or  approval for new products. Although we have conducted
animal studies on many of our products under development which indicate that the
product  may  be  feasible  for  a particular application, results obtained from
expanded  studies  may  not  be  consistent  with  earlier  trial  results or be
sufficient  for us to obtain any required regulatory approvals or clearances. We
may  experience  difficulties  that  could  delay  or  prevent  the  successful
development, introduction and marketing of new products. Regulatory clearance or
approval  of  these or any new products may not be granted on a timely basis, if
ever,  and  the  new  products  may  not adequately meet the requirements of the
applicable  market  or  achieve  market  acceptance.  The  completion  of  the
development  of any of our products under development remains subject to all the
risks  associated with the commercialization of new products based on innovative
technologies,  including:

     -    unanticipated technical or other problems,

     -    manufacturing difficulties, and

     -    the possible  insufficiency  of the funds allocated for the completion
          of such development.

     The  inability  to  complete  successfully  the development of a product or
application,  or  a  determination  by  us,  for  financial,  technical or other
reasons, not to complete development of any product or application, particularly
in  instances in which we have made significant capital expenditures, could have
a  material  adverse  effect  on  our  business.

     WE  ARE  DEPENDENT  ON  AGENT  AND  DISTRIBUTOR  SALES.

     We  have engaged Lifecore Biomedical, Inc. as the exclusive distributor for
AlloDerm  for  periodontal  applications in the United States; Boston Scientific
Corporation  as  our  exclusive worldwide sales and marketing representative for
Repliform  for  use in urology and gynecology; and Obagi Medical Products as the
exclusive  sales  and  marketing  representative  of  Cymetra  for  office-based
dermatologists and  plastic  surgeons.  Other  distributors  also may be granted
exclusive  distribution  rights.  To  the extent any exclusive distributor fails
adequately  to  promote,  market  and  sell  our products, we may not be able to
secure  a  replacement  distributor  until  after  the  term of the distribution
contract  is  complete  or  until  such  contract  can  otherwise be terminated.

     WE  ARE  DEPENDENT  ON  CERTAIN  SOURCES  OF  MATERIALS.

     Our  business  is  dependent  on the availability of donated human skin and
other  tissues. A finite supply of donated tissue is available. Although we have
established  what  we  believe  to  be adequate sources of donated human skin to
satisfy  the  expected  demand for AlloDerm during in the foreseeable future, we
have  not  yet developed a supply of other tissues and there can be no assurance
that the availability of donated human skin and other tissues will be sufficient
to meet our demand for such materials. Any significant interruption in supply of
such  tissue  would  likely  have  a  material  adverse  effect on our financial
condition  and  results  of  operations.


                                       20
<PAGE>
     We acquire donated human skin from various non-profit  organizations  which
procure skin and other donated human tissue.  The  procurement of skin generally
constitutes  a  small  portion  of  the  operating  funds  for  such  non-profit
organizations.  The  development  of products  that replace the need for donated
tissue,  such as the  development  of  synthetic  bone  substitutes  to  replace
allograft  bone procured by the  organizations,  could threaten the existence of
the non-profit  organizations  and,  therefore,  adversely  affect the supply of
donated human skin to us or increase the required payments from us.

     We have  performed  limited  activities to develop  products  using porcine
dermis and other  animal  tissues as a  substitute  for donated  human skin.  If
successfully developed, animal tissue could replace the need for human tissue as
a raw material.  There can be no assurance that such animal tissue  products can
be  successfully  developed,  that  such  development  and  required  regulatory
approvals  could result in timely  replacement of human tissue used by us in the
event of a reduced supply of human tissue or that the cost of such animal tissue
would not  materially  adversely  affect our business,  financial  condition and
results of operations.

     Donors of organs and tissues,  including  donated human skin,  have various
motivations.  Although  we do not  promote  the  use of  AlloDerm  for  cosmetic
applications,  AlloDerm  has been used by surgeons in a variety of  applications
that may be  considered  "cosmetic."  Knowledge of such use by potential  donors
could impact their willingness to donate skin for such uses.

     WE ARE DEPENDENT ON KEY MANAGEMENT AND PERSONNEL.

     We are  dependent in large part on the efforts of our  executive  officers,
including Paul G. Thomas,  President and Chief Executive Officer of the Company,
and Stephen A. Livesey,  M.D., Ph.D., Executive Vice President and Chief Science
Officer and a director of the Company.  We have obtained "keyman" life insurance
on Dr. Livesey of $3.0 million.  Further, our success is also dependent upon our
ability  to  hire  and  retain  qualified  operating,  marketing  and  technical
personnel.  The competition for qualified personnel in the biochemical  industry
is intense,  and accordingly,  there can be no assurance that we will be able to
hire or retain such personnel.

     THE BIOMEDICAL  FIELD WHICH WE ARE IN IS PARTICULARLY  SUSCEPTIBLE TO RAPID
     CHANGE.

     The  biomedical  field  is  undergoing  rapid and significant technological
change.  Our  success  depends  upon  our  ability  to develop and commercialize
efficient  and  effective  products  based  on  our  technology.  There are many
companies  and  academic  institutions  that  are capable of developing products
based  on  similar  technology,  and  that  have  developed  and  are capable of
developing products based on other technologies, which are or may be competitive
with  our  products.  Many  of  these  companies  and  academic institutions are
well-established,  have  substantially  greater  financial  and other resources,
research and development capabilities and more experience in conducting clinical
trials,  obtaining  regulatory  approvals,  manufacturing and marketing than us.
These  companies  and  academic institutions may succeed in developing competing
products  that  are more effective than our products, or that receive government
approvals  more  quickly  than  our  products,  which may render our products or
technology  uncompetitive,  uneconomical  or  obsolete.

     THE  ABILITY  TO  OBTAIN  THIRD-PARTY  REIMBURSEMENT  FOR THE  COSTS OF NEW
     MEDICAL TECHNOLOGIES LIKE OURS IS LIMITED.

     Generally,  hospitals,  physicians and other health care providers purchase
products,  such  as  the  products  being  sold  or  developed by us, for use in
providing  care  to  their patients. These parties typically rely on third-party
payers,  including Medicare, Medicaid, private health insurance and managed care
plans,  to  reimburse  all  or part of the costs of acquiring those products and
costs associated with the medical procedures performed with those products. Cost
control  measures adopted by third-party payers in recent years have had and may
continue to have a significant effect on the purchasing practices of many health
care  providers,  generally causing them to be more selective in the purchase of
medical  products. Significant uncertainty exists as to the reimbursement status
of  newly  approved  health  care  products. We believe that certain third-party
payers  provide reimbursement for medical procedures at a specified rate without
additional  reimbursement for products, such as those being sold or developed by
us, used in such procedures. Adequate third-party payer reimbursement may not be
available  for  us  to  maintain  price  levels sufficient for realization of an
appropriate  return  on  our investment in developing new products. In addition,
government  and  other  third-party payers continue to refuse, in some cases, to
provide any coverage for uses of approved products for indications for which the
FDA  has  not  granted  marketing  approval. Many uses of AlloDerm have not been
granted such marketing approval and there can be no assurance that any such uses
will  be  approved.  Further,  certain  of  our  products  are  used  in medical
procedures  that  typically  are  not  covered  by  third-party  payers, such as
cosmetic  procedures,  or  for  which patients sometimes do not obtain coverage,
such  as  dental  procedures.  These  and  future  changes  in third-party payer
reimbursement  practices  regarding  the  procedures performed with our products
could  adversely  affect  the  market  acceptance  of  our  products.


                                       21
<PAGE>
     WE  ARE  DEPENDENT  ON  PATENTS  AND  PROPRIETARY  RIGHTS.

     Our  ability  to  compete  effectively  with  other companies is materially
dependent  upon the proprietary nature of our technologies. We rely primarily on
patents  and trade secrets to protect our technologies. We currently license the
exclusive  right  to  nine United States patents and related foreign patents and
non-exclusive rights to 14 patents. In addition, we have been issued five United
States  utility  patents, one United States design patent and have seven pending
United States patent applications. We may not obtain additional patents or other
protection. The claims allowed under those patents will be sufficient to protect
our  technology. Further, any patents or proprietary rights owned by or licensed
to  us  may  be challenged, invalidated, circumvented, or rendered unenforceable
based  on,  among  other  things:

     -    subsequently discovered prior art,

     -    lack  of   entitlement   to  the  priority  of  an  earlier,   related
          application, or

     -    failure to comply with the written description,  best mode, enablement
          or other applicable requirements. -

     The  invalidation,  circumvention  or  unenforceability  of  key patents or
proprietary  rights  owned  by  or licensed to the Company could have a material
adverse  effect  on  us.

     PATENT  PROTECTION  IN  THE  BIOTECHNOLOGY  FIELD  IS  HIGHLY  UNCERTAIN.


     In general,  the patent position of biotechnology and medical product firms
is highly uncertain,  still evolving and involves complex legal,  scientific and
factual questions. We are at risk that:

     -    other  patents may be granted with respect to the patent  applications
          filed by us.

     -    any patents issued or licensed to us will provide  commercial  benefit
          to us or will not be infringed, invalidated or circumvented by others.

     The  United  States Patent and Trademark Office currently has a significant
backlog  of  patent  applications,  and the approval or rejection of patents may
take  several  years.  Prior  to  actual issuance, the contents of United States
patent  applications  are  generally not made public. Once issued, such a patent
would constitute prior art from its filing date, which might predate the date of
a patent application on which we rely. Conceivably, the issuance of such a prior
art  patent,  or the discovery of "prior art" of which we are currently unaware,
could  invalidate  a patent of ours or our licensor or prevent commercialization
of  a  product  claimed  therby.

     We  generally  conduct a cursory review of issued patents prior to engaging
in research or development activities. Accordingly, we may be required to obtain
a  license  from  others to commercialize any of our products under development.
There  can  be  no assurance that any such license that may be required could be
obtained  on  favorable  terms  or  at  all.

     In addition,  if patents that cover our existing  activities  are issued to
other  companies,  there  can be no  assurance  that we would be able to  obtain
licenses to such patents at a reasonable  cost, if at all, or be able to develop
or obtain  alternative  technology.  Any of the  foregoing  matters could have a
material  adverse  effect on us. In  addition,  we may be  required  to obtain a
license  under one or more  patents  prior to  commercializing  any new products
developed.  Such a license may not be available, or if available,  the terms may
not be commercially acceptable to the Company.

     There  can be no  assurance  that we will  not be  required  to  resort  to
litigation to protect our patented  technologies or other proprietary  rights or
that we will not be the subject of  additional  patent  litigation to defend our
existing or proposed products or processes against claims of patent infringement
or other  intellectual  property claims.  Any of such litigation could result in
substantial costs and diversion of resources.

     We also have applied for patent  protection in several  foreign  countries.
Because  of the  differences  in  patent  laws and laws  concerning  proprietary
rights,  the  extent  of  protection   provided  by  United  States  patents  or
proprietary  rights  owned by or  licensed  to us may differ  from that of their
foreign counterparts.

     We may decide for  business  reasons to retain  certain  knowledge  that we
consider  proprietary as confidential and elect to protect such information as a
trade  secret,  as business  confidential  information  or as know-how.  In that
event,  we must rely upon trade secrets,  know-how and continuing  technological
innovation to maintain our competitive position.  There can be no assurance that
others  will not  independently  develop  substantially  equivalent  proprietary
information  or  otherwise  gain access to or  disclose  such  information.  The
independent development or disclosure of our trade secrets could have a material
adverse effect on our financial condition and results of operations.


                                       22
<PAGE>
     OUR  PRODUCT  LIABILITY  INSURANCE  MAY  BE  INADEQUATE.

     Our  business  exposes  us  to  potential product liability risks which are
inherent  in  the  testing,  manufacturing  and  marketing  of medical products.
Although we have product liability insurance coverage with an aggregate limit of
$8.0  million  and  a  per  occurrence  limit  of  $6.0 million, there can be no
assurance  that  such insurance will provide adequate coverage against potential
liabilities,  that  adequate  product  liability  insurance  will continue to be
available  in  the future or that it can be maintained on acceptable terms.  The
obligation to pay any product liability claim in excess of whatever insurance we
are  able  to  acquire  could  have  a  material adverse effect on our business,
financial condition and results of operations.  We use donated human skin as the
raw  material  for  our acellular tissue products.  The non-profit organizations
that  supply  such  skin  are  required to follow FDA regulations and guidelines
published  by  the  American  Association  of  Tissue Banks to screen donors for
potential  disease  transmission.  Such  procedures  include  donor  testing for
certain  viruses,  including  HIV.  Our  manufacturing  process  also  has  been
demonstrated  to inactivate concentrated suspensions of HIV in tissue.  While we
believe  such  procedures  are  adequate  to  reduce  the  threat  of  disease
transmission, there can be no assurance that our products will not be associated
with  transmission  of disease or that a patient otherwise infected with disease
would  not  erroneously  assert  a  claim  that  the use of our acellular tissue
products resulted in the disease transmission.  Any such transmission or alleged
transmission  could have a material adverse effect on our ability to manufacture
or  market our products or could otherwise have a material adverse effect on our
financial  condition  or  results  of  operations.

     WE ARE  LIMITED ON THE USE OF OUR NET  OPERATING  LOSSES AND  RESEARCH  AND
     DEVELOPMENT TAX CREDITS.

     As  of  December  31  1999,  we  had accumulated net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $48.5 million and
research  and development tax credits of approximately $533,000 and may continue
to  incur  NOL  carryforwards.  United  States  tax  laws  provide for an annual
limitation  on  the use of NOL carryforwards following certain ownership changes
and  also  limit  the  time during which NOL and tax credit carryforwards may be
applied  against  future  taxable  income  and tax liabilities.  The sale of our
common  stock  in  a  public  offering completed in December 1997 resulted in an
ownership  change  for federal income tax purposes.  We estimate that the amount
of  its  NOL carryforwards and the credits available to offset taxable income as
of  December  31,  1999  is  approximately  $22  million  on a cumulative basis.
Accordingly,  if  we  generate  taxable income in any year in excess of the then
cumulative  limitation,  we  may  be  required  to pay federal income taxes even
though  we  have  unexpired  NOL  carryforwards.

     WE ARE SUBJECT TO  EXTENSIVE  REGULATION  REGARDING  DISPOSAL OF  HAZARDOUS
     MATERIALS.

     Our  research and development and processing techniques generate waste that
is classified as hazardous by the United States Environmental Protection Agency,
the  Texas  Natural  Resources  Commission  and the New Jersey Natural Resources
Commission.  We  segregate  such  waste  and  dispose  of  it  through  licensed
hazardous  waste  transporters.  Although  we  believe  we  are  currently  in
compliance  in  all material respects with applicable environmental regulations,
our  failure  to  comply  fully  with  any  such regulations could result in the
imposition  of  penalties, fines or sanctions that could have a material adverse
effect  on  our  financial  condition  and  results  of  operations.

ITEM  2.     PROPERTIES

     We  lease  approximately  60,000  square feet of laboratory, production and
office space in Branchburg, New Jersey.  In addition we lease 27,000 square feet
of  laboratory,  office  and warehouse facilities in The Woodlands, Texas, under
lease  agreements  that expire in January 2001.  We are currently in the process
of  shutting  down  The  Woodlands  facility and consolidating operations in the
newly  completed  Branchburg  facility.  Our  monthly  rental  obligation  for
facilities  is  approximately  $58,000.

ITEM  3.     LEGAL  PROCEEDINGS

     None.

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

     None.


                                       23
<PAGE>
PART  II

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

     Our  Common  Stock is listed on the Nasdaq National Market under the symbol
"LIFC."  On  March  22,  2000,  the  last  reported sale price for the Company's
Common  Stock  on The Nasdaq National Market was $8.13 per share.  The following
table sets forth the high and low sales information for our Common Stock for the
periods  indicated,  as  reported  by  The  Nasdaq  Stock  Market.

<TABLE>
<CAPTION>
      High                Low
<C>   <S>                <C>    <C>
1998    First Quarter    $5.19  $4.50
        Second Quarter    8.03   5.03
        Third Quarter     6.50   3.75
        Fourth Quarter    5.50   3.31
1999    First Quarter    $4.63  $3.38
        Second Quarter    5.50   3.81
        Third Quarter     7.25   4.00
        Fourth Quarter    6.94   4.19
</TABLE>

     As  of February 29, 2000, there were approximately 362 holders of record of
shares  of Common Stock and 30 holders of record of shares of Series B Preferred
Stock.  We  estimate  that  there  are  in excess of 4,000 beneficial holders of
Common  Stock.

     In March 1999, we issued 108,577  shares of Common Stock for  consideration
of  $1 million  to  Boston  Scientific  as part of the agreement signed in March
1999.  In  November 1999, we issued 925,000 shares of Common Stock pursuant to a
private  placement  transaction.  None of such issuances  involved underwriters.
We consider  these  securities to have been offered and sold in transactions not
involving  a  public  offering  and, therefore, to be exempted from registration
under  Section  4(2)  of  the  Securities  Act  of  1933,  as  amended.

DIVIDEND  POLICY

     We  have  not paid a cash dividend to holders of shares of Common Stock and
do  not  anticipate  paying cash dividends to the holders of our Common Stock in
the  foreseeable  future

     On February 17, 1998, May 15, 1998, August 15, 1998, and November 15, 1998,
the Company paid a per share dividend in shares of its Series B Preferred  Stock
equivalent to $1.51,  $1.48,  $1.50 and $1.51,  respectively,  to the holders of
shares of Series B Preferred  Stock. On February 15, 1999, May 15, 1999,  August
15, 1999 and November 15, 1999, and February 15, 2000, the Company paid a $1.51,
$1.48, $1.50, $1.51, and $1.51, respectively,  per share dividend in cash to the
holders of shares of Series B  Preferred  Stock.  The Series B  Preferred  Stock
bears  dividends  per  share at the  annual  rate of the  greater  of (i)  $6.00
(subject  to  adjustment  in  certain  events)  and (ii) the per  annum  rate of
dividends per share paid, if  applicable,  by the Company,  on the Common Stock.
The dividends may be paid, at the Company's  option, in cash or shares of Series
B Preferred  Stock or in a combination  of cash and shares of Series B Preferred
Stock.  Dividends on the Series B Preferred Stock accrue and are paid quarterly.
The Series B Preferred Stock ceases bearing dividends on September 30, 2001.

     Under the General Corporation Law of the State of Delaware, a corporation's
board of directors may declare and pay dividends only out of surplus,  including
additional paid in capital, or current net profits.


                                       24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

     The  following table sets forth certain selected financial data of LifeCell
for  each  of the years in the five-year period ended December 31, 1999, derived
from  the  Company's  audited  financial statements.  This information should be
read  in  conjunction  with  "Management's  Discussion and Analysis of Financial
Condition  and  Results  of  Operations"  and the Financial Statements and notes
thereto  included  elsewhere  in  this  Annual  Report  on  Form
10-K.

<TABLE>
<CAPTION>
                                                       Year  Ended  December  31,
                                    1995           1996           1997           1998           1999
                                -------------  -------------  -------------  -------------  -------------
<S>                             <C>            <C>            <C>            <C>            <C>

Operations Statement Data:
------------------------------
Revenues:
  Product sales . . . . . . .   $    742,238   $  2,012,205   $  4,904,971   $  7,245,102   $ 11,911,497
  Research funded by others .      1,064,337        933,365      1,074,954        746,789        764,322
                                -------------  -------------  -------------  -------------  -------------
    Total revenues . . . . . .     1,806,575      2,945,570      5,979,925      7,991,891     12,675,819
                                -------------  -------------  -------------  -------------  -------------
Costs and expenses:
  Cost of goods sold . . . . .       925,174      1,281,353      2,540,644      2,837,037      3,452,329
  Research and development . .     2,169,764      1,588,186      2,007,062      3,375,545      3,871,062
  General and administrative .     1,422,588      1,911,254      3,081,512      3,484,460      4,839,536
  Selling and marketing. . . .     1,475,296      2,389,573      4,955,597      6,500,000      7,236,022
  Relocation costs . . . . . .            --             --             --             --      2,936,645
                                -------------  -------------  -------------  -------------  -------------
    Total costs and expenses .     5,992,822      7,170,366     12,584,815     16,197,042     22,335,594
                                -------------  -------------  -------------  -------------  -------------
Loss from operations . . . . .    (4,186,247)    (4,224,796)    (6,604,890)    (8,205,151)    (9,659,775)
Interest income and other, net       280,843        135,082        466,255        863,837        467,579
                                -------------  -------------  -------------  -------------  -------------
Net loss . . . . . . . . . . .  $ (3,905,404)  $ (4,089,714)  $ (6,138,635)  $ (7,341,314)  $ (9,192,196)

Loss per share(1)-basic and
  diluted. . . . . . . . . . .  $      (1.10)  $      (1.14)  $      (1.04)  $      (0.72)  $      (0.83)

Shares used in computing loss
  per share-basic and diluted      4,313,366      4,542,519      6,820,122     11,228,912     11,937,532
                                =============  =============  =============  =============  =============


                                                            As of December 31,
                                    1995           1996           1997           1998           1999
                                -------------  -------------  -------------  -------------  -------------
Balance Sheet Data:
------------------------------
Cash and cash equivalents. . .  $  3,015,332   $ 10,748,250   $ 20,781,026   $  8,025,415   $  4,736,877
Short-term investments . . . .             -              -              -      4,000,745        315,244
Working capital  . . . . . . .     2,888,048     10,884,779     20,515,559     12,596,612      2,541,469
Total assets . . . . . . . . .     4,376,039     12,890,015     24,155,598     17,030,699     18,083,431
Accumulated deficit. . . . . .   (24,774,753)   (29,310,934)   (36,411,480)   (44,475,992)   (54,378,000)
Total stockholders' equity . .     2,093,906     10,197,104     20,259,603     14,260,638      9,248,381
<FN>
(1)  Includes  effect  of  accounting treatment of preferred stock and warrants of  $0.19, $0.24, $0.14,
     $0.07  and  $0.07  in  1995,  1996,  1997,  1998  and  1999,  respectively.
</TABLE>


                                       25
<PAGE>
ITEM  7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

     The  following discussion of operations and financial condition of LifeCell
should  be  read  in conjunction with the Financial Statements and Notes thereto
included  elsewhere  in  this  Annual  Report  on  Form  10-K.

Special  Note:  Certain  statements  set forth below constitute "forward-looking
statements"  within the meaning of Section 27A of the Securities Act and Section
21E  of  the Exchange Act.  See "Business-Special Note Regarding Forward-Looking
Statements."

GENERAL  AND  BACKGROUND

     LifeCell Corporation is a bioengineering company engaged in the development
and commercialization of tissue regeneration and cell preservation products. Our
core preservation  technology produces an acellular tissue matrix, which retains
the essential  biochemical and structural components necessary for normal tissue
regeneration.  We currently  market  three  products  based on this  technology:
AlloDerm(R) for the reconstructive plastic, burn and dental markets; Cymetra(TM)
a micronized version of AlloDerm for the reconstructive  plastic and dermatology
markets;  and  Repliform(R)  acellular  tissue for the  urology  and  gynecology
market. We believe that our products are the only commercially  available tissue
transplant  products that provide a complete  template for the  regeneration  of
normal human soft tissue.  We estimate  that AlloDerm has been  transplanted  in
more than 50,000 patients.  We also are developing several additional  products,
including small diameter  vascular grafts as an alternative to autografted blood
vessels,   orthopedic   applications  of  our  acellular   tissue  matrix,   and
ThromboSol(TM)  a  formulation  for  extended  storage  of  platelets.

     We were incorporated in the State of Delaware in 1992 as the successor to a
Delaware corporation that was incorporated in 1986.

RESULTS  OF  OPERATIONS

     YEARS  ENDED  DECEMBER  31,  1999  AND  1998

     The  net  loss  for  the  year  ended  December  31, 1999, increased 26% to
approximately $9.2 million compared to approximately $7.3 million for 1998.  The
increase  was  principally  attributable  to  higher  costs  associated with the
Company's  increased  marketing  activities for its AlloDerm products, increased
investment in the Company's product development programs, increased expenditures
for  the infrastructure to support these activities and relocation costs related
to  the  Company's  move  to  New  Jersey.  The  increase in net loss was offset
partially  by  increased  product  sales.

     Total  revenues  for the year ended  December 31,  1999,  increased  59% to
approximately  $12.7 million compared to approximately $8.0 million for 1998. An
approximately  $4.7  million  increase  in sales of  products  was the result of
expanded sales and marketing  activities and increased  distribution  activities
during  1999.  Amounts  recognized  as  revenues  under such  cost-reimbursement
arrangements are for expenses  incurred during the respective  periods.  Cost of
goods sold for the year ended December 31, 1999, was approximately $3.5 million,
resulting in a gross margin of approximately  71%. The gross margin for the year
ended December 31, 1998, was approximately 61%. The increase in gross margin was
principally  attributable  to an  increase  in  sales of  certain  higher-margin
AlloDerm  products and an increase in the price of certain AlloDerm  products in
1999.

     Research and  development  expenses  for the year ended  December 31, 1999,
increased  15% to  approximately  $3.9 million  compared to  approximately  $3.4
million for 1998. The increase in research and development expense was primarily
attributable to increased animal and clinical studies for the expanding uses for
AlloDerm . In addition,  the Company  dedicated  increased  resources to product
development programs such as Micronized AlloDerm(TM).

     General and  administrative  expenses for the year ended December 31, 1999,
increased  39% to  approximately  $4.8 million  compared to  approximately  $3.5
million for 1998. The increase was attributable to recruiting and staffing costs
incurred  in  connection  with the  recruitment  of new key  members  of  senior
management  and  professional  fees  incurred  in  relation  to  a  distribution
agreement entered into during 1999.


                                       26
<PAGE>
     Selling and marketing  expenses  increased 11% to $7.2 million for the year
ended December 31, 1999,  compared to  approximately  $6.5 million for 1998. The
increase  was  primarily  attributable  to the  addition of  domestic  sales and
marketing personnel and the expansion of marketing activities during 1999.

     Relocation expenses for the year ended December 31, 1999 were $2.9 million.
These costs  related to the  relocation  of the  Company's  operations  from The
Woodlands,  Texas to  Branchburg,  New Jersey and included a non-cash  charge to
abandon assets related to the Company's Texas facility,  costs of non-relocating
employee  retention  benefits  and the costs of  relocating  key  employees  and
transporting certain assets to New Jersey.

     Interest income and other, net decreased 46% to approximately  $468,000 for
the year ended December 31, 1999,  compared to approximately  $864,000 for 1998.
The decrease was principally  attributable to a reduction of funds available for
investing activities during 1999.

     YEARS  ENDED  DECEMBER  31,  1998  AND  1997

     The  net  loss  for  the  year  ended  December  31, 1998, increased 20% to
approximately $7.3 million compared to approximately $6.1 million for 1997.  The
increase  was  principally  attributable  to  higher  costs  associated with the
Company's  increased  marketing  activities for its AlloDerm products, increased
investment in the Company's product development programs, increased expenditures
for  the  infrastructure to support these activities and severance costs related
to  changes  in  executive  management.  The  increase  in  net  loss was offset
partially  by  increased  product  sales, as well as higher interest income from
investments.

     Total  revenues  for the year ended  December 31,  1998,  increased  34% to
approximately  $8.0 million compared to approximately  $6.0 million for 1997. An
approximately  $2.4  million  increase  in sales of  products  was the result of
expanded sales and marketing activities,  and increased distribution  activities
during  1998.  This  increase  was offset in part by an  approximately  $328,000
decrease in revenues  from funded  research  and  development.  The research and
development  funding  available to the Company  through grants and alliances was
lower  during  1998 than in 1997.  Amounts  recognized  as  revenues  under such
cost-reimbursement  arrangements  are for expenses  incurred during the periods.
Cost of goods sold for the year ended December 31, 1998, was approximately  $2.8
million,  resulting in a gross margin of approximately 61%. The gross margin for
the year ended December 31, 1997, was  approximately  48%. The increase in gross
margin was principally  attributable to the implementation of certain production
efficiencies,  the allocation of fixed costs to higher  volumes of products,  an
increase in sales of certain higher-margin  AlloDerm products and an increase in
the price of certain AlloDerm products in 1998.

     Research and  development  expenses  for the year ended  December 31, 1998,
increased  68% to  approximately  $3.4 million  compared to  approximately  $2.0
million for 1997. The increase in research and development expense was primarily
attributable to increased animal and clinical studies for the expanding uses for
AlloDerm.  In addition,  the Company  dedicated  increased  resources to product
development programs such as Micronized AlloDerm .

     General and  administrative  expenses for the year ended December 31, 1998,
increased  13% to  approximately  $3.5 million  compared to  approximately  $3.1
million for 1997.  The increase was primarily  attributable  to severance  costs
related to a change in executive management.

     Selling and marketing  expenses  increased 31% to $6.5 million for the year
ended December 31, 1998,  compared to  approximately  $5.0 million for 1997. The
increase  was  primarily  attributable  to the  addition of  domestic  sales and
marketing  personnel,  expansion  of marketing  activities  as well as severance
costs related to changes in executive marketing personnel.

     Interest income and other, net increased 85% to approximately  $864,000 for
the year ended December 31, 1998,  compared to approximately  $466,000 for 1997.
The  increase  was  principally  attributable  to  higher  funds  available  for
investment  during  the  current  period as a result of the  $16.0  million  net
proceeds received from the public offering of Common Stock in December 1997.


                                       27
<PAGE>
LIQUIDITY  AND  CAPITAL  RESOURCES

     Since its inception, LifeCell's principal sources of funds have been equity
offerings,  debt,  product  sales,  external  funding of research activities and
interest  on  investments.  LifeCell  has  historically  funded  research  and
development  activities for products other than AlloDerm primarily with external
funds  from  its  corporate  alliance  with  Medtronic and government grants. In
December  1996,  LifeCell  was awarded a two-year contract of approximately $1.1
million from the United States Army to support the development of vascular graft
and other products.  In June 1998, LifeCell was awarded a $600,000 contract from
the  United  States  Navy  related  to  the development and clinical research of
ThromboSol .  In September and November 1999, LifeCell was awarded two contracts
from the United States Navy related to the preservation of human platelets. Such
grants  total  approximately  $1.2  million.

     In 1994,  LifeCell  entered into an agreement  with  Medtronic  pursuant to
which Medtronic paid LifeCell a license fee of $1.5 million and agreed,  subject
to certain rights to terminate at Medtronic's discretion,  to fund certain costs
of the research and  development  of LifeCell's  proprietary  tissue  processing
technology in the field of heart valves. Through December 31, 1998, LifeCell had
recognized  approximately  $2.0  million in revenues  for  development  funding,
excluding the initial license fee, for this program.  In December 1998, LifeCell
and  Medtronic  mutually  agreed to  terminate  their  early  stage  license and
development  agreement  related to heart  valves in order to focus on  near-term
opportunities. LifeCell regained all rights to its cardiovascular technology. As
a result of terminating the agreement,  the $1.5 million up-front  licensing fee
paid by Medtronic to LifeCell in 1994  converted  into 310,771  shares of Common
Stock.

     In December 1997,  LifeCell  received net proceeds of  approximately  $16.0
million pursuant to a public offering of 4 million shares of Common Stock.

     In March 1999, the Company received net proceeds of approximately  $900,000
from the  sale of  108,577  shares  of the  Company's  Common  Stock  to  Boston
Scientific  in  connection  with  the  agreement  for  worldwide  marketing  and
distribution  of its  proprietary  acellular  tissue matrix for  applications in
urology and gynecology.

     In November  1999,  LifeCell  received net proceeds of  approximately  $3.6
million pursuant to a private placement of 925,000 shares of Common Stock. Also,
in December 1999, the Company closed on a debt financing of  approximately  $6.0
million.  As of December  31,  1999,  the Company has drawn down $3.0 million of
this facility.

     In February 2000, the company  drew-down an additional  $2.5 million on the
debt facility.

     LifeCell  expects to incur  substantial  expenses  in  connection  with its
efforts to expand sales and  marketing of AlloDerm,  develop  expanded  uses for
AlloDerm, conduct the Company's product development programs (including costs of
clinical studies),  prepare and make any required regulatory filings,  introduce
products,  participate in technical seminars and support ongoing  administrative
and research and development  activities.  The Company currently intends to fund
these  activities  from its  existing  cash  resources,  sales of  products  and
research  and  development  funding  received  from  others.  While the  Company
believes  that its  existing  available  funds  will be  sufficient  to meet its
present  operating  and  capital  requirements  through  2000,  there  can be no
assurance  that  such  sources  of funds will be sufficient to meet these future
expenses.  If adequate funds are not available,  the Company  expects it will be
required  to  delay,  scale  back  or  eliminate  one or  more  of  its  product
development  programs.  The  Company's  need for  additional  financing  will be
principally  dependent  on the  degree  of  market  acceptance  achieved  by the
Company's  products and the extent to which the Company can achieve  substantial
growth in product sales during 2000 and 2001, as well as the extent to which the
Company may decide to expand its product  development  efforts.  There can be no
assurance that the Company will be able to obtain any such additional  financing
on acceptable terms, if at all.

     LifeCell  has had losses since its  inception  and  therefore  has not been
subject to federal  income  taxes.  As of December  31,  1999,  LifeCell had net
operating loss ("NOL") and research and development tax credit carryforwards for
income tax purposes of approximately  $48.5 million and $533,000,  respectively,
available  to reduce  future  income tax and tax  liabilities.  Federal tax laws
provide  for a  limitation  on the  use  of NOL  and  tax  credit  carryforwards
following certain  ownership changes that could limit LifeCell's  ability to use
its NOL and tax credit carryforwards.  The Company's sale of Common Stock in the
1997 public  offering  resulted in an  ownership  change for federal  income tax
purposes.  The Company  estimates that the amount of NOL  carryforwards  and the
credits  available to offset taxable  income  subsequent to the offering will be
approximately  $22  million on a  cumulative  basis.  Accordingly,  if  LifeCell
generates  taxable  income  in  any  year  in  excess  of  its  then  cumulative
limitation,  the Company may be required to pay federal income taxes even though
it has unexpired NOL carryforwards.


                                       28
<PAGE>
YEAR  2000  COMPLIANCE

     The  Year 2000 issues related to the possibility that computer programs and
embedded  computer  chips  might  be unable to accurately process data with year
dates  of  2000  and  beyond.

     Prior to December  31,  1999,  LifeCell  made the  necessary  revisions  or
upgrades  to its  systems  to render  them year 2000  compliant.  Subsequent  to
December 31, 1999, the Company  experienced no significant  events, nor received
any  significant  reports  indicating  any material year 2000 issues.  The costs
incurred in 1999 to address potential year 2000 issues were not material. We are
unaware of any uncorrected  problems regarding the year 2000 issue at this time,
but will continue to monitor for any potential problems throughout 2000.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The  Company  is  exposed  to certain market risks associated with interest
rates.  The  Company's  revolving loan and term loan borrowings bear interest at
variable  rates  and  therefore,  changes in U.S interest rates, affect interest
expense incurred thereon.  Based on debt outstanding at December 31, 1999, a 10%
increase  in variable interest rates would not have a material adverse effect on
the  Company's  future  operations  or  cash  flows.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  financial  statements and supplementary financial information required
to  be  filed under this Item are presented commencing on page F-1 of the Annual
Report  on  Form  10-K,  and  are  incorporated  herein  by  reference.


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

     None



PART  III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item will be set forth in the Registrant's
Proxy  Statement relating to the annual meeting of the Registrant's stockholders
scheduled  to  be  held June 2, 2000, under the captions "Election of Directors"
and  "Executive  Compensation,"  and  such information is incorporated herein by
reference.


ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item will be set forth in the Registrant's
Proxy  Statement relating to the annual meeting of the Registrant's stockholders
scheduled  to  be held June 2, 2000, under the caption "Executive Compensation,"
and  such  information  is  incorporated  herein  by  reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item will be set forth in the Registrant's
Proxy  Statement relating to the annual meeting of the Registrant's stockholders
scheduled  to  be  held  June  2, 2000, under the caption "Security Ownership of
Certain  Beneficial Owners and Management," and such information is incorporated
herein  by  reference.


                                       29
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item will be set forth in the Registrant's
Proxy  Statement relating to the annual meeting of the Registrant's stockholders
scheduled  to be held June 2, 2000, under the caption "Certain Relationships and
Related Transactions," and such information is incorporated herein by reference.


PART  IV

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

(A)     DOCUMENTS  INCLUDED  IN  THIS  REPORT:

<TABLE>
<CAPTION>
1.   FINANCIAL STATEMENTS                                                                     PAGE
                                                                                              ----
<S>  <C>                                                                                      <C>

Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . .   F-1
Balance Sheets as of December 31, 1998 and 1999 . . . . . . . . . . . . . . . . . . . . . .   F-2
Statements of Operations for the years ended December 31, 1997, 1998 and 1999 . . . . . . .   F-3
Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999 . .   F-4
Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 . . . . . . .   F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-7
</TABLE>


2.   FINANCIAL STATEMENT SCHEDULES

     All other  schedules  are  omitted  because  they are not  applicable,  not
     required, or because the required information is contained in the Company's
     financial statements and the notes thereto.

(B)  REPORTS ON FORM 8-K:

     During the quarter  ended  December  31,  1999,  the  Company  filed (i) on
     November 30,  1999,  a Current  Report on Form 8-K dated as of November 22,
     1999, to report the private placement of equity securities of the Company.


<TABLE>
<CAPTION>
                                                     EXHIBITS:


<S>      <C>
Exhibits designated by the symbol * are filed with this Annual Report on Form 10-K.  All exhibits not so
designated are incorporated by reference to a prior filing as indicated.

Exhibits designated by the symbol + are management contracts or compensatory plans or arrangements that are
required to be filed with this report pursuant to this Item 14.

LifeCell undertakes to furnish to any stockholder so requesting a copy of any of the following exhibits upon
payment to the Company of the reasonable costs incurred by Company in furnishing any such exhibit.

3.1      Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the
         Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998, filed with the Securities and
         Exchange Commission ("the Commission") on August 10, 1998).

3.2      Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company's Quarterly
         Report on Form 10-Q for the period ended June 30, 1996, filed with the Commission on August 14, 1996.)

10.1+    LifeCell Corporation Amended and Restated 1992 Stock Option Plan, as amended (incorporated by
         reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998,
         filed with the Commission on August 10, 1998).

10.2+    LifeCell Corporation Second Amended and Restated 1993 Non-Employee Director Stock Option Plan,
         as amended (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
         fiscal year ended December 31, 1996, filed with the Commission on March 31, 1997).


                                       30
<PAGE>
10.3     Form of Confidentiality/Non-Compete Agreement (incorporated by reference to Exhibit 10.28 to the
         Company's Registration Statement on Form S-1, Registration No. 33-44969, filed with the Commission on
         January 9, 1992).

10.4     Lease Agreement dated December 10, 1986, between the Registrant and The Woodlands Corporation,
         Modification and Ratification of Lease Agreement dated April 11, 1988, between the Registration and The
         Woodlands Corporation Modification and Ratification of Lease dated August 1, 1992, between the Company and
         The Woodlands Corporation and Modification, Extension and Ratification of Lease dated March 5, 1993,
         between the Registrant and The Woodlands Corporation, and Modification and Ratification of Lease Agreement
         dated December 21, 1995, between the Company and The Woodlands Office Equities -- '95 Limited
         (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended
         March 31, 1996).

10.5     Lease Agreement dated September 1, 1988, between the Registrant and The Woodlands Corporation,
         and Modification of Lease Agreement dated March 5, 1993, between the Registrant and The Woodlands
         Corporation (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
         fiscal year ended December 31, 1992).

10.6     Securities Purchase Agreement dated November 18, 1996, between LifeCell Corporation and the
         Investors named therein (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form
         10-K for the fiscal year ended December 31, 1996).

10.7     Voting Agreement dated November 18, 1996, as amended as of April 15, 1999 among LifeCell
         Corporation and certain stockholders named therein (incorporated by reference to Exhibit 10.1 to the Company's
         Quarterly Report on Form 10-Q filed with the Commission on May 17, 1999).

10.8     Registration Rights Agreement dated November 18, 1996, between LifeCell Corporation and certain
         stockholders named therein (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
         Form 10-K for the fiscal year ended December 31, 1996).

10.9     Form of Stock Purchase Warrant dated November 18, 1996, issued to each of the warrant holders
         named on Schedule 10.18 attached thereto (incorporated by reference to Exhibit 10.18 to the Company's Annual
         Report on Form 10-K for the fiscal year ended December 31, 1996).

10.10    Stock Purchase Warrant dated November 18, 1996, issued to Gruntal & Co., Incorporated (incorporated
         by reference to Exhibit 10.19 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal
         year ended December 31, 1996 on Form 10-K/A).

10.11+  Agreement dated August 19, 1998, between LifeCell Corporation and Paul M. Frison (incorporated by
         reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30,
         1998 filed with the Commission on November 13, 1998).

10.12+   Agreement dated July 1, 1997, between LifeCell Corporation and Stephen A. Livesey. (incorporated by
         reference to Exhibit 10.20 to the Company's Registration Statement No. 333-37123 on Form S-2 filed with the
         Commission on October 3, 1997).

10.13+   Agreement dated October 5, 1998 between LifeCell Corporation and Paul G. Thomas (incorporated by
         reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the Commission on
         November 13, 1998.)

10.14+   Letter agreement dated September 8, 1998 between LifeCell Corporation and Paul G. Thomas, as amended by
         letter agreements dated September 9, 1998 and September 29, 1998 (incorporated by reference to Exhibit 10.3 to
         the Company's Quarterly Report on Form 10-Q filed with the Commission on November 13, 1998.)

10.15    Lease Agreement by and between Maurice M. Weill, Trustee for Branchburg Property and LifeCell
         Corporation dated June 17, 1999 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report
         on Form 10-Q filed with the Commisssion on November 15, 1999)

10.16    Stock Purchase Warrant dated November 17, 1999, issued to The Tail Wind Fund, Ltd (incorporated by
         reference to Exhibit 4.4  to the Company's Registration Statement on Form S-3 (Registration No. 333-94715)
         filed with the Commission on January 14, 2000.)


                                       31
<PAGE>
10.17*   Loan Agreement dated December 6, 1999 between LifeCell Corporation and Transamerica Business
         Credit Corporation.

10.18*   Stock Purchase and Registration Rights Agreements dated November 17, 1999 between LifeCell
         Corporation and The Tail Wind Fund, Ltd.

23.1*    Consent of Arthur Andersen LLP.

27.1*    Financial data schedule.
</TABLE>


                                       32
<PAGE>
                                   SIGNATURES

     In  accordance  with  Section 13 or 15(d) of the Securities Exchange Act of
1934,  the  registrant  caused  this  report  to  be signed on its behalf by the
undersigned,  thereunto  duly  authorized.


                                   LIFECELL  CORPORATION
                                        (Registrant)

                                   By:  /s/  Paul  G.  Thomas
                                     ------------------------
                                        Paul G. Thomas, President, Chief
                                           Executive  Officer  and  Chairman
                                           of the Board of Directors

Dated:  March  24,  2000.

     In  accordance  with  the  Securities Exchange Act of 1934, this report has
been  signed  by  the  following  persons on behalf of the registrant and in the
capacities  and  on  the  dates  indicated:


<TABLE>
<CAPTION>
       SIGNATURE                                TITLE                           DATE
------------------------  -----------------------------------------------  --------------
<C>                       <S>                                              <C>

/s/ Paul G. Thomas        President and Chief Executive                    March 24, 2000
------------------------  Officer (Principal Executive Officer)
(Paul G. Thomas)

/s/ Fenel M. Eloi         Sr. Vice President and Chief Financial Officer   March 24, 2000
------------------------  (Principal Financial Officer)
(Fenel M. Eloi)

/s/ David B. Platt        Controller                                       March 24, 2000
------------------------  (Principal Accounting Officer)
(David B. Platt)

/s/ Michael E. Cahr       Director                                         March 24, 2000
------------------------
(Michael E. Cahr)

/s/ Peter D. Costantino   Director                                         March 24, 2000
------------------------
(Peter D. Costantino)

/s/ James G. Foster       Director                                         March 24, 2000
------------------------
(James G. Foster)

/s/ Stephen A. Livesey    Director                                         March 24, 2000
------------------------
(Stephen A. Livesey)

/s/ K. Flynn McDonald     Director                                         March 24, 2000
------------------------
(K. Flynn McDonald)

/s/ David A. Thompson     Director                                         March 24, 2000
------------------------
(David A. Thompson)
</TABLE>


                                       33
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To  LifeCell  Corporation:


     We have audited the accompanying  balance sheets of LifeCell Corporation (a
Delaware  corporation)  as of  December  31,  1998  and  1999,  and the  related
statements of  operations,  stockholders'  equity and cash flows for each of the
three years in the period ended December 31, 1999.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of LifeCell  Corporation as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.



                                           ARTHUR  ANDERSEN  LLP


Philadelphia,  Pennsylvania
   February  9,  2000


                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                                             LIFECELL CORPORATION
                                                BALANCE SHEETS


                                                                                    DECEMBER 31,
                                                                           -----------------------------
                                                                                1998            1999
                                                                           --------------  -------------
<S>                                                                        <C>             <C>
                                                    Assets

Current Assets
  Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .  $   8,025,415   $  4,736,877
  Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . .      4,000,745        315,244
  Accounts and other receivables, net of allowance for doubtful accounts
    $5,915 and $174,578, respectively . . . . . . . . . . . . . . . . . .      1,383,920      2,557,337
  Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,749,023      3,202,271
  Prepayments and other . . . . . . . . . . . . . . . . . . . . . . . . .        207,570        159,664
                                                                           --------------  -------------
    Total current assets. . . . . . . . . . . . . . . . . . . . . . . . .     15,366,673     10,971,393
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,388,339      6,547,863
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .        275,687        564,175
                                                                           --------------  -------------
    Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  17,030,699   $ 18,083,431
                                                                           ==============  =============


                                      Liabilities and Stockholders' Equity

Current Liabilities
  Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     704,938   $    741,375
  Accrued liablities. . . . . . . . . . . . . . . . . . . . . . . . . . .      2,065,123      4,896,090
  Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             --      2,792,459
                                                                           --------------  -------------
    Total current liabilities . . . . . . . . . . . . . . . . . . . . . .      2,770,061      8,429,924
                                                                           --------------  -------------

Deferred Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . .             --        405,126
                                                                           --------------  -------------

Commitments and Contingencies (Note 12)
Stockholders' Equity
Series B preferred stock, $.001 par value, 182,205 shares
  authorized, 119,084 and 118,016 issued and outstanding  (liquidation
    preference at December 31, 1999 of $11,801,600) . . . . . . . . . . .            119            118
Undesignated preferred stock, $.001 par value 1,817,795
  shares authorized, none issued and outstanding  . . . . . . . . . . . .             --             --
Common stock, $.001 par value, 48,000,000 shares
  authorized, respectively, 11,611,852 and 12,899,643 shares issued and
  outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . .         11,612         12,900
Warrants outstanding to purchase 3,182,188 and 3,466,399
  shares of common stock, respectively. . . . . . . . . . . . . . . . . .        298,344        887,812
Additional paid-in capital  . . . . . . . . . . . . . . . . . . . . . . .     58,426,555     62,725,551
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . .    (44,475,992)   (54,378,000)
                                                                           --------------  -------------
    Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . .     14,260,638      9,248,381
                                                                           --------------  -------------
    Total liabilities and stockholders' equity. . . . . . . . . . . . . .  $  17,030,699   $ 18,083,431
                                                                           ==============  =============
</TABLE>

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


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                LIFECELL CORPORATION
                              STATEMENTS OF OPERATIONS


                                              FOR  THE  YEAR  ENDED  DECEMBER  31,
                                            ----------------------------------------
                                                1997          1998          1999
                                            ------------  ------------  ------------
<S>                                         <C>           <C>           <C>
Revenues:
  Product sales  . . . . . . . . . . . . .  $ 4,904,971   $ 7,245,102   $11,911,497
  Research funded by others. . . . . . . .    1,074,954       746,789       764,322
                                            ------------  ------------  ------------
    Total revenues . . . . . . . . . . . .    5,979,925     7,991,891    12,675,819
                                            ------------  ------------  ------------
Costs and Expenses:
  Cost of goods sold . . . . . . . . . . .    2,540,644     2,837,037     3,452,329
  Research and development . . . . . . . .    2,007,062     3,375,545     3,871,062
  General and administrative . . . . . . .    3,081,512     3,484,460     4,839,536
  Selling and marketing. . . . . . . . . .    4,955,597     6,500,000     7,236,022
  Relocation costs . . . . . . . . . . . .           --            --     2,936,645
                                            ------------  ------------  ------------
    Total costs and expenses . . . . . . .   12,584,815    16,197,042    22,335,594
                                            ------------  ------------  ------------
Loss From Operations . . . . . . . . . . .   (6,604,890)   (8,205,151)   (9,659,775)
  Interest income and other, net . . . . .      466,255       863,837       467,579
                                            ------------  ------------  ------------
Net Loss . . . . . . . . . . . . . . . . .   (6,138,635)   (7,341,314)   (9,192,196)

Preferred Stock Dividends. . . . . . . . .     (961,911)     (723,198)     (709,812)
                                            ------------  ------------  ------------

Net Loss Applicable to Common Stockholders  $(7,100,546)  $(8,064,512)  $(9,902,008)
                                            ============  ============  ============


Loss Per Common Share-Basic and Diluted. .  $     (1.04)  $     (0.72)  $     (0.83)
                                            ============  ============  ============

Shares Used in Computing Loss Per
  Common Share-Basic and Diluted   . . . .    6,820,122    11,228,912    11,937,532
                                            ============  ============  ============
</TABLE>

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


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                               LIFECELL CORPORATION
                                        STATEMENTS OF STOCKHOLDERS' EQUITY


                                                        SERIES  A             SERIES  B
                                                     PREFERRED  STOCK      PREFERRED  STOCK      COMMON  STOCK
                                                 -----------------------  ------------------  -------------------
                                                  SHARES       AMOUNT      SHARES    AMOUNT     SHARES    AMOUNT
                                                 ---------  ------------  --------  --------  ----------  -------
<S>                                              <C>        <C>           <C>       <C>       <C>         <C>
Balance at December 31, 1996  . . . . . . . . .   260,000   $ 5,291,473   124,157   $   126    4,899,944  $ 4,900
  Stock options exercised . . . . . . . . . . .        --            --        --        --       47,987       48
  Warrants exercised  . . . . . . . . . . . . .        --            --        --        --       76,813       77
  Expiration of warrants  . . . . . . . . . . .        --            --        --        --           --       --
  Redemption of Series A preferred stock. . . .  (260,000)   (5,200,000)       --        --    1,739,128    1,739
  Conversion of Series B preferred stock. . . .        --            --    (6,688)       (7)     215,729      216
  Common stock and cash issued as dividends . .
    on Series A preferred stock . . . . . . . .        --      (195,000)       --        --       33,305       33
  Common stock sold in public offering. . . . .        --            --        --        --    4,000,000    4,000
  Stock options issued for services . . . . . .        --            --        --        --           --       --
  Series B preferred stock issued as. . . . . .
    dividends on Series B preferred stock . . .        --            --     7,972         6           --       --
  Dividends accrued on Series B preferred stock        --       103,527        --        --           --
  Net Loss                                             --            --        --        --           --       --
                                                 ---------  ------------  --------  --------  ----------  -------

Balance at December 31, 1997  . . . . . . . . .        --            --   125,441       125   11,012,906   11,013
  Stock options exercised . . . . . . . . . . .        --            --        --        --       12,550       13
  Warrants exercised  . . . . . . . . . . . . .        --            --        --        --        4,965        5
  Expiration of warrants. . . . . . . . . . . .        --            --        --        --           --       --
  Warrants issued to purchase Common Stock. . .        --            --        --        --           --       --
  Conversion of Series B preferred stock. . . .        --            --    (6,357)       (6)     205,060      205
  Common stock issued for cash, and . . . . . .        --            --        --        --      376,371      376
    conversion of license fee
  Stock options issued for services . . . . . .        --            --        --        --           --       --
  Dividends paid on Series B preferred stock. .        --            --        --        --           --       --
  Dividends accrued on Series B preferred stock        --            --        --        --           --       --
  Net Loss                                             --            --        --        --           --       --
                                                 ---------  ------------  --------  --------  ----------  -------
Balance at December 31, 1998. . . . . . . . . .        --            --   119,084       119   11,611,852   11,612
  Stock options exercised . . . . . . . . . . .        --            --        --        --      219,764      220
  Warants issued to purchase Common Stock . . .        --            --        --        --           --       --
  Conversion of Series B preferred stock  . . .        --            --    (1,068)       (1)      34,450       34
  Common stock issued for cash. . . . . . . . .        --            --        --        --    1,033,577    1,034
  Dividends paid on Series B preferred stock. .        --            --        --        --           --       --
  Dividends accrued on Series B preferred stock        --            --        --        --           --       --
  Net Loss  . . . . . . . . . . . . . . . . . .        --            --        --        --           --       --
                                                 ---------  ------------  --------  --------  ----------  -------
Balance at December 31, 1999. . . . . . . . . .        --   $        --   118,016   $   118   12,899,643  $12,900
                                                 =========  ============  ========  ========  ==========  =======
</TABLE>

                                   (continued)
   The accompanying notes are an integral part of these financial statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                               LIFECELL CORPORATION
                                  STATEMENTS OF STOCKHOLDERS' EQUITY-(CONTINUED)


                                                 WARRANTS  TO  PURCHASE
                                                     COMMON  STOCK       ADDITIONAL        TOTAL
                                                 ----------------------    PAID-IN      ACCUMULATED   STOCKHOLDERS'
                                                   SHARES      AMOUNT      CAPITAL        DEFICIT        EQUITY
                                                 ----------  ----------  ------------  -------------  ------------
<S>                                              <C>         <C>         <C>           <C>            <C>

Balance at December 31, 1996  . . . . . . . . .  3,378,264   $ 423,218   $33,788,321   $(29,310,934)  $10,197,104
  Stock options exercised   . . . . . . . . . .         --          --       128,719             --       128,767
  Warrants exercised  . . . . . . . . . . . . .    (89,786)   (123,738)      432,527             --       308,866
  Expiration of warrants. . . . . . . . . . . .   (125,000)         --            --             --            --
  Redemption of  Series A preferred stock . . .         --          --     5,198,261             --            --
  Conversion of Series B preferred stock. . . .         --          --          (209)            --            --
  Common stock and cash issued as dividends . .
    on Series A preferred stock . . . . . . . .         --          --       129,919             --       (65,048)
  Common stock sold in public offering. . . . .         --          --    16,018,766             --    16,022,766
  Stock options issued for services . . . . . .         --          --        12,834             --        12,834
  Series B preferred stock issued as  . . . . .
    dividends on Series B preferred stock . . .         --          --       651,327       (669,749)      (18,416)
  Dividends accrued on Series B preferred stock         --          --            --       (292,162)     (188,635)
  Net Loss                                              --          --            --     (6,138,635)   (6,138,635)
                                                 ----------  ----------  ------------  -------------  ------------
Balance at December 31, 1997                     3,163,478     299,480    56,360,465    (36,411,480)   20,259,603
  Stock options exercised                               --          --        43,416             --        43,429
  Warrants exercised                               (11,290)     (1,136)        1,125             --            (6)
  Expiration of warrants                           (20,000)         --            --             --            --
  Warrants issued to purchase common stock          50,000          --            --             --            --
  Conversion of Series B preferred stock                --          --          (199)            --            --
  Common stock issued for cash, and
    conversion of license fee . . . . . . . . .         --          --     1,999,929             --     2,000,305
  Stock options issued for services                     --          --        21,819             --        21,819
  Dividends paid on Series B preferred stock            --          --            --       (542,998)     (542,998)
  Dividends accrued on Series B preferred stock         --          --            --       (180,200)     (180,200)
  Net Loss                                              --          --            --     (7,341,314)   (7,341,314)
                                                 ----------  ----------  ------------  -------------  ------------
Balance at December 31, 1998.                    3,182,188     298,344    58,426,555    (44,475,992)   14,260,638
  Stock options exercised                               --          --       670,035             --       670,255
  Warrants issued to purchase common stock         284,211     589,468      (381,927)            --       207,541
  Conversion of Series B preferred stock                --          --           (33)            --            --
  Common stock issued for cash                          --          --     4,010,921             --     4,011,955
  Dividends paid on Series B preferred stock            --          --            --       (531,300)     (531,300)
  Dividends accrued on Series B preferred stock         --          --            --       (178,512)     (178,512)
  Net Loss                                              --          --            --     (9,192,196)   (9,192,196)
                                                 ----------  ----------  ------------  -------------  ------------
Balance at December 31, 1999                     3,466,399   $ 887,812   $62,725,551   $(54,378,000)  $ 9,248,381
                                                 ==========  ==========  ============  =============  ============
</TABLE>

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


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                                        LIFECELL CORPORATION
                                      STATEMENTS OF CASH FLOWS


                                                              FOR  THE  YEAR  ENDED  DECEMBER  31,
                                                           -----------------------------------------
                                                               1997          1998           1999
                                                           ------------  -------------  ------------
<S>                                                        <C>           <C>            <C>

Cash Flows from Operating Activities:
---------------------------------------------------------
  Net Loss                                                 $(6,138,635)  $ (7,341,314)  $(9,192,196)
  Adjustments to reconcile net loss to net cash used in
    operating activities -
    Depreciation and amortization                              225,092        495,523       411,321
    Provision for bad debt                                      83,690          5,915       174,578
    Stock and warrant compensation expense                      12,834         21,819            --
    Loss on asset disposals                                         --             --       334,874
  Change in assets and liabilities -
    Increase in accounts and other receivables                (742,755)      (293,931)   (1,347,995)
    Increase in inventories                                    (96,576)      (812,625)   (1,453,248)
    Increase in prepayments and other                          (45,446)      (109,344)     (152,225)
    Increase in accounts payable and accrued
      liabilities                                            1,282,357        253,384     2,688,892
    Increase (Decrease) in deferred revenues                   (79,273)       (59,519)      405,126
                                                           ------------  -------------  ------------
    Net cash used in operating activities                   (5,498,712)    (7,840,092)   (8,130,873)
                                                           ------------  -------------  ------------
Cash Flows from Investing Activities:
  Capital expenditures                                        (597,685)      (831,982)   (5,885,494)
  Additions to patents                                         (59,129)       (83,524)     (108,582)
  Purchase of short-term investments                                --     (4,000,745)     (315,244)
   Sales of short-term investments                                  --             --     4,000,745
                                                           ------------  -------------  ------------
      Net cash used in investing activities                   (656,814)    (4,916,251)   (2,308,575)
                                                           ------------  -------------  ------------
Cash Flows from Financing Activities:
  Proceeds from issuance of stock and warrants              16,460,399        543,730     4,682,210
  Proceeds from issuance of notes payable                           --             --     3,000,000
  Dividends paid                                              (272,097)      (542,998)     (531,300)
                                                           ------------  -------------  ------------
        Net cash provided by financing activities           16,188,302            732     7,150,910
                                                           ------------  -------------  ------------
Net Increase (Decrease) in Cash and Cash Equivalents        10,032,776    (12,755,611)   (3,288,538)
Cash and Cash Equivalents at Beginning of Year              10,748,250     20,781,026     8,025,415
                                                           ------------  -------------  ------------
Cash and Cash Equivalents at End of Year                   $20,781,026   $  8,025,415   $ 4,736,877
                                                           ============  =============  ============

Supplemental Disclosure of Cash Flow Information:
  Cash paid during the year for interest                   $     4,583   $      1,769   $        --
                                                           ============  =============  ============

Supplemental Disclosure of Noncash Financing Activities:
  Common Stock issued as payment of dividends              $   195,000   $         --   $        --
                                                           ============  =============  ============

  Series B Preferred stock issued as payment of dividends  $   797,200   $         --   $        --
                                                           ============  =============  ============

  Common Stock issued in exchange for deferred credit      $        --   $  1,500,000   $        --
                                                           ============  =============  ============
  Fair value of warrants issued in connection with
   Notes payable                                           $        --   $         --   $   207,541
                                                           ============  =============  ============
</TABLE>


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


                                      F-6
<PAGE>
                              LIFECELL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999


1.   ORGANIZATION:

     LifeCell Corporation, a Delaware corporation ("LifeCell" or "the Company"),
is  a bioengineering company engaged in the development and commercialization of
tissue  regeneration  and  cell  preservation  products.  The  Company  was
incorporated  on January 6, 1992 for the purpose of merging with its predecessor
entity,  which was formed in 1986.  LifeCell began commercial sales of its first
product,  AlloDerm(R) cellular  dermal  graft, during 1994. The future operating
results of the Company will be principally dependent on the market acceptance of
its  current  product,  development of and market acceptance of future products,
competition  from  other  products  or technologies, protection of the Company's
proprietary  technology,  and access to funding as required.  Accordingly, there
can  be  no  assurance  of  the  Company's  future  success.

     LifeCell  expects  to  incur  substantial  expenses  in connection with its
efforts  to  expand  sales  and marketing of AlloDerm, develop expanded uses for
AlloDerm, conduct the Company's product development programs (including costs of
clinical  studies),  prepare and make any required regulatory filings, introduce
products,  participate  in technical seminars and support ongoing administrative
and  research and development activities.  The Company currently intends to fund
these  activities  from  its  existing  cash  resources,  sales  of products and
research  and  development  funding  received  from  others.  While  the Company
believes  that  its  existing  available  funds  will  be sufficient to meet its
present  operating  and  capital  requirements  through  2000,  there  can be no
assurance  that  such  sources  of funds will be sufficient to meet these future
expenses.  If  adequate  funds are not available, the Company expects it will be
required  to  delay,  scale  back  or  eliminate  one  or  more  of  its product
development  programs.  The  Company's  need  for  additional  financing will be
principally  dependent  on  the  degree  of  market  acceptance  achieved by the
Company's  products  and the extent to which the Company can achieve substantial
growth in product sales during 2000 and 2001, as well as the extent to which the
Company  may  decide to expand its product development efforts.  There can be no
assurance  that the Company will be able to obtain any such additional financing
on  acceptable  terms,  if  at  all.

2.   ACCOUNTING POLICIES:

     Cash  and  Cash  Equivalents  and  Short-term  Investments

     The  Company  considers  all  highly  liquid  investments purchased with an
original  maturity  of three months or less to be cash equivalents.  Investments
with  longer  maturities  that  the  Company  intends  to  hold  to maturity are
classified as either current or non-current assets based on the maturity date of
the  security.  As  of  December 31, 1998 and 1999, the Company held $11,734,522
and $4,736,877 respectively, of interest-bearing money market accounts and A1/P1
commercial  paper  which  were classified as "hold to maturity" securities.  The
carrying  basis of these investments approximated fair value and amortized cost.

     Inventories

     Inventories  are  stated  at  the  lower  of  cost  or  market,  cost being
determined  on  a  first-in,  first-out  (FIFO)  basis.

     Fixed  Assets

     Fixed  Assets  are  stated  at  cost.  Maintenance  and repairs that do not
improve or extend the life of the assets are expensed as incurred.  Expenditures
for  renewals  and improvements are capitalized.  The cost of assets retired and
the  related accumulated depreciation are removed from the accounts and any gain
or loss is included in the results of operations.  Depreciation of furniture and
equipment  is provided on the straight-line method based on the estimated useful
lives  of the assets of five years.  Leasehold improvements are depreciated over
the  life  of  the  lease.


                                      F-7
<PAGE>
     Accounts Receivable

     As of December 31, 1997, 1998 and 1999, the allowance for doubtful accounts
was  $83,690,  $5,915  and  $174,578  respectively.  In  1997,  1998  and  1999,
approximately  $83,690,  $5,915  and $168,663 of write-offs were charged to this
allowance  in  each  of the respective years . During 1998, $83,690 was deducted
from  this  allowance.

     Revenue Recognition

     Product sales are recognized as revenue when the product is shipped to fill
customer  orders.  Revenues from research funded by others are recognized as the
work  is performed unless the Company has continuing performance obligations, in
which  case  revenue  is  recognized  upon the satisfaction of such obligations.
Revenue  received,  but  not  yet  earned,  is  classified  as deferred revenue.

     Research  and  Development  Expense

     Research  and  development  costs  are expensed when incurred.  The Company
performs  research  funded by others, as well as its own independent proprietary
research,  development  and  clinical  testing  of  its  products.

     Loss  Per  Common  Share

     Loss  per  Common  share  has been computed by dividing net loss, which has
been  increased  for  periodic  accretion  and  imputed  and stated dividends on
outstanding  Preferred Stock, by the weighted average number of shares of Common
Stock outstanding during each period.  In all applicable years, all Common Stock
equivalents,  including the stock options and warrants, Series A Preferred Stock
and  the  Series B Preferred Stock, were antidilutive and, accordingly, were not
included  in  the  computation.

     During  1997,  the  Company  adopted  Statement  of  Financial   Accounting
Standards No. 128,  "Earnings Per Share,".  The  implementation of Statement 128
had no effect on the  Company's  presentation  of earnings  per share due to the
antidilutive nature of all of the Company's Common Stock equivalents.

     Diluted  loss per  Common  share is the same as basic loss per share due to
the antidilutive nature of all of the Company's Common Stock equivalents.

     Use  of  Estimates

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

     New  Accounting  Pronouncements

     In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101").  The  bulletin  draws  on existing accounting rules and provides specific
guidance  on  how  those  accounting  rules  should be applied, and specifically
addresses  revenue  recognition for non-refundable technology access fees in the
biotechnology  industry.  SAB  101 is effective for fiscal years beginning after
December 15, 1999.  The Company is evaluating SAB 101 and the effect it may have
on  its  financial  statements.  At this time, the Company believes that SAB 101
will  not  have  a  material  impact  on  its  financial  position or results of
operations.

3.   INVENTORIES:

     Inventories  consist  of  products  in various stages produced for sale and
includes  the  costs  of  raw  materials,  labor,  and  overhead.  A  summary of
inventories  is  as  follows:


                                      F-8
<PAGE>
<TABLE>
<CAPTION>
                                                   1998          1999
                                               ------------  ------------
<S>                                            <C>           <C>

Raw materials used in production. . . . . . .  $   723,921   $  1,081,449
Work-in-process . . . . . . . . . . . . . . .      423,839      1,214,619
Finished goods. . . . . . . . . . . . . . . .      601,263        906,203
                                               ------------  ------------
  Total inventories . . . . . . . . . . . . .  $ 1,749,023   $  3,202,271

4.   FIXED ASSETS:

A summary of fixed assets is as follows:
                                                      1998       1999
                                               ------------  ------------
Machinery and equipment . . . . . . . . . . .  $ 1,853,164   $  2,303,100
Leasehold improvements. . . . . . . . . . . .      465,924      4,966,944
Office furniture and fixtures . . . . . . . .      709,412        869,429
                                               ------------  ------------
                                                 3,028,500      8,139,473
Accumulated depreciation and amortization . .   (1,640,161)    (1,591,610)
                                               ------------  ------------
  Net fixed assets. . . . . . . . . . . . . .  $ 1,388,339   $  6,547,863


5.   ACCRUED LIABILITIES:

Accrued liabilities consist of the following:

                                                   1998          1999
                                               ------------  ------------
Employee compensation and benefits. . . . . .  $   403,633   $  1,094,382
Operating expenses and other. . . . . . . . .    1,052,701      2,484,123
Relocation costs. . . . . . . . . . . . . . .           --      1,079,362
Severance expense . . . . . . . . . . . . . .      608,789        238,223
                                               ------------  ------------
  Total accrued liabilities . . . . . . . . .  $ 2,065,123   $  4,896,090
                                               ============  ============
</TABLE>


                                      F-9
<PAGE>
6.   DEFERRED REVENUE

     In  March  1999,  in  conjunction with the signing of a sales and marketing
agreement,  the  Company  issued  108,577 shares of Common Stock at a premium of
154%  over  the then-prevailing market price. This premium was equal to $506,408
and  is  being recognized over the 5-year term of the agreement The total equity
investment  was  valued  at $1 million less offering costs of $100,000 (see Note
8).

7.   NOTES PAYABLE

     On  December  6, 1999 the Company entered into a $6 million credit facility
with  a  financial  institution.  The loan provides for a revolving portion (the
"Revolving  Loan") not to exceed $3 million and a term portion (the "Term Loan")
not to exceed  $3 million.  The Revolving Loan bears interest at a rate of prime
plus  3%  (11.5%  at December 31, 1999) with a minimum rate of 9% and matures on
December 30,  2000 with provisions for automatic renewal for additional terms of
one  year  each.  As  of  December  31,  1999, $3,000,000 was outstanding on the
Revolving  Loan.  As  of December 31, 1999, $15,335 of interest expense has been
accrued on the Revolving Loan.  The Term Loan bears interest at a rate of 13.23%
and  is  payable  in  30  equal  monthly  installments of principal and interest
beginning June 1, 2000 and continuing through and including November 1, 2002. At
December 31, 1999, no amounts were outstanding under the Term Loan.  This credit
facility  is  secured  by  assets  of  the  Company  and the New Jersey Economic
Development Authority Guaranty and the New Jersey Economic Development Authority
Participation.  In  conjunction  with  this  credit  facility,  the Company also
issued  warrants  to  purchase  84,211 shares of the Company's Common Stock at a
price  of $4.75 per share (see Note 8). The warrants expire on December 6, 2004.
The  warrants  are  valued at $207,541 and is recorded in the balance sheet as a
reduction  of  debt outstanding.  The value of the warrant will be accreted over
the  term  of  the  loan  agreement  as  additional  interest  expense.

8.   CAPITAL STOCK:

     Series  A  Preferred  Stock

     During  November  1994,  the  Company  issued  264,500  shares  of Series A
Convertible Preferred Stock ("Series A Preferred Stock") and warrants to acquire
264,500  shares of Common Stock for gross proceeds of approximately $5.3 million
in  a private placement.  Each share of Series A Preferred Stock was convertible
at  any  time  at  the  option  of  the holder into 6.69 shares of Common Stock.
During  1997, the Company paid $195,000 in dividends by issuing 33,305 shares of
Common  Stock  and  paying  a  cash  dividend  of  $65,000.

     Pursuant to provisions in the agreement,  during February 1997, the Company
called for redemption of all outstanding shares of Series A Preferred Stock.
During  March 1997 the Company issued 1,739,128 shares of Common Stock to redeem
the  Series  A  Preferred  Stock.

     Series  B  Preferred  Stock

     During  November  1996,  the  Company  issued  124,157  shares  of Series B
Preferred  Stock  ("Series B Preferred Stock") and warrants to acquire 2,803,530
shares  of  Common  Stock for gross proceeds of approximately $12.4 million in a
private  placement.  Each  share  of  Series  B  Preferred  Stock  is  initially
convertible  at  any  time  at the option of the holder into approximately 32.26
shares  of Common Stock (3,807,196 shares of Common Stock at December 31, 1999),
subject  to  adjustment  for  dilutive  issuances  of  securities.  The Series B
Preferred  Stock  has a liquidation preference of $100 per share, or $11,801,600
as of December 31, 1999, and shares ratably in any residual assets after payment
of  such  liquidation  preference.

     The Series B Preferred Stock bears cumulative dividends, payable quarterly,
for five years at the  greater of the annual rate of $6.00 per share or the rate
of any dividends paid on other series of stock  (effectively $10 per share until
the Series A Preferred Stock was redeemed in March 1997).  Dividends may be paid
in  cash,  in  additional  shares  of  Series  B  Preferred  Stock  based on the
liquidation  value  of  $100  per share, or any combination of cash and Series B
Preferred Stock at the Company's option.  On all matters for which the Company's
stockholders  are  entitled to vote, each share of Series B Preferred Stock will
entitle the holder to one vote for each  share of  Common  Stock  into which the
share of Series B Preferred Stock is then convertible. Additionally, the holders
of Series B Preferred  Stock  have the right to elect up to two directors to the
Board of Directors of the Company. While the preferred shares are outstanding or


                                      F-10
<PAGE>
any  dividends  are  owned  thereon,  the  Company  may  not declare or pay cash
dividends  on its Common Stock.  During 1999, the Company paid cash dividends on
the Series B Preferred Stock of $531,300.  The Company has accrued a dividend at
December  31,  1999,  of  $178,512.

     The preferred stock will be automatically converted into  Common  Stock  if
(i) the closing  price of the Company's Common Stock averages or  exceeds  $9.30
per share for  30  consecutive  trading  days.

     Common  Stock

     In  December 1997, the Company issued 4,000,000 shares of Common Stock in a
public  offering  at  a  price of $4.50 per share.  The proceeds of the offering
were  approximately  $16.7  million  before  deducting  offering  costs  of
approximately  $717,000.

     During 1997, the Company issued 33,305 shares of Common Stock as payment of
accrued dividends on Series A Preferred Stock.

     During 1997, the Company issued 74,786 shares of Common Stock upon exercise
of certain  warrants  and 2,027  shares of Common Stock upon the net exercise of
warrants to acquire 15,000 shares of Common Stock.

     In December  1998,  as a result of  terminating  a license and  development
agreement,  the $1.5 million  up-front  licensing fee paid by Medtronic  Inc. to
LifeCell in 1994 converted into 310,771 shares of newly issued  LifeCell  Common
Stock.

     During 1998,  the Company  issued 4,965 shares of Common Stock upon the net
exercise of  warrants  to acquire  11,290  shares of Common  Stock,  the Company
issued 65,600 shares of Common Stock to an unaffiliated party in connection with
the  settlement of prior  litigation  and the Company  issued  310,771 shares of
Common Stock as a result of the mutually agreed upon  termination of the license
and development agreement relating to heart valves.

     In March  1999,  the  Company  issued  108,577  shares of  Common  Stock in
connection with the signing of a distribution  agreement at a price of $9.21 per
share which represents a 154% premium over the then-prevailing market price. The
premium is being  recognized  over the term of the  agreement  (see Note 6). The
proceeds of this offering were  $1,000,000  before  deduction  offering costs of
approximately  $100,000.  During November 1999 the Company issued 925,000 shares
of  Common  Stock in a private  placement  at a price of $4.20  per  share.  The
proceeds of the  offering  were  approximately  $3.9  million  before  deducting
offering costs of approximately $267,000.

     Options

     The  Company's  Amended  and Restated 1992 Stock Option Plan, as amended in
1998  (the  "1992  Plan"),  provides  for the grant of options to purchase up to
2,500,000  shares of Common Stock.  Granted options generally become exercisable
over  a four year period, 25 percent per year beginning on the first anniversary
of  the date of grant.  To the extent not exercised, options generally expire on
the  tenth  anniversary  of the date of grant, except for employees who own more
than  10  percent  of  all  the voting shares of the Company, in which event the
expiration  date  is  the  fifth  anniversary of the date of grant.  All options
granted  under  the  plan have exercise prices equal to the fair market value at
the  dates  of  grant.

     The Second  Amended and Restated 1993  Non-Employee  Director  Stock Option
Plan,  as  amended  ("Director  Plan") was  adopted in 1993.  A total of 750,000
shares of Common Stock are  available  for grant under the Director  Plan.  Upon
amendment of the Director  Plan in 1996,  options to purchase  50,000  shares of
Common  Stock were  granted to each  then-current  non-employee  director of the
Company at an exercise price equal to the fair market value of a share of Common
Stock on the date of the Director  Plan.  Options to purchase  25,000  shares of
Common Stock will be granted to newly  elected  directors  at an exercise  price
equal to the fair market value of a share of Common Stock on such election date.
The  provisions of the Director Plan provide for an annual grant of an option to
purchase 10,000 shares of Common Stock to each  non-employee  director.  Options
under the Director Plan  generally  vest one year after date of grant and expire
after 10 years.


                                      F-11
<PAGE>
     A  summary  of  stock  option  activity  is  as  follows:

<TABLE>
<CAPTION>
                                          1992
                                   Stock Option Plan     Director  Plan
                                  --------------------  ------------------
                                              Weighted-           Weighted-
                                           Avg. Exercise        Avg. Exercise
                                   Options    Price($)  Options   Price($)
                                  ----------  --------  --------  --------
<S>                               <C>         <C>       <C>       <C>

Balance at December 31, 1996        968,820       3.28   75,000       4.11
  Granted. . . . . . . . . . . .    131,050       5.21   70,000       5.10
  Exercised. . . . . . . . . . .    (47,987)      2.68       --         --
  Forfeited. . . . . . . . . . .    (14,563)      3.75       --         --
                                  ----------            --------
Balance at December 31, 1997      1,037,320       3.54  145,000       4.59
  Granted. . . . . . . . . . . .    936,700       5.04   30,000       6.69
  Exercised. . . . . . . . . . .    (12,550)      3.49       --         --
  Forfeited. . . . . . . . . . .   (141,767)      5.65       --         --
                                  ----------            --------
Balance at December 31, 1998      1,819,703       4.15  175,000       4.95
  Granted. . . . . . . . . . . .    695,000       4.09   80,000       4.22
  Exercised. . . . . . . . . . .   (154,764)      3.05  (65,000)      3.05
  Forfeited. . . . . . . . . . .   (158,468)      5.21       --         --
                                  ----------            --------
Balance at December 31, 1999      2,201,471       4.13  190,000       5.29
                                  ==========            ========


Exercisable at December 31, 1997    484,427       3.02  100,000       4.05
Exercisable at December 31, 1998    701,528       3.21  145,000       4.59
Exercisable at December 31, 1999    940,958       3.74  110,000       6.07
</TABLE>

     At  December 31, 1999, 80,767 and 490,000 options were available for future
grant  under  the  1992  Plan and the Director Plan, respectively.  The exercise
prices  of  options  outstanding  under  the  1992 Plan and the Director Plan at
December  31, 1999, range from $0.07 to $6.75 and $2.75 to $11.00, respectively.
The  weighted  average  contractual  life of options outstanding at December 31,
1999,  was  7.91  years  for the 1992 Plan and 8.15 years for the Director Plan.

     In addition to the  amounts set forth in the table  above,  during 1996 the
Company granted options to purchase  220,000 shares of Common Stock to directors
who  resigned  upon the closing of the sale of the Series B  Preferred  Stock in
exchange for options  previously  granted under the Director Plan. These options
have provisions  identical to the options  previously granted under the Director
Plan,  including  exercise  prices and vesting  periods.  The  weighted  average
exercise price of the options granted was $4.14. The weighted average  remaining
contractual life of the grants was 5.82 years as of December 31, 1999.

     The Company accounts for its employee stock-based  compensation plans under
APB No. 25 and its related interpretations.  Accordingly,  deferred compensation
expense is recorded for stock options based on the excess of the market value of
the  common  stock on the date  the  options  were  granted  over the  aggregate
exercise price of the options.  This deferred compensation is amortized over the
vesting period of each option.  As the exercise  price of options  granted under
the 1992 Plan and the Director Plan has been equal to or greater than the market
price of the  Company's  stock on the date of  grant,  no  compensation  expense
related to these plans has been recorded.  Had compensation expense for its 1992
Plan and  Director  Plan  been  determined  consistent  with SFAS No.  123,  the
Company's net loss and loss per share would have been increased to the following
pro forma amounts:

<TABLE>
<CAPTION>
                                         1997          1998          1999
                                     ------------  ------------  -------------
<S>                                  <C>           <C>           <C>

Net Loss:
As reported . . . . . . . . . . . .  $(6,138,635)  $(7,341,314)  $ (9,192,196)
Pro forma . . . . . . . . . . . . .  $(7,058,879)  $(9,103,482)  $(11,145,590)
Loss Per Share (Basic and Diluted):
As reported . . . . . . . . . . . .  $     (1.04)  $     (0.72)  $      (0.83)
Pro forma . . . . . . . . . . . . .  $     (1.18)  $     (0.81)  $      (0.99)
</TABLE>

     Because  the  Statement  123  method  of accounting has not been applied to
options  granted  prior to January 1, 1995, the resulting pro forma compensation
cost  may  not  be  representative  of  that  to  be  expected  in future years.


                                      F-12
<PAGE>
     Under the  provisions  of SFAS No. 123, the weighted  average fair value of
options granted in 1997,  1998, and 1999 was $4.24,  $3.99, and $2.64 per share,
respectively,  under the 1992 Plan.  The weighted  average fair value of options
granted  in  1997,  1998,  and 1999 was  $4.08,  $5.33,  and  $2.76  per  share,
respectively,  under the Director  Plan.  The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following  weighted  average  assumptions  used for grants in 1997, 1998 and
1999, respectively:  a weighted average risk-free interest rate of approximately
4% - 6% percent for all years;  no expected  dividend  yield during the expected
life of the option;  expected  lives of 5 to 6 years for each grant and expected
volatility between 64 and 64 and 112 percent.

     The stock  options  issued to  retiring  directors  in 1996 had a  weighted
average fair value of $2.57.  The fair values of such  options are  estimated on
the date of grant using  Black-Scholes  option  price  model with the  following
assumptions  used:  a weighted  average  risk-free  interest  rate of 6 percent,
expected  lives  of 3 to 5  years,  expected  volatility  of 99  percent  and no
expected dividends.

     Warrants

     As of December 31, 1999, warrants to acquire a total of 3,466,399 shares of
Common  Stock  were  outstanding  as  set  forth  below.

     During  1999,  the Company  issued  warrants to acquire  200,000  shares of
Common Stock in  conjunction  with the sale of the Company's  Common Stock at an
exercise price of $5.46.  These warrants expire on the fourth anniversary of the
date of grant.  Also,  during 1999 the Company issued warrants to acquire 84,211
shares of Common Stock in  conjunction  with the issuance of notes  payable (see
Note 7). These warrants are exercisable at a price of $4.75 per share and expire
on the fifth anniversary of the date of grant

     During 1996, the Company  issued  warrants to acquire  2,803,530  shares of
Common Stock in conjunction  with the sale of the Series B Preferred  Stock (the
"1996  Warrants").  The 1996 Warrants are  exercisable  at an exercise  price of
$4.13 per share.  The warrants  expire on the fifth  anniversary  of the date of
grant,  are callable if the average closing price of the Company's  Common Stock
for 30 trading days equals or exceeds three times the  then-exercise  price, and
allow cashless exercise. The warrants also have provisions for adjustment of the
exercise  price and  number of  shares  for  below-exercise  price  issuance  of
securities.  As of December 31,  1999,  the 1996  warrants to acquire  2,717,454
Shares of Common Stock were outstanding.

     Additionally,  the Company  issued  warrants to acquire  354,734  shares of
Common Stock to the  placement  agent for the Series B Preferred  Stock  ("Agent
Warrant").  The Agent Warrants are exercisable at an exercise price of $4.50 per
share.  The warrants  expire on the fifth  anniversary  of the date of grant and
allows cashless exercise.  The warrant also has provisions for adjustment of the
exercise  price and  number of  shares  for  below-exercise  price  issuance  of
securities.

     As of December 31, 1999,  additional  warrants to acquire 110,000 shares of
Common Stock were  outstanding with exercise prices ranging from $2.50 to $8.00.
Such warrants  expire during periods  ranging from April 5, 2000, to February 1,
2001.

9.   RELOCATION COSTS:

     In  June  1999,  management  approved  plans  to  relocate  the  Company's
operations  from  The Woodlands, Texas to Branchburg, New Jersey.  Costs charged
to  operations  during  the  year  ended  December 31, 1999 included the cost of
non-relocating  employee  benefits,  a  charge  to abandon assets related to the
Company's  Texas  facility  and  the  costs  of  relocating key employees to New
Jersey.  The Company anticipates the relocation to be completed by May 31, 2000.

     Costs  recorded  during the year ended  December  31,  1999  classified  as
relocation costs in the Statement of Operations are as follows:


                                      F-13
<PAGE>
<TABLE>
<CAPTION>
<S>                               <C>
Non-relocating employee benefits  $  516,381
Asset abandonment costs. . . . .     334,875
Relocation costs . . . . . . . .   2,085,389
                                  ----------
  Total relocation costs . . . .  $2,936,645
                                  ==========
</TABLE>

10.     EMPLOYEE  BENEFIT  PLANS:

     The  Company  maintains  a  retirement savings plan as described in Section
401(k)  of  the  Internal Revenue Code of 1986, as amended.  The Company may, at
its  discretion,  contribute amounts not to exceed each employee's contribution.
During  February  1998,  February 1999 and February 2000, the Company made total
contributions  of  $13,088,  $21,387,  and  $22,955  to  the  plan for a partial
matching  of  employee  contributions during 1997, 1998, and 1999, respectively.

     During 1996,  the Company  established  an Employee  Stock Purchase Plan to
allow for the  purchase of the  Company's  Common Stock on the open market using
employee and any employer matching  contributions.  During 1997, 1998, and 1999,
the  Company   contributed   $7,631,   $13,661,   and  $13,962,  to  this  plan,
respectively.

11.  FEDERAL INCOME TAXES:

     The  Company  has  not made any income tax payments since inception.  As of
December  31,  1999, the Company has a net operating loss (NOL) carryforward for
federal  income  tax  purposes  of  approximately  $48.5 million, subject to the
limitations  described  below,  expiring  as  follows:

<TABLE>
<CAPTION>
             YEAR EXPIRES
             -------------
<S>          <C>

2001. . . .  $     500,000
2002. . . .      1,500,000
2003. . . .      2,800,000
2004. . . .      2,200,000
2005. . . .      1,700,000
2006. . . .      1,400,000
2007. . . .      2,400,000
2008. . . .      3,000,000
2009. . . .      2,500,000
2010. . . .      4,000,000
2011. . . .      4,000,000
2012. . . .      5,700,000
2018. . . .      8,200,000
2019. . . .      8,600,000
             -------------
                48,500,000
</TABLE>

     Additionally,  the  Company  has  approximately  $533,000  of  research and
development  tax  credit  carryforwards  which  will  expire  in varying amounts
commencing in 2001.  Federal tax laws provide for a limitation on the use of NOL
and  tax  credit  carryforwards  following  certain ownership changes that could
limit  LifeCell's ability to use its NOL and tax credit carryforwards.  The sale
of Common Stock in the public offering in December 1997 resulted in an ownership
change  for  federal income tax purposes.  The Company estimates that the amount
of  NOL  carryforwards  and  the  credits  available to offset taxable income at
December  31,  1999,  is  approximately  $22  million  on  a  cumulative  basis.
Accordingly,  if  LifeCell generates taxable income in any year in excess of its
then  cumulative  limitation,  the Company may be required to pay federal income
taxes  even  though  it  has  unexpired  NOL  carryforwards.

     For financial reporting purposes,  a valuation allowance of $16,938,000 has
been  recorded as of December 31,  1999,  to fully offset the deferred tax asset
related to these  carryforwards.  The  principal  components of the deferred tax
asset as of December 31, 1998 and 1999,  assuming a 34% federal tax rate, are as
follows:


                                      F-14
<PAGE>
<TABLE>
<CAPTION>
                                                               1998           1999
                                                           -------------  -------------
<S>                                                        <C>            <C>

Temporary differences:
  Deferred revenue. . . . . . . . . . . . . . . . . . . .  $         --   $    138,000
  Restricted stock compensation . . . . . . . . . . . . .            --             --
  Uniform capitalization of inventory costs . . . . . . .        70,000        147,000
  Other items . . . . . . . . . . . . . . . . . . . . . .        16,000        140,000
                                                           -------------  -------------
  Total temporary differences . . . . . . . . . . . . . .        86,000        425,000
  Federal tax losses and credits not currently utilizable    14,301,000     16,513,000
                                                           -------------  -------------
Total deferred tax assets                                    14,387,000     16,938,000
  Less valuation allowance. . . . . . . . . . . . . . . .   (14,387,000)   (16,938,000)
                                                           -------------  -------------
Net deferred tax asset  . . . . . . . . . . . . . . . . .  $         --   $         --
                                                           =============  =============
</TABLE>

     The  net increase in the deferred tax valuation allowance for 1998 and 1999
was  $2,561,000, and $2,551,000 respectively.  Other than the net operating loss
and  tax  credit  carryforwards,  there is no significant difference between the
statutory  federal  income  tax rate and the Company's effective tax rate during
1997,  1998  and  1999.

12.  COMMITMENTS AND CONTINGENCIES:

     Litigation

     The Company is subject to numerous risks and uncertainties and from time to
time  may be subject to various claims in the ordinary course of its operations.
The Company maintains insurance coverage for events and in amounts that it deems
appropriate.  There  can  be no assurance that the level of insurance maintained
will  be sufficient to cover any claims incurred by the Company or that the type
of  claims  will  be  covered  by  the  terms  of  insurance  coverage.

     License  Agreements

     The Company has entered into several license agreements, both exclusive and
nonexclusive  in  conjunction with its business.  The Company is required to pay
royalties  on net sales of products encompassing the licensed technologies.  For
the  years  ended  December  31,  1997,  1998,  and 1999, $141,539, $10,248, and
$17,311  of  expenses  were  incurred  under  these  agreements,  respectively.

     Leases

     The  Company  leases  approximately  85,000  square  feet  for  office  and
laboratory  space  and  has  various other operating leases.  The future minimum
lease  payments  under  noncancelable  lease  terms  in excess of one year as of
December  31,  1999,  were  as  follows:

<TABLE>
<CAPTION>
<S>                <C>
2000. . . . . . .  $  896,944
2001. . . . . . .     573,572
2002. . . . . . .     535,936
2003. . . . . . .     535,936
  2004 and beyond   3,490,825
                   ----------
  Total . . . . .  $6,033,213
                   ==========
</TABLE>


                                      F-15
<PAGE>
13.     SEGMENT  AND  MAJOR  CUSTOMER  DATA

          The  Company  has principally one business segment related to the sale
of  AlloDerm.  Product  Sales  by  geographic  area  are  summarized as follows:

<TABLE>
<CAPTION>
                                   1997        1998         1999
                             ----------  ----------  -----------
<S>                          <C>         <C>         <C>
    United States            $4,401,351  $6,575,206  $11,065,008
    Other foreign countries  $  503,620  $  669,896  $   846,489
                             ----------  ----------  -----------
    Total Product Sales      $4,904,971  $7,245,102  $11,911,497
                             ==========  ==========  ===========
</TABLE>

     During 1999 LifeCell had one customer who comprised greater than 10% of the
Company's net product sales. Sales during 1999 to this customer were $1,238,139.

14.  SUBSEQUENT  EVENT

     In February 2000, LifeCell entered into a marketing and distribution rights
agreement  with Obagi Medical Products (OMP).  Under the terms of the agreement,
OMP  will  pay  a $1 million up-front fee to LifeCell for the licensed marketing
and  distribution  rights.  For its efforts, OMP will receive a co-promotion fee
based upon a percentage of net sales.  LifeCell and OMP will jointly oversee the
development  and  implementation  of  marketing  programs.


                                      F-16
<PAGE>