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, 2003     COMMISSION FILE NUMBER:  0-19890

                              LIFECELL CORPORATION
             (Exact name of registrant as specified in its charter)

                  DELAWARE                               76-0172936
     (State or other jurisdiction of                  (I.R.S. employer
      Incorporation or organization)                 identification no.)

                               ONE MILLENNIUM WAY
                          BRANCHBURG, NEW JERSEY 08876
          (Address of principal executive offices, including zip code)



                                 (908) 947-1100
              (Registrant's telephone number, including area code)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.001 PER SHARE


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.  [ ]

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

               Yes  X  No  __

The  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 June
30,  2003:  $96,453,000.

Number  of  shares  of  registrant's Common Stock outstanding as of February 27,
2004: 25,667,537.  (As of February 27, 2004 there were 67,601 shares of Series B
Preferred  Stock  outstanding which are convertible into an additional 2,449,319
shares  of  Common  Stock.)


<PAGE>
<TABLE>
<CAPTION>
                                                TABLE OF CONTENTS

                                                   DESCRIPTION


Item                                                                                                        Page
----------  ----------------------------------------------------------------------------------------------  ----

PART I
<S>         <C>                                                                                             <C>
  Item 1.   Business                                                                                           3
               General                                                                                         3
               Technology                                                                                      3
               Products                                                                                        5
               Product Development Activities                                                                  7
               Marketing and Distribution                                                                      9
               Sources of Materials                                                                            9
               Government Regulation                                                                           9
               Research and Development                                                                       14
               Patents, Proprietary Information & Trademarks                                                  15
               Competition                                                                                    16
               Employees                                                                                      16
               Risk Factors                                                                                   16
               Special Note Regarding Forward-Looking Statements                                              23
               Supervision and Regulation - Securities and Exchange Commission                                23
  Item 2.   Properties                                                                                        23
  Item 3.   Legal Proceedings                                                                                 23
  Item 4    Submission of Matters to a Vote of Security Holders                                               24

PART II
  Item 5.   Market for the Registrant's Common Equity, Related Stockholder Matters and
               Issuer Purchases of Equity Securities                                                          25
            Dividend Policy                                                                                   25
  Item 6.   Selected Financial Data                                                                           26
  Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations             27
               General and Background                                                                         27
               Critical Accounting Policies                                                                   27
               Results of Operations                                                                          28
               Liquidity and Capital Resources                                                                30
  Item 7A.  Quantitative and Qualitative Disclosure About Market Risk                                         32
  Item 8.   Financial Statements and Supplementary Data                                                       32
  Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure              32
  Item 9A.  Controls and Procedures                                                                           32

PART III
  Item 10.  Directors and Executive Officers of the Registrant                                                33
  Item 11.  Executive Compensation                                                                            38
  Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    42
  Item 13.  Certain Relationships and Related Transactions                                                    44
  Item 14.  Principal Accountant Fees and Services                                                            44

PART IV
  Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                  46
</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

     We  develop  and market products made from human (allograft) tissue for use
in  reconstructive,  urogynecologic  and  orthopedic  surgical  procedures.  Our
patented  tissue  processing  technology  produces  a unique regenerative tissue
matrix  -  a  complex three-dimensional structure that contains proteins, growth
factor  binding  sites and vascular channels - that provides a complete template
for  the regeneration of normal human tissue.  We currently market a broad range
of  tissue-based  products:  AlloDerm(R),  our  regenerative  tissue  matrix for
plastic  reconstructive,  general  surgical,  burn  and  periodontal procedures;
Cymetra(R),  a  version  of  AlloDerm(R)  in particulate form; Repliform(R), our
regenerative  tissue matrix for urogynecologic procedures; Graft Jacket(TM), our
regenerative  tissue  matrix  for orthopedic applications; and AlloCraft(TM)DBM,
our regenerative tissue matrix for bone grafting procedures.  We also distribute
cryopreserved  allograft  skin  for  use  as  a  temporary wound dressing in the
treatment  of burns.  Our development programs include the potential application
of  our  tissue  matrix  technology  to  vascular  and orthopedic tissue repair;
investigation  of  human tissues as carriers for therapeutics; ThromboSol(TM), a
formulation  for  extended  storage of platelets and technologies to enhance the
storage  of  red  blood  cells  for  transfusion.

     We were incorporated in the State of Delaware in 1992 as the successor to a
Delaware  corporation  that  was  incorporated  in  1986.  Our  address  is  One
Millennium Way, Branchburg, New Jersey 08876, our phone number is (908) 947-1100
and  our  website  address  is  www.lifecell.com.


TECHNOLOGY

     Our  patented  tissue  processing technology produces a unique regenerative
tissue  matrix  -  a complex three-dimensional structure that contains proteins,
growth  factor  binding  sites  and vascular channels - that provides a complete
template  for  the  regeneration  of  normal  human  tissue. To date our product
development  programs  have  been  generated  from  the  following  proprietary
technologies:

     -    methods for producing an acellular tissue matrix by removing antigenic
          cellular  elements  while  stabilizing  the  matrix  against  damage;

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

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


     TISSUE  MATRIX  TECHNOLOGY

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


                                        3
<PAGE>
     Soft  tissue,  such  as  dermis,  heart  valves,  blood  vessels  and nerve
connective tissue, contains a complex, three-dimensional structure consisting of
multiple  forms  of  collagen,  elastin,  proteoglycans,  other proteins, growth
factor  binding  sites  and  blood vessels (the "tissue matrix").  Together, the
tissue  matrix  and the cells that populate it form the soft tissues of the body
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.

     We  believe  our  tissue  matrix  technology offers the following important
benefits:

          Natural  Tissue  Regeneration.  Tissue grafts produced with our tissue
     matrix  technology  retain  the  structural and biochemical properties that
     support  normal  cell  repopulation and normal soft tissue regeneration. In
     addition,  in  our  clinical  studies  with  dermis  and preliminary animal
     studies  with  heart  valve  leaflets,  nerve  connective tissue grafts and
     vascular  grafts  processed  using  our technology, we have shown 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 matrix
     technology  has the potential to generate additional products with multiple
     clinical  applications.  In addition to the current commercial applications
     of  our  proprietary  tissue  products,  we believe that these products may
     provide  additional  benefits  in  other clinical applications. We also are
     evaluating  the  applicability  of  our  technology  to process other human
     tissues  and  are  conducting  pre-clinical  studies  with  vascular  and
     orthopedic  tissues.

          Safety.  Our  tissue  matrix  technology  yields  products  that  can
     revascularize  and  integrate into the body's own tissues, thereby allowing
     the  patient's  immune  cells 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. Our processed
     human  tissue  products  have  a proven safety record of over ten years and
     with  over  520,000  tissue  grafts  processed  and  distributed  to  date.

          Prolonged  Shelf  Life.  Our  tissue matrix technology allows extended
     storage  and  ease  of  transportation of products. AlloDerm, Repliform and
     Graft  Jacket  can  be stored at normal refrigerated temperatures for up to
     two years. In contrast, traditionally processed skin allografts require low
     temperature  (-80 degrees C)  storage  and  shipping  with dry ice. Cymetra
     can be stored  at  normal  refrigerated  temperatures  for  up to one year.
     AlloCraft DBM can be stored at ambient temperature  for  up  to  one  year.

          Compatibility  with  Other  Technologies. Human tissues processed with
     our  technology  retain  important  biochemical  components,  such  as
     proteoglycans and hyaluronic acid. These biochemical components bind growth
     factors  and  interact with cells that are involved in 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/or prevent spontaneous clotting.  When blood
cells  are  removed  from the body for storage, these stabilizing influences are
absent  and  result  in  the  destabilization  and/or  irreversible  spontaneous
clotting  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.


                                        4
<PAGE>
     Through  our  research  efforts,  we  have  developed  cell  preservation
technology  that  mimics  the  stabilizing  influences  present  in the body. We
accomplish  this  through  manipulation  of  signal transduction mechanisms that
control  cellular  metabolism and function, 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.


PRODUCTS

RECONSTRUCTIVE  TISSUE  PRODUCTS

     ALLODERM  REGENERATIVE  TISSUE  MATRIX

     AlloDerm  is donated cadaveric skin that has been processed with our tissue
matrix  technology. We believe that AlloDerm is the only human tissue product on
the  market  today  that  supports the regeneration of normal human soft tissue.
Following  transplant,  AlloDerm  is  revascularized  (i.e.,  blood  supply  is
restored)  and  repopulated with the patient's own cells becoming engrafted into
the  patient.  AlloDerm  is  a  versatile  tissue  and  has  multiple  surgical
applications.

     AlloDerm  is  marketed to plastic reconstructive and general surgeons as an
"off-the-shelf"  alternative  to  autograft  tissue  and  synthetic  materials.
AlloDerm is predominately used in plastic reconstructive, general surgical, burn
and  periodontal  procedures:

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

     -  as  an  interpositional  graft  for  tissue  coverage  or  closure;  and

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

     In  these  procedures,  alternatives  to  using AlloDerm include autologous
tissue,  synthetic  and biosynthetic materials.  We believe the disadvantages of
using  autologous tissue are the creation of a separate donor site wound and the
associated  pain,  morbidity  and  scarring  from  this  additional  wound.
Additionally,  we believe the disadvantages of using synthetic materials are the
susceptibility  of  synthetics to infection, encapsulation (scarring), the graft
moving  away  from  the  transplanted  area (mobility), and erosion of the graft
through  the  skin  (extrusion).  Some biosynthetic materials may include bovine
collagen,  which  requires  patient  sensitivity  testing.

     AlloDerm  has  been  used  in  the  treatment  of  third  degree  and  deep
second-degree  burns  requiring  skin  grafting  since  1994. 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 thickness autografts while significantly reducing
donor  site  trauma.

     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  joint  immobility.  Severe  scar  contracture  can limit the use and
function  of all mobile joints, such as in the arms, legs, feet, hands and neck.
Burn  patients  commonly  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.


                                        5
<PAGE>
     AlloDerm  is  also  used  in  general  surgical procedures. For example, in
abdominal  procedures,  AlloDerm is used to replace tissue during hernia repair,
replacement  of  infected  synthetic  mesh  and  repair of the abdominal wall in
trauma  cases.

     Periodontal  surgeons  use  AlloDerm to increase the amount of attached gum
tissue  supporting  the  teeth.  Prior  to  the  development  of AlloDerm, these
procedures were predominately performed with autologous connective tissue grafts
excised  from  the roof of the patient's mouth and then transplanted to the gum.
BioHorizons  Implant  Systems, Inc. is our exclusive distributor of AlloDerm and
AlloDerm(R)GBR(TM)  for use in periodontal applications in the United States and
certain  international  markets.

     In  periodontal  surgery, alternatives to using AlloDerm include 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.


     CYMETRA MICRONIZED ALLODERM(R) TISSUE

     Cymetra  Micronized  AlloDerm  Tissue is made from AlloDerm sheets that are
micronized  at  a  low  temperature  to  create  a  particulate form of AlloDerm
suitable  for  injection.  This  form  allows  a  non-surgical  alternative  in
reconstructive  plastic  and  other  procedures to replace damaged or inadequate
integumental  tissue,  such  as  correction of soft tissue defects and depressed
scars  or to replace integumental tissue lost through atrophy.  Cymetra does not
require  patient  sensitivity  testing  and  similar  to  AlloDerm, promotes the
regeneration  of  normal  human  soft  tissue.


     UROGYNECOLOGIC  TISSUE  REPAIR  PRODUCTS

     REPLIFORM  REGENERATIVE  TISSUE  MATRIX

     Repliform  is  the  trade  name  for  our proprietary tissue matrix product
intended  for  use  in  repairing  damaged  or inadequate integumental tissue in
urogynecologic surgical procedures.  Since 1997, surgeons have used Repliform in
urogynecologic  procedures as a bladder sling in the treatment of stress urinary
incontinence  and  for  the  repair  of pelvic floor defects.  Boston Scientific
Corporation  is  our  exclusive worldwide sales and marketing representative for
Repliform  for  use  in  urogynecologic  surgical  procedures.

     Some  forms  of  female  stress  urinary incontinence can be treated with a
sling  procedure,  which  involves  lifting  and  supporting the bladder neck to
provide  urethral  support and compression. Repliform is used by surgeons as the
sling  material  in  these  types  of  procedures.

     Cystocele,  rectocele and other pelvic floor conditions 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  together  with 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.
Repliform  is  also  used  by  surgeons  to  reinforce  the  pelvic  floor.

     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. We believe that Repliform used as a sling for urinary
incontinence  or  pelvic  floor repair provides a safe and effective alternative
that  eliminates the need for a donor site, will repopulate as the patient's own
tissue  and  will  not  erode  through  the  soft  pelvic  tissues.


                                        6
<PAGE>
ORTHOPEDIC  TISSUE  REPAIR  PRODUCTS

     GRAFT  JACKET  REGENERATIVE  TISSUE  MATRIX

     Graft  Jacket is the trade name for our proprietary tissue product intended
for  use  in  repairing  damaged or inadequate integumental tissue in orthopedic
surgical  procedures,  such as for rotator cuff tendon reinforcement, periosteal
replacement  for  uncontained  bone  defects  and  for  the  treatment  of lower
extremity ulcerations. We introduced Graft Jacket in 2002 through Wright Medical
Technology,  Inc.,  a  global  orthopedic medical device company. Wright Medical
serves  as  our  exclusive  distributor  for  GraftJacket  in the United States.


     ALLOCRAFT  DBM

     AlloCraft  DBM  is  a  proprietary human tissue based bone-grafting product
that  combines demineralized bone and micronized acellular dermis. AlloCraft DBM
is  intended to promote bone formation through revascularization, cell adhesion,
migration  and  ultimately  repopulation  of  the implant site with bone forming
cells.  We  introduced  AlloCraft  DBM  in  2003  through Stryker Corporation, a
leading  provider  of  orthopedic  implants.  Stryker  serves  as  our exclusive
marketing  agent  for  AlloCraft  DBM  in  the  United  States.


PRODUCT  DEVELOPMENT  ACTIVITIES

     ORTHOPEDIC  TISSUE  PRODUCTS

     We  are  evaluating  additional  potential  orthopedic  applications of our
tissue matrix technology. In October 2000, we received final approval for a $2.3
million  research  grant  from  the Department of Defense, through the U.S. Army
Medical  Research  Acquisition  Activity,  to investigate the application of our
technology  to  the  regeneration of orthopedic tissues. We retain all rights to
commercialize  products  resulting  from  this  collaboration.

     In  2001, we commenced pre-clinical studies to investigate the potential of
AlloDerm  and Cymetra to remodel into various orthopedic tissues such as tendon,
ligament,  cartilage,  meniscus  and bone. Such studies are ongoing. We are also
completing  process  development  of  applying  our  tissue matrix technology to
allograft  tendons  that  would  be  used  in ACL ("anterior cruciate ligament")
repair  procedures.


     VASCULAR  TISSUE  PRODUCTS

     We  are evaluating the application of our tissue matrix technology to human
tissue  based vascular tissues.  In October 2001, we received final approval for
a  $2.1  million research grant from the Department of Defense, through the U.S.
Army  Medical  Research  Acquisition Activity, to investigate the application of
our  tissue matrix technology to the regeneration of vascular and nerve tissues.
We  retain  all  rights  to  commercialize  products  resulting  from  this
collaboration.

     We  have  focused our research on evaluating the suitability of a processed
acellular  umbilical  vein  as a potential arterio-venous (A-V) access graft for
hemodialysis.  Through  our  research,  we  have  demonstrated  that  our tissue
processing  technology  is  effective  in  removing  antigenic  cells from human
umbilical  vein  grafts  without  damaging  the  structures  fundamental  to its
function. In small animal implant studies, we demonstrated that vascular tissues
processed  using  our  proprietary  technology  are  amenable  to  host  cell
repopulation  and  revascularization  with  minimal  inflammation.

     In  February 2004, we submitted an Investigational Device Exemption ("IDE")
application  to  the  United States Food and Drug Administration ("FDA") seeking
approval  to  commence  a  clinical  study  for the use of a processed acellular
umbilical  vein  as  a  potential  arterio-venous  (A-V)  access  graft  for
hemodialysis.  In  March  2004,


                                        7
<PAGE>
the  FDA  informed us  that our application was not approved and requesting that
we  complete  one  additional animal study. We are in communication with the FDA
and  are  evaluating  its  request

     If  successfully  developed,  a  human tissue based vascular graft may also
potentially  have  applications  in coronary artery bypass procedures or used to
restore  peripheral  blood  circulation  in  patients  with  peripheral vascular
disease, such as below-knee bypass procedures. Veins and arteries harvested from
the  patient  ("autologous")  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, we believe there is a critical need
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.


     BLOOD  CELL  PRESERVATION  PRODUCTS

     THROMBOSOL

     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.

     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 two years. During 1999, we successfully completed
biocompatibility  testing  on  the  ThromboSol solutions. A pilot clinical study
under  a  physician-sponsored  Investigational  New Drug Application ("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  was  performed  that  involved  a  "standard  of care"
transfusion  of  ThromboSol cryopreserved platelets into oncology patients. This
study was completed in 2001 and demonstrated that Thrombosol preserved platelets
performed  equivalent  to  fresh  platelets.  Any product developed will require
extensive  regulatory  approvals  prior  to  marketing in the United States. Our
development  efforts  to  date have primarily been funded through research grant
funds  from  the  Department  of  Defense.

     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. In February 2002, we
received  final  approval  of  an $824,000 research grant from the Department of
Defense  to investigate the potential to preserve red blood cells through freeze
drying.  We  retain  all  rights  to  commercialize products resulting from this
collaboration.

     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.

     Any  product  developed  will  require  extensive  regulatory  approvals,
including  approval  of  an  IND  by  the  FDA  to  conduct clinical trials. Our
development  efforts  to  date have primarily been funded through research grant
funds  from  the Department of Defense. Additionally, we may decide to establish
collaborative  out-licensing  arrangements with appropriate partners to fund the
development and commercialization of certain of these products.


                                        8
<PAGE>
MARKETING  AND  DISTRIBUTION

     We  currently  market  AlloDerm  in  the  United  States  for  plastic
reconstructive,  general surgical and burn applications through our direct sales
and marketing organization.  Our direct sales and marketing representatives also
market  Cymetra  to hospital-based surgeons.  BioHorizons Implant Systems, Inc.,
is  our  exclusive  distributor  in  the United States and certain international
markets  of  AlloDerm  and  AlloDerm  GBR  for  use in periodontal applications.
Boston  Scientific  Corporation  is  our exclusive worldwide sales and marketing
agent  for  Repliform  for  use  in urogynecology.    Wright Medical Technology,
Inc.,  is  our  exclusive distributor in the United States for Graft Jacket.  In
June  2003,  we  entered  into  an  exclusive  marketing  agreement with Stryker
Corporation  for  the  marketing  of  AlloCraft  DBM.

     As  of March 1, 2004, we had sales, marketing and customer service staff of
45 persons, including 36 domestic sales personnel. Our sales representatives are
responsible  for  interacting  with  ear,  nose  and  throat  surgeons,  plastic
surgeons,  burn  surgeons  and general surgeons and educating them regarding the
use  and  anticipated  benefits  of AlloDerm and Cymetra. We also participate in
numerous  national  fellowship  programs, national and international conferences
and  trade  shows, and we participated in or fund certain educational symposia.


SOURCES  OF  MATERIALS

     We  receive  donated  human  cadaveric  tissue  from tissue banks and organ
procurement  organizations  in  the United States that comply with the FDA human
tissue  regulations.  In  addition,  we require supplying tissue banks and organ
procurement  organizations  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 human tissue products
are  released  for  shipment.

     In  2003,  we  obtained  all  of our donated human cadaveric tissue from 27
tissue  banks  and  organ  procurement organizations. We estimate that there are
approximately 100 tissue banks and organ procurement organizations in the United
States.  We  believe  that we have established adequate sources of donated human
tissue  to  satisfy  the  expected  demand  for  our products in the foreseeable
future.  Although  we  have not experienced any material difficulty in procuring
adequate  donated cadaveric tissue, there is a risk that the future availability
of donated human tissue will not be sufficient to meet our demand.

     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 and
has  procedures  for  accreditation  similar  to  the  International  Standards
Organization  ("ISO")  standards.


GOVERNMENT  REGULATION

     OVERVIEW

     Government  regulation,  both domestic and foreign, is a significant factor
in  the  processing,  marketing  and  distribution  of  our current products and
products that we are developing. In the United States, our human tissue products
are  subject  to  regulation  by  the FDA. The FDA administers the Federal Food,
Drug,  and  Cosmetics  Act  ("FDC  Act") and the Public Health Service Act ("PHS
Act").  These  statutes and implementing regulations govern the design, testing,
manufacturing,  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, the FDA may choose
to  regulate  such  products  solely as human tissue if certain requirements are
met.  If  the  applicable  requirements are not met, the FDA will regulate human
tissue and products derived from human tissue as medical devices or biologics. A
fundamental  difference  in  the  treatment  of  products  under  these  various
classifications  is  that the FDA generally permits products regulated solely as
human  tissue  to  be  commercially  distributed  without premarket clearance or
approval.  In  contrast,  products  regulated  as  medical  devices or biologics
usually  require  such clearance or approval. The process of obtaining premarket
clearance  or  approval  for  a  medical  device or biologic is often expensive,
lengthy  and  uncertain.


                                        9
<PAGE>
     Whether  regulated as human tissue, a medical device or a biologic product,
once  our  products  are  on  the  market,  they  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. The FDA
may  impose  a  wide  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.


     FDA'S  HUMAN  TISSUE  REGULATION

     The  FDA's regulatory requirements for human tissue have been evolving in a
complex  fashion  and will continue to do so for some time to come. In 1993, the
FDA  adopted  the  so-called  "interim  final  rule"  for  human  tissue  for
transplantation,  which  imposed  donor  screening,  testing, and record keeping
requirements. The rule was finalized in 1997. Under the 1997 final rule, covered
"human  tissue"  is any tissue derived from a human body, which: (i) is intended
for  administration  to  another  human  for  the  diagnosis,  cure, mitigation,
treatment  or  prevention  of  any  condition  or  disease;  (ii)  is recovered,
processed,  stored  or  distributed  by  methods  not  intended to change tissue
function  or  characteristics; (iii) is not currently regulated as a human drug,
biological  product or medical device; (iv) excludes kidney, liver, heart, lung,
pancreas, or any other vascularized human organ; and (v) excludes semen or other
reproductive  tissues, human milk and bone marrow. Establishments engaged in the
procurement,  processing  and/or  distribution  of  human tissue are required to
conduct  donor  screening and infectious disease testing and to maintain records
available  for  FDA  inspection  documenting  that the procedures were followed.
Moreover,  the  FDA  has  the  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.

     In February 1997, the FDA issued a discussion document called the "Proposed
Approach."  In  the  Proposed  Approach, the FDA sets forth product factors that
would determine the level of regulation that the agency would likely impose upon
various  types  of tissue and cellular based products, determined primarily from
the  impact  of  these  product  factors  in three general areas of concern: (i)
preventing  inadvertent  use  of  contaminated  tissues  with  the potential for
transmitting  infectious  diseases;  (ii)  preventing  improper  handling  or
processing  that  might  contaminate  or damage tissues; and (iii) ensuring that
clinical  safety  and  effectiveness is demonstrated for tissues that are highly
processed,  are  used for other than their normal in vivo function, are combined
with  non-tissue  components  or  are  used  for  metabolic  purposes.

     Pursuant  to  the  Proposed  Approach,  in 2001 the FDA issued a final rule
requiring  manufacturers  of human cellular and tissue-based products, which the
FDA  calls  "HCT/Ps,"  to  register their establishments and list their products
with the FDA. Implementation of portions of the 2001 final rule had been delayed
until  earlier  this  year.  The  2001  final  rule  requiring  establishment
registration and product listing for HCT/P manufacturers is now fully effective.
The FDA also has issued proposed regulations in 1998 and 2001 that would require
most  tissue  donors to be screened for relevant communicable diseases and would
require  manufacturers  of  tissue  based products to follow current good tissue
practice.  These  proposed  regulations  have  not  been  finalized,  but  they
demonstrate  the  FDA's  increasingly proactive regulation of HCT/Ps, which will
likely lead to the imposition of significant additional regulatory requirements.
Eventually,  this  triad  of  new  regulations is expected to supersede the 1997
final  rule.

     The  2001 final rule sets forth a new test for determining whether an HCT/P
is  eligible  for  tissue  regulation  (as opposed to medical device or biologic
regulation). The FDA will apply human tissue regulation to an HCT/P that is: (i)
minimally  manipulated;  (ii) intended for homologous use; (iii) is not combined
with  a  device  (with  limited  exceptions);  and (iv) does not have a systemic
effect  and  is  not dependent upon metabolic activity for its primary function.
HCT/Ps  generally may be commercially distributed without prior FDA clearance or
approval.


                                       10
<PAGE>
     FDA  STATUS  OF  OUR  PRODUCTS

     We  believe  that  our  AlloDerm based products generally satisfy the FDA's
requirements  to  be considered "HCT/Ps" eligible for regulation solely as human
tissue.  Accordingly,  we  have not obtained prior FDA clearance or approval for
commercial  distribution  of  AlloDerm,  Repliform,  Cymetra,  Graft  Jacket  or
AlloCraft  DBM.  Nevertheless,  because  our  products meet the definition of an
HCT/P,  we  must  comply  with  the  FDA's  donor  screening, infectious disease
testing,  record  maintenance,  establishment  registration, and product listing
requirements.  Moreover, the FDA has the authority to inspect our facilities and
to  detain,  recall  or destroy our products where we have failed to comply with
these  requirements.

     In  1996 we were notified by the FDA that AlloDerm used for the replacement
or  repair  of damaged or inadequate integumental tissue (i.e. tissue lining the
surface  of  the body or a body cavity) would be regulated as human tissue under
the  then effective 1993 interim regulation governing human tissue. Relying upon
this  determination,  we  have  not  obtained  prior FDA approval for commercial
distribution  of  AlloDerm  for  use  in  the  treatment  of  burns,  plastic
reconstructive  surgery  procedures  (such  as  facial sling and scar revision),
periodontal  surgical  procedures  (such  as  free-gingival  grafting and guided
tissue  regeneration)  and general surgical procedures. We believe that the 1997
final  tissue  regulation  and the 2001 final rule on establishment registration
and  listing do not significantly alter the status of our products when used for
these  indications.  Therefore,  we  continue to believe that AlloDerm for these
uses  is  solely  regulated  as  human  tissue.

     We  believe that our decision not to obtain prior FDA clearance or approval
for  commercial  distribution of Repliform and Cymetra, which we began to market
in  1999,  is  supported by the FDA's regulations and by our correspondence with
the FDA regarding the status of these products as human tissue. Specifically, in
November  2000,  the  FDA  requested  detailed  information  about Repliform and
Cymetra.  In February 2001, we responded to the FDA's request. In June 2001, the
FDA  notified  us that Repliform and Cymetra, as currently marketed, are subject
to  regulation  solely  as  human  tissue.

     In  2002,  we  commenced  commercial  distribution  of Graft Jacket without
seeking prior FDA clearance or approval. Graft Jacket is the trade name given to
AlloDerm  when  it  is  labeled  for  the  intended  use of repairing damaged or
inadequate  integumental  tissue  in orthopedic surgery. Relying on the 1997 and
2001  final  rules and on the FDA's findings with respect to AlloDerm, Repliform
and  Cymetra,  we  believe  that  Graft  Jacket meets the definition of an HCT/P
eligible  to  be  regulated  solely  as  human  tissue.

     In  late  2002,  the  FDA  requested information to support our belief that
Graft  Jacket is an HCT/P eligible for human tissue regulation when marketed for
rotator cuff repair and for periosteum replacement. We responded to this request
in  March  2003.  By letter dated December 8, 2003, the FDA informed us of their
determination  that  Graft Jacket for these two intended uses are non-homologous
uses  of  AlloDerm that do not qualify for human tissue regulation. Accordingly,
the  FDA  took  the  position  that Graft Jacket requires premarket clearance or
approval  as  a medical device before it may be marketed for use in rotator cuff
repair. The FDA also took the position that, before Graft Jacket may be marketed
for  periosteum  replacement,  we must submit a filing with the FDA requesting a
formal  determination  as to whether medical device or biologic regulation would
apply.

     In  early  January  2004,  we  notified  the  FDA by that we had additional
information  that  we  believed would lead them to conclude that Graft Jacket is
eligible  for  HCT/P  status  when  marketed  for  rotator  cuff  repair and for
periosteum  replacement.  The  FDA  agreed  to  reconsider  its  Graft  Jacket
determination  in  light  of  the  additional  information that we would submit.
Pursuant  to  an  agreed upon schedule, on January 30, 2004, and on February 17,
2004,  we  wrote  back to the FDA to request reconsideration, to propose certain
labeling changes to Graft Jacket to address the FDA's December 8th letter and to
explain  why  we  believe


                                       11
<PAGE>
that  the FDA should accord HCT/P status to Graft Jacket for rotator cuff repair
and periosteum replacement. We are continuing to market these products (with the
labeling  changes) pending a decision. To date, the FDA has not responded. There
can  be  no  assurance  that  the FDA will agree that Graft Jacket satisfies the
requirements  for  regulation solely as human tissue. If the FDA does not agree,
they may impose medical device regulation upon Graft Jacket for rotator cuff and
periosteum  replacement  or,  possibly,  biologics  regulation  with  respect to
periosteum replacement. The FDA could also require us to cease marketing and, or
recall  product  already  sold  until  FDA  clearance or approval (or a biologic
license)  is  obtained and it could seek to impose enforcement sanctions against
us  for  marketing  these  products  without  prior  FDA  authorization.

     In  2003,  we  commenced  commercial  distribution of AlloCraft DBM without
obtaining  FDA  clearance  or approval based on our belief that AlloCraft DBM is
eligible  for  regulation solely as human tissue. There can be no assurance that
the  FDA will agree with our determination regarding the status of AlloCraft DBM
as  human  tissue.  If  the  FDA  does not agree, they may impose medical device
regulation  or  biologics  regulation  upon  AlloCraft  DBM.  The FDA could also
require  us  to cease marketing and/or recall product already sold until the FDA
clearance  or  approval (or a biologic license) is obtained and it could seek to
impose  enforcement sanctions against us for marketing this product without such
FDA  authorization.


     FDA  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 (and some class I
devices)  generally  require  the  manufacturer  to seek premarket clearance, or
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 I or II device that already
has  510(k) clearance or that is a pre-amendment class III device (in commercial
distribution  prior to May 28, 1976 and for which the FDA has not called for PMA
applications  (defined  below)).  No  assurance  can  be  given that any medical
device  will  ever  receive  510(k) clearance.  Even if 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  or,  possibly,  a  PMA
application.  In addition to 510(k) clearance requirements, class II devices can
be  subject  to  special  controls  (e.g.,  performance  standards,  post market
surveillance, patient registries and FDA guidelines) that do not apply to class
I  devices.

     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 application
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 PMA 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 which may take longer. Even after approval of a
PMA  application,  a new PMA application or a supplemental filing to an existing
PMA  is  required  in the event of a modification to the device, its labeling or
its  manufacturing  process  affecting  the  safety  or  efficacy of 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 only with approval from
FDA  and  the  appropriate  Institutional Review Board ("IRB"), at each clinical
study  site.  If  the device presents a "non-significant 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 the FDA's regulatory requirements intended
for  the  protection of subjects and to assure the integrity and validity of the
data.


                                       12
<PAGE>
     If  we  market medical device products, we 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.

     Based  upon  relevant  precedents,  it  is  not  clear whether the FDA will
regulate  our products under development as medical devices or biologic products
requiring  premarket  clearance  or  approval  or  as  human  tissue  for
transplantation.


     FDA  BIOLOGICS  REGULATION

     Biologic products are regulated under Section 351(a) of the PHS Act as well
as  the FDC 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 biologic
products  to  assure  their  safety,  purity and potency. Some licensed biologic
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 has 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 biologic product, an
applicant  must  submit  an  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 biologic 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 IRB's.
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  Biologic  License Application containing, among other things, a
complete  description  of  the  manufacturing process. Before the license can be
granted,  the  applicant must undergo a successful establishment inspection. The
FDA  review  and  approval  of  a  biologic product is very onerous and can take
several  years.  We  cannot ensure that we will obtain the required approval for
ThromboSol  platelet storage solution or any other proposed biological products.

     Early  this  year  the  FDA announced that it will develop a policy for the
approval  of  "follow-on  biologics," which would allow a second manufacturer of
the  same  product  to  be  licensed  based  upon  less scientific data than the
innovator.  The  FDA  has  not  set a timetable for the implementation of such a
policy.  Once  on  the  market,  a  licensed biologic is subject to all the post
marketing requirements of both the PHS Act and the FDC Act, including compliance
with  good  manufacturing practice, safety and other reporting requirements, and
all  relevant  labeling,  advertising and promotion requirements. Non-compliance
with  these  requirements  may  result  in  regulatory action, including warning
letters  or  untitled  letters,  license  suspension, and/or withdrawal from the
market,  product  seizures,  injunctions,  and/or  criminal  prosecutions.


     NATIONAL  ORGAN  TRANSPLANT  ACT

     Procurement  of  certain  human  organs  and  tissue for transplantation is
subject to the restrictions of the National Organ Transplant Act ("NOTA"), which
prohibits  the  acquisition  of certain human organs, including skin and related
tissue  for  valuable  consideration,  but  permits  the  payment  of reasonable
expenses  associated  with  the  procurement,  transportation,  processing,
preservation, quality control and storage of human tissue and skin. We reimburse
tissue  banks  for their expenses incurred associated with the recovery, storage
and  transportation  of


                                       13
<PAGE>
donated  human  skin  that  they provide to us for processing. We include in our
pricing  structure  certain  costs  associated  with  processing,  preservation,
quality  control  and storage of the tissue, and marketing and medical education
expenses,  in  addition  to  amounts  paid to tissue banks to reimburse them for
their  expenses  associated  with the recovery and transportation of the tissue.


     OTHER  REGULATION

     We  are  subject  to various federal, state and local laws, regulations and
requirements 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. There can be no assurance that we will not incur
significant  additional  costs  to  comply with these laws or regulations in the
future.


     INTERNATIONAL  REGULATION

     The regulation of our products outside the United States varies by country.
Certain  countries  regulate  our  human  tissue  products  as  a pharmaceutical
product,  requiring us to make extensive filings and obtain regulatory approvals
before  selling  our  product.  Certain countries classify our products as human
tissue for transplantation but may restrict its import or sale.  Other countries
have  no applicable regulations regarding the import or sale of products similar
to our products, creating uncertainty as to what standards we may be required to
meet.

     Our  human  tissue  products are currently distributed in several countries
internationally.  Additionally,  we  may  pursue  clearance  to  distribute  our
products  in  certain  other  countries  in  the  future. The uncertainty of the
regulations in each country may delay or impede the marketing of our products in
the  future  or  impede  our  ability  to negotiate distribution arrangements on
favorable terms. Certain foreign countries have laws similar to NOTA. These laws
may restrict the amount that we can charge for our products and may restrict our
ability  to  export  or  distribute  our  products  to  licensed  not-for-profit
organizations  in  those  countries.  Noncompliance  with  foreign  country
requirements  may include some or all of the risks associated with noncompliance
with  FDA  regulation  as  well  as  other  risks.


RESEARCH  AND  DEVELOPMENT

     We  have  historically  funded the development of our human tissue products
and  blood  cell  preservation  products  primarily  through  external  sources,
including  a  corporate  alliance  and government grants, as well as through the
proceeds  from  the  sale of our securities and internally generated cash flows.
Our  research and development costs in 2003, 2002 and 2001 for all programs were
approximately  $5.4  million,  $5.0  million and $4.4 million, respectively. See
"Management's  Discussion  and  Analysis  of  Financial Condition and Results of
Operations-Liquidity  and  Capital  Resources."

     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 in
excess  of  $10  million  through 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.


                                       14
<PAGE>
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.

     Three  primary  families  of  patents  and  patent applications protect our
technology.  One  United  States  patent  covers  methods  of  producing  our
tissue-based  products.  Nine  additional United States patents and five pending
United  States  patent applications supplement this patent and cover methods and
apparatus  for  freeze-drying  without  the  damaging  effects  of  ice  crystal
formation.  Six  United  States  patents  and  one  pending United States patent
application  cover  methods  of extending the shelf life of platelets, red blood
cells  and  other  blood  cells.

     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 us 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  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  generally  conduct a cursory review of issued patents prior to engaging
in  research  or  development  activities. If others already have issued patents
covering  new  products  that we develop, we may be required to obtain a license
from  others  to  commercialize  such future products. 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(R),  which concerns processing and preserving tissue samples,
AlloDerm(R),  which  concerns  our  commercial  acellular  dermal graft product,
Micronized  AlloDerm(R),  the particulate form of AlloDerm, Cymetra(R) the brand
name  for  Micronized  AlloDerm(R) and Repliform(R), the version of AlloDerm for
urology  and  gynecology.  We  have  filed  trademark  registrations  for
ThromboSol(TM),  a  formulation  for  extended  storage  of  platelets  and
AlloDerm(R)GBR(TM),  for  use in periodontal applications. Graft Jacket(TM) is a
trademark  of Wright Medical Technology, Inc. AlloCraft(TM)DBM is a trademark of
Stryker  Corporation.


                                       15
<PAGE>
COMPETITION

     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 technologies.  There are many
companies,  including  Regeneration  Technologies,  Inc.,  Cook,  Inc.  and  its
affiliates,  Cryolife,  Inc., Integra Life Sciences Holdings Corporation, Tissue
Science  Laboratories, plc and academic institutions, including Rice University,
The  University  of  Pittsburgh  and  Georgia  Institute of Technology, 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.  Additionally,  our
regenerative  tissue  products compete with synthetic products marketed by large
medical  device  companies such as Johnson & Johnson and W.L. Gore & Associates.
Many  of these companies and academic institutions are well-established, and may
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 we do.  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.

     We believe that for many current applications of our human tissue products,
the  principal  form of competition is with the use of the patient's own tissue.
We  anticipate  direct  competition  for our tissue products as well as indirect
competition from advances in 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.


EMPLOYEES

     At March 1, 2004, we had 173 employees, of which 46 were employed in sales,
marketing  and  customer  service, 79 in production and quality assurance, 22 in
research and development and 24 in administration and accounting.  Also, at such
date,  we  employed  13  individuals  with  Ph.D.  degrees.


RISK  FACTORS

     You  should  carefully  consider  these  risk  factors  in  addition to our
financial statements and notes to such financial statements.  In addition to the
following  risks,  there may also be risks that we do not yet know of or that we
currently think are immaterial that may also impair our business operations.  If
any of the following risks occur, our business, financial condition or operating
results  could  be  adversely  affected.


GOVERNMENT  REGULATIONS  COULD  ADVERSELY  AFFECT  THE  MARKETING OF OUR CURRENT
PRODUCTS  AND  THE DEVELOPMENT AND COMMERCIALIZATION OF PRODUCTS CURRENTLY BEING
DEVELOPED  BY  US.

     We  have  not  obtained  prior  FDA  clearance  or  approval for commercial
distribution  of  Graft  Jacket,  AlloCraft  DBM  or  any  of our other AlloDerm
products, because we believe that these products qualify for regulation as human
tissue.

     In  December  2003,  the  FDA informed us of their determination that Graft
Jacket,  when intended for rotator cuff repair or periosteum replacement, is not
eligible for human tissue regulation. In early January 2004, we notified the FDA
that  we had additional information that we believed would lead them to conclude
that  Graft  Jacket  is eligible for HCT/P status when marketed for rotator cuff
repair  and  for  periosteum replacement. The FDA agreed to reconsider its Graft
Jacket  determination  in  light  of  the  additional  information that we would
submit.  Pursuant to an agreed upon schedule, in January 2004 and February 2004,
we wrote back to the FDA to request reconsideration, to propose certain labeling
changes  to Graft Jacket to address FDA's December 8th letter and to explain why
we  believe  that the FDA should accord HCT/P status to Graft Jacket for rotator
cuff  repair  and  periosteum  replacement.  We  are  continuing to market these
products,  with  the  labeling


                                       16
<PAGE>
changes,  pending  a  decision from the FDA. To date, the FDA has not responded.
There  can  be  no assurance that the FDA will agree that Graft Jacket satisfies
the  requirements  for  regulation  solely  as human tissue. If the FDA does not
agree,  they  may impose medical device regulation upon Graft Jacket for rotator
cuff  and periosteum replacement or, possibly, biologics regulation with respect
to  periosteum replacement. The FDA could also require us to cease marketing and
or  recall  product  already sold until FDA clearance or approval (or a biologic
license)  is  obtained and could seek to impose enforcement sanctions against us
for  marketing  these  products  without  prior  FDA  authorization.

     We  cannot  assure  you  that  our  other  tissue-based  products,  such as
AlloCraft  DBM,  that  we  are currently marketing or that we may develop in the
future will be regulated as human tissue. The regulation of each of our products
as  human  tissue is decided by the FDA on a case-by-case basis and the agency's
position is subject to change. If the FDA chooses to regulate any of our current
or  future  products  as  a  medical  device or biologic product, the process of
obtaining  FDA clearance or approval (or a biologic license) would be expensive,
lengthy  and  unpredictable.  We anticipate that it could take from one to three
years or longer to obtain such clearance or approval (or a biologic license). We
do  not  know  if  such  clearance  or approval (or a biologic license) could be
obtained  in  a  timely  fashion,  or  at  all. Such clearance or approval (or a
biologic  license)  process  would  almost  certainly  include  a requirement to
provide  extensive  supporting  clinical  testing  data.  In  addition,  the FDA
requires  that  medical devices and biologics be produced in accordance with the
Quality  System  Regulation  for  medical devices or Good Manufacturing Practice
regulation  for  biologics.  As a result, our manufacturing and compliance costs
would increase and any such future device and biologic products would be subject
to more comprehensive development, testing, monitoring and validation standards.
Additionally, any disruption in our ability to market our current products would
adversely  affect  our  results  of  operations  and  cash  flows.


PROPOSED  FDA  GOOD  TISSUE  PRACTICE REQUIREMENTS OR OTHER MORE STRINGENT HUMAN
TISSUE  REGULATIONS  COULD  INCREASE  THE COSTS OF DEVELOPING, MANUFACTURING AND
MARKETING  OUR  TISSUE-BASED  PRODUCTS.

     The  FDA  has  issued  proposed  rules  that  would impose additional donor
suitability  and  Current  Good Tissue Practice requirements on manufacturers of
tissue-based products.  If these or similar requirements actually become law, we
will  likely  incur  additional  manufacturing  and  compliance  costs  for  our
tissue-based  products.

     A few states impose their own regulatory requirements on transplanted human
tissue. We believe that we are in compliance with such regulations. There can be
no  assurance  that  the various states in which our products are sold will find
that  we are in compliance or will not impose additional regulatory requirements
or  marketing  impediments  on  our  products.


THE  FDA CAN IMPOSE CIVIL AND CRIMINAL SANCTIONS AND OTHER PENALTIES ON US IF WE
FAIL  TO  COMPLY  WITH  THE  STRINGENT  FDA REGULATIONS APPLICABLE TO OUR TISSUE
FACILITIES.

     Failure  to  comply  with  any  applicable FDA requirements could result in
civil  and criminal enforcement actions and other fines and penalties that would
increase  our  expenses  and  adversely  affect  our  cash  flows.  Tissue
establishments  must  engage  in:

     -  donor  screening  and  infectious  disease  testing;

     -  stringent  record  keeping;  and

     -  establishment  registration  and  product  listing.

As  a result, our involvement in the processing and distribution of human tissue
for  transplantation  requires  us  to  ensure  that  proper donor screening and
infectious  disease  testing  are  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.


                                       17
<PAGE>
     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,  which  may  require  us  to  alter  our  business  methods.


THE  NATIONAL  ORGAN  TRANSPLANT ACT ("NOTA") COULD BE INTERPRETED IN A WAY THAT
COULD REDUCE OUR REVENUES AND INCOME IN THE FUTURE.

     Procurement  of  certain  human  organs  and  tissue for transplantation is
subject  to the restrictions of NOTA, which prohibits the acquisition of certain
human  organs, including skin and related tissue for valuable consideration, but
permits  the  payment  of  reasonable  expenses associated with the procurement,
transportation,  processing,  preservation, quality control and storage of human
tissue,  including  skin.  We  reimburse tissue banks for expenses incurred that
are  associated  with the recovery and transportation of donated cadaveric human
skin  that  we  process  and  distribute.  In addition to amounts paid to tissue
banks  to  reimburse them for their expenses associated with the procurement and
transportation  of human skin, we include in our pricing structure certain costs
associated  with:

     -  tissue  processing;

     -  tissue  preservation;

     -  quality  control  and  storage  of  the  tissue;  and

     -  marketing  and  medical  education  expenses.

     NOTA payment allowances may be interpreted to limit the amount of costs and
expenses that we may recover in our pricing for our products, thereby negatively
impacting  our  future  revenues  and  profitability.  If  we  are found to have
violated NOTA's prohibition on the sale of human tissue, we also are potentially
subject  to  criminal  enforcement  sanctions  which  may  adversely  affect our
operating  results.


OUR  PRODUCTS  CONTAIN  DONATED  HUMAN  CADAVERIC  TISSUE AND THEREFORE HAVE THE
POTENTIAL  FOR  DISEASE  TRANSMISSION.

     The non-profit organizations that supply such tissue are required to follow
FDA  regulations  for screening 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.  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

     -    a patient otherwise infected with disease would not erroneously assert
          a  claim  that  the  use  of  our  products  resulted  in  the disease
          transmission.

     Any such transmission or alleged transmission could have a material adverse
effect  on  our  ability  to market our products and could result in litigation.


WE DEPEND HEAVILY UPON A LIMITED NUMBER OF SOURCES OF HUMAN CADAVERIC TISSUE AND
ANY  INTERRUPTION  IN  THE AVAILABILITY OF HUMAN TISSUE WOULD INTERFERE WITH OUR
ABILITY  TO  PROCESS  AND  MARKET  OUR  PRODUCTS.

     Our  business  is  dependent on the availability of donated human cadaveric
tissue.  We  currently  receive human tissue from approximately 27 United States
tissue  banks  and  organ procurement organizations.  We estimate that there are
approximately 100 tissue banks and organ procurement organizations in the United
States.  Although  we have established what we believe to be adequate sources of
donated  human  tissue  to  satisfy  the  expected  demand  for our human tissue
products  in  the  foreseeable  future,  we  cannot  be  sure that donated human
cadaveric  tissue  will  continue  to  be available at current levels or will be
sufficient  to meet our needs. If our current sources can no longer supply human
cadaveric  tissue  or  our  requirements for human cadaveric tissue exceed their
current  capacity,  we  may


                                       18
<PAGE>
not  be  able  to  locate  other  sources  on  a  timely  basis,  or at all. Any
significant  interruption  in  the  availability of human cadaveric tissue would
likely cause us to slow down the processing and distribution of our human tissue
products,  which  could  adversely affect our ability to supply the needs of our
customers  and  adversely affect our operating results and our relationship with
our  customers.


NEGATIVE  PUBLICITY CONCERNING THE USE OF DONATED HUMAN TISSUE IN RECONSTRUCTIVE
COSMETIC  PROCEDURES  COULD  REDUCE  THE  DEMAND FOR OUR PRODUCTS AND NEGATIVELY
IMPACT  THE  SUPPLY  OF  AVAILABLE  DONOR  TISSUE.

Although  we  do  not  promote the use of our human tissue products for cosmetic
applications, clinicians may use our products in applications or procedures that
may  be considered "cosmetic."  Negative publicity concerning the use of donated
human  tissue in cosmetic procedures could reduce the demand for our products or
negatively  impact  the  willingness of families of potential donors to agree to
donate  tissue  or  tissue  banks  to  provide  tissue  to  us  for  processing.


INCREASING OUR REVENUES AND MAINTAINING PROFITABILITY WILL DEPEND ON OUR ABILITY
TO  INCREASE  MARKET  PENETRATION  OF  OUR  CURRENT  PRODUCTS AND TO DEVELOP AND
COMMERCIALIZE  NEW  PRODUCTS.

     Much  of  our  ability to increase revenues and to continue to generate net
income and positive cash flows from operations will depend on:

          -    expanding the use and market penetration of our current products;
               and

          -    the  successful  introduction  of  our  products  in development.

     The  use  of  our  products  in certain procedures represent new methods of
treatment.  Surgeons  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,  surgeons  may  not  elect to use such products for any
number  of  reasons. Consequently, surgeons, health care payers and patients may
not  accept  our  current  products  or products under development. Broad market
acceptance  of  our  products  may require the training of numerous surgeons 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  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.  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  possibility of insufficient funds for the completion of such
               development.

     If  we  are  unable  to commercialize new products, our future revenues and
profitability  could  be  adversely  affected.


                                       19
<PAGE>
CHANGES  IN  THIRD-PARTY  PAYER REIMBURSEMENT PRACTICES REGARDING THE PROCEDURES
PERFORMED  WITH OUR PRODUCTS COULD ADVERSELY AFFECT THE MARKET ACCEPTANCE OF OUR
PRODUCTS.

     Generally,  hospitals,  surgeons  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.
Third-party  payers have adopted cost control measures in recent years that 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.  The  FDA  generally  permits  human  tissue  for
transplantation  to  be  commercially  distributed  without  obtaining prior FDA
approval  of  the product. In contrast, products regulated as medical devices or
biologics  usually  require  such  approval.  Certain  government  and  other
third-party  payers  refuse,  in some cases, to provide any coverage for uses of
products  for  indications for which the FDA has not granted marketing approval.
Further,  certain  of our products are used in medical procedures that typically
are  not  covered  by  third-party payers or for which patients sometimes do not
obtain  coverage.  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 and therefore also adversely affect
our  revenues  and  results  of  operations.


WE  ARE  HIGHLY  DEPENDENT  UPON  INDEPENDENT  SALES  AND  MARKETING  AGENTS AND
DISTRIBUTORS  TO  GENERATE  OUR  REVENUES.

     Our  independent  sales and marketing agents and distributors generated 38%
of  our  total  product  revenue  in  the  year ended December 31, 2003.  Boston
Scientific  Corporation,  our  exclusive worldwide sales and marketing agent for
Repliform  represented  23%  of  our  total  product revenues in 2003.  No other
individual  independent sales agent or distributor generated more than 5% of our
total  product  revenues  in  the  year  ended  December  31,  2003.

     If  any  of  our  independent  sales  and marketing agents or distributors,
especially  Boston  Scientific,  fails  to  adequately  market our products, our
revenues  could  be  adversely affected until a replacement agent or distributor
could  be retained by us. Finding replacement agents and distributors could be a
time  consuming  process during which our revenues could be negatively impacted.


WE MAY NEED ADDITIONAL CAPITAL TO DEVELOP AND COMMERCIALIZE NEW PRODUCTS, AND IT
IS  UNCERTAIN  WHETHER  SUCH  CAPITAL  WILL  BE  AVAILABLE.

     We  intend to expend funds for our ongoing research and product development
activities.  We  may  need  additional  capital,  depending  on:

          -    the number and types of research and product development programs
               undertaken;  and


                                       20
<PAGE>
          -    the  progress of our research and product development efforts and
               the  associated costs relating to obtaining regulatory approvals,
               if  any, that may be needed to commercialize some of our products
               currently  under  development.

     Although  we  believe  that  our  current  cash  resources  together  with
anticipated  cash  from  ongoing  operating activities, committed research grant
funding  and remaining availability under our credit facility will be sufficient
to  fund  our  planned  operations,  research and development programs and fixed
asset  additions  in the foreseeable future, there can be no assurance that such
sources  will  be  sufficient to meet our long-term needs and as a result we may
need  additional  funding.  We  have  no  commitments for any future funding and
there can be no assurance that we will be able to obtain additional financing in
the  future from either debt or equity financings, collaborative arrangements or
other  sources  on terms acceptable to us, or at all.  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.  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.

THE  BIOMEDICAL FIELD IS HIGHLY COMPETITIVE AND SUCH COMPETITION COULD ADVERSELY
AFFECT  OUR  REVENUES  AND  RESULTS  OF  OPERATIONS.

     The  biomedical  field  is  undergoing  rapid and significant technological
change.  Our  success  depends  upon  our  ability  to develop and commercialize
effective products that meet medical needs.  There are many companies, including
Regeneration  Technologies, Inc., Cook, Inc. and its affiliates, Cryolife, Inc.,
Integra Life Sciences Holdings Corporation, Tissue Science Laboratories, plc and
academic  institutions,  including Rice University, The University of Pittsburgh
and  Georgia  Institute  of  Technology, that are capable of developing products
based  on  similar  technology.  Some or all of these competitors have developed
and are capable of developing products based on other technologies, which are or
may  be  competitive  with  our  products. Additionally, our regenerative tissue
products  compete  with  synthetic  products  marketed  by  large medical device
companies  such  as Johnson & Johnson and W.L. Gore & Associates.  Many of these
companies and academic institutions are well-established, and have substantially
greater financial and other resources, research and development capabilities and
more  experience  in  conducting clinical trials, obtaining regulatory approvals
and  manufacturing  and  marketing  than  we  do.  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.


OUR  SUCCESS  DEPENDS  ON  THE SCOPE OF OUR INTELLECTUAL PROPERTY RIGHTS AND NOT
INFRINGING  THE  INTELLECTUAL  PROPERTY  RIGHTS  OF  OTHERS.  THE  VALIDITY,
ENFORCEABILITY  AND  COMMERCIAL  VALUE  OF  THESE  RIGHTS  ARE HIGHLY UNCERTAIN.

     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.  Third parties may seek
to  challenge,  invalidate,  circumvent  or  render unenforceable any patents or
proprietary  rights  owned  by  or  licensed to us 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.


                                       21
<PAGE>
     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;  and

          -    any  patents  issued or licensed to us may 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, 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  thereby.

     We  generally  conduct a cursory review of issued patents prior to engaging
in  research  or  development  activities. If others already have issued patents
covering  new  products  that we develop, we may be required to obtain a license
from them to commercialize such new products. There can be no assurance that any
necessary  license  could  be  obtained  on  favorable  terms  or  at  all.

     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  our  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.


WE  ARE  EXPOSED  TO  POTENTIAL  PRODUCT  LIABILITY CLAIMS FOR WHICH OUR PRODUCT
LIABILITY  INSURANCE  MAY  BE  INADEQUATE.

     Our  business  exposes  us to potential product liability risks inherent in
the  testing, manufacturing, marketing and use of medical products.  Although we
maintain  product  liability  insurance,  we  cannot  be  certain  that:

          -    our  insurance  will  provide adequate coverage against potential
               liabilities;

          -    adequate  product  liability  insurance  will  continue  to  be
               available  in  the  future;  or

          -    our  insurance  can  be  maintained  on  acceptable  terms.

The  legal  expenses  associated with defending against product liability claims
and  the  obligation  to  pay  a  product liability claim in excess of available
insurance  coverage  would  increase  our operating expenses and could adversely
affect  our  results  of  operations  and  cash  flows.


                                       22
<PAGE>
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

     Sales  of  a substantial number of shares of our common stock in the public
market  could  cause  a  decrease in the market price of our common stock. As of
February  27,  2004,  we  had  25,667,537 shares of common stock outstanding and
67,601  shares  of  Series  B preferred stock outstanding, which are convertible
into  an  additional  2,449,319 shares of common stock. A significant portion of
our  outstanding shares are freely tradeable.  In addition, options and warrants
to  purchase  6,042,736  shares of our common stock were outstanding at December
31,  2003, of which 4,340,944 were vested. The remainder represents options that
will  vest over the next four years. The weighted average the exercise prices of
such  options and warrants are substantially lower than the current market price
of  our common stock. We may also issue additional shares of stock in connection
with  our  business  and  may  grant  additional stock options to our employees,
officers,  directors and consultants under our stock option plans or warrants to
third  parties. If a significant portion of these shares were sold in the public
market,  the  market  value  of  our  common  stock could be adversely affected.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This  Annual  Report  on Form 10-K contains forward-looking statements made
pursuant  to  the  safe  harbor  provisions of the Private Securities Litigation
Reform  Act of 1995.  Forward-looking statements typically are identified by use
of  terms  such  as  "may,"  "will,"  "should,"  "plan," "expect," "anticipate,"
"estimate"  and  similar  words,  although  some  forward-looking statements are
expressed  differently.  Forward-looking  statements  represent our management's
judgment  regarding  future  events.  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.  All statements other
than  statements  of historical fact included in this Annual Report on Form 10-K
regarding  our  financial  position, business strategy, products, products under
development  and  clinical  trials,  markets,  budgets, plans, or objectives for
future  operations  are  forward-looking  statements.  We  cannot  guarantee the
accuracy  of  the  forward-looking  statements, and you should be aware that our
actual  results  could  differ  materially  from  those  contained  in  the
forward-looking  statements due to a number of factors, including the statements
under  "Risk  Factors"  set  forth  above  and "Critical Accounting Policies" in
"Managements  Discussion  and  Analysis  of  Financial  Condition and Results of
Operations".


SUPERVISION  AND  REGULATION  -  SECURITIES  AND  EXCHANGE  COMMISSION

     We maintain a website at http://www.lifecell.com.  We make available on our
                              -----------------------
website  the  proxy  statements  and reports on Forms 8-K, 10-K and 10-Q that we
file  with  the  SEC  as  soon  as reasonably practicable after such material is
electronically  filed  with  or  furnished  to  the  SEC.


ITEM 2.   PROPERTIES

     We  lease  approximately  90,000  square feet of laboratory, production and
office  space  in one building in Branchburg, New Jersey under a lease agreement
that expires in November 2010.  The current monthly rental obligation under this
lease  is  approximately  $76,000.  We  believe  that  our  current  laboratory,
production and office space will be sufficient to meet our anticipated needs for
the  next  several  years.


ITEM 3.   LEGAL  PROCEEDINGS

     The  previously  reported  litigation  filed  in  the  Superior  Court  of
California,  Los  Angeles  County,  Central  District,  captioned  Joan  Savitt,
individually  and on behalf of others similarly situated, v. Doheny Eye & Tissue
Bank,  et  al.,  was  settled  in  June 2003 when the plaintiff and the LifeCell
entered  into  a  mutual  release  and  dismissal  of  the  complaint.


                                       23
<PAGE>
     In  November  2003,  a complaint was filed in the Circuit Court of Fairfax,
Virginia captioned Sun Hee Jung v. Yongsook Victoria Suh, M.D., Victoria Plastic
Surgery Center, Inc. and LifeCell Corporation. The matter is a product liability
action  for personal injury damages allegedly arising from the use of one of the
Company's  products.  The  case  is  in its beginning stages and the parties are
conducting  preliminary  discovery.  We intend to vigorously defend against this
action.  The  likelihood  of  an  unfavorable  outcome  is  unknown at this time
however,  we  believe  any  potential losses resulting from this action would be
covered  by  our  insurance  policies.

     We  do  not  expect  the final resolution of this matter to have a material
impact  on  our  financial  position,  results  of  operations,  or  cash flows.
However,  there  can be no assurance that the resolution of this matter will not
be  material  to  LifeCell's  financial position, results of operations, or cash
flows.


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

None.


                                       24
<PAGE>
PART  II

ITEM  5.       MARKET  FOR  THE  REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS  AND  ISSUER  PURCHASES  OF  EQUITY  SECURITIES

Our  Common  Stock  is  listed  on  the  NASDAQ National Market under the symbol
"LIFC."  On  March 5, 2004, the last reported sale price for our Common Stock on
the  NASDAQ National Market was $7.68 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>
                        Price Range
                        -----------
                        High   Low
                        -----  -----
<C>     <S>             <C>    <C>
2002    First Quarter.  $3.82  $2.30
        Second Quarter   3.54   2.26
        Third Quarter.   2.50   1.72
        Fourth Quarter   3.28   1.70

2003    First Quarter.  $3.05  $2.00
        Second Quarter   6.23   2.33
        Third Quarter.   7.40   3.50
        Fourth Quarter   7.06   4.96
</TABLE>


As  of  February  27,  2003,  there  were approximately 359 holders of record of
shares  of Common Stock and 23 holders of record of shares of Series B Preferred
Stock.  We  estimate  that  there  are  in excess of 8,000 beneficial holders of
Common  Stock.

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.  Additionally,  pursuant to the terms of our loan agreement
with  our  bank  we  are  restricted  from  paying dividends on our Common Stock
without  the  bank's  consent.


                                       25
<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, 2003, derived from
the  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,
                                           -----------------------------------------------------
                                              2003       2002       2001       2000       1999
                                           ---------  ---------  ---------  ---------  ---------
<S>                                        <C>        <C>        <C>        <C>        <C>
                                                 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Operations Statement Data:
--------------------------
Revenues:
  Product revenues                         $ 38,577   $ 32,935   $ 26,560   $ 21,330   $ 11,912
  Research grant revenues                     1,672      1,493      1,209      1,442        764
                                           ---------  ---------  ---------  ---------  ---------
    Total revenues                           40,249     34,428     27,769     22,772     12,676
                                           ---------  ---------  ---------  ---------  ---------
Costs and expenses:
  Costs of products sold                     12,241    10,134,      8,862      6,949      3,452
  Research and development                    5,396      5,015      4,351      4,523      3,871
  General and administrative                  5,594      4,590      4,098      6,180      4,840
  Selling and marketing                      14,940     13,288     11,978     11,779      7,236
  Relocation costs                               --         --         --         --      2,937
                                           ---------  ---------  ---------  ---------  ---------
    Total costs and expenses                 38,171     33,027     29,289     29,431     22,336
                                           ---------  ---------  ---------  ---------  ---------
Income (loss) from operations                 2,078      1,401     (1,520)    (6,659)    (9,660)
Interest and other income (expense), net        (28)      (129)      (550)      (479)       468
                                           ---------  ---------  ---------  ---------  ---------
Income (loss) before income taxes             2,050      1,272     (2,070)    (7,138)    (9,192)
  Income tax benefit                         16,622        157         --         --         --
                                           ---------  ---------  ---------  ---------  ---------
Net income (loss)                            18,672      1,429     (2,070)    (7,138)    (9,192)
Preferred stock and deemed dividends             --         --     (1,591)      (593)      (710)
                                           ---------  ---------  ---------  ---------  ---------
Net income (loss) to common shareholders   $ 18,672   $  1,429   $ (3,661)  $ (7,731)  $ (9,902)
                                           =========  =========  =========  =========  =========

Income (loss) per common share:
  Basic                                    $   0.85   $   0.07   $  (0.20)  $  (0.54)  $  (0.83)
                                           =========  =========  =========  =========  =========
  Diluted                                  $   0.70   $   0.06   $  (0.20)  $  (0.54)  $  (0.83)
                                           =========  =========  =========  =========  =========
Shares used in computing
income (loss) per share:
  Basic                                      22,094     21,176     18,240     14,372     11,938
                                           =========  =========  =========  =========  =========
  Diluted                                    26,632     24,696     18,240     14,372     11,938
                                           =========  =========  =========  =========  =========


                                                               As of December 31,
                                           -----------------------------------------------------
                                             2003       2002       2001       2000       1999
                                           ---------  ---------  ---------  ---------  ---------
Balance Sheet Data:
------------------
Cash, cash equivalents and short-term
  investments                              $ 11,785   $  5,458   $  4,900   $  5,535   $  5,052
Working capital                              23,283     11,466      8,851      5,330      2,542
Total assets                                 58,273     24,116     23,131     25,410     18,083
Notes payable and term debt                      --        863      2,197      6,285      2,792
Common stock, subject to redemption              --        478      1,935      3,885      3,885
Accumulated deficit                         (45,669)   (64,341)   (65,770)   (62,109)   (54,378)
Total stockholders' equity                   52,379     17,719     14,833      8,904      5,364
</TABLE>


                                       26
<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 made pursuant to the safe harbor provisions of the Private Securities
Litigation  Reform  Act  of  1995.  See  "Business-Special  Note  Regarding
Forward-Looking  Statements"  and  "Business-Risk  Factors."  In  the  following
discussions,  most  percentages  and dollar amounts have been rounded to aid the
presentation.  As  a  result,  all  such  figures  are  approximations.

GENERAL  AND  BACKGROUND


We  develop  and  market  products made from human (allograft) tissue for use in
reconstructive,  urogynecologic and orthopedic surgical procedures. Our patented
tissue  processing  technology  produces a unique regenerative tissue matrix - a
complex  three  dimensional  structure  that  contains  proteins,  growth factor
binding  sites and vascular channels - that provides a complete template for the
regeneration  of  normal  human  tissue.  We  currently  market a broad range of
products:  AlloDerm,  regenerative  tissue  matrix  for  reconstructive surgical
procedures  and  skin  grafting  for  burn  procedures  through our direct sales
organization  and  for periodontal surgery through BioHorizons, Inc.; Cymetra, a
version  of AlloDerm in particulate form, through our direct sales organization;
Repliform,  regenerative  tissue matrix for urogynecologic procedures, through a
marketing  agreement  with  Boston  Scientific  Corporation;  Graft  Jacket,
regenerative  tissue  matrix for orthopedic applications, through a distribution
agreement  with Wright Medical Technology, Inc.; and AlloCraft DBM, regenerative
tissue  matrix  for  bone  grafting,  through a marketing agreement with Stryker
Corporation.  Our  product  development  programs include the application of our
tissue matrix technology to vascular and orthopedic tissue repair; investigation
of  human  tissues  as  carriers for therapeutics; Thrombosol, a formulation for
extended  storage  of  platelets  and technologies to enhance the storage of red
blood  cells  for  transfusion.


CRITICAL  ACCOUNTING  POLICIES


We  have  identified  the policies below as critical to the understanding of our
financial  statements.  The  application of these polices requires management to
make  estimates and assumptions that affect the valuation of assets and expenses
during the reporting period.  There can be no assurance that actual results will
not differ from these estimates.  The impact and any associated risks related to
these  policies  on our business operations are discussed below.  For a detailed
discussion  on the application of these and other accounting policies, including
the  impact  of recent accounting pronouncements, see Note 2 in the Notes to the
Financial  Statements  in  Part IV, Item. 15 of this Annual Report on Form 10-K.

Revenue  Recognition.  We  recognize  revenue  for  product  sales when title to
products  and risk of loss are transferred to customers.   Additional conditions
for  recognition  of revenue are that collection of sales proceeds is reasonably
assured  and we have no further performance obligations.  We utilize independent
sales  and  marketing  agents  to supplement our direct sales organization.  For
products  marketed  through  our  independent  sales  and  marketing  agents  we
recognize  revenue  when the products are delivered to the third-party customer,
as this is when title and risk of loss to the product transfers.  Amounts billed
to  customers  for shipping and handling are included in revenue at the time the
related  product revenue is recognized.   Research grant revenues are recognized
at  the  time  qualified  expenses  are  incurred,  unless  we  have  continuing
performance  obligations,  in  which  case  revenue  is  recognized  upon  the
satisfaction  of  such  obligations.

Accounts  receivable.  We maintain an allowance for estimated bad debt losses on
our  accounts  receivable  based upon our historical experience and any specific
customer  collection  issues  that  we  have  identified.  Since  our  accounts
receivable  are not concentrated within a relatively few number of customers, we
believe  that a significant change in the liquidity or financial position of any
one  customer  would not have a material adverse impact on the collectability of
our  accounts  receivable and therefore our future operating results.  While bad
debt losses depend to a large degree on future economic conditions affecting our
customers,  we  do  not  anticipate  significant  bad  debt  losses  in  2004.


                                       27
<PAGE>
Inventories.  We  value  our inventory at the lower of cost or market, with cost
being  determined  on  a  first-in,  first-out  basis. We record a provision for
excess  and  obsolete inventory based primarily on inventory quantities on hand,
our  historical  product  sales, and estimated forecast of future product demand
and  production  requirements.  Although  we  believe that our current inventory
reserves  are  adequate,  any  significant  change  in  demand  or technological
developments  could  have a significant impact on the value of our inventory and
therefore  our  future  operating  results.

Income  Taxes.  Significant  judgment  is required in determining our income tax
provision.  In  the ordinary course of business, there are many transactions and
calculations  where  the ultimate tax outcome is uncertain.  Although we believe
that  our  estimates  are  reasonable,  no assurance can be given that the final
outcome  of  these matters will not be different than that which is reflected in
our  historical income tax provisions and accruals.  Such differences could have
a  material  effect  on our income tax provision and net income in the period in
which  such  determination  is  made.

We  apply  an  asset  and  liability  approach  to  accounting for income taxes.
Deferred  tax  liabilities and assets are recognized for the expected future tax
consequences  of  temporary  differences between the financial statement and tax
bases  of  assets and liabilities using enacted tax rates in effect for the year
in  which  the  differences  are  expected  to  reverse.   The recoverability of
deferred  tax  assets  is  dependent  upon  our assessment of whether it is more
likely  than  not  that  sufficient  future  taxable income will be generated to
utilize  the deferred tax asset.   In the event we determine that future taxable
income  will  not  be  sufficient to utilize the deferred tax asset, a valuation
allowance  is recorded.  At December 31, 2003, the valuation allowance primarily
reflected  uncertainties  involving  the  realization of certain tax credits and
loss  carryforwards due to the potential impact of future stock option exercises
and  shorter-term  tax  asset  expiration  dates.


RESULTS  OF  OPERATIONS

YEARS ENDED DECEMBER 31, 2003 AND 2002

Total  revenues  for  the  year  ended  December 31, 2003 increased 17% to $40.2
million compared to $34.4 million for the same period in 2002.  The increase was
primarily attributable to a 17% increase in product revenues to $38.6 million in
the  current  period  as  compared  to  $32.9  million  in  the  prior  year.

Revenues  generated  from  the  use  of  our products in reconstructive surgical
procedures  increased  24%  to $28.1 million in the year ended December 31, 2003
compared  to  $22.7  million in 2002.  The growth was driven by increased demand
for  AlloDerm,  partially  offset  by  a decrease in Cymetra revenues.  AlloDerm
revenues  increased  38%  to  $23.7  million in the year ended December 31, 2003
compared  to  $17.2  million  in  2002.  Cymetra  revenues  have been negatively
impacted  by  competitive products and we expect this trend to continue in 2004.

Revenues  generated  from  the  use  of  our Repliform product in urogynecologic
surgical procedures decreased 14% to $8.7 million in the year ended December 31,
2003  compared  to  $10.1  million  for  the  same  period  in 2002.  Demand for
Repliform  in  the  treatment of stress urinary incontinence has been negatively
affected  by  competition  from  synthetic  alternatives  and we anticipate this
negative  trend  to  continue  in  2004.

Orthopedic  product  revenue grew to $1.7 million in 2003 from $173,000 in 2002.
This  revenue growth resulted primarily from the full market launch of our Graft
Jacket  product in the first quarter of 2003.  In the fourth quarter of 2003, we
introduced  AlloCraft DBM on a limited basis and revenues from this product were
not  significant  in  2003.

Our independent sales and marketing agents and distributors generated 38% of our
total  product revenue in the year ended December 31, 2003 and 48% in 2002.  One
of our independent agents, Boston Scientific Corporation, represented 23% of our
total  product revenues in 2003 compared to 31% for the same period in 2002.  No
other  individual  independent sales agent or distributor generated more than 5%
of  our  total  product  revenues  in  the  year  ended  December  31,  2003.

Total  revenues were also favorably impacted by a 12% increase in research grant
revenues,  which  totaled $1.7 million in 2003 compared to $1.5 million in 2002.
This  increase was primarily due to an increase in research spending on projects
funded by approved research grants, since research grant revenues are recognized
when  qualified  expenses  are  incurred. As of December 31, 2003, approximately
$3.4 million of approved grant funding was available to fund future research and
development  expenses  through  2005.


                                       28
<PAGE>
Cost of products sold for the year ended December 31, 2003 was $12.2 million, or
32%  of product revenues, compared to cost of products sold of $10.1 million, or
31%  of  product  revenue  for the same period in 2002.  The increase in cost of
products sold as a percentage of products sold was primarily the result of costs
related  to  the  launch  of  AlloCraft  DBM.

Total research and development expenses increased 8% to $5.4 million in the year
ended  December  31,  2003 compared to $5.0 million for the same period in 2002.
The  increase  was primarily associated with higher spending on research focused
on the potential application of our tissue matrix technology to vascular tissue,
which  is  funded  through a grant from the Department of Defense, and increased
spending  on  AlloCraft  DBM  product  development and other product development
programs.

General  and  administrative  expenses increased 22% to $5.6 million in the year
ended  December  31,  2003 compared to $4.6 million for the same period in 2002.
The  increase  was  primarily attributable to an increase in payroll and related
expenses,  professional  fees  and, training and travel expenses associated with
training  and  implementation  costs  associated  with  a  new  fully integrated
computer  software  system.

Selling and marketing expenses increased 12% to $14.9 million for the year ended
December  31,  2003  compared to $13.3 million for the same period in 2002.  The
increase in 2003 was primarily attributable to higher selling expense associated
with  the  expansion  of  our  direct  sales  force and an increase in marketing
expenses  relating  to  launch  of  AlloDerm  for new surgical indications.  Our
marketing  agents  are  paid agency fees based on the amount of product revenues
they  generate  for  us.  Selling and marketing expenses include marketing agent
fees  of  $4.6  million  and $5.7 million, respectively, in 2003 and 2002.   The
decrease  in  agent fees resulted from the decrease in revenue generated through
our  independent  sales  and  marketing  agents.

Interest  and  other  income (expense), net decreased $101,000 in the year ended
December  31,  2003  compared  to  2002.  The net decrease was due to a $124,000
decrease in interest expense resulting from a decrease in debt outstanding and a
$2,000  increase  in  interest income, partially offset by a $25,000 loss on the
disposal  of  fixed  assets.

Prior  to  2003,  no  deferred provision or benefit for federal income taxes was
recorded  because  we  were  in  a  net  deferred  tax asset position and a full
valuation  allowance  had  been recorded.  During the fourth quarter of 2003, we
re-evaluated  the  amount  of  valuation  allowance  required  in  light  of
profitability  achieved  in  recent  years  and  expected in future years.  As a
result,  we  reduced the valuation allowance on deferred tax assets to an amount
that  we  believe  is  more  likely  than  not  of  being  realized based on our
assessment  of  the  likelihood  of future taxable income.  The reduction in the
valuation allowance resulted in the recognition of a non-cash income tax benefit
of  $16.6  million  in  the  fourth  quarter  of 2003. At December 31, 2003, the
valuation  allowance primarily reflected uncertainties involving the realization
of  certain  tax  credits  and loss carryforwards due to the potential impact of
future  stock  option exercises and shorter-term tax asset expiration dates.  In
2003, we also realized $235,000 through the sale and transfer of $3.0 million of
state  tax net operating losses.  In 2002, we realized $248,000 through the sale
and  transfer  of $3.2 million of state tax net operating losses.  The sales and
transfers  were  made  through  the  Technology Business Tax Certificate Program
sponsored  by  the  New  Jersey  Economic  Development  Authority.


YEARS  ENDED  DECEMBER  31,  2002  AND  2001

Total  revenues  for  the  year  ended  December 31, 2002 increased 24% to $34.4
million  compared  to  $27.8  million  in  2001.  The  increase  was principally
attributable  to  a  24%  increase  in  product revenues to $32.9 million in the
current  year  as  compared to $26.6 million in the prior year.  The increase in
product  revenues was largely due to increased demand for our AlloDerm products.
AlloDerm  revenues increased 35% to $17.1 million in the year ended December 31,
2002  compared  to $12.7 million in the same period in 2001.  Repliform revenues
increased  9%  to  $10.1 million in the year ended December 31, 2002 compared to
$9.3 million for the same period in 2001.  Cymetra revenues decreased 5% to $3.8
million  in  2002  compared  to  $4.0  million  in  2001.

For the year ended December 31, 2002, our independent sales and marketing agents
and  distributors  generated  48%  of  our total product revenues.  During 2002,
sales  of  our  products  through  Boston  Scientific  Corporation and OMP, Inc.
represented  31% and 8%, respectively, of our total product revenues compared to
35%  and  9%,  respectively,  in  2001.  No  other  independent  sales  agent or
distributor generated more than 5% of our total product revenues in 2002.


                                       29
<PAGE>
Total  revenues were also favorably impacted by a 23% increase in research grant
revenues,  which  totaled $1.5 million in 2002 compared to $1.2 million in 2001.
This  increase was primarily due to an increase in research spending on projects
funded  by  research  grants,  since research grant revenues are recognized when
qualified  expenses  are  incurred. During 2002, we were awarded grants from the
Department of Defense and the National Institute of Health totaling $927,000. As
of  December  31, 2002, approximately $3.9 million of approved grant funding was
available  to  fund  future  research  and  development  expenses  through 2004.

Cost of products sold for the year ended December 31, 2002 was $10.1 million, or
31%  of  product revenues, compared to cost of products sold of $8.9 million, or
33%  for  the  same  period  in  2001.  The cost of products sold decreased as a
percentage  of  product  revenues due to efficiencies realized in our processing
operation as a result of volume increases and process improvements.

Total  research  and  development expenses increased 15% to $5.0 million in 2002
compared  to  $4.4  million in 2001.  The increase was primarily associated with
higher  spending  on research focused on the potential application of our tissue
matrix  technology  to vascular tissue, which is funded through a grant from the
Department  of  Defense,  and  increased  spending  on other product development
projects.

General  and  administrative  expenses  increased  12%  to  $4.6 million in 2002
compared  to  $4.1  million  in  2001.  The increase was primarily the result of
increased  investor relations activities, higher recruiting expenses and payroll
related  costs.

Selling  and  marketing expenses increased 11% to $13.3 million in 2002 compared
to $12.0 million in the same period in 2001.  The increase in 2002 was primarily
attributable  to  higher selling expense associated with the increase in product
revenues.  Selling  and  marketing expenses decreased as a percentage of product
revenues  from  45%  in  2001  to  40%  in 2002.  Selling and marketing expenses
include  marketing agent fees of $5.7 million and $5.4 million, respectively, in
2002  and  2001.

Interest  and other income (expense), net decreased $421,000 in 2002 compared to
2001.  The  net  decrease  was  due  to a $517,000 decrease in interest expense,
resulting  from  a  decrease  in debt outstanding, partially offset by a $96,000
decline  in  interest  income resulting from lower average interest rates during
the  period.

In  the  year ended December 31, 2002, we recorded a net tax benefit of $155,000
consisting  of a provision for state income taxes of $93,000, offset by proceeds
of  $248,000  from  the  sale  of state net operating losses.  The sale was made
through  the  Technology  Business  Tax Certificate Program sponsored by the New
Jersey  Economic  Development  Authority.  No federal provision for income taxes
has  been  recorded  as we intend to utilize net operating loss carryforwards to
offset  our  estimated  federal  tax  liability  of $492,000.  We were unable to
utilize  net  operating  loss carryforwards to offset our state tax liability in
2002  because  the  State  of New Jersey enacted tax legislation during the year
suspending  the  use  of loss carryforwards to offset taxable income in 2002 and
2003.  We  have  provided  a  full  valuation allowance against our deferred tax
assets based on the uncertainty as to whether it is more likely than not that we
will  realize  future  benefit  of  these  assets.

Preferred  stock  and  deemed  dividends totaled $1.6 million for the year ended
December  31, 2001 and consisted of $440,000 of preferred stock dividends, which
ceased  accruing  September  30,  2001,  and  a non-cash deemed dividend of $1.2
million  recorded  in  connection  with  issuance  of  additional shares and the
re-pricing of warrants, pursuant to the terms of an investment made in 1999.


LIQUIDITY  AND  CAPITAL  RESOURCES

As  of  December  31,  2003,  we  had  cash  and cash equivalents and short-term
investments  of  $11.8  million  compared  to $5.5 million at December 31, 2002.
Working  capital  increased  to  $23.2  million  at December 31, 2003 from $11.5
million  at  December  31,  2002.  The  increase  in  cash, cash equivalents and
short-term  investments  and working capital resulted principally from the $14.7
million  net  proceeds  from  the private placement of our Common Stock in 2003.

Our  operating  activities  generated  net  cash  of $822,000 for the year ended
December 31, 2003 compared to $2.5 million for the same period in 2002. Although
net  income  increased  in 2003 compared to 2002, net cash provided by operating
activities  decreased primarily due to higher cash used to fund the net increase
in working capital. Accounts receivable increased $1.6 million from December 31,
2002  due  to  the  higher  revenues  in  the  fourth  quarter


                                       30
<PAGE>
of 2003 versus the fourth quarter of 2002. Inventories increased by $2.5 million
in  2003  due  to  higher receipts of tissue from our tissue banks and a planned
increase  in  processed tissue to support the increase in demand and full launch
of  AlloCraft  DBM.

Our  investing activities, which consist of purchases of investments and capital
equipment,  used  net cash of $13.3 million for the year ended December 31, 2003
compared  to $582,000 for the same period in 2002. The increase in 2003 resulted
principally  from  the purchase of $10.9 million of investments and purchases of
hardware  and software for a new fully integrated computer system and production
equipment.

Our financing activities generated $14.6 million for the year ended December 31,
2003  compared  to $1.3 million used for principal payments on long-term debt in
2002.  In  2003,  we  received  net  proceeds  of $15.5 million from the private
placement  of  our  Common  Stock  and  the  exercise of warrants and options to
purchase  Common  Stock.  During 2003, we utilized $863,000 to retire all of our
outstanding  long-term  debt.  At  December 31, 2003, we had no debt outstanding
under  our  borrowing  arrangements compared to $863,000 outstanding at December
31,  2002,  and remaining availability on a revolving credit line of $2 million.
In  March  2004,  the financial institution increased the borrowing limit on the
revolving line of credit to $4 million and extended the expiration through March
2005.  The  credit  facility  is  collateralized  by  the  Company's  accounts
receivable,  inventory,  intellectual  property, intangible and fixed assets and
contains  certain  financial covenants and a subjective acceleration clause.  As
of  December  31,  2003  we  were in compliance with the covenants of our credit
facility.


The following table reflects a summary of our contractual cash obligations as of
December  31,  2003:

<TABLE>
<CAPTION>
                                               Payments Due by Period
                                    ----------------------------------------------
                                            Less than   1 to 3   4 to 5   After 5
                                    Total    one year    years    years    years
                                    ------  ----------  -------  -------  --------
<S>                                 <C>     <C>         <C>      <C>      <C>
Operating leases                    $6,243  $      833  $ 1,810  $ 1,838  $  1,762
                                    ------  ----------  -------  -------  --------
Total contractual cash obligations  $6,243  $      833  $ 1,810  $ 1,838  $  1,762
                                    ======  ==========  =======  =======  ========
</TABLE>

We  believe  that  our  current cash resources together with anticipated product
revenues,  committed  research  and  development  grant  funding  and  remaining
availability under our credit facility will be sufficient to finance our planned
operations,  research  and  development programs and fixed asset requirements in
the foreseeable future.  However, there can be no assurance that such sources of
funds  will  be  sufficient  to meet our long-term needs and as a result, we may
need  additional  funding.  There  can  be  no assurance that we will be able to
obtain  additional  funding  from either debt or equity financing, collaborative
arrangements  or  other  sources  on  terms  acceptable  to  us, or at all.  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.

It is possible that our results of operations or liquidity and capital resources
could  be adversely affected by the ultimate outcome of pending litigation or as
a  result  of the cost of contesting such legal action. For a discussion of this
matters  see  Note  13  of  "Notes to Financial Statements" and Part I., Item 3.
"Legal  Proceedings".

INFLATION

We  do  not  believe  that inflation has had a material impact on our results of
operations for the years ended December 31, 2003, 2002 and 2001.

NEW  ACCOUNTING  PRONOUNCEMENTS

FASB  Interpretation  No. 46 (revised December 2003), "Consolidation of Variable
Interest  Entities", an interpretation of ARB No. 51 (FIN 46R), replaces FIN 46,
"Consolidation  of Variable Interest Entities", an interpretation of ARB No. 51,
which  had been issued in January 2003. FIN 46R clarifies some of the provisions
of  FIN  46  relating  to  variable interest entities (VIEs) and exempts certain
entities  from  its  requirements. FIN 46R addresses consolidation of VIEs which
have one or more of the following characteristics: the equity investment at risk
is  not  sufficient  to  permit  the  entity  to  finance its activities without
additional  subordinated  financial  support


                                       31
<PAGE>
provided  by  any  parties,  the  equity  investors  lack  some  essential
characteristics  of  a  controlling  financial interest and the equity investors
have  voting  rights  that  are  not  proportionate to their economic interests.
Application  of  FIN  46R  is required in financial statements of companies that
have  interests  in  structures that are commonly referred to as special-purpose
entities  for  periods  ending  after  December  15, 2003. Application by public
entities  for  all  other  types  of  variable  interest entities is required in
financial  statements  for periods ending after March 15, 2004. We do not expect
the  adoption  of FIN 46R to have a material impact on our financial position or
results  of  operations.


ITEM 7A.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURE  ABOUT  MARKET  RISK

We  are  exposed  to changes in interest rates primarily from our investments in
certain  marketable  securities,  consisting  principally  of  fixed income debt
securities.  Although  our investments are available for sale, we generally hold
such  investments  to  maturity.  Our Investments are stated at fair value, with
net  unrealized  gains or losses on the securities recorded as accumulated other
comprehensive  income  (loss)  in shareholders' equity. Net unrealized gains and
losses  were  not  material  at  December  31,  2003  or  2002.


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  IN  AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL  DISCLOSURE

None.

ITEM 9A.  CONTROLS  AND  PROCEDURES

     A.   DISCLOSURE CONTROLS AND PROCEDURES.

          As of the end of the period covered by this Annual Report on Form
          10-K,  we  carried  out  an  evaluation, with the participation of our
          management,  including our Chief Executive Officer and Chief Financial
          Officer,  of  the  effectiveness  of  our  disclosure  controls  and
          procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon
          that  evaluation,  our  Chief  Executive  Officer  and Chief Financial
          Officer  concluded  that  our  disclosure  controls and procedures are
          effective  in ensuring that information required to be disclosed by us
          in  the  reports  that we file or submit under the Securities Exchange
          Act  is  recorded, processed, summarized and reported, within the time
          periods  specified  in  the  SEC's  rules  and  forms.

     B.   CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.

          There have been no changes in our internal control over financial
          reporting  that  occurred during our last fiscal quarter to which this
          Annual  Report  on Form 10-K relates that have materially affected, or
          are  reasonably likely to materially affect, our internal control over
          financial  reporting.


                                       32
<PAGE>
PART  III

ITEM 10.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT


BACKGROUND  OF  DIRECTORS

     The persons listed below served as directors of the Company during the year
ended  December  31,  2003.

<TABLE>
<CAPTION>
NOMINEE                       AGE          POSITION WITH THE COMPANY           DIRECTOR SINCE
----------------------------  ---  ------------------------------------------  --------------
<S>                           <C>  <C>                                         <C>
Paul G. Thomas                 48  Chairman of the Board, President and Chief            1998
                                              Executive Officer
Michael E. Cahr (1) (2) (3)    63  Director                                              1991
David Fitzgerald (1) (2) (3)   70  Director                                              2001
James G. Foster (1) (2) (3)    57  Director                                              1995
Stephen A. Livesey (4)         51  Chief Scientist                                       1993
Jonathan Silverstein (5)       36  Director                                              2002
Martin P. Sutter (6)           48  Director                                              2003
<FN>

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

(1)  Member of the Audit Committee of the Board of Directors.
(2)  Member of the Compensation and Stock Option Committee of the Board of
     Directors.
(3)  Member of the Nominating Committee of the Board of Directors.
(4)  Dr. Livesey's term ended May 30, 2003 and he was not elected to an
     additional term.
(5)  Mr. Silverstein resigned from the Board of Directors on December 22, 2003.
(6)  Mr. Sutter was appointed to the Board of Directors on December 22, 2003.
</TABLE>

     All  directors hold office until the next annual meeting of stockholders or
until  their  successors are elected and qualified; vacancies and any additional
positions  created by board action are filled by action of the existing Board of
Directors.

Paul  G.  Thomas.   Mr.  Thomas  has  served  as  Director,  President and Chief
Executive  Officer  of  LifeCell  since  October  1998.  Mr.  Thomas was elected
Chairman  of  the Board in June 1999.  Prior to joining LifeCell, Mr. Thomas was
President of the Pharmaceutical Products Division of Ohmeda Inc., a world leader
in  inhalation  anesthetics  and  acute  care  pharmaceuticals.  Mr.  Thomas was
responsible  for  the  overall  operations  of Ohmeda's Pharmaceutical Division,
which  had  worldwide  sales  of  approximately $200 million in 1997. Mr. Thomas
received  his MBA degree with an emphasis in Marketing and Finance from Columbia
University Graduate School of Business and completed his postgraduate studies in
Chemistry  at the University of Georgia Graduate School of Arts and Science.  He
received  his  B.S.  degree  in Chemistry from St. Michael's College in Vermont,
where  he  graduated  Cum  Laude.

Michael E. Cahr.   Mr. Cahr has been a director of LifeCell since July 1991. Mr.
Cahr  is  currently  President  of Saxony Consultants, an Illinois-based company
that  provides  financial and marketing expertise to organizations in the United
States  and  abroad.  From  February  2000  through  March  2002,  Mr.  Cahr was
President  and  Chief Executive Officer of IKADEGA, Inc., a Northbrook, Illinois
server  technology  company developing products and services for the healthcare,
data  storage and hospitality fields.  He also served as Chairman of Allscripts,
Inc.,  a  leading  developer  of  hand-held  device  technology  that  provides
physicians  with real-time access to health, drug and other critical information
from  September  1997  through March 1999 and President, Chief Executive Officer
and  Chairman  from  June 1994 to September 1997.  Prior to Allscripts, Mr. Cahr
was  Venture  Group  Manager  for  Allstate  Venture  Capital  where  he oversaw
investments  in  technology and biotech from 1987 to June 1994.  Mr. Cahr serves
as  a  director  of Pacific Health Laboratories, a publicly held Woodbridge, New
Jersey  nutritional products firm which develops and commercializes functionally
unique  nutritional  products,  and  a  director  of


                                       33
<PAGE>
Truswal  Systems,  an Arlington, Texas-based software engineering firm. Mr. Cahr
received  his  undergraduate degree in Economics from Colgate University and his
Masters of Business Administration from Fairleigh Dickinson University. Mr. Cahr
is  chairman  of  the  Company's  audit  committee

David Fitzgerald.   Mr. Fitgerald has been a director of LifeCell since December
2001.  He  served  as  President  and Chief Executive Officer of Howmedica, Inc.
from  1980  until  his retirement in 1996.  In 1988, he was named Executive Vice
President  of  Pfizer  Hospital  Products Group, a $1.3 billion group of medical
device companies including Howmedica.  In 1992, he was also named Vice President
of  Pfizer  Inc.  Mr.  Fitzgerald  serves  as  a director of Arthrocare Corp., a
publicly  traded  Nasdaq company specializing in soft tissue surgical technology
and  Orthovita,  Inc.,  a  publicly  traded  Nasdaq  company  specializing  in
biomaterial  products  for  the  restoration  of  the  human  skeleton.

James  G.  Foster.  Mr. Foster has been a director of LifeCell since March 1995.
Mr.  Foster  was Vice President and General Manager of Medtronic Heart Valves, a
division  of  Medtronic,  Inc.  ("Medtronic")  a  medical  device  company, from
December  1994  through  his retirement in December 2001.  From February 1984 to
December  1994,  Mr.  Foster  held  various  officer  positions  with  Medtronic
including; Vice President of Cardiac Surgery Sales & Strategic Planning in 1994,
Vice  President  and General Manager of Medtronic Neurological Implantables from
1992  through  1994,  Vice  President  and  General  Manager  of  Medtronic
Interventional  Vascular  from  1990 through 1992 and Vice President and General
Manager  of  Medtronic  Blood  Systems  from  1983 through 1989.  Currently, Mr.
Foster  serves  as  a  director  of  Arthrocare  Corp., a publicly traded Nasdaq
company  specializing  in  soft  tissue  surgical  technology.

Stephen  A.  Livesey, M.D., Ph.D. Dr. Livesey first joined LifeCell in June 1991
as Executive Vice President, Scientific Development of LifeCell. From March 1993
through  March  2003,  Dr. Livesey has served as Executive Vice President, Chief
Science  Officer  and  as  a  director of LifeCell. Effective April 1, 2003, Dr.
Livesey  joined  the newly formed National Stem Cell Centre Ltd. in Australia as
Director  of Tissue Regeneration and Professional Fellow (Tissue Engineering) at
the  Victorian  Institute  of  Forensic  Medicine. LifeCell and Dr. Livesey have
entered  into  an  agreement  under  which Dr. Livesey will remain employed with
LifeCell  in  the role of Chief Scientist (a non-executive officer of LifeCell).
Dr.  Livesey'  Director  term  ended  May  30, 2003 and he was not elected to an
additional  term.  Dr.  Livesey  is  also  a  co-developer of LifeCell's initial
technology  and  was  involved in the formation of LifeCell and the licensing of
such  technology  to LifeCell from The University of Texas Health Science Center
in  Houston.  Dr.  Livesey received his medical degree and a Ph.D. in biological
chemistry  from  the  University  of  Melbourne,  Australia.

Jonathan  Silverstein.  Mr.  Silverstein  served  as a director of LifeCell from
April  2002  through  December  2003.  He  is a director at OrbiMed Advisors LLC
("OrbiMed"),  a  healthcare  fund  that  managers  roughly $4 billion dollars in
global  healthcare  investments. OrbiMed is also a major shareholder in LifeCell
and  currently  holds  approximately 10 percent of our outstanding common stock.
Mr.  Silverstein  joined OrbiMed in 1999. From 1996 to 1999, Mr. Silverstein was
the  Director  of  Life  Sciences  in  the  investment banking department at the
Sumitomo  Bank,  Limited  in  charge  of  strategic  alliances,  mergers  and
acquisitions  in the biotechnology sector. Prior to 1996, Mr. Silverstein was an
associate  at  Hambro  Resources  Development.  Mr.  Silverstein  has  a B.A. in
Economics  from  Denison University and a J.D. and M.B.A. from the University of
San  Diego.  Currently, Mr. Silverstein is a Director of Given Imaging, Ltd. and
Predix  Pharmaceuticals,  Inc.

Martin  P.  Sutter.  Mr. Sutter is a Managing Director at Essex Woodlands Health
Ventures,  one  of  the oldest and largest venture capital organizations focused
exclusively  on  health  care.  Essex  Woodlands Health Ventures currently holds
approximately  five  percent  of our outstanding Common Stock.  Mr. Sutter began
his  career  in  management consulting with Peat Marwick, Mitchell & Co. in 1977
and  shortly thereafter moved to Mitchell Energy & Development Corporation where
he  held various positions in operations, engineering and marketing.  He founded
the Woodlands Venture Capital Company in 1984 and Woodlands Venture Partners, an
independent  venture  capital  partnership, in 1988.  He currently serves on the
board  of  directors  of  Confluent  Surgical,  Inc.,  a  privately held company
specializing  in  surgical  sealants and adhesion barriers, EluSys Therapeutics,
Inc,  a  privately  held  company


                                       34
<PAGE>
specializing in developing products for patients with end-stage congestive heart
failure,  Rinat  Neuroscience Corporation, a privately held company specializing
in developing therapeutic antibodies and Sontra Medical Corporation,  a publicly
traded  Nasdaq  company  specializing  in  non-invasive ultrasound-mediated skin
permeation  technology.


COMMITTEES OF THE BOARD OF DIRECTORS

     Composition  of  the  Board  of  Directors.  Since  the  adoption  of  the
Sarbanes-Oxley  Act in July 2002, there has been a growing public and regulatory
focus  on  the independence of directors. Recently, Nasdaq adopted amendments to
its definition of independence. Additional requirements relating to independence
are  imposed  by  the  Sarbanes-Oxley  Act  with respect to members of the Audit
Committee  and  the Nominating Committee. As noted below, the Board of Directors
has  determined  that  the  members  of  the  Audit Committee and the Nominating
Committee  satisfy  all such definitions of independence. The Board of Directors
has also determined that Messrs. Cahr, Fitzgerald, Foster and Sutter satisfy the
Nasdaq  definition  of  independence.

     Audit  Committee.  During  2003,  the  Audit Committee was comprised of Mr.
Cahr,  Mr.  Fitzgerald  and  Mr. Foster. The Audit Committee is empowered by the
Board of Directors to, among other things: serve as an independent and objective
party  to  monitor  our financial reporting process, internal control system and
disclosure  control  system;  review  and  appraise the audit efforts of the our
independent  accountants;  assume  direct  responsibility  for  the appointment,
compensation,  retention  and  oversight of the work of the outside auditors and
for  the  resolution  of  disputes  between  the  outside  auditors  and the our
management  regarding  financial reporting issues; and provide an open avenue of
communication  among  the  independent  accountants,  financial  and  senior
management,  and  our  Board  of  Directors.

     Audit  Committee  Financial  Expert.  The Board of Directors has determined
that  Michael  E. Cahr is an "audit committee financial expert", as such term is
defined  by  the SEC. As noted above, Mr. Cahr - as well as the other members of
the Audit Committee - has been determined to be "independent" within the meaning
of  SEC  and  Nasdaq  regulations.

     Independence  of  Audit Committee Members.Our Common Stock is listed on the
Nasdaq  National  Market and we are governed by the listing standards applicable
thereto.  All members of the Audit Committee of the Board of Directors have been
determined to be "independent directors" pursuant to the definition contained in
Rule  4200(a)(15) of the National Association of Securities Dealers' Marketplace
Rules  and  under  the  SEC's  Rule  10A-3.

     Nominating  Committee.The  Board  of Directors has established a Nominating
Committee  consisting of Mr. Cahr, Mr. Fitzgerald and Mr. Foster. The Nominating
Committee  is  empowered  by  the  Board  of  Directors  to, among other things,
recommend  to the Board of Directors qualified individuals to serve on our Board
of  Directors  and  to  identify  the  manner  in which the Nominating Committee
evaluates  nominees  recommended  for  the  Board.

     Compensation  Committee.  During  2003,  the  Compensation  Committee  was
comprised of Mr. Cahr, Mr. Fitzgerald and Mr. Foster. The Compensation Committee
reviews, approves and makes recommendations to the Board of Directors on matters
regarding  the  compensation  of  our  senior  executive  officers.

     Stock  Option  Committee.  During  2003,  the  Stock  Option  Committee was
comprised of Mr. Cahr, Mr. Fitzgerald and Mr. Foster. The Stock Option Committee
administers  our  stock  option  plans.

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

     Section  16(a)  of  the  Securities  Exchange Act of 1934 ("Section 16(a)")
requires  our  officers,  directors  and  persons  who  own  more  than 10% of a
registered  class  of our equity securities to file statements on Form 3, Form 4
and  Form  5  of  ownership  and  changes  in  ownership with the Securities and
Exchange  Commission.  Officers, directors and greater than 10% stockholders are
required  by  the  regulation  to  furnish  us  with copies of all Section 16(a)
reports  that  they  file.


                                       35
<PAGE>
     Based solely on a review of reports on Forms 3 and 4 and amendments thereto
furnished  to  us  during  our  most  recent  fiscal year, reports on Form 5 and
amendments  thereto  furnished to us with respect to our most recent fiscal year
and  written representations from reporting persons that no report on Form 5 was
required,  we  believe that, no person who, at any time during 2003, was subject
to the reporting requirements of Section 16(a) with respect to us failed to meet
such requirements on a timely basis, except that reports on Form 4 reporting the
grant  of stock options in December 2003 to Paul G. Thomas, William E. Barnhart,
Fred  Feldman,  Steven  T. Sobieski, Lisa N. Colleran and Bradly C. Tyler due on
December  14,  2003  were not filed until December 31, 2003.  These late filings
were  inadvertent,  and the required filings were made promptly after noting the
failures  to  file.


BACKGROUND  OF  EXECUTIVE  OFFICERS

The  following  sets forth certain information regarding the Company's executive
officers

<TABLE>
<CAPTION>
                                                                      DATE OF
NAME                                 OFFICES HELD                  FIRST ELECTION  AGE
--------------------  -------------------------------------------  --------------  ---
<S>                   <C>                                          <C>             <C>

Paul G. Thomas        Chairman of the Board, President and Chief   October 1998     48
                      Executive Officer

William E. Barnhart   Senior Vice President, Operations            August 1999      61

Fred  Feldman, Ph.D   Senior Vice President Product Development    August 2003      61
                      & Quality

Steven T. Sobieski    Vice President, Finance and Administration   June 2000        47
                      & Chief Financial Officer

Lisa N. Colleran      Vice President, Marketing and Business       December 2002    46
                      Development
</TABLE>

All executive officers serve at the discretion of the Board of Directors.


Paul  G.  Thomas.  For  further background information regarding Mr. Thomas, see
"Background  of  Directors."


William  E.  Barnhart  joined  LifeCell  in  August  1999 as Sr. Vice President,
Operations.  He has over twenty-five years of management experience in a variety
of roles in drug and device manufacturing and quality assurance. From March 1997
to  September  1999,  Mr. Barnhart was Sr. Vice President, Quality Assurance for
Centeon,  LLC,  a  multinational  provider of pharmaceuticals and plasma derived
biologics. From 1993 to 1997, Mr. Barnhart was Vice President, Quality Assurance
for  Ohmeda,  Inc.  Prior  to joining Ohmeda, Mr. Barnhart was Vice President of
Operations,  Allergan  U.S.  Operations. In this capacity he was responsible for
general  management  for five operations manufacturing prescription ophthalmics,
biologics and medical devices. Mr. Barnhart graduated from Miami University with
a  Bachelor  of  Science  degree  and  a Masters of Science degree in chemistry.

Fred  Feldman,  Ph.D.  joined  LifeCell  in  August  2003 as Sr. Vice President,
Product  Development  &  Quality.  From 1974 through 1995, Dr. Feldman served in
various  scientific  roles  with  Armour  Pharmaceutical  Company  where  he was
directly  responsible  for  bringing a number of breakthrough human therapeutics
through  the  development  pipeline  to  FDA and international registrations and
commercial  success.  Dr. Feldman joined Centeon, LLC, a joint venture of Armour
Pharmaceutical  (a  Rhone  Poulenc Rorer subsidiary) and Behringwerke (a Hoechst
subsidiary),  in


                                       36
<PAGE>
1995  as  Vice  President  of  World  Wide  Preclinical  R&D  and  Biotechnology
Evaluation.  In  1999,  Dr.  Feldman was appointed Vice President Scientific and
Technical Affairs and Chief Scientist of Aventis Behring, a successor company to
Centeon,  where  he  was  responsible  for  corporate  research  and development
strategic planning and scientific direction. From 2001 through 2002, Dr. Feldman
was  Chief  Executive  Officer  of  Genesis  Therapeutics  Corporation,  a  drug
development  start-up  that  was  a  spin-out  of Aventis Behring. After leaving
Genesis  Therapeutics  Corporation  Dr. Feldman was an independent consultant to
pharmaceutical and biotechnology companies. Dr. Feldman earned his undergraduate
degree  in  Biochemistry  at  the  University of Chicago and received a Ph.D. in
Biochemistry  from  Purdue  University.

Steven  T.  Sobieski joined LifeCell in June 2000 as Vice President, Finance and
Chief Financial Officer.  He has twenty years of financial management experience
in  a  variety  of  roles in public accounting and the medical technology field.
Prior to joining LifeCell, Mr. Sobieski was Vice President Finance at Osteotech,
Inc,  a publicly traded Nasdaq company focused on developing and marketing human
tissue  based  products  for orthopedic applications, where he served in various
positions  from  1991  to  2000.  From  1981  through 1991, he served in various
positions  of  increasing  responsibility  with Coopers & Lybrand.  Mr. Sobieski
received his Bachelor of Science degree in Business Administration from Monmouth
University  and  his  Masters in Business Administration with a concentration in
accounting  from  Rutgers  University.  He  is  a  Certified  Public Accountant.

Lisa  N.  Colleran joined LifeCell in December 2002 as Vice President, Marketing
and Business Development. She has twenty years of marketing experience. Prior to
joining  LifeCell, Ms. Colleran served as Vice President/General Manager - Renal
Pharmaceuticals  for Baxter Healthcare Corporation, a worldwide manufacturer and
distributor  of diversified products, systems and services used primarily in the
health-care  field,  from  1997 until December 2002, and served in various other
sales  and  marketing  positions  at Baxter from 1983 through 1997. Ms. Colleran
received her Bachelor of Science from Molloy College and her Masters in Business
Administration  from  Loyola  University  of  Chicago.


CODE  OF  ETHICS

     We  have  adopted  a Code of Ethics that applies to our principal executive
officer,  principal  financial  officer,  principal  accounting  officer  and
controller.  A copy of our Code of Ethics has been filed as Exhibit 14.1 to this
Annual  Report  on  Form  10-K.


                                       37
<PAGE>
ITEM 11.  EXECUTIVE  COMPENSATION

The  following  table  provides  certain compensation information concerning our
chief executive officer and our four most highly compensated executive officers,
other  than  the chief executive officer, for the fiscal year ended December 31,
2003.

<TABLE>
<CAPTION>
                               SUMMARY COMPENSATION TABLE

                                                           LONG TERM
                                  ANNUAL COMPENSATION     COMPENSATION
                                  -------------------     ------------

NAME AND PRINCIPAL                                        SECURITIES
POSITION AT                                               UNDERLYING      ALL OTHER
DECEMBER 31, 2003           YEAR    SALARY      BONUS     OPTIONS(1)   COMPENSATION(2)
--------------------------  ----  ----------  ----------  -----------  ----------------
<S>                         <C>   <C>         <C>         <C>          <C>
Paul G. Thomas              2003  $ 330,000   $ 179,520       100,000  $           900
   Chairman of the Board,   2002  $ 303,200   $ 160,696       200,000  $           750
President and Chief         2001  $ 288,750   $ 129,938       160,000  $           400
   Executive Officer

William E. Barnhart         2003  $ 196,900   $  67,104        34,080  $           900
   Senior Vice President,   2002  $ 188,400   $  59,911        75,000  $           750
   Operations               2001  $ 180,250   $  48,668        50,000  $           425

Fred Feldman, Ph.D.         2003  $93,750(3)  $31,275(3)      133,360                -
   Senior Vice President,   2002          -           -             -                -
   Product Development &    2001          -           -             -                -
Quality

Steven T. Sobieski          2003  $ 202,000   $  70,902        35,100  $         1,200
   Vice President, Finance  2002  $ 193,300   $  59,150        75,000  $         1,050
   and Administration &     2001  $ 185,000   $  49,950        60,000  $           700
   Chief Financial Officer

Lisa N. Colleran            2003  $ 215,000   $  81,724        50,000  $      42,765(4)
   Vice President,          2002  $ 5,788(5)  $40,000(6)      100,000                -
   Marketing and Business   2001          -           -             -                -
   Development

<FN>
---------------

(1)  Represents  shares  issuable  pursuant  to  stock options granted under our
     stock option plans. These options vest 25% per year commencing on the first
     anniversary  of  the  date  of  grant.
(2)  Represents  contributions  made  by  us  pursuant to our 401(k) Plan and/or
     stock  purchase  plan  unless  otherwise  noted.
(3)  Employment  commenced  August  2003.  Annual  salary  was  $225,000.
(4)  Includes  $41,565  of  relocation  related  costs  paid  by  the  Company.
(5)  Employment  commenced  December  2002.  Annual  salary  was  $215,000.
(6)  Represents  hiring  bonus.
</TABLE>


                                       38
<PAGE>
OPTION  GRANTS  IN  2003

The following table provides certain information with respect to options granted
to  our  chief  executive officer and to each of the executive officers named in
the  Summary  Compensation Table during the fiscal year ended December 31, 2003:

<TABLE>
<CAPTION>
                                         OPTION GRANTS IN LAST FISCAL YEAR
                                         ---------------------------------

                                  PERCENT OF                                          POTENTIAL REALIZABLE VALUE
                                     TOTAL                                            AT ASSUMED ANNUAL RATES OF
                     NUMBER OF      OPTIONS      EXERCISE     MARKET                   STOCK PRICE APPRECIATION
                     SECURITIES   GRANTED TO       PRICE     PRICE ON                     FOR OPTION TERM(1)
                     UNDERLYING    EMPLOYEES                  DATE OF               ------------------------------
                       OPTIONS        IN         PER SHARE     GRANT    EXPIRATION
NAME                 GRANTED(2)   FISCAL YEAR       ($)         ($)        DATE           5%             10%
-------------------  -----------  ------------  -----------  ---------  ----------  --------------  --------------
<S>                  <C>          <C>           <C>          <C>        <C>         <C>             <C>
Paul G. Thomas           100,000         13.5%  $      5.27  $    5.27    12/11/13  $     331,427   $     839,902
William E. Barnhart       34,080          4.6%  $      5.27  $    5.27    12/11/13  $     112,950   $     286,239
Fred Feldman, Ph.D.      100,000         13.5%  $      5.20  $    5.20    07/31/13  $     327,025   $     828,746
Fred Feldman, Ph.D.       33,360          4.5%  $      5.27  $    5.27    12/11/13  $     110,564   $     280,191
Steven T. Sobieski        35,100          4.7%  $      5.27  $    5.27    12/11/13  $     116,331   $     294,806
Lisa N. Colleran          50,000          6.7%  $      5.27  $    5.27    12/11/13  $     165,714   $     419,951
===================  ===========  ============  ===========  =========  ==========  ==============  ==============

<FN>
---------------
(1)  The  Securities  and Exchange Commission (the "SEC") requires disclosure of
     the  potential  realizable value or present value of each grant. The 5% and
     10%  assumed  annual  rates  of  compounded  stock  price  appreciation are
     mandated  by  rules  of  the  SEC  and  do  not  represent  our estimate or
     projection  of  our  future common stock prices. The disclosure assumes the
     options  will  be  held  for the full ten-year term prior to exercise. Such
     options may be exercised prior to the end of such ten-year term. The actual
     value,  if  any, an executive officer may realize will depend on the excess
     of  the  stock  price  over  the  exercise  price on the date the option is
     exercised.  There  can be no assurance that the stock price will appreciate
     at  the  rates  shown  in  the  table.
(2)  These  options vest 25% per year commencing on the first anniversary of the
     date  of  grant.
</TABLE>


                                       39
<PAGE>
OPTION  EXERCISES  AND  HOLDINGS

The  following  table  provides  information concerning options exercised during
2003 and the value of unexercised options held by each of the executive officers
named  in  the  Summary  Compensation  Table  at  December  31,  2003.

<TABLE>
<CAPTION>
                                 OPTION VALUES AT DECEMBER 31, 2003
                                 ----------------------------------

                                                  NUMBER OF
                                             SECURITIES UNDERLYING
                                             UNEXERCISED OPTIONS                VALUE OF
                       SHARES                AT DECEMBER 31, 2003         IN-THE-MONEY OPTIONS AT
                      ACQUIRED                   (# OF SHARES)            DECEMBER 31, 2003 ($)(1)
                         ON       VALUE    --------------------------  ----------------------------
Name                 (# SHARES)  REALIZED  Exercisable  UNEXERCISABLE  Exercisable   UNEXERCISABLE
-------------------  ----------  --------  -----------  -------------  ------------  --------------
<S>                  <C>         <C>       <C>          <C>            <C>           <C>
Paul G. Thomas                -         -      690,000        350,000  $  1,897,060  $    1,009,320
William E. Barnhart           -         -      156,250        152,830  $    352,863  $      387,982
Fred Feldman, Ph.D.           -         -            -        133,360             -  $      131,025
Steven T. Sobieski            -         -      146,250        153,850  $    299,835  $      384,388
Lisa N. Colleran              -         -       25,000        125,000  $     86,500  $      306,000
<FN>
---------------
(1)  Based  on  $6.20  per  share,  the  closing  price  of the Common Stock, as
     reported  by  the  Nasdaq  National  Market,  on  December  31,  2003.
</TABLE>


COMPENSATION  OF  DIRECTORS

     During  2003,  non-employee directors were paid $1,500 per month regardless
of  the  number  of Board meetings attended. Non-employee directors who serve on
the  Compensation  Committee  were  also  paid $2,000 per year regardless of the
number  of committee meetings attended.  Non-employee directors who serve on the
Audit  Committee were paid $4,000 per year regardless of the number of committee
meetings  attended.  Our  directors  who  are  employees  of LifeCell receive no
directors' fees.  Directors are reimbursed their expenses for attendance at such
meetings.

     Newly  elected  non-employee directors receive an option to purchase 25,000
shares  of Common Stock at an exercise price equal to the fair market value of a
share  of  Common  Stock  on  such  election  date  and each of our non-employee
directors  receives  an  annual option grant to purchase 10,000 shares of Common
Stock  on  the date of our Annual Meeting of Stockholders. Options granted under
our  director stock option plans generally vest one year after the date of grant
and  expire  ten  years  after  the  date  of  grant.

     Pursuant to our 1993 Director Stock Option Plan, on June 1, 2003, Mr. Cahr,
Mr.  Foster,  Mr.  Fitzgerald  and  Mr. Silverstein were each granted options to
purchase 10,000 shares of Common Stock at an exercise price of  $3.60 per share.
In  addition,  pursuant  to  our 2003 Director Stock Option Plan, Mr. Sutter was
granted  options  to purchase 25,000 shares of Common Stock at an exercise price
of  $5.88  per  share  on  December  22,  2003.


CHANGE  IN  CONTROL  AND  SEVERANCE  AGREEMENTS

We  have  entered  into  severance  and  change  in  control agreements with our
executive  officers  to  ensure  that we will have their continued dedication as
executives  notwithstanding  the  possibility, threat or occurrence of a defined
"change  in  control".  Following  are  details  of  the  agreements.


                                       40
<PAGE>
     PAUL  G.  THOMAS
     In  December  2002,  we entered into a change in control agreement with Mr.
Thomas.  Under  the  agreement,  if  within twelve months of a change in control
there  occurs a "trigger event", Mr. Thomas will be entitled to receive all then
accrued  compensation  and  fringe  benefits, continuation of health and medical
benefits  and  life  insurance  for a period of twelve months and a cash payment
equal  to  2.9  times  his current base salary and performance bonus paid in the
preceding year. Additionally, all stock options or other unvested benefits under
any  compensation  or  employee benefit plan shall immediately become vested and
exercisable.  A  "trigger event" is defined to include termination of employment
by  us  other  than  for  "cause".

     Additionally, we have entered into a severance arrangement with Mr. Thomas.
Pursuant  to  such  arrangement,  Mr.  Thomas  is  entitled to receive 12 months
severance  pay  based on his salary immediately prior to termination, health and
medical  benefits  and life insurance coverage if he is terminated by us without
cause.  Mr.  Thomas  is  also entitled to a bonus based on the bonus paid to Mr.
Thomas  in  the previous year, on a pro rata basis based on the number of months
employed  during  the  year  of  termination.

     WILLIAM  E.  BARNHART
     In  December  2002,  we entered into a change in control agreement with Mr.
Barnhart.  Under  the  agreement, if within twelve months of a change in control
there  occurs  a  "trigger  event", Mr. Barnhart will be entitled to receive all
then  accrued  compensation  and  fringe  benefits,  continuation  of health and
medical  benefits  and  life  insurance for a period of twelve months and a cash
payment equal to two times his current base salary and performance bonus paid in
the  preceding  year. Additionally, all stock options or other unvested benefits
under  any compensation or employee benefit plan shall immediately become vested
and  exercisable.  A  "trigger  event"  is  defined  to  include  termination of
employment  by  us  other  than  for  "cause".

     FRED  FELDMAN,  PH.D.
     In  August 2003, we entered into compensation arrangements with Dr. Feldman
upon commencement of his employment.  Pursuant to such arrangements, Dr. Feldman
is  entitled to receive twelve months of salary, based on his salary immediately
prior to termination, and fringe benefits continuation if he is terminated by us
without  cause.  Additionally,  if Dr. Feldman is terminated by us without cause
following  a  change  in  control,  as described in Section 17 of our 2000 Stock
Option Plan, all of his remaining unvested stock options shall vest immediately.

     STEVEN  T.  SOBIESKI
     In  December  2002,  we entered into a change in control agreement with Mr.
Sobieski.  Under  the  agreement, if within twelve months of a change in control
there  occurs  a  "trigger  event", Mr. Sobieski will be entitled to receive all
then  accrued  compensation  and  fringe  benefits,  continuation  of health and
medical  benefits  and  life  insurance for a period of twelve months and a cash
payment equal to two times his current base salary and performance bonus paid in
the  preceding  year. Additionally, all stock options or other unvested benefits
under  any compensation or employee benefit plan shall immediately become vested
and  exercisable.  A  "trigger  event"  is  defined  to  include  termination of
employment  by  us  other  than  for  "cause".

     Additionally,  we  have  entered  into  a  severance  arrangement  with Mr.
Sobieski.  Pursuant  to such arrangement, Mr. Sobieski is entitled to receive 12
months  severance  pay  based  on  his  salary immediately prior to termination,
health  and  medical benefits and life insurance coverage if he is terminated by
us  without  cause.

     LISA  N.  COLLERAN
     In  November  2002,  we  entered  into  compensation  arrangements with Ms.
Colleran upon commencement of her employment. Pursuant to such arrangements, Ms.
Colleran  is  entitled  to  receive twelve months of salary, based on her salary
immediately  prior  to  termination,  and  fringe  benefits  continuation  and
outplacement  services  if  she  is  terminated  by  us  without  cause  or  she
experiences a material reduction in responsibilities or compensation following a
change  in control. Additionally, following a change in control, as described in
Section  17  of  our 1992 Stock Option Plan, all of her remaining unvested stock
options  shall  vest  immediately.


                                       41
<PAGE>
ITEM  12.    SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED  STOCKHOLDER  MATTERS

The following table sets forth information as of February 27, 2004, with respect
to  (i)  persons known to us to be beneficial holders of five percent or more of
either  the  outstanding  shares  of  Common  Stock or the outstanding shares of
Series  B  Preferred  Stock, (ii) our executive officers and directors and (iii)
all  of  our  executive  officers  and  directors  as a group.  Unless otherwise
indicated,  the  address  of  each  such person is c/o LifeCell Corporation, One
Millennium  Way,  Branchburg,  New  Jersey  08876.

<TABLE>
<CAPTION>
                                                    AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
                                                    --------------------------------------------
                                                      COMMON STOCK    SERIES B PREFERRED STOCK
                                                     --------------  ---------------------------
BENEFICIAL OWNER                                       SHARES      %        SHARES           %
---------------------------------------------------  ---------  ------  -------------  ------------
<S>                                                  <C>        <C>     <C>            <C>
Samuel D. Isaly(2). . . . . . . . . . . . . . . . .  2,955,500  10.95%            ---           ---
OrbiMed Capital LLC
OrbiMed Advisors Inc.
OrbiMed Advisors LLC
  c/o OrbiMed Advisors LLC
  767 Third Avenue
  New York, New York 10017
Austin W. Marxe and David Greenhouse (3). . . . . .  2,652,233  10.16%            ---           ---
  c/o Special Situations Private Equity Fund, L.P.
  153 E. 53rd Street
  New York, New York 10022
Vector Later-Stage Equity Fund, L.P.(4) . . . . . .  2,660,644   9.54%         57,615        85.23%
Vector Fund Management, L.P.
VSI Advisors, L.L.C.
D. Theodore Berghorst
Peter F. Drake
Barclay A. Phillps
Douglas Reed
  1751 Lake Cook Road, Suite 350
  Deerfield, Illinois 60015
Essex Woodlands Health Ventures Fund V LP (5) . . .  1,300,000   5.06%            ---           ---
  10001 Woodlock Forest Dr. Ste. 175
  The Woodlands, Texas 77380
Paul G. Thomas(6) . . . . . . . . . . . . . . . . .    691,780   2.62%            ---           ---
  Chairman of the Board, President and Chief
  Executive Officer
Michael E. Cahr(7). . . . . . . . . . . . . . . . .    149,856      *             578            *
  Director
David Fitzgerald(8) . . . . . . . . . . . . . . . .     35,000      *             ---           ---
  Director
James G. Foster(9). . . . . . . . . . . . . . . . .     55,000      *             ---           ---
  Director
Martin P. Sutter(10). . . . . . . . . . . . . . . .     52,130      *             ---           ---
  Director
William E. Barnhart(11) . . . . . . . . . . . . . .    188,838      *             ---           ---
Sr. V. P., Operations
Fred Feldman., Ph.D.(12). . . . . . . . . . . . . .        ---      *             ---           ---
  Senior Vice President Product Development &
  Quality
Steven T. Sobieski(13). . . . . . . . . . . . . . .    175,855      *             ---           ---
  Vice President and Chief Financial Officer
Lisa N. Colleran.(14) . . . . . . . . . . . . . . .     25,386      *             ---           ---
  Vice President, Marketing and Business
  Development
All executive officers, and directors as a group. .  1,374,845   5.11%            578            *
(9 persons)(15)

                                       42
<PAGE>
<FN>
Notes to Security Ownership table
---------------------------------
*Less than 1%.

(l)  Each  beneficial owner's percentage ownership of Common Stock is determined
     by  assuming  that options, warrants and other convertible securities (such
     as  the  Series  B  Preferred  Stock) that are held by such person (but not
     those  held  by  any  other person) and that are exercisable or convertible
     within  60  days  of  February  27,  2004 have been exercised or converted.
     Options, warrants and other convertible securities that are not exercisable
     within  60  days  of February 27, 2004 have been excluded. Unless otherwise
     noted,  we  believe  that  all  persons  named in the above table have sole
     voting  and  investment  power  with  respect to all shares of Common Stock
     and/or  Series  B  Preferred  Stock  beneficially  owned  by  them.

(2)  These  shares  of  Common  Stock  are owned as follows: 1,130,000 shares of
     Common Stock and 902,043 shares of Common Stock issuable upon exercise of a
     warrant  are  owned  by  Caduceus Private Investments, LP, 23,000 shares of
     Common  Stock and 18,776 shares of Common Stock issuable upon exercise of a
     warrant  are  owned by OrbiMed Associates, LLC and 490,000 shares of Common
     Stock  and  391,681  shares  of  Common  Stock  issuable upon exercise of a
     warrant  are  owned  by  PW Juniper Crossover Fund, L.L.C. Samuel D. Islay,
     OrbiMed  Advisors  LLC,  OrbiMed  Advisors Inc. and OrbiMed Capital LLC are
     deemed  to  beneficially  own  these  shares  by  virtue  of  their  mutual
     affiliation  to  the  above indicated entities. Information with respect to
     the  ownership  of such stockholders was obtained from a Schedule 13D filed
     on  December  30,  2003  and  our  stock  records.

(3)  These shares of Common Stock are owned as follows: 923,988 shares of Common
     Stock  and  218,750  shares  of  Common  Stock  issuable upon exercise of a
     warrant  are  owned by Special Situations Fund III, L.P., 980,863 shares of
     Common Stock and 144,375 shares of Common Stock issuable upon exercise of a
     warrant  are  owned  by  Special  Situations  Private Equity Fund, L.P. and
     309,912  shares  of Common Stock and 74,375 shares of Common Stock issuable
     upon  exercise  of  a  warrant are owned by Special Situations Cayman Fund,
     L.P. Austin Marxe and David Greenhouse are deemed to beneficially own these
     shares  by virtue of being executive officers of the investment advisors of
     each  such  entity.  Information  with  respect  to  the  ownership of such
     stockholders was obtained from a Schedule 13G filed on February 13, 2004 as
     and  our  stock  records.

(4)  These  shares of Common Stock are owned as follows:271,376 shares of Common
     Stock  and  1,640,621  shares  of  Common Stock issuable upon conversion of
     shares of Series B Preferred Stock owned by Vector Later-Stage Equity Fund,
     LP, 125,000 shares of Common Stock issuable upon exercise of warrants owned
     by  VSI Advisors, LLC, 133,485 shares of Common Stock and 389,893 shares of
     Common Stock issuable upon conversion of shares of Series B Preferred Stock
     owned  by  D.  Theodore  Berghorst, 6,286 shares of Common Stock and 38,007
     shares  of  Common  Stock  issuable  upon  conversion of shares of Series B
     Preferred  Stock  owned by Peter F. Drake, 6,320 shares of Common Stock and
     9,493 shares of Common Stock issuable upon conversion of shares of Series B
     Preferred  Stock  owned  by Barclay A. Phillips and 30,670 shares of Common
     Stock  and  9,493 shares of Common Stock issuable upon conversion of shares
     of Series B Preferred Stock owned by Douglas Reed. Information with respect
     to  the  ownership  of such stockholders was obtained from a Schedule 13G/A
     filed  September  29,  2003  and  our  stock  records.

(5)  Includes  1,300,000  shares of common stock owned by Essex Woodlands Health
     Ventures  Fund V LP but excludes 52,130 shares of common stock beneficially
     owned  by  Martin P. Sutter, one of our Directors. Mr. Sutter is a managing
     director of the general partner of the Essex Woodlands Health Ventures Fund
     V  LP, however he disclaims beneficial ownership of the shares owned by the
     partnership.  Ownership information was obtained from our stock records and
     a  Form  3  filed  on  December  30,  2003.

(6)  Includes  690,000  shares  underlying  stock  options

(7)  Includes  88,914  shares  of  common  stock,  20,942 shares of Common Stock
     issuable  upon  conversion of shares of Series B Preferred Stock and 40,000
     shares  underlying  stock  options

(8)  Represents  35,000  shares  underlying  stock  options.

(9)  Represents  55,000  shares  underlying  stock  options.

(10) Includes  37,130  shares of common stock and 15,000 shares underlying stock
     options  but  excludes  1,300,000  shares  of  common  stock owned by Essex
     Woodlands  Health  Ventures  V LP. Mr. Sutter is a managing director of the
     general  partner  of the Essex Woodlands Health Ventures Fund V LP, however
     he  disclaims  beneficial ownership of the shares owned by the partnership.
     Ownership  information  was  obtained  from  our stock records and a Form 3
     filed  on  December  30,  2003.

(11) Includes  187,500  shares  underlying  stock  options.

(12) Includes  171,250  shares  underlying  stock  options.

(13) Includes  25,000  shares  underlying  stock  options.

(14) See  notes  (5)  through  (13).
</TABLE>


                                       43
<PAGE>
EQUITY  COMPENSATION  PLAN  INFORMATION

The  following table gives information about our Common Stock that may be issued
upon the exercise of options, warrants and rights under our Amended and Restated
1992 Stock Option Plan, 1993 Directors Stock Option Plan, 2000 Stock Option Plan
and  2003 Directors Stock Option Plan as of December 31, 2003.  These plans were
our  only  equity  compensation  plans  in  existence  as  of December 31, 2003.

<TABLE>
<CAPTION>
                                                                                   (c)
                                                                           Number Of Securities
                                                                           Remaining Available
                                                                                   For
                                 (a)                      (b)             Future Issuance Under
                       Number Of Securities To      Weighted-Average       Equity Compensation
                       Be Issued Upon Exercise     Exercise Price Of         Plans (Excluding
                       Of Outstanding Options,    Outstanding Options,   Securities Reflected In
Plan Category            Warrants and Rights      Warrants and Rights           Column (a)
---------------------  ------------------------  ----------------------  ------------------------
<S>                    <C>                       <C>                     <C>
Equity Compensation
Plans Approved by
Shareholders                         4,012,736   $                 3.77                 2,154,019

Equity Compensation
Plans Not Approved by
Shareholders. . . . .              2,030,000(1)  $                 2.32                         0
                       ------------------------  ----------------------  ------------------------

TOTAL                                6,042,736   $                 3.28                 2,154,019
<FN>

(1)  See  "Note 9-Capital Stock, Options and Warrants" included in the financial
     statements  for  the year ended December 31, 2003 included in commencing on
     page  F-1  in  this  Annual  Report  on  Form  10-K.
</TABLE>


ITEM 13.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

We  have  entered  into  change  in  control  and  severance agreements with our
executive  officers.  See  "Item 11.  Executive Compensation - Change in Control
and  Severance  Agreements".

Any  transactions  involving  related parties in the future will be reviewed and
approved  by  our  Audit  Committee  of  the  Board  of  Directors.


ITEM 14.  PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

     In  accordance  with the requirements of the Sarbanes-Oxley Act of 2002 and
the  Audit  Committee's  charter,  all  audit  and  audit-related  work  and all
non-audit  work performed by our independent accountants, PricewaterhouseCoopers
LLP  ("PWC"),  is  approved  in  advance  by  the Audit Committee, including the
proposed  fees  for  such  work. The Audit Committee is informed of each service
actually  rendered.

     Audit Fees. Audit fees billed or expected to be billed to us by PWC for the
audit  of  the financial statements included in our Annual Reports on Form 10-K,
and  reviews  of  the  financial statements included in our Quarterly Reports on
Form  10-Q, for the years ended December 31, 2003 and 2002 totaled approximately
$161,750  and  $103,000,  respectively.


                                       44
<PAGE>
     Audit-Related  Fees.  We  were  billed  $27,700  and $14,000 by PWC for the
fiscal  years  ended December 31, 2003 and 2002, respectively, for assurance and
related  services that are reasonably related to the performance of the audit or
review  of our financial statements and are not reported under the caption Audit
Fees  above.

     Tax  Fees. We were billed an aggregate of $1,225 and $14,350 by PWC for the
fiscal  years  ended December 31, 2003 and 2002, respectively, for tax services,
principally  advice  regarding  the  preparation  of  income  tax  returns.

     All  Other  Fees.  We  did  not  incur  any fees for the fiscal years ended
December  31,  2003  and  2002,  for  permitted  non-audit  services.

     Other  Matters. The Audit Committee has considered whether the provision of
the  Audit-Related  Fees  and  Tax  Fees  are  compatible  with  maintaining the
independence  of  our  principal  accountant.

     Applicable  law  and  regulations provide an exemption that permits certain
services  to  be  provided  by  our  outside  auditors  even  if  they  are  not
pre-approved.  We  have  not  relied  on  this  exemption  at any time since the
Sarbanes-Oxley  Act  was  enacted.



                                       45
<PAGE>
PART IV

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

(a)  DOCUMENTS INCLUDED IN THIS REPORT:

1.   FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                  PAGE
                                                                                                  ----
<S>                                                                                               <C>
     Reports of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-1

     Balance Sheets as of December 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . .  F-3

     Statements of Operations  for the years ended December 31, 2003, 2002 and 2001. . . . . . . .  F-4

     Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001 . . .  F-5

     Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 . . . . . . . .  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:

     On  October  20,  2003,  we  announced our third quarter operating results.

     On  December  23, 2003, we announced the appointment of Martin P. Sutter to
     our  Board  of  Directors.

     On  January 20, 2004, we announced preliminary fourth quarter and full year
     operating  results  as  well  as  financial  guidance  for  2004.

     On  February  25,  2004, we announced our fourth quarter and full year 2003
     operating  results  as well as guidance for 2004. We also announced that we
     planned  to  conduct a conference call to discuss the operating results and
     related  matters.

(c)  EXHIBITS:

          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  15.

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

<TABLE>
<CAPTION>
<S>     <C>
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).


                                       46
<PAGE>
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).

10.3    LifeCell Corporation 2003 Non-Employee Director Stock Option Plan (incorporated by reference to
        Annex B to the Company's Definitive Proxy Statement on Schedule 14A filed on April 24, 2003).

10.4    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).

10.5    Second Amended and Restated Voting Agreement dated as of April 13, 2000 among the Company and the
        Series B Preferred Shareholders (incorporated by reference to Exhibit 10.1 of the Company's Quarterly
        Report on Form 10-Q filed with the Commission on May 12, 2000).

10.6    Waiver Agreement dated as of March 11, 2002 among the Company and certain holders of the Series B
        preferred stock (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-
        K for the fiscal year ended December 31, 2001).

10.7    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).

10.8+   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.)

10.9+   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.)

10.10   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 Commission on November 15, 1999.)

10.11   Amendment dated September 21, 1999 to Lease Agreement by and between Maurice M. Weill, Trustee
        for Branchburg Property and LifeCell Corporation (incorporated by reference to Exhibit 10.16 to the
        Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).

10.12   Amendment dated April 7, 2000 to Lease Agreement by and between Maurice M. Weill, Trustee for
        Branchburg Property and LifeCell Corporation (incorporated by reference to Exhibit 10.17 to the
        Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).


                                       47
<PAGE>
10.13   LifeCell Corporation Year 2000 Stock Option Plan (incorporated by reference to Exhibit 10.1 of the
        Company's Quarterly Report on Form 10-Q filed with the Commission on July 28, 2000).

10.14   Form of Purchase Agreement dated September 1, 2000 between LifeCell Corporation and Certain
        Investors (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
        filed with the Commission on November 13, 2000).

10.15+  Form of Change in Control Agreement (incorporated by reference to Exhibit 10.26 to the Company's
        Annual Report on Form 10-K for the fiscal year ended December 31, 2000).

10.16   Stock Purchase Warrant dated October 31, 2000, issued to Prudential Securities Incorporated
        (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal
        year ended December 31, 2000).

10.17   Stock Purchase Warrant dated October 31, 2000, issued to Gruntal & Co., L.L.C. (incorporated by
        reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended
        December 31, 2000).

10.18   Form of Purchase Agreement dated June 29, 2001 between LifeCell Corporation and Certain Investors
        (incorporated by reference to Exhibit 10.29 of the Company's Form 8-K filed with the Commission on
        July 11, 2001).

10.19   Form of Warrants dated July 10, 2001 between LifeCell Corporation and Certain Investors (incorporated
        by reference to Exhibit 10.31 of the Company's Form 8-K filed with the Commission on July 11, 2001).

10.20   Form of Purchase Agreement dated August 11, 2003 between LifeCell Corporation and Certain Investors
        (incorporated by reference to Exhibit 99.2 of the Company's Form 8-K filed with the Commission on
        August 13, 2003).

10.21   Loan and Security Agreement dated January 15, 2003 between LifeCell Corporation and Silicon Valley
        Bank (incorporated by reference to Exhibit 10.32 of the Company's Form 8-K filed with the Commission
        on February 14, 2003).

10.22   Revolving Promissory Note in the principal amount of $2,000,000 between LifeCell Corporation and
        Silicon Valley Bank (incorporated by reference to Exhibit 10.33 of the Company's Form 8-K filed with
        the Commission on February 14, 2003).

14.1 *  Code of Ethics for Senior Financial Officers

23.1 *  Consent of PricewaterhouseCoopers LLP.

31.1 *  Certification of the Registrant's Chief Executive Officer, Paul G. Thomas, pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002.

31.2 *  Certification of the Registrant's Chief Financial Officer, Steven T. Sobieski, pursuant to Section 302 of
        the Sarbanes-Oxley Act of 2002.

32.1 *  Certification of the Registrant's Chief Executive Officer, Paul G. Thomas, and Chief Financial Officer,
        Steven T. Sobieski, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


99.1    Representation letter dated March 22, 2002 regarding the audit performed by Arthur Andersen
        (incorporated by reference to Exhibit 99.1 to the Company's Annual Report on Form 10-K for the fiscal
        year ended December 31, 2001).
</TABLE>


                                       48
<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 12, 2004.

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
----------------------  ------------------------------------------  --------------
<S>                     <C>                                         <C>

/s/ Paul G. Thomas      President and Chief Executive               March 12, 2004
----------------------  Officer (Principal Executive Officer) and
Paul G. Thomas          Chairman of the Board of Directors


/s/ Steven T. Sobieski  Vice President and Chief Financial          March 12, 2004
----------------------  Officer (Principal Financial Officer)
Steven T. Sobieski


/s/ Bradly C. Tyler     Controller                                  March 12, 2004
----------------------  (Principal Accounting Officer)
Bradly C. Tyler


/s/ Michael E. Cahr     Director                                    March 12, 2004
----------------------
Michael E. Cahr

/s/ James G. Foster     Director                                    March 12, 2004
----------------------
James G. Foster

/s/ David Fitzgerald    Director                                    March 12, 2004
----------------------
David Fitzgerald

/s/ Martin P. Sutter    Director                                    March 12, 2004
----------------------
Martin P. Sutter
</TABLE>


                                       49
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Shareholders:


In our opinion, the accompanying balance sheets as of December 31, 2003 and 2002
and  the  related  statements of operations, shareholders' equity and cash flows
present  fairly,  in  all  material respects, the financial position of LifeCell
Corporation at December 31, 2003 and 2002, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally  accepted in the United States of America.  These financial statements
are  the  responsibility  of  the Company's management; our responsibility is to
express  an  opinion  on  these  financial  statements  based  on our audit.  We
conducted  our  audit  of these statements in accordance with auditing standards
generally  accepted  in the United States of America, which 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,  assessing  the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We  believe  that  our  audit  provides a reasonable basis for our opinion.  The
financial  statements  of  LifeCell  Corporation for the year ended December 31,
2001,  were audited by other independent accountants who have ceased operations.
Those  independent  accountants  expressed  an  unqualified  opinion  on  those
financial statements in their report dated February 25, 2002.


PRICEWATERHOUSECOOPERS, LLP


Florham Park, New Jersey

March 9, 2004


                                       F-1
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



THE  FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.


To LifeCell Corporation:


We  have  audited  the  accompanying  balance  sheets of LifeCell Corporation (a
Delaware  corporation)  as  of  December  31,  2000  and  2001,  and the related
statements  of  operations,  stockholders' equity and cash flows for each of the
three  years  in the period ended December 31, 2001.  These financial statements
are  the  responsibility  of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

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

As  more  fully described in Note 8 to the financial statements, the Company has
revised  the  balance  sheet  as  of  December  31,  2000  and  the statement of
stockholders'  equity  for the years ended December 31, 1999 and 2000 to reflect
the  reclassification  of common stock, subject to redemption from stockholders'
equity.

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, 2000 and 2001, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States.



                                                      ARTHUR ANDERSEN LLP


Philadelphia, Pennsylvania
February 25, 2002


                                       F-2
<PAGE>
<TABLE>
<CAPTION>
                                        LIFECELL CORPORATION
                                           BALANCE SHEETS
                                       (DOLLARS IN THOUSANDS)


                                                                                    DECEMBER 31,
                                                                                --------------------
                                                                                  2003       2002
                                                                                ---------  ---------
<S>                                                                             <C>        <C>
                                     Assets
Current assets
  Cash and cash equivalents                                                     $  7,387   $  5,202
  Short-term investments                                                           4,398        256
  Receivables, less allowance of $54 in 2003 and $40 in 2002                       5,876      4,332
  Inventories                                                                      8,830      6,367
  Prepayments and other                                                              317        257
  Deferred  tax assets                                                             2,067          -
                                                                                ---------  ---------
     Total current assets                                                         28,875     16,414

Investments in marektable securities                                               6,735          -
Fixed assets, net                                                                  7,508      7,091
Deferred tax assets                                                               14,589          -
Other assets, net                                                                    566        611
                                                                                ---------  ---------
Total assets                                                                    $ 58,273   $ 24,116
                                                                                =========  =========

                      Liabilities and Stockholders' Equity
Current liabilities
  Accounts payable                                                              $  1,260   $  1,438
  Accrued liabilities                                                              4,332      3,173
  Current portion of long-term debt                                                    -        337
                                                                                ---------  ---------
     Total current liabilities                                                     5,592      4,948

Deferred revenue                                                                     130        351
Long-term debt                                                                         -        526
Other liabilities                                                                    172         94

Commitments and contingencies

Temporary equity
  Common stock, subject to redemption, $.001 par value, 113,836
    shares issued and outstanding in 2002                                              -        478

Stockholders' equity
  Series B preferred stock, $.001 par value, 182,205 shares authorized,
    67,601 and 74,278 shares issued and outstanding in 2003 and 2002
    (liquidation preference at December 31, 2003 of $6,760,000)
  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;
    25,592,475 and 21,193,159 shares issued and oustanding in 2003 and 2002           26         21
  Common stock warrants, 2,000,000 and 2,284,211 outstanding in 2003 and 2002      3,412      4,002
  Additional paid-in capital                                                      94,610     78,037
  Accumulated deficit                                                            (45,669)   (64,341)
                                                                                ---------  ---------
     Total stockholders' equity                                                   52,379     17,719
                                                                                ---------  ---------
Total liabilities and stockholders' equity                                      $ 58,273   $ 24,116
                                                                                =========  =========
</TABLE>

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


                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                                 LIFECELL CORPORATION
                               STATEMENTS OF OPERATIONS
                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



                                                  For the Year Ended December 31,
                                             ----------------------------------------
                                                 2003          2002          2001
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Revenues:

  Product revenues                           $    38,577   $    32,935   $    26,560
  Research grant revenues                          1,672         1,493         1,209
                                             ------------  ------------  ------------

     Total revenues                               40,249        34,428        27,769
                                             ------------  ------------  ------------

Costs and expenses:

  Cost of products sold                           12,241        10,134         8,862
  Research and development                         5,396         5,015         4,351
  General and administrative                       5,594         4,590         4,098
  Selling and marketing                           14,940        13,288        11,978
                                             ------------  ------------  ------------

     Total costs and expenses                     38,171        33,027        29,289
                                             ------------  ------------  ------------

Income (loss) from operations                      2,078         1,401        (1,520)

  Interest and other income (expense), net           (28)         (129)         (550)
                                             ------------  ------------  ------------

Income (loss) before income taxes                  2,050         1,272        (2,070)

  Income tax benefit                              16,622           157            --
                                             ------------  ------------  ------------

Net income (loss)                                 18,672         1,429        (2,070)

Preferred stock and deemed dividends                  --            --        (1,591)
                                             ------------  ------------  ------------

Net income (loss) applicable to
  common stockholders                        $    18,672   $     1,429   $    (3,661)
                                             ============  ============  ============

Net income (loss) per common share:
    Basic                                    $      0.85   $      0.07   $     (0.20)
                                             ============  ============  ============
    Diluted                                  $      0.70   $      0.06   $     (0.20)
                                             ============  ============  ============

Shares used in computing net income (loss)
  per common share:
    Basic                                     22,093,655    21,175,602    18,240,431
                                             ============  ============  ============
    Diluted                                   26,631,839    24,696,376    18,240,431
                                             ============  ============  ============
</TABLE>

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


                                       F-4
<PAGE>
<TABLE>
<CAPTION>


                                                LIFECELL CORPORATION
                                         STATEMENTS OF STOCKHOLDERS' EQUITY
                                               (DOLLARS IN THOUSANDS)


                                                SERIES B                                COMMON STOCK
                                             PREFERRED STOCK      COMMON STOCK             WARRANTS       ADDITIONAL
                                            -----------------  -------------------  ---------------------   PAID-IN
                                             SHARES   AMOUNT     SHARES    AMOUNT     SHARES      AMOUNT    CAPITAL
                                            --------  -------  ----------  -------  -----------  --------  ---------
<S>                                         <C>       <C>      <C>         <C>      <C>          <C>       <C>
Balance at December 31, 2000                 95,931   $     -  15,784,368  $    16   3,370,298   $ 1,269   $ 69,728
  Stock options exercised                         -         -         135        -           -         -          -
  Warrants issued                                 -         -           -        -   2,224,030     3,231     (3,231)
  Warrants expired                                -         -           -        -  (3,310,117)     (498)       498
  Common stock issued for cash                    -         -   3,125,000        4           -         -      5,906
  Reclassification of common stock,
     subject to redemption                        -         -     464,364        -           -         -      1,950
  Dividends on Series B preferred stock       5,795         -           -        -           -         -        579
  Deemed dividend recorded in connection
     with issuance of additional shares of
     common stock and warrant re-pricing                    -     478,001        -           -         -      1,151
  Net loss                                        -         -           -        -           -         -          -
                                            --------  -------  ----------  -------  -----------  --------  ---------

Balance at December 31, 2001                101,726         -  19,851,868       20   2,284,211     4,002     76,581
  Conversion of Series B preferred stock    (27,448)        -     994,491        1           -         -         (1)
  Reclassification of common stock,
     subject to redemption                        -         -     346,800        -           -         -      1,457
  Net income                                      -         -           -        -           -         -          -
                                            --------  -------  ----------  -------  -----------  --------  ---------

Balance at December 31, 2002                 74,278         -  21,193,159       21   2,284,211     4,002     78,037
  Stock options exercised                         -         -     129,595        -           -         -        462
  Warrants exercised                              -         -     224,000        -    (284,211)     (590)       982
  Conversion of Series B preferred stock     (6,677)        -     241,916        -           -         -          -
  Common stock issued for cash                    -         -   3,689,969        5           -         -     14,651
  Reclassification of common stock,
     subject to redemption                        -         -     113,836        -           -         -        478
  Net income                                      -         -           -        -           -         -          -
                                            --------  -------  ----------  -------  -----------  --------  ---------

Balance at December 31, 2003                 67,601   $     -  25,592,475  $    26   2,000,000   $ 3,412   $ 94,610
                                            ========  =======  ==========  =======  ===========  ========  =========


                                                                TOTAL
                                            ACCUMULATED     STOCKHOLDERS'
                                               DEFICIT         EQUITY
                                            -------------  ---------------
<S>                                         <C>            <C>
Balance at December 31, 2000                $    (62,109)  $        8,904
  Stock options exercised                              -                -
  Warrants issued                                      -                -
  Warrants expired                                     -                -
  Common stock issued for cash                         -            5,910
  Reclassification of common stock,
     subject to redemption                             -            1,950
  Dividends on Series B preferred stock             (440)             139
  Deemed dividend recorded in connection
     with issuance of additional shares of
     common stock and warrant re-pricing          (1,151)               -
  Net loss                                        (2,070)          (2,070)
                                            -------------  ---------------

Balance at December 31, 2001                     (65,770)          14,833
  Conversion of Series B preferred stock               -                -
  Reclassification of common stock,
     subject to redemption                             -            1,457
  Net income                                       1,429            1,429
                                            -------------  ---------------

Balance at December 31, 2002                     (64,341)          17,719
  Stock options exercised                              -              462
  Warrants exercised                                   -              392
  Conversion of Series B preferred stock               -                -
  Common stock issued for cash                         -           14,656
  Reclassification of common stock,
     subject to redemption                             -              478
  Net income                                      18,672           18,672
                                            -------------  ---------------

Balance at December 31, 2003                $    (45,669)  $       52,379
                                            =============  ===============
</TABLE>

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


                                       F-5
<PAGE>
<TABLE>
<CAPTION>
                                         LIFECELL CORPORATION
                                       STATEMENTS OF CASH FLOWS
                                        (DOLLARS IN THOUSANDS)


                                                                       FOR THE YEAR ENDED DECEMBER 31,
                                                                       -------------------------------
                                                                          2003       2002      2001
                                                                        ---------  --------  --------
<S>                                                                     <C>        <C>       <C>
Cash Flows from Operating Activities:
  Net income (loss)                                                     $ 18,672   $ 1,429   $(2,070)
  Adjustments to reconcile net income (loss) to net cash
    Provided by  (used in) operating activities:
    Depreciation and amortization                                          2,010     2,296     1,761
    Reversal of deferred tax valuation allowance                         (16,656)        -         -
    Receivable allowance                                                      61       (56)      (15)
    Deferred revenues                                                       (221)     (221)     (222)
    Deferred rent expense                                                     78        24         -
    Loss on disposal of fixed assets                                          25         -         -
    Accretion of debt discount and financing cost                              -         -       192
  Increase (decrease) in cash from changes in assets and liabilities:
    Receivables                                                           (1,605)     (477)      503
    Inventories                                                           (2,463)   (1,676)       20
    Prepayments and other                                                    (60)       62       (50)
    Accounts payable and accrued liabilities                                 981     1,087    (1,791)
    Other liabilities                                                          -         -       (13)
                                                                        ---------  --------  --------
      Net cash provided by (used in) operating activities                    822     2,468    (1,685)
                                                                        ---------  --------  --------
Cash Flows from Investing Activities:
  Purchase of investments                                                (10,877)       (6)        -
  Capital expenditures                                                    (2,507)     (576)     (458)
  Increase in other assets                                                     -         -      (171)
  Proceeds from sale of equipment                                            100         -         -
  Proceeds from investments                                                    -         -        65
                                                                        ---------  --------  --------
      Net cash used in investing activities                              (13,284)     (582)     (564)
                                                                        ---------  --------  --------
Cash Flows from Financing Activities:
  Proceeds from issuance of common stock and warrants                     15,682         -     5,910
  Proceeds from issuance of long-term debt                                 1,451         -         -
  Proceeds from exercise of common stock and warrants                        856         -         -
  Principal payments on long-term debt                                    (2,314)   (1,334)   (1,229)
  Offering fees                                                           (1,028)        -         -
  Payments on notes payable                                                    -         -    (2,998)
  Cash dividends paid                                                          -         -        (4)
                                                                        ---------  --------  --------
      Net cash provided by (used in) financing activities                 14,647    (1,334)    1,679
                                                                        ---------  --------  --------
Net increase (decrease) in cash and cash equivalents                       2,185       552      (570)
Cash and cash equivalents at beginning of period                           5,202     4,650     5,220
                                                                        ---------  --------  --------
Cash and cash equivalents at end of period                              $  7,387   $ 5,202   $ 4,650
                                                                        =========  ========  ========

Supplemental Disclosure of Cash Flow Information:
  Cash paid during the year for interest                                $     64   $   186   $   581
                                                                        =========  ========  ========
  Cash paid during the year for income taxes                            $    336   $    40   $     -
                                                                        =========  ========  ========
Supplemental Disclosure of Non-cash Financing Activities:
  Series B preferred stock issued as payment of dividends               $      -   $     -   $   579
                                                                        =========  ========  ========
  Deemed dividends                                                      $      -   $     -   $ 1,151
                                                                        =========  ========  ========
  Fair value of warrants issued in connection with common stock         $      -   $     -   $ 3,231
                                                                        =========  ========  ========
</TABLE>

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


                                       F-6
<PAGE>
                              LIFECELL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


1.   ORGANIZATION

LifeCell Corporation ("LifeCell" or "the Company") develops and markets products
made from human (allograft) tissue for use in reconstructive, urogynecologic and
orthopedic  surgical  procedures.  The  Company's  products  are  subject  to
regulation by the United States Food and Drug Administration as human tissue for
transplantation.  LifeCell  was incorporated in Delaware in 1992 for the purpose
of  merging  with its predecessor entity, which was formed in 1986.  The Company
began  commercial  sales  of  its  first  tissue  product  during  1993.


2.   ACCOUNTING POLICIES

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.

Cash and Cash Equivalents and Investments in Marketable Securities

The Company considers all highly liquid investments with an original maturity of
three  months or less, when purchased, to be cash equivalents.  Investments with
maturities  in  excess  of three months but less than one year are classified as
short-term  investments  and are stated at cost, net of any unamortized premiums
or  discounts,  which  approximates  fair  value.

The  Company  classifies  its  marketable  securities as available for sale. The
securities  consist  of  fixed  income debt securities, which are stated at fair
value,  with  net  unrealized  gains  or  losses  on  the securities recorded as
accumulated  other  comprehensive  income  (loss)  in  shareholders' equity. Net
unrealized  gains  and  losses  were  not material at December 31, 2003 or 2002.
Realized  gains  and  losses  are included in earnings and are derived using the
specific  identification  method  for  determining  the  cost of the securities.
Realized  gains  were  not  material  in  2003,  2002,  or  2001.

Inventories

Inventories  are  stated  at  the  lower  of  cost  or  market,  with cost being
determined on a first-in, first-out basis.  Inventories on hand include the cost
of  materials,  freight,  direct  labor and manufacturing overhead.  The Company
records  a  provision  for  excess  and  obsolete  inventory  based primarily on
inventory  quantities  on  hand,  the  historical  product  sales  and estimated
forecast  of  future  product  demand  and  production  requirements.

Fixed Assets

Fixed  assets  are  stated  at  cost  less  accumulated  depreciation.  Major
expenditures  that  improve  or  extend  the  life of the assets are capitalized
whereas  maintenance  and  repairs are expensed as incurred.  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
computer  equipment,  furniture  and  fixtures  is computed on the straight-line
method based on the estimated useful lives of the assets of three to five years.
Depreciation  of machinery and equipment is computed on the straight-line method
based  on  the  estimated  useful lives of the assets of five to ten years.  The
cost of leasehold improvements is depreciated over the shorter of the lease term
or  the  estimated  useful  life  of  the  asset.


                                       F-7
<PAGE>
Deferred  Patent  Costs

The  Company capitalizes external legal costs associated with obtaining patents.
Net deferred patent costs amounted to $414,000 and are included in other assets,
net in the accompanying balance sheet.  Such costs are amortized to expense on a
straight-line  basis  over  the  legal  life of the patent.  For the years ended
December  31,  2003,  2002  and  2001, amortization expense relating to deferred
patent  costs  was  $45,000,  $83,000  and  $40,000,  respectively.

Impairment  of  Long-Lived  Assets

The  Company  records  impairment losses on long-lived assets used in operations
when  events  and  circumstances  indicate that assets might be impaired and the
undiscounted  cash flows estimated to be generated by those assets are less than
the  carrying  amount  of  those  assets.  Management believes that the carrying
value  of  its  long-lived  assets reported on the balance sheet at December 31,
2003  represent recoverable value and during 2003 and 2002 no impairment reviews
were  required.

Revenue Recognition

Product  revenues  are recognized when title and risk of loss for the product is
transferred  to  the  customer.  The  Company  utilizes  independent  sales  and
marketing agents to supplement its direct sales organization.  These independent
agents  hold  the  Company's  inventory  on  a  consignment basis.  For products
marketed  through  independent sales and marketing agents the Company recognizes
revenue  when the products are delivered to the third-party customer, as this is
when  title  and  risk  of loss to the product transfers.  Additionally, amounts
billed  to  customers  for  shipping and handling are included in revenue at the
time  the  related  product  revenue  are  recognized.

Research  grant  revenues  are  recognized  at  the  time qualified expenses are
incurred,  unless  the  Company has continuing performance obligations, in which
case,  revenue  is  recognized upon the satisfaction of such obligations.  Grant
payments  received,  but  not  yet  earned,  is  recorded  as  deferred revenue.

Research and Development Expense

Research and development costs are expensed when incurred.

Fair Value of Financial Instruments

Financial  instruments  consist  of  cash  and  cash equivalents, short-term and
long-term  investments  in  marketable securities, accounts receivable, accounts
payable,  debt and certain current liabilities. Management believes the carrying
amounts  reported  in  the balance sheet for these items approximate fair value.

Income Taxes

Significant  judgment  is  required  in  determining  the  Company's  income tax
provision.  In  the ordinary course of business, there are many transactions and
calculations  where the ultimate tax outcome is uncertain.  Although the Company
believes  that  its estimates are reasonable, no assurance can be given that the
final  outcome  of  these  matters  will  not  be  different  than that which is
reflected  in  its  historical  income  tax  provisions  and  accruals.  Such
differences  could  have a material effect on the Company's income tax provision
and  net  income  in  the  period  in  which  such  determination  is  made.


                                       F-8
<PAGE>
The  Company  accounts  for  income  taxes  in  accordance  with  SFAS  No. 109,
"Accounting for Income Taxes."  Under the asset-and-liability method of SFAS No.
109,  deferred  tax  assets  and  liabilities  are recognized for the future tax
consequences  attributable  to  differences  between  the  financial  statement
carrying  amounts  of  existing  assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to  apply  to  taxable  income  in  the years in which those temporary
differences  are  expected  to  be  recovered or settled.  The recoverability of
deferred  tax assets is dependent upon the Company's assessment of whether it is
more  likely than not that sufficient future taxable income will be generated to
utilize  the deferred tax asset.   In the event we determine that future taxable
income  will  not  be  sufficient to utilize the deferred tax asset, a valuation
allowance  is recorded.  At December 31, 2003, the valuation allowance primarily
reflected  uncertainties  involving  the  realization of certain tax credits and
loss  carryforwards due to the potential impact of future stock option exercises
and  shorter-term tax asset expiration dates.  Under SFAS No. 109, the effect on
deferred  tax  assets  and liabilities of a change in tax rates is recognized in
income  in  the  period  that  includes  the  enactment  date.

Comprehensive Income

SFAS No. 130 "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components in financial
statements. It requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. There were no components of comprehensive income other
than net income for the years ended December 31, 2003, 2002, or 2001.

Stock-based Compensation

The  Company  follows  Accounting  Principles  Board  (APB)  Opinion  No.  25,
"Accounting  for  Stock  Issued  to  Employees,"  and related interpretations in
accounting  for  equity-based  awards  issued  to  employees  and directors.  No
stock-based compensation cost is reflected in net income, as all options granted
under  the  plans  had  an  exercise  price  equal  to  the  market value of the
underlying  common  stock  on  the  date  of  grant.

The  following table illustrates the effect on net income and earnings per share
if  the  company  had  applied  the  fair  value  recognition provisions of FASB
Statement  No.  123,  Accounting  for  Stock-Based  Compensation, to stock-based
compensation  for  the  years  ended  December  31,:

<TABLE>
<CAPTION>
                                                      2003              2002            2001
                                                 ---------------  ---------------  ---------------
<S>                                              <C>              <C>              <C>
                                                   (dollars in thousands, except per share data)

Net income (loss), as reported                   $       18,672   $        1,429   $       (2,070)
Less:  Total stock-based compensation expense
    determined under fair value based method
    for all awards, net of related tax effects           (1,248)          (1,223)          (1,942)
                                                 ---------------  ---------------  ---------------
Pro forma                                        $       17,424   $          206   $       (4,012)
                                                 ===============  ===============  ===============

Net income (loss) per common share - basic
As reported                                      $         0.85   $         0.07   $        (0.20)
                                                 ===============  ===============  ===============
Pro forma                                        $         0.79   $         0.01   $        (0.31)
                                                 ===============  ===============  ===============

Net income (loss) per common share - diluted
As reported                                      $         0.70   $         0.06   $        (0.20)
                                                 ===============  ===============  ===============
Pro forma                                        $         0.66   $         0.01   $        (0.31)
                                                 ===============  ===============  ===============
</TABLE>

     See  Note 9 for additional information regarding the computations presented
above.


                                       F-9
<PAGE>
Concentrations  of  Credit  Risk

Financial  instruments,  which potentially subject the Company to concentrations
of  credit  risk,  consist  primarily  of  cash and cash equivalents, short- and
long-term  investments  and  accounts  receivable.  The  Company  has investment
policies  that  limit investments of excess cash to investment grade securities.
The  Company  provides  credit,  in  the normal course of business to hospitals,
medical  professionals  and  distributors.  The  risk  with  respect to accounts
receivables  is  mitigated  because amounts due the Company are not concentrated
within a relatively few number of customers.  The Company maintains an allowance
for  doubtful accounts and charges actual losses to the allowance when incurred.

<TABLE>
<CAPTION>
                                                                 Write-offs
                                                    Charge          and
                                   Balance at     (Benefit) to   Deductions   Balance at
                                  Beginning of     Costs and        From        End of
Allowance for Doubtful Accounts      Period         Expenses      Allowance     Period
                                  -------------  --------------  -----------  -----------
<S>                               <C>            <C>             <C>          <C>
                                                    (dollars in thousands)
     December 31, 2003            $          40  $          61   $      (47)  $        54
     December 31, 2002                      114            (56)         (18)           40
     December 31, 2001                      170            (15)         (41)          114
</TABLE>

New  Accounting  Pronouncements

FASB  Interpretation  No. 46 (revised December 2003), "Consolidation of Variable
Interest  Entities", an interpretation of ARB No. 51 (FIN 46R), replaces FIN 46,
"Consolidation  of Variable Interest Entities", an interpretation of ARB No. 51,
which  had been issued in January 2003. FIN 46R clarifies some of the provisions
of  FIN  46  relating  to  variable interest entities (VIEs) and exempts certain
entities  from  its  requirements. FIN 46R addresses consolidation of VIEs which
have one or more of the following characteristics: the equity investment at risk
is  not  sufficient  to  permit  the  entity  to  finance its activities without
additional  subordinated  financial  support provided by any parties, the equity
investors  lack  some  essential  characteristics  of  a  controlling  financial
interest, and the equity investors have voting rights that are not proportionate
to  their  economic  interests.  Application of FIN 46R is required in financial
statements  of  companies  that  have  interests in structures that are commonly
referred  to  as  special-purpose entities for periods ending after December 15,
2003.  Application  by  public entities for all other types of variable interest
entities  is required in financial statements for periods ending after March 15,
2004.  The  Company  does  not expect the adoption of FIN 46R to have a material
impact  on  the  Company's  financial  position  or  results  of  operations.

3.   INVENTORIES

Inventories consist of the following at December 31,:

<TABLE>
<CAPTION>
                                                 2003          2002
                                             ------------  ------------
<S>                                          <C>           <C>
                                               (dollars in thousands)
Unprocessed tissue and materials             $      4,453  $      2,940
Tissue products in-process                          1,592         1,446
Tissue products available for distribution          2,785         1,981
                                             ------------  ------------
    Total inventories                        $      8,830  $      6,367
                                             ============  ============
</TABLE>


                                      F-10
<PAGE>
4.   INVESTMENTS

Cash, cash equivalents and investments consist of the following at December 31,:

<TABLE>
<CAPTION>
                                   2003              2002
                            -----------------  -----------------
                            Carrying    Fair   Carrying    Fair
                              Value    Value     Value    Value
                            ---------  ------  ---------  ------
<S>                         <C>        <C>     <C>        <C>
                                   (dollars in thousands)
Cash and cash equivalents   $   7,387  $7,387  $   5,202  $5,202
Short-term investments          4,398   4,397        256     256
Long-term investments           6,735   6,744         --      --
</TABLE>

The Company's long-term investments mature at various dates through May 2005.

5.   FIXED ASSETS

Fixed assets consist of the following at December 31,:

<TABLE>
<CAPTION>
                                                 2003           2002
                                             -------------  -------------
<S>                                          <C>            <C>
                                               (dollars in thousands)
Machinery and equipment                      $      4,581   $      3,973
Leasehold improvements                              7,542          7,486
Computer equipment, furniture and fixtures          3,585          1,933
                                             -------------  -------------
                                                   15,708         13,392
Accumulated depreciation and amortization          (8,200)        (6,301)
                                             -------------  -------------
    Fixed assets, net                        $      7,508   $      7,091
                                             =============  =============
</TABLE>

For  the  years  ended  December  31,  2003,  2002  and  2001,  depreciation and
amortization  expense  related  to  fixed  assets was $1,965,000, $2,213,000 and
$1,721,000,  respectively.

6.   ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31,:

<TABLE>
<CAPTION>

                                          2003            2002
                                     --------------  --------------
                                         (dollars in thousands)
<S>                                  <C>             <C>
Tissue recovery expenses             $        1,478  $        1,025
Employee compensation and benefits            1,985           1,436
Marketing agent fees                            432             601
Operating expenses and other                    437             111
                                     --------------  --------------
    Total accrued liabilities        $        4,332  $        3,173
                                     ==============  ==============
</TABLE>


                                      F-11
<PAGE>
7.   DEFERRED REVENUE

In  March  1999,  in  conjunction  with  the  signing  of  an  agreement with an
independent  sales  and  marketing  agent,  the Company issued 108,577 shares of
common  stock  at  a  premium  of  $506,000 over the closing market price of the
Company's common stock on the date of issuance. This premium, which was recorded
as  deferred  revenue  and  is  being  recognized over the five-year term of the
agreement,  represented  a  payment  for  marketing  rights.  The  total  equity
investment  was  valued  at  $1.0  million  less  offering  costs  of  $100,000.

In  February  2000,  in  conjunction with the Company entering into an agreement
with  an  independent  agent,  the  agent  agreed  to make a $600,000 payment in
exchange  for certain product marketing rights.  The payment, which was received
in September 2000, was recorded as deferred revenue and is being recognized over
the  five-year  term  of  the  agreement.

8.   FINANCING ARRANGEMENTS AND LONG-TERM DEBT

In  January  2003,  the  Company  secured a $4 million credit facility through a
financial institution consisting of a $2 million revolving line of credit and an
equipment  line  for  up  to  an  additional $2 million.  The credit facility is
collateralized  by  the  Company's  accounts receivable, inventory, intellectual
property, intangible and fixed assets.  The agreement contains certain financial
covenants  and  a  subjective acceleration clause.  The revolving line of credit
bears  interest  at  the  bank  prime  rate plus 0.75% and was available through
January 2004.  The equipment term note bore interest at the bank prime rate plus
1.5%.  In  2003, the Company received proceeds of $1,451,000 under the equipment
line  portion  of the credit facility and used part of the proceeds to repay all
of  its  existing  debt.  In  September  2003,  the  Company  repaid  the entire
outstanding balance on the equipment line and the equipment line was terminated.
At  December  31,  2003, the Company had remaining availability on the revolving
line  of  credit  of  $2  million.  In  March  2004,  the  financial institution
increased  the borrowing limit on the revolving line of credit to $4 million and
extended  the  expiration  through  March  2005.

As  of  December  31,  2002,  the  Company  had  term debt facilities with three
financial  institutions  as  follows:

(1)  A  three-year  term  loan  bearing  an interest rate of 14.2%, repayable in
monthly installments of principal and interest of $100,000 through and including
March  1,  2003.  This  credit  facility  was  collateralized  by  the Company's
accounts  receivable,  inventory,  intellectual  property,  intangible and fixed
assets  and is guaranteed by the New Jersey Economic Development Authority.  The
balance  outstanding  on  the  term  loan  was  $196,000  at  December 31, 2002.

(2)  A  three-year  term  loan  bearing  an  interest rate of 6.5%, repayable in
monthly  installments of principal and interest of $18,000 through and including
June 1, 2003.  The loan was collateralized by the Company's accounts receivable,
inventories  and fixed assets.  The balance outstanding on this loan was $89,000
at  December  31,  2002.

(3)  A  ten-year term loan bearing an interest rate of 9.0%, repayable in annual
installments  of principal and interest of $106,000 through and including August
1,  2010.  This loan was collateralized by payments that the Company is entitled
to  receive  through  a  New  Jersey  Business Employment Incentive Grant.  Such
payments  were  assigned to the lender and will be used to satisfy the Company's
obligations  under  the  loan  agreement  as  they  are  received.  The  balance
outstanding  on  the  note  was  $578,000  at  December  3,  2002.

Interest  expense  for  the  years  ended  December  31, 2003, 2002 and 2001 was
$57,000,  $180,000  and  $697,000,  respectively.


                                      F-12
<PAGE>
9.   CAPITAL STOCK, OPTIONS AND WARRANTS

Common stock, subject to redemption

In 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.  Pursuant  to the terms of the purchase agreement,
the  Company  was  required  to  issue  additional shares to the investor if the
market  price  of  the  Company's common stock declined below a fixed amount per
share.  In November 2001, the Company issued 478,001 additional shares of common
stock  to  the investor, without additional consideration, pursuant to the terms
of  this  agreement.  In  connection  with  the issuance, the Company recorded a
deemed  dividend  of  $1,037,000  equal  to the fair value of shares issued.  An
additional  deemed  dividend of $114,000 was recorded in 2001 in connection with
the  repricing  of  certain  warrants  that  were  issued as part of the private
placement.

The  shares  of  common stock originally issued in 1999 were redeemable at $4.20
per  share by the Company if it did not maintain a listing or a quotation of its
shares  of  common  stock on a U.S. stock exchange or market system.  Given this
requirement  was  beyond the Company's control, the remaining outstanding shares
held  by  this  investor  were considered to be temporary equity.  In the fourth
quarter  of  2001  and 2002, the Company received notification that the investor
sold  464,364  and  346,800 shares, respectively, of the original 925,000 shares
and  accordingly,  $1.9  million and $1.5 million, respectively, of the original
amount  was  reclassified  to stockholders' equity - common stock.  In 2003, the
Company  received  notification that the investor sold the remainder of all such
shares  and  accordingly,  the  redemption rights terminated.  As a result, such
shares  were  reclassified  to  common  stock  in  2003.

Series B Preferred Stock

Each  share of Series B preferred stock is convertible at any time at the option
of the holder into approximately 36.232 shares of common stock (2,449,319 shares
of  common  stock  at  December  31,  2003),  subject to adjustment for dilutive
issuances  of  securities.  The  Series  B  preferred  stock  has  a liquidation
preference  of $100 per share, or $6,760,000 as of December 31, 2003, and shares
ratably in any residual assets after payment of such liquidation preference. The
Series  B  preferred  stock will be automatically converted into common stock if
the  closing  price  of the Company's common stock averages or exceeds $9.30 per
share  for  30 consecutive trading days.  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

The  Series  B  preferred  stock  paid  cumulative  dividends quarterly, through
December 31, 2001, at an annual rate of $6.00 per share.  Dividends were 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.  While  the  preferred shares are outstanding or any
dividends  are  owned thereon, the Company may not declare or pay cash dividends
on  its  common  stock

Common Stock

In  July  2001, the Company issued 3,125,000 shares of common stock in a private
placement  at  a  price  of  $1.92 per share.  The proceeds of the offering were
approximately  $6.0  million  before deducting placement agent fees and offering
costs  of  $90,000.

In  August  2003, the Company sold 3,294,113 shares of its common stock at $4.25
per  share  in  a  private  placement  to a group of institutional investors. In
connection  with  the  private placement, in September 2003, the Company sold an
additional  395,856  shares  of  its  common stock at $4.25 per share to several
holders  of  LifeCell's  Series  B


                                      F-13
<PAGE>
preferred  stock,  including  one  of the Company's directors. These shares were
sold  pursuant  to  a contractual right of the holders of the Series B preferred
stock  to participate in the August 2003 private placement.  The net proceeds of
the  private placement were approximately $14.7 million after deducting offering
costs.


Options

The  Company's  Amended  and  Restated  1992 Stock Option Plan (the "1992 Plan")
provided  for  the grant of options to purchase up to 2,500,000 shares of common
stock  through  January 16, 2002.  In June 2000, the stockholders of the Company
approved  the  Year 2000 Stock Option Plan (the "2000 Plan"), which provides for
the  grant of options to purchase up to 1,500,000 shares of common stock through
March 1, 2010.  In May 2003, the Company's shareholders approved an amendment to
the  2000  Plan  increasing the number of shares reserved for issuance under the
2000  Plan  by  2,000,000  shares,  from  1,500,000  to 3,500,000.  Common stock
authorized  for  issuance  under  the  2000 Plan is subject to adjustment in the
event of certain changes in the Company's capitalization, a merger, or a similar
transaction.  Such  shares  may  be  treasury shares or newly issued shares or a
combination  of  both.

Options generally become exercisable ratably over a four-year period, 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 plans have exercise prices equal to the
fair market value at the date of grant.

In  May  2003, the Company's shareholders approved the LifeCell Corporation 2003
Non-Employee Director Stock Option Plan  (the "Directors Plan").  Under the 2003
Directors  Plan,  options may be granted to purchase up to 750,000 shares of the
Company's  common  stock  through March 2013.  Options granted vest on the first
anniversary  and  have  a  maximum  term  of ten years.  The 2003 Directors Plan
replaced the Second Amended and Restated 1993 Non-Employee Director Stock Option
Plan,  which  terminated  in  July 2003.  The provisions of the "Directors Plan"
provide  for  an  initial  grant  of options to purchase 25,000 shares of common
stock  for newly elected non-employee directors and an annual grant of an option
to  purchase  10,000  shares  upon  re-election to the Company's Board.  Options
under  the  Director Plan have exercise prices equal to the fair market value at
the  date of grant, vest one year after date of grant and expire after 10 years.

A  summary  of stock option activity for the years ended December 31, 2003, 2002
and  2001  is  as  follows:

<TABLE>
<CAPTION>
                                          Weighted
                                Total      Average
                                Stock     Exercise
                               Options    Price ($)
                              ----------  ---------
<S>                           <C>         <C>
Balance at December 31, 2000  2,867,423        4.16
  Granted                       650,050        2.23
  Exercised                        (135)       0.73
  Forfeited or canceled        (347,069)       4.16
                              ----------
Balance at December 31, 2001  3,170,269        3.77
  Granted                       716,775        2.73
  Forfeited or canceled        (208,875)       4.64
                              ----------
Balance at December 31, 2002  3,678,169        3.52
  Granted                       806,824        5.03
  Exercised                     (79,595)       4.00
  Forfeited or canceled        (392,662)       3.93
                              ----------
Balance at December 31, 2003  4,012,736        3.77
                              ==========
</TABLE>

At  December  31,  2003, there were 1,424,019 options available for future grant
under  the  2000  Plan  and  725,000  under  the  Directors  Plan.


                                      F-14
<PAGE>
A  summary  of stock options outstanding under all plans at December 31, 2003 is
as  follows:

<TABLE>
<CAPTION>
                            Options Outstanding                  Options Exercisable
                  -----------------------------------------  --------------------------
                                   Weighted
                     Number         Average      Weighted      Number         Weighted
                 Outstanding at    Remaining      Average   Exercisable at    Average
Range of          December 31,    Contractual     Exercise   December 31,     Exercise
Exercise Prices       2003       Life (Years)      Price        2003           Price
<S>               <C>           <C>              <C>         <C>           <C>
$1.64 to $ 1.99         31,500              7.9  $     1.73        23,125  $       1.73
2.00  to   2.99      1,593,262              7.9        2.45       748,056          2.36
3.00  to   3.99        890,000              4.6        3.77       831,500          3.78
4.00  to   4.99        351,700              5.3        4.24       338,137          4.22
5.00  to   5.99        974,824              8.7        5.31       232,713          5.38
6.00  to   6.99        162,000              4.5        6.55       130,325          6.61
7.00  to  10.88          9,450              6.2       10.17         7,088         10.17
                  ------------  ---------------              ------------
$1.64 to $10.88      4,012,736              7.0  $     3.77     2,310,944  $       3.71
                  ============  ===============              ============
</TABLE>

In  addition  to  the  amounts  set  forth  in the tables above, during 1996 the
Company  granted options to purchase 220,000 shares of common stock not pursuant
to  a plan, to directors who resigned upon the closing of the sale of the Series
B  preferred  stock.  During  2003, option holders exercised options to purchase
50,000  shares  of common stock pursuant to these grants.  At December 31, 2003,
options  to  acquire  30,000  shares of common stock remained outstanding with a
weighted  average  exercise  price  of  $3.63.  The  weighted  average remaining
contractual  life  of the outstanding option grants was 1.9 years as of December
31,  2003.

The  Company  accounts for its employee stock-based compensation plans under APB
No.  25  and  its  related  interpretations.  Had  compensation  expense  been
determined  by  the  Company  based  on the fair value as of the grant dates for
awards  in  2003,  2002 and 2001 consistent with SFAS No. 123, the Company would
have  recorded  stock-based  compensation  expense of $1,248,000, $1,223,000 and
$1,942,000  respectively.   See  Note  2 for the pro forma effect on net income.

Under the provisions of SFAS No. 123, the weighted average fair value of options
granted  in  2003,  2002,  and  2001  was  $3.63,  $2.22  and  $1.56  per share,
respectively.  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 2003, 2002 and 2001, respectively: a
weighted  average  risk-free  interest rate of approximately 3% - 7% 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  112  percent.

Common  Stock  Warrants

The  following  table  summarizes  information  about  common  stock  warrants
outstanding  at  December  31,:

<TABLE>
<CAPTION>
                 Warrants Outstanding
                 --------------------
Exercise Price     2003       2002     Expiration Date
---------------  ---------  ---------  ----------------
<C>              <C>        <C>        <S>
     $1.92       1,750,000  1,750,000  July 10, 2006
     $1.96              --    200,000       --
     $4.75              --     84,211       --
     $5.00         250,000    250,000  October 27, 2005
                 ---------  ---------
                 2,000,000  2,284,211
                 =========  =========
</TABLE>


                                      F-15
<PAGE>
9.   EMPLOYEE BENEFIT PLANS

The  Company  maintains  a  401(k)  retirement  savings  plan,  which covers all
full-time employees.  The Company may, at its discretion, contribute amounts not
to  exceed  each  employee's  contribution.  Participant's contributions may not
exceed  15% of their annual compensation, subject to annual dollar limits set by
the  Internal  Revenue  Service.  Participants  are  always 100% vested in their
contributions.  Company  contributions  are  fully  vested  after  one  year  of
employment.  Total  Company  contributions  during  2003,  2002  and  2001  were
$86,000,  $67,000  and  $34,000,  respectively.

The  Company  also  maintains  an  Employee  Stock  Purchase  Plan  to allow all
full-time  employees  to  purchase the Company's common stock on the open market
using  employee and Company matching contributions.  Total Company contributions
during  2003,  2002,  and  2001 were $22,000, $21,000 and $13,000, respectively.

11.  INCOME TAXES

Significant  components  of  the  Company's income tax expense (benefit) for the
years  ended  December  31,  2003,  2002  and  2001  were  as  follows:

<TABLE>
<CAPTION>
                            2003      2002    2001
                          ---------  ------  ------
<S>                       <C>        <C>     <C>
                            (dollars in thousands)
Current
    Federal               $     43   $  --   $   --
    State                       (9)   (155)      --
Deferred
    Federal                (15,617)     --       --
    State                   (1,039)     --       --
                          ---------  ------  ------
Income tax benefit, net   $(16,622)  $(155)  $   --
                          =========  ======  ======
</TABLE>

A  reconciliation  of  income taxes computed at the statutory federal income tax
rate  of  34% to actual benefit for the years ended December 31, 2003, 2002, and
2001  as  follows:

<TABLE>
<CAPTION>
                                                 2003      2002    2001
                                               ---------  ------  ------
<S>                                            <C>        <C>     <C>
U.S. federal tax (benefit) at statutory rate   $    692   $ 492   $(704)
State taxes (net of federal benefit)                226      93      --
Sale of state tax net operating losses             (235)   (248)     --
Change in valuation allowance                   (16,656)   (492)    704
Net operating losses utilized                      (778)     --      --
Other non-deductible items                           86      --      --
Alternative minimum taxes                            43      --      --
                                               ---------  ------  ------
Total income tax benefit                       $(16,622)  $(155)  $  --
                                               =========  ======  ======
</TABLE>

In  2003,  the  Company  realized $235,000 through the sale and transfer of $3.0
million  of  state  tax  net  operating  losses.  In  2002, the Company realized
$248,000  through  the  sale  and  transfer  of  $3.2  million  of state tax net
operating  losses.  The  sales  and  transfers  were made through the Technology
Business  Tax  Certificate  Program  sponsored  by  the  New  Jersey  Economic
Development  Authority.


                                      F-16
<PAGE>
The principal components of the Company's deferred tax assets as of December 31,
2002  and  2003  are  as  follows:

<TABLE>
<CAPTION>
                                                               2003          2002
                                                          -------------  -------------
<S>                                                       <C>            <C>
                                                             (dollars in thousands)
Temporary differences:
Deferred revenue                                          $         44   $        119
Uniform capitalization of inventory costs                          159            113
Other items                                                       (306)          (213)
                                                          -------------  -------------
Total temporary differences                                       (103)            19
Federal tax losses and credits not currently utilizable         19,732         20,298
State tax losses and credits not currently utilizable            1,627          1,145
                                                          -------------  -------------
Total gross deferred tax assets                                 21,256         21,462
Less valuation allowance                                        (4,600)       (21,462)
                                                          -------------  -------------
Net deferred tax assets                                   $     16,656   $         --
                                                          =============  =============
</TABLE>

As  of  December  31,  2003,  the  Company has a net operating loss carryforward
("NOL")  for federal income tax purposes of approximately $54.5 million expiring
as  follows  (dollars  in  thousands):

<TABLE>
<CAPTION>
Year Expires
<S>                            <C>
    2004                       $     2,200
    2005                             1,700
    2006                             1,400
    2007                             2,400
    2008 and beyond                 46,800
                               -----------
                               $    54,500
                               ===========
</TABLE>

The federal net operating loss carryforwards are subject to limitation under the
rules  regarding  a  change  in  stock  ownership  as determined by the Internal
Revenue  Code.  As  of  December  31, 2003, of the Company's total net operating
loss  carryover  of  $54.5 million, approximately $15.9 million is subject to an
annual  limitation  under  Internal  Revenue  Code  Section  382.

At December 31, 2003, the Company also had a net operating loss carryforward for
state  income  tax  purposes  of  approximately  $11.9  million, which expire in
varying amounts commencing in 2006.  Additionally, the Company has approximately
$1.9  million  of  research and development tax credit carryforwards for federal
and  state  income tax purposes, which will expire in varying amounts commencing
in  2003.

Prior  to  2003,  no deferred provision or benefit for income taxes was recorded
because  the  Company  was  in  a  net  deferred  tax  asset position and a full
valuation  allowance  had been recorded.  During the fourth quarter of 2003, the
Company  re-evaluated  the  amount  of  valuation allowance required in light of
profitability  achieved  in  2003  and  2002 and expected in future years.  As a
result, the Company reduced the valuation allowance on deferred tax assets to an
amount  that  it believes is more likely than not of being realized based on the
Company's  assessment  of  the likelihood of future taxable income.  At December
31,  2003,  the  valuation allowance primarily reflected uncertainties involving
the  realization  of  certain  tax  credits  and  loss  carryforwards due to the
potential  impact of future stock option exercises and shorter-term deferred tax
asset  expiration  dates.


                                      F-17
<PAGE>
12.  NET INCOME (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per
share  for  the  years  ended  December  31,  2003,  2002  and  2001:

<TABLE>
<CAPTION>
                                                             For the Year Ended December 31,
                                                      ---------------------------------------------
                                                          2003            2002            2001
                                                      -------------  --------------  --------------
<S>                                                   <C>            <C>             <C>
                                                     (dolllars in thousands, except per share data)

Net income (loss) applicable to common stockholders   $      18,672  $        1,429  $      (3,661)
                                                      =============  ==============  ==============

Weighted average common shares outstanding               22,093,655      21,175,602     18,240,431
                                                      -------------  --------------  --------------

Denominator for basic net income (loss) per share        22,093,655      21,175,602     18,240,431
                                                      -------------  --------------  --------------

Effect of dilutive securities:
Series B preferred stock assuming conversion              2,657,581       2,822,635              -
Common stock warrants                                       993,243         540,533              -
Common stock options                                        887,360         157,606              -
                                                      -------------  --------------  --------------

Denominator for diluted net income (loss) per share      26,631,839      24,696,376     18,240,431
                                                      -------------  --------------  --------------

Basic net income (loss) per share                     $        0.85  $         0.07  $       (0.20)
                                                      =============  ==============  ==============

Diluted net income (loss) per share                   $        0.70  $         0.06  $       (0.20)
                                                      =============  ==============  ==============
</TABLE>

The  calculation  of  net income per share for the years ended December 31, 2003
and  2002  excludes  potentially dilutive common stock equivalents consisting of
outstanding  options  to purchase 1,207,274 and 2,726,444 shares of common stock
in  2003  and  2002,  respectively, and warrants to purchase 250,000 and 334,211
shares  of  common stock in 2003 and 2002, respectively, because their inclusion
would  be  antidilutive.

The  calculation  of  net  loss  per  share for the year ended December 31, 2001
excludes  potentially  dilutive  common  stock equivalents of 9,250,216 in 2001.
These  common  stock  equivalents,  which  consisted  of  convertible  Series  B
preferred  stock,  warrants, and outstanding stock options, were not included in
the  calculation  of  the  net  loss  per share because their inclusion would be
antidilutive.


13.  COMMITMENTS AND CONTINGENCIES

Litigation

In  June  2002,  a  complaint was filed in the Superior Court of California, Los
Angeles  County,  Central  District,  captioned Joan Savitt, individually and on
behalf  of  others  similarly situated, v. Doheny Eye & Tissue Bank, et al.  The
complaint  alleged  among other things, the Company, by engaging in the storing,
processing and distribution of human tissue, violates the public policy and laws
of the state of California in various ways.  In June 2003, the plaintiff and the
Company  entered  into  a  mutual  release  and  dismissal  of  the  complaint.


                                      F-18
<PAGE>
In  November  2003,  a  complaint  was  filed  in  the Circuit Court of Fairfax,
Virginia captioned Sun Hee Jung v. Yongsook Victoria Suh, M.D., Victoria Plastic
Surgery  Center,  Inc.  and  LifeCell  Corporation.  The  matter  is  a  product
liabilities action for personal injury damages allegedly arising from the use of
one  of  the  Company's  products.  The  case is in its beginning stages and the
parties are conducting preliminary discovery.  The Company intends to vigorously
defend against this action.  The likelihood of an unfavorable outcome is unknown
at  this  time however, the Company believes any potential losses resulting from
this  action  would  be  covered  by  its  insurance  policies.

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.

Independent Sales and Marketing Agency and Distributor Agreements

The  Company utilizes independent sales and marketing agents and distributors to
supplement  its  direct sales organization.  The Company's independent sales and
marketing  agents  and  distributors generated 38%, 48% and 54% of total product
revenue  in  the  years  ended  December  31,  2003,  2002 and 2001.  One of the
Company's  sales and marketing agents generated 23% of total product revenues in
2003.  No other individual independent sales agent or distributor generated more
than  5%  of  our  total  product  revenues in the year ended December 31, 2003.

Independent  sales  and marketing agents hold Company inventory on a consignment
basis.   The Company records revenues when products are delivered to third-party
customers.   Our  independent  sales  and  marketing agents are paid agency fees
based  on  the  amount  of product revenues they generate for the Company.  Such
fees  are  included  in  the  statement  of  operations as selling and marketing
expense  at  the  time  that  revenues  are  recorded.

In addition to sales and marketing agents, the Company also distributes products
through independent domestic and international distributors.  These distributors
take  title  to  and assume risk of loss for the products upon shipment from the
Company  to  the  distributor, and therefore the Company recognizes revenue upon
shipment  to  the  distributor  for  these  sales.

Leases

The  Company  leases approximately 90,000 square feet for office, production and
laboratory  space  in  one  building  under  a  lease  agreement that expires in
November  2010.  The  lease  contains  a  renewal  option  for an additional two
successive  five-year  periods.  In  addition,  the  Company  has  various other
operating  leases.  Rental expense was $1,021,000, $949,000 and $872,000 for the
years ended December 31, 2003, 2002, and 2001, respectively.  The future minimum
lease  payments  under  noncancelable  lease  terms  in excess of one year as of
December  31,  2003,  were  as  follows  (dollars  in  thousands):

<TABLE>
<CAPTION>
<S>                                          <C>
             2004                            $     833
             2005                                  891
             2006                                  919
             2007                                  919
             2008 and beyond                     2,681
                                              --------
                  Total                      $   6,243
                                              ========
</TABLE>


                                      F-19
<PAGE>
14.  SEGMENT DATA

The Company has one reportable business operating segment - the processing and
distribution of human tissue based products for use in various surgical
procedures. Product revenues by geographic area for the years ended December 31,
2003, 2002 and 2001, are summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
                              2003     2002     2001
                             -------  -------  -------
<S>                          <C>      <C>      <C>
United States                $37,257  $31,163  $24,939
Other countries                1,320    1,772    1,621
                             -------  -------  -------
     Total Product Revenues  $38,577  $32,935  $26,560
                             =======  =======  =======
</TABLE>

15.  QUARTERLY FINANCIAL DATA (UNAUDITED)

Following  is  a  summary  of  unaudited  quarterly  results for the years ended
December  31,  2003  and  2002:

<TABLE>
<CAPTION>
                                                First     Second    Third      Fourth
(In thousands except per share amounts)        Quarter   Quarter   Quarter    Quarter
                                               --------  --------  --------  ----------
<S>                                            <C>       <C>       <C>       <C>
2003
  Total Revenues                               $  8,995  $  9,680  $ 10,505  $  11,069
  Product Revenues                                8,585     9,143    10,103     10,746
  Cost of Products Sold                           2,540     2,820     2,995      3,886
  Net Income                                        562       380       506   17,224(1)
  Income Per Share of Common Stock - Basic         0.03      0.02      0.02       0.68
  Income Per Share of Common Stock - Diluted       0.02      0.01      0.02       0.56

2002
  Total Revenues                               $  7,659  $  8,394  $  9,102  $   9,273
  Product Revenues                                7,310     8,050     8,711      8,864
  Cost of Products Sold                           2,396     2,513     2,642      2,583
  Net Income                                        436       214       344        435
  Income Per Share of Common Stock - Basic         0.02      0.01      0.02       0.02
  Income Per Share of Common Stock - Diluted       0.02      0.01      0.01       0.02
</TABLE>

(1)  Includes $16,656,000 of reversal of deferred tax asset valuation allowance.


                                      F-20
<PAGE>