SYNOVIS LIFE TECHNOLOGIES INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended October
31, 2002

or

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

Commission file number: 0-13907

SYNOVIS LIFE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)

Minnesota 41-1526554
(State of Incorporation) (I.R.S. Employer Identification No.)

2575 UNIVERSITY AVENUE W., ST. PAUL, MINNESOTA 55114-1024
(Address of principal executive offices)

TELEPHONE NUMBER: (651) 603-3700

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
Common Stock Purchase Rights

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

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

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 26-2 of the Act). Yes [ ] No [X]

As of April 30, 2002, 9,507,404 shares of Common Stock of the Registrant were
outstanding, and the aggregate market value of the Registrant's outstanding
Common Stock (based upon the last reported sale price of the Common Stock on
that date by the Nasdaq National Market), excluding shares owned beneficially by
executive officers and directors, was approximately $62,359,582.

Parts I and II of this Annual Report on Form 10-K incorporate by reference
information (to the extent specific sections are referred to herein) from the
Registrant's Annual Report to Shareholders for the fiscal year ended October 31,
2002 (the "2002 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference (to the extent specific sections are referred to
herein) information from the Registrant's Proxy Statement for its Annual Meeting
of Shareholders to be held February 25, 2003 (the "2003 Proxy Statement").

Tissue-Guard(TM), APEX Processing(TM), Supple Tissue-Guard(TM), Peri-Strips(R),
Peri-Strips Dry(R), PSD Gel(TM), Dura-Guard(R), Vascu-Guard(R), Supple
Peri-Guard(R), Peri-Guard(R), CV Peri-Guard(R), Ocu-Guard(TM), Biograft(R),
Flo-Rester(R), Vascular Probe, Flo-Thru Intraluminal Shunt(TM), Veritas(R) and
Synovis(TM) are trademarks of the Company.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K are "forward -
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. For this purpose, any statements contained in this Form 10-K
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may", "will",
"expect", "believe", "anticipate", "estimate" or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. All forward-looking statements in this document are
based on information available to the Company as of the date hereof, and the
Company assumes no obligation to update any forward-looking statements. Such
statements involve known and unknown risks uncertainties and other factors which
may cause the actual results to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors may include, among others, those factors set forth
under the heading "Important Factors" on page 11.

PART I

ITEM 1 - BUSINESS

(A) GENERAL DEVELOPMENT OF BUSINESS

INTRODUCTION

Synovis Life Technologies, Inc. (Synovis or the Company) is a diversified
medical device company engaged in developing, designing, manufacturing and
bringing to market products for the surgical and interventional treatment of
disease. Its businesses are conducted in two reportable segments, the surgical
device business and the interventional business, with segmentation based upon
similarities of the underlying business operations, products and markets of
each.

The surgical device business develops, manufactures and markets implantable
biomaterial products, devices for microsurgery and surgical tools that reduce
risks of critical surgeries, lead to better patient outcomes and lower costs.
The interventional business provides the services of concept development,
engineering, rapid prototyping and manufacturing of complex micro-wire forms and
polymer components used in many interventional devices in the cardiac rhythm
management, neurostimulation and vascular markets.

HISTORY

Synovis Life Technologies, Inc., formerly named Bio-Vascular, Inc., was
incorporated in July of 1985. In 1985, the Company was spun-off to the
shareholders of its then parent company, thereafter operating as a separate
public company. In the spin-off, the Company acquired the rights to certain
cardiovascular products.

In July 1998, the Company completed the acquisition of Jer-Neen Manufacturing
Co., Inc, and subsequently changed Jer-Neen's name to Synovis Interventional
Solutions, Inc. (Synovis IS) in 2001. This business provides services in concept
development, engineering, rapid prototyping and manufacturing of complex
micro-wire forms used in interventional devices for cardiac rhythm management,
neurostimulation and vascular procedures.

In July 2001, the Company acquired Micro Companies Alliance, Inc. (MCA) a
Birmingham, Alabama company, which provides products to the niche market of
microsurgery. MCA's surgical products include the Microvascular Anastomotic
Coupler, a patented technology for connecting small arteries and/or veins
faster, easier and as effectively as conventional suturing. MCA's name was
subsequently changed to Synovis Micro Companies Alliance, Inc.

In March 2002, Synovis Interventional Solutions, Inc. acquired Emtech, Inc., a
privately held company with manufacturing capabilities in injection molding,
computer numerical control machining and tool building for the medical device,
pharmaceutical, biotechnology, and precision OEM markets. Emtech, Inc.'s name
was

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subsequently changed to Synovis Precision Engineering, a division of Synovis
Interventional Solutions, Inc.

At the 2002 Annual Meeting of Shareholders, Company shareholders approved the
Company name change to "Synovis Life Technologies, Inc." The Company made the
name change effective on May 1, 2002, in order to better align the name with our
business strategy and endeavors, by filing an Amendment to the Articles of
Incorporation with the Minnesota Secretary of State office.

Synovis Life Technologies' principal executive offices are located at 2575
University Avenue W., St. Paul, Minnesota 55114-1024. The Company can be
contacted by telephone at (651) 603-3700, by facsimile at (651) 642-9018, or by
electronic mail at [email protected].

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The information under the caption "Segment Information" on page 29 of the
Company's 2002 Annual Report is incorporated herein by reference.

(C) NARRATIVE DESCRIPTION OF BUSINESS

The table below summarizes the revenue contributed by the Company's significant
products or product lines for the periods indicated.

Net Revenue Contribution by Significant Product Years Ended October 31,
or Product Line:
($ in thousands) 2002 % 2001 % 2000 %
- ---------------- ---- - ---- - ---- -

Biomaterial Products:
Peri-Strips and Peri-Strips Dry $ 7,237 18% $ 5,266 18% $ 3,509 16%
Other Biomaterial Products 6,783 17% 6,257 22% 6,013 27%
Surgical Tools and Microsurgical Products 4,461 11% 3,381 12% 3,035 14%
Other 1,065 3% 833 3% 788 3%
------ -- ------ -- ------ --
Total Surgical Device Business 19,546 49% 15,737 55% 13,345 60%
Interventional Business 20,416 51% 12,798 45% 8,753 40%
====== == ====== == ===== ==
Total Net Revenue $39,962 100% $28,535 100% $22,098 100%
======= === ======= === ======= ===

PRODUCTS, MARKETS AND COMPETITION

Description of the Surgical Device Business

The following table summarizes the Company's surgical device business product
lines and associated products, and describes procedures in which such products
are used.

3

Product Line Product Application/Representative Procedure
------------ ------- ------------------------------------

Biomaterials Peri-Strips Staple-line buttress for sealing
air leaks in gastric bypass and
lung resection procedures and
prosthesis for the repair of
soft tissue deficiencies

Peri-Strips Dry Staple-line buttress for sealing
air leaks in gastric bypass and
lung resection procedures and
prosthesis for the repair of
soft tissue deficiencies

Vascu-Guard Vascular patch used in carotid
endarterectomy, a surgical
procedure to remove
atherosclerotic plaque, and other
peripheral vascular procedures
when closing an artery without a
patch is insufficient

Dura-Guard A dural repair patch used
principally to prevent cerebral
spinal fluid leakage in
craniotomy procedures (surgical
operations involving the brain
and skull) when the dura must be
repaired and suturing without a
patch is insufficient

Peri-Guard Tissue patch used for pericardial
closure and soft tissue repair

Supple Peri-Guard A more flexible tissue patch used
for pericardial closure and soft
tissue repair

CV Peri-Guard Tissue patch used for intracardiac
patching and great vessel repair
in adults

Ocu-Guard Ophthalmic wrapping material used
in enucleation (removal of the
eye) procedures

Veritas Collagen Tissue reinforcement for pelvic
Matrix floor reconstruction procedures,
stress urinary incontinence
treatment (using the product as a
sling to support the urethra) and
vaginal and rectal prolapse

Surgical Tools Vascular Probe Tool used to locate arterial
& Microsurgical occlusions or blockage in surgical
Products bypass procedures

Flo-Rester Internal vessel occluder used in
coronary artery bypass graft
surgery in which blood is routed
past the heart, keeping the heart
free of blood during the procedure

Flo-Thru Internal vessel stent used
Intraluminal during minimally invasive
Shunt cardiac surgery to facilitate a
bloodless, stented operating
field while maintaining
distal blood flow

Blade System System with a variety of
interchangeable blades and handles
that is used during microsurgery
dissection

Microvascular Device used to perform anastomosis
Anastomotic Coupler (connecting arteries and/or veins)
without sutures.

Other Biograft Peripheral vascular bypass graft
used in lower limb vascular
reconstruction

4

Biomaterial Product Line

The Company's core competency in its surgical device business is the development
and manufacture of implantable biomaterial products for use by surgeons in
various procedures where reinforcing, reconstructing and repairing tissue and
preventing leaks of air, blood or other body fluids is necessary for the
achievement of a favorable outcome. The historical choice when tissue repair is
necessary is to use autologous tissues, requiring the surgeon to excise tissue
from another part of the patient's body. Harvesting tissue from the second
surgical site may increase the procedural cost and time and increase the risk of
complications, additional pain, and recovery time for the patient. Use of an
available, off-the-shelf implantable medical product, whether tissue-based or
synthetic, is an alternative to harvesting autologous tissue from the patient
and is a means to reduce surgical costs and improve patient outcomes.

The Company's biomaterial products are produced from bovine pericardium. Many of
the product characteristics and competitive advantages are derived from the
pericardium's collagen composition. Collagen, a fibrous protein found in
animals, makes the pericardium durable and provides superior handling
characteristics, similar to autologous tissue. Host cells deposit a collagen
matrix on the surface of the pericardial product allowing the biomaterial
product to integrate into the host tissue. The bovine pericardium is processed
using proprietary and patented technologies.

The Company recently introduced a new tissue format, Veritas Collagen Matrix.
Veritas products are biocompatible, acellular, strong, handle like autologous
tissue and are derived from bovine pericardium. Veritas tissue is remodelable,
as demonstrated in animal studies with the formation of new blood vessels and
host cell in-growth occurring into the Veritas patch in as early as 28 days. FDA
market clearance was received for Veritas products in pelvic floor
reconstruction procedures, stress urinary incontinence treatment (using the
product as a "sling" to support the urethra) and vaginal and rectal prolapse
repair.

Peri-Strips and Peri-Strips Dry Staple Line Reinforcement

Peri-Strips and Peri-Strips Dry soft tissue stapling buttresses are used to
reinforce at the surgical staple line to prevent potentially fatal fluid leaks,
most significantly in gastric bypass surgery, a treatment for morbid obesity. By
2004, the number of these gastric procedures performed in the United States is
expected to reach 110,000, up from an estimated 63,000 procedures performed in
2002. This, along with the trend toward laparoscopic gastric bypass procedures,
would expand the United States market potential to an estimated $100 million
annually. Peri-Strips and Peri-Strips Dry are customized to fit linear and
endoscopic staplers of varying sizes made by a variety of manufacturers. These
products are also used in a variety of pulmonary resections and in lung volume
reduction surgery.

Surgical Tools and Microsurgical Products

The surgical device business offers surgical tools to enhance productivity in a
variety of cardiovascular and other surgical procedures. The primary
microsurgical product is the Microvascular Anastomotic Coupler System (the
Coupler), a patented mechanical anastomotic product which is comprised of
single-use rings in five sizes, the smallest is 1mm in diameter, to fit varying
vessel diameters. Microsurgeons work across medical specialties, including
plastic and reconstructive, head and neck, orthopedic and hand. The Coupler
enables microsurgeons to perform highly effective anastomotic surgical
procedures (the connecting of miniscule veins and arteries) faster, easier and
as or more dependably than traditional suture or sleeve anastomosis.

Competition

The Company's surgical devices compete primarily on the basis of product
performance, service and price. The surgical products market in which the
Company competes is characterized by intense competition. This market is
dominated by very large, established manufacturers that have broader product
lines, greater distribution capabilities, substantially greater capital
resources and larger marketing, research and development staffs and facilities
than the Company. Many of these competitors offer broader product lines within
the Company's specific product market, particularly in the Company's surgical
tool product markets and/or in the general field

5

of medical devices and supplies. Broad product lines give many of the Company's
competitors the ability to negotiate exclusive, long-term medical device supply
contracts and, consequently, the ability to offer comprehensive pricing for
their products, including those that compete with the Company's products. By
offering a broader product line in the general field of medical devices and
supplies, competitors may also have an advantage in marketing competing products
to group purchasing organizations, health maintenance organizations and other
managed care organizations that increasingly seek to reduce costs by
centralizing and consolidating their purchasing functions.

Competition with biomaterial products are primarily from synthetic materials,
other biological tissues and cadaveric tissue. The ability of these alternative
products to compete with biomaterial products varies based on each such
product's indication for use, relative feature benefits and surgical preference.
There can be no assurance that competing products will not achieve greater
acceptance or that future products developed by competitors will not offer
similar or enhanced performance advantages relative to the biomaterial products.

Synthetic patches are generally cheaper to produce and to the extent that
comparable synthetic patches are available and effective in surgical procedures,
the Company faces significant price competition for its biomaterial products.
There are other multi-purpose patches made from bovine and other types of animal
tissue that compete with the Company's products. The Company does not believe
that these alternative bovine pericardium products have specific Food and Drug
Administration (FDA) marketing clearance for all surgical specialty markets in
which the Company competes.

Cadaveric tissue from tissue banks or from commercial distributors is sometimes
utilized in neurological and ophthalmic surgery and is often the choice for
urologic procedures. The Company believes that the collagen characteristics
exclusive to biologic tissue, the strength of the multi-directional fibers of
the pericardium substrate, the special configuration of its biomaterial
products, and the proprietary tissue-fixation and purification processes it
employs, offer significant benefits in product performance. Biomaterial products
also offer advantages of product availability, tissue uniformity and ideal
handling characteristics.

Description of the Interventional Business

The interventional business custom develops, engineers and manufactures complex
micro-wire forms and polymers used in interventional devices for cardiac rhythm
management, neurostimulation and vascular procedures. Through an acquisition,
the interventional business has broadened its manufacturing capabilities to
include polymer and computer numeric control (CNC) machining. These products
include micro precision coils, stylets and related wire products, and guidewire
components and subassemblies. Each of these component categories comprises
approximately one third of the interventional business' revenues.

Micro precision coils: Micro precision coils are precision wire components,
comprised normally of several strands of specialty wire materials wound into
specific configurations. These coils are manufactured utilizing proprietary
processes and typically involve the use of specialty metals such as medical
grade stainless steel, silver, platinum, and various other metal alloys. These
micro coils are used to carry the electrical signal required for operation of a
medical device that is implanted within the patient's body. A subcategory of
coils is called helices which compose the distal portion of many pacing and
defibrillation leads that are used to actively fix the lead tip to the
endocardium.

Stylets and related wire products: Stylets and related wire products are
produced through the application of proprietary processes using medical grade
stainless steel and plastic cap and body components. Stylets are typically used
in the placement of cardiovascular and neurostimulation leads.

Guidewire components and subassemblies: Guidewire components and subassemblies
are made of medical grade stainless steel, nitinol, and/or precious metals.
These are manufactured through a combination of proprietary processes that
include coiling, grinding, and joining technologies. A guidewire is typically
used at the beginning of a surgical procedure to locate and provide a channel
for the placement of a diagnostic or therapeutic device.

There are a number of significant trends affecting the growth and development of
the Company's interventional business. The first is the rapidly growing use of
implantable cardiac rhythm management devices in the treatment of sudden cardiac
death, atrial fibrillation and heart failure. The second trend is the
development of less invasive diagnostic and therapeutic procedures in the
cardiovascular and interventional medicine segments. These procedures require
improved diagnostics, therapies, and placement of medical devices such as
stents. The interventional business is continually evaluating the potential
opportunities in these markets, and will aggressively

6

pursue such opportunities when determined to be appropriate. Significant
international medical markets also exist in Europe and Japan.

Competition

The interventional business competes on the basis of superior quality of
processes and production, rapid and flexible customer response, early
development partnering and to a modest degree, price. The component part usually
comprises a minor portion of the total device-level price. Accordingly, vendor
performance and responsiveness are generally more critical factors. There are
several competitors to the Company's core interventional business, most of which
are substantially larger due to the scope and size of competitors and their
affiliates created through mergers and acquisitions. Given the concentration of
the wire component product industry, the Company believes that medical device
customers are generally motivated to promote healthy competition among their
various suppliers in order to ensure multiple supply sources for their critical
device components.

The primary medical device companies involved in the interventional cardiac and
neurological products include Medtronic, Inc., Guidant Corporation, St. Jude
Medical (through its Pacesetter unit), Boston Scientific and Johnson and Johnson
Cordis. In addition, numerous early stage companies are pursuing new
technologies in cardiovascular and interventional medicine, especially
neurological intervention. The Company anticipates that the cardiovascular and
interventional medicine industry will continue to experience significant
consolidation with the acquisition of earlier stage companies by the major
industry participants. Although there can be no assurance, the Company believes
that this consolidation will not hinder segment's growth opportunity as the
major participants are expected to continue to seek multiple supply sources for
critical device components such as those offered by the Company.

INTELLECTUAL PROPERTY

Surgical Device Business

In its surgical device business, the Company relies on patents, trade secrets
and proprietary know-how which it seeks to protect, in part, through
confidentiality agreements with employees, consultants and other parties. Supple
Peri-Guard, which is used in the manufacture of the majority of the Company's
biomaterial products, is protected exclusively by trade secrets. The Company
owns United States patents related to Peri-Strips, Peri-Strips Dry, Peri-Guard,
Ocu-Guard and Veritas Collagen Matrix. The Company also has an exclusive,
worldwide, perpetual license to make, use and sell its Flo-Rester and the
patented Microvascular Anastomotic Coupler System products.

Interventional Business

In its interventional business, the Company relies exclusively on trade secret
protection for its processes. The Company seeks to practice strict trade secret
discipline with all employees, consultants, customers and other parties. A
non-disclosure protocol is maintained on behalf of each of its customers,
consistent with the business sensitivity to customer expectations and needs. The
technology and equipment utilized in the interventional manufacturing process is
a combination of proprietary know-how, and the adaptation of and development
utilizing readily available equipment.

MARKETING AND CUSTOMERS

Surgical Device Business

The surgical device business' marketing and sales strategies include supporting
the Company's superior quality products with innovative and effective sales and
marketing programs. These programs include advertising and direct mail
campaigns, participation in surgical trade shows, support of the gathering,
publication and presentation of clinical data and new product information by key
surgeons, and the development/maintenance of strategic physician alliances. An
important Company strategy is to identify and assess customer needs. This is
accomplished by developing and maintaining a close working relationship with the
hospitals and surgeons who purchase and use the Company's products and through
observations and interactions with these customers.

The surgical device business sells the majority of its products through a
combination of third-party distributors and

7

independent sales representatives. The Company's marketing and sales group works
closely with these distributors and representatives to implement marketing
strategies and to provide product training and support. Written agreements with
distribution partners generally impose limited geographic exclusivity and
minimum purchase obligations. These agreements are typically terminable upon
breach of the agreement by the distributor, including breach of the minimum
sales obligations imposed by the agreement.

Interventional Business

The interventional business strategy is to proactively seek significant business
relationships with both the large participants and early development firms in
five major markets: 1) cardiac rhythm management, 2) cardiovascular
intervention, 3) neurological intervention, 4) neuro stimulation and 5)
minimally invasive surgery. The primary marketing strategy is to provide a
rapid, flexible and creative response to customer needs, coupled with state of
the art, high quality production. Additionally, the Company's marketing strategy
seeks to differentiate itself from competitors by promoting its custom
development and engineering capabilities, supported by its relatively large
engineering and technical staff, and extensive medical device experience amongst
its professional employees. The Company utilizes its Technology Development
Center for design, development and prototype services. The utilization of these
highly technical solutions and timely, effective delivery of development
prototypes is believed to provide a key competitive advantage to both the
customer and the interventional business. Synovis Interventional Solutions
achieved ISO 9002 certification in 1996 and ISO 9001 in 2002, as a further
demonstration to its customers of its quality commitment. The Company is also in
the process of developing systems, capabilities and facilities for FDA Quality
System Regulation certification.

Information regarding the Company's significant customers under the caption
"Major Customers and Net Revenue by Geographic Area" on page 34 of the Company's
2002 Annual Report is incorporated herein by reference.

ADDITIONAL INFORMATION REGARDING THE SURGICAL DEVICE AND INTERVENTIONAL
BUSINESSES

Backlog

At October 31, 2002, the surgical device business did not have any customer
order backlogs representing firm customer orders not yet shipped due to
insufficient inventory levels. Because the interventional business is
"build-to-order", it has firm customer orders awaiting manufacture and release
based on customer specified future - delivery dates over the next 12 months.
This order backlog in the interventional business was $10,363,000 at October 31,
2002 as compared to $3,992,000 at October 31, 2001. The Company does not expect
any difficulty fulfilling these backlog orders as scheduled in fiscal 2003.

Raw Materials

The Company acquires bovine pericardium for use in the biomaterial product line
from the United States Department of Agriculture (USDA) inspected meat-packing
facilities. The Company acquires human umbilical cords for use in Biograft from
various hospitals throughout the United States. The supply of raw materials,
including wire and precious metals, required for the Company's products is
currently adequate. The Company has not experienced any product shortages
arising from interruptions in the supply of any raw materials or components, and
has identified alternative sources of supply for significant raw materials and
components.

Research and Development

As a component of the Company's business growth strategy, the Company continues
to make a significant investment in new product design and engineering in both
the surgical device and interventional businesses. The Company's consolidated
research and development expense for fiscal 2002, 2001 and 2000 was $2,272,000,
$1,638,000 and $2,106,000, respectively.

The surgical device business' fiscal 2002 research and development initiatives
included investment in research clinical studies evaluating new indications for
Veritas Collagen Matrix and advancing the technology of the Coupler. In October
2002, the Company filed a patent on anastomotic devices (including the Coupler)
which incorporate the ability to detect and measure blood flow and other
critical medical parameters. The surgical

8

business' longer-term initiatives, among others, include expansion of the
Coupler into the coronary and vascular markets and development of new Veritas
applications. These are typically projects with long development timelines, but
which we expect have the potential for significant returns.

The interventional business, through its Technology Development Center (TDC),
provides capabilities in concept development and engineering of development
stage solutions to meet customers' product development needs. This is a
partnership to resolve problems and achieve high performance solutions,
typically occurring when the customers' program is entering the prototype stage.
During fiscal 2002, the interventional business continued its investment in
concept development and engineering services. In some cases, the design rights
to the components produced by the interventional business accrue to the
customer.

GOVERNMENTAL REGULATION

General

The medical device industry in which the Company's surgical device business and
the customers of the Company's interventional business operate is subject to
extensive and rigorous regulation by the Food and Drug Administration (FDA) and
by comparable agencies in foreign countries. In the United States, the FDA
regulates the design control, introduction, manufacturing, labeling and record
keeping procedures for medical devices including the Company's surgical devices
and medical devices incorporating the interventional business components.

Food and Drug Administration

FDA regulations classify medical devices as either Class I, II or III devices,
which are subject to general controls, special controls or pre-market approval
(PMA) requirements, respectively. While most Class I devices are exempt from
pre-market submission, it is necessary for most Class II devices to be cleared
by a 510(k) pre-market notification prior to marketing. This establishes that
the device is "substantially equivalent" to a device that was legally marketed
prior to May 28, 1976, the date on which the Medical Device Amendments of 1976
became effective. The 510(k) pre-market notification must be supported by data
establishing the claim of substantial equivalence to the satisfaction of the
FDA. The process of obtaining a 510(k) clearance typically can take several
months to a year or longer. If substantial equivalence cannot be established the
FDA will require the manufacturer to submit a PMA application for a class III
device that must be reviewed and approved by the FDA prior to sale and marketing
of the device in the United States. A PMA application is also necessary if the
device or the particular application for the device is new. The PMA application
must contain the results of clinical trials and relevant prototype tests,
laboratory and animal studies. It must also contain a complete description of
the device, its components and a detailed description of the methods, facilities
and controls used for manufacturing, including the method of sterilization. In
addition, the submission must include the proposed labeling, advertising
literature and training methods, if applicable. The process of obtaining PMA can
be expensive, uncertain, lengthy and frequently requires anywhere from one to
several years from the date of FDA submission, if approval is obtained at all.
Moreover, a PMA, if granted, may include significant limitations on the
indicated uses for which a product may be marketed. FDA enforcement policy
strictly prohibits the marketing of approved medical devices for unapproved
uses. In addition, product approvals can be withdrawn for failure to comply with
regulatory standards or the occurrence of unforeseen problems following initial
marketing.

Of the Company's current surgical device products, Biograft is a Class III
device. All other surgical device products have been classified as Class II
medical devices and have received 510(k) marketing clearance from the FDA.

The surgical device business' manufacturing operation is subject to periodic
inspections by the FDA, whose primary purpose is to audit the Company's
compliance with the Quality System Regulations (QSR) published by the FDA and
other applicable government standards. Strict regulatory action may be initiated
in response to audit deficiencies or to product performance problems. The
Company believes that its manufacturing and quality control procedures are in
compliance with the requirements of the FDA regulations.

International Regulation

International regulatory bodies have established varying regulations governing
product standards, packaging and labeling requirements, import restrictions,
tariff regulations and duties and tax. Many of these regulations are similar to
those of the FDA. With the exception of the European Union (EU), Canada and
Australia, the Company

9

relies on its independent distributors to comply with the majority of the
foreign regulatory requirements, including registration of the Company's
surgical devices with the appropriate governmental authorities. To date, the
Company has complied with the regulatory requirements in the foreign countries
in which its surgical devices are marketed. See Important Factors - Bovine
Tissue Products on Page 11 of this Report.

The registration system in the EU for the Company's surgical devices requires
that the Company's quality system conform with international quality standards
and that its surgical devices conform with "essential requirements" set forth by
the Medical Device Directive ("MDD"). The Company's manufacturing facilities and
processes under which the Company's surgical devices are produced were inspected
and audited by the British Standards Institute ("BSI") to verify the Company's
compliance with the essential requirements of the MDD. BSI verifies that the
Company's quality system conforms with the international quality standard and
that its products conform with the "essential requirements" set forth by the MDD
for the class of surgical devices produced by the Company. BSI certifies the
Company's conformity with both the quality standards and the MDD essential
requirements, entitling the Company to place the "CE" mark on all the Company's
current surgical devices, except Biograft which is exempt. See Important Factors
- - Human Tissue Products on Page 11 of this Report.

THIRD PARTY REIMBURSEMENT

The Company's surgical devices are purchased primarily by hospitals and other
users, while the interventional business' component products are sold directly
to medical device manufacturers which sell finished medical devices to hospitals
and other end-users. Hospitals and end-users of such products, in turn, bill
various third party payers for the services provided to the patients. These
payers, which include Medicare, Medicaid, private health insurance plans and
managed care organizations, reimburse all or part of the costs and fees
associated with the procedures utilizing the Company's products and or
components.

The availability and level of reimbursement from third-party payers is
significant to the Company's business. In Medicare beneficiaries, Centers for
Medicare and Medicaid Services (CMS) may establish a national coverage policy,
including the amount to be reimbursed, for coverage of claims submitted for
reimbursement related to a specific procedure. Private health insurance plans
and managed care organizations make their own determinations regarding coverage
and reimbursement based either upon "usual and customary" fees or, increasingly,
upon a prospective payment system.

In response to the focus of national attention on rising health care costs, a
number of changes to reduce costs have been proposed or have begun to emerge.
There have been, and may continue to be, proposals by legislators and regulators
and third party payers to curb these costs. The development or increased use of
more cost effective treatments for diseases could cause such payers to decrease
or deny reimbursement for surgeries or to favor non-surgical alternatives to
those surgical procedures currently utilizing the Company's surgical products.
There has also been a significant increase in the number of Americans enrolling
in some form of managed care plan. Higher managed care utilization typically
drives down the payments for health care procedures, which in turn places
pressure on medical supply prices. This causes hospitals to implement tighter
vendor selection and certification processes, by reducing the number of vendors
used, purchasing more products from fewer vendors and trading discounts on price
for guaranteed higher volumes to vendors. Hospitals have also sought to control
and reduce costs over the last decade by joining group purchasing organizations
or purchasing alliances. The Company cannot predict what continuing or future
impact these practices, the existing or proposed legislation, or such
third-party payer measures within a constantly changing healthcare landscape may
have on its future business, financial condition or results of operations.

EMPLOYEES

At October 31, 2002, the Company employed approximately 350 full-time and
part-time individuals, with approximately 150 employees in its surgical device
business and 200 in its interventional business. The Company's employees are not
represented by a union, and the Company considers its relationship with its
employees to be good.

(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

The information under the caption "Major Customers and Net Revenue by Geographic
Area" on page 34 of the Company's 2002 Annual Report is incorporated herein by
reference.

10

ITEM 1A - IMPORTANT FACTORS

The following factors are important and should be considered carefully in
connection with any evaluation of the Company's business, financial condition,
results of operations and prospects. Additionally, the following factors could
cause the Company's actual results to materially differ from those reflected in
any forward-looking statements of the Company.

HEALTH CARE INDUSTRY: Health care industry factors, including the
unpredictability of reductions and limitations on third-party (governmental
health programs, private health insurance, managed care organizations and other
similar programs) reimbursement levels for procedures using the Company's
products and increased customer demands for price concessions.

COMPETITIVE INDUSTRY: Competitive industry factors, including the ability of the
surgical device business and the customers of the interventional business to
contend with rapid product innovation and technological change in the medical
device industry, and the Company's ability to effectively compete with larger,
well-established manufacturers of competing products.

INTELLECTUAL PROPERTY: Intellectual property factors, including the protection
of intellectual property through trade secrets, propriety know-how,
confidentiality agreements and patents, both owned and licensed, and the
Company's ability to ensure such protective measures are obtained and remain
effective to keep competitors from using similar technologies or from marketing
comparable products. Litigation may be necessary to enforce such protective
measures or to defend the Company's technology that a competitor claims
infringes upon their product.

HUMAN TISSUE PRODUCT: Human tissue product factors include recently focused
attention on the safety of tissue banks, spurred by incidents of the
transmission of human disease during tissue transplantation. In the United
States, regulations drafted by the FDA have outlined requirements for tissue
banks. Proposed rules indicate that medical devices containing human tissue
products may be subject to additional controls, although the current regulations
have excluded processed and enhanced umbilical cord vein grafts such as Biograft
(the Company's only product derived from human tissue). Also, the long-term
future regulatory environment for Biograft in Europe is uncertain. The MDD
issued by the EU explicitly excludes medical devices from human tissue; however,
there is an effort developing to include such devices under a comprehensive
regulatory program. This effort is in the early stages, and the Company
understands that a consensus on such a directive could take several years. As a
result, Biograft may be subject to additional regulations in the United States
and Europe, which could make it uneconomical to sell Biograft under a regulatory
program.

BOVINE TISSUE PRODUCTS: Bovine Tissue Product factors include Bovine Spongiform
Encephalopathy (BSE), which has been identified in cattle in the United Kingdom
and has received much publicity in Europe regarding beef for dietary
consumption. Under the direction of the USDA, the U.S. government has had an
active program of surveillance and import controls since the late 1980's,
designed to prevent the introduction of BSE into U.S. cattle. To date all
evidence indicates that U.S. cattle are free of BSE. The Company obtains all of
its raw pericardium for its biomaterial products from USDA-inspected
slaughterhouses. The World Health Organization (WHO) has categorized the levels
of BSE infectivity of tissue and fluids on a scale of 1 to 4, with category 4
representing no detectable infectivity. The WHO has classified raw pericardium
in category 4. The Company's notified body under the MDD, the BSI, has
specifically reviewed biomaterial sourcing and manufacturing processes and has
certified the Company's bovine pericardium products. While the Company's
Dura-Guard product has not been approved for sale in Japan and France, the
Company understands that regulatory approvals will not be granted in those
countries for the use of animal derivative products, including bovine
pericardium, when used as a dura mater substitute. Any prohibition by certain
countries of bovine pericardium products as a result of concerns related to BSE
could have a material adverse effect on the Company's business, financial
condition and results of operations.

GOVERNMENTAL REGULATION: Governmental regulation factors, including the laws and
regulations, policies and judicial decisions that affect the regulation of the
Company's products, and delays and uncertainties in the regulatory approval
process in the United States and other countries, which could result in lost
market opportunities.

PRODUCT LIABILITY CLAIMS AND PRODUCT RECALL: Product liability claims and
product recall factors, including unexpected safety, performance and efficacy
concerns with the Company's products, which could lead to product recalls,
withdrawals, loss of sales and significant liability claims against the Company.
Also, the risk that the

11

Company's product liability insurance coverages would not be adequate to cover
product liability claims made against the Company.

DEPENDENCE ON DISTRIBUTORS AND SALES REPRESENTATIVES: The risks pertaining to
the Company's dependence on domestic and international distributors and sales
representatives, which are utilized to transact a significant portion of the
Company's current business related to its surgical device business, and the
effects on the Company's operations due to a loss of a significant distributor
or a significant number of other distributors or sales representatives.

DEPENDENCE ON SIGNIFICANT CUSTOMER: The risks associated with the Company's
significant dependence on one interventional business customer, and the effects
on the Company's operations and financial results with changes in the customer's
ordering patterns or loss of the customer.

ITEM 2 - PROPERTIES

The Company has two leases for the surgical device business totaling 41,000
square feet, both located at 2575 University Avenue, St. Paul, Minnesota. The
base rent of the first lease for 36,000 square feet, which commenced August 1,
1995 and expires July 31, 2005, is approximately $255,000 annually. The base
rent of the second lease for 5,000 square feet, which commenced October 15, 2002
and expires January 31, 2004, is approximately $46,000 annually. An extension of
the first lease (36,000 square feet) was recently completed, commencing on
August 1, 2005 and expiring December 31, 2008, at a base rent to be determined
based on market price at the commencement date in 2005. Additionally, the
Company has signed a lease to expand the office and manufacturing space at 2575
University Avenue, St. Paul, Minnesota, by 29,000 square feet beginning on
January 1, 2004 through December 31, 2008. Annual base rent for the additional
29,000 square feet from January 2004 through December 2006 is approximately
$316,000, and from January 2007 through December 2008 is approximately $330,000.

The Company also has leases on two facilities for its interventional business
totaling 29,000 square feet at 471 and 475 Apollo Drive, Lino Lakes, Minnesota.
The first lease for 25,000 square feet, commenced December 1, 1997 and expired
December 2002 but an option exercised for another five years to 2007. The base
rent is approximately $113,000 annually. The base rent of the second lease for
4,000 square feet, which commenced April 1, 1999 and expires five years from
that date with a subsequent five-year option, is approximately $34,500 annually.

The Company leases approximately 3,750 square feet for its MCA facility at 439
Industrial Lane, Birmingham, Alabama. The base rent of this lease, which
commenced July 1, 2002 and expires June 30, 2005, is $33,600 annually.

The Company pays apportioned real estate taxes and common costs on its St. Paul
and Lino Lakes leased facilities. The Company also owns a 20,000 square foot
facility at 400 Apollo Drive, Lino Lakes, Minnesota, which was acquired in
conjunction with the acquisition of Emtech, Inc. in March 2002.

ITEM 3 - LEGAL PROCEEDINGS

The Company is not currently involved in litigation which may occur in the
ordinary course and be incidental to its business. Further, product liability
claims may be asserted in the future relative to events not known to management
at the present time. Management believes that the Company's risk management
practices, including its insurance coverage, are reasonably adequate to protect
against potential material product liability losses.

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

No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this Report.

ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's executive officers, their ages, and their offices held as of
December 31, 2002 are as follows:

12

NAME AGE TITLE
---- --- -----

Karen Gilles Larson 60 President, Chief Executive Officer and Director
Fariborz Boor Boor 44 President and Chief Operating Officer of Synovis Interventional Solutions,
Inc.
David A. Buche 41 Vice President of Marketing and Sales of Synovis Surgical Innovations
Michael K. Campbell 51 President of Synovis Micro Companies Alliance, Inc.
Mary L. Frick 49 Vice President of Regulatory/Clinical/Quality Affairs
Evan S. Johnston 42 Vice President of Operations of Synovis Surgical Innovations
Connie L. Magnuson 41 Vice President of Finance and Chief Financial Officer
B. Nicholas Oray, Ph.D. 51 Vice President of Research and Development, Synovis Surgical Innovations

Karen Gilles Larson. Ms. Larson has served as President and Chief Executive
Officer of the Company since July 1997 and as a Director of the Company since
August 1997. Prior to July 1997, Ms. Larson held the positions of Chief
Financial Officer of the Company from December 1990, Vice President of Finance
from 1989, and Secretary of the Company from November 1991. Ms. Larson served as
the Director of Finance and Administration of the Company from April 1989 to
December 1989.

Fariborz Boor Boor. Mr. Boor Boor has served as the President and Chief
Operating Officer of Synovis Interventional Solutions since November 2000. Prior
to November 2000, he held the position of Vice President and Chief Operating
Officer of Synovis IS from March 2000. Prior to March 2000, Mr. Boor Boor held
the position of Director of Operations from April 1999, and Director of Quality
and Regulatory Affairs from September 1998. From 1989 to 1998, Mr. Boor Boor
held various engineering, quality, and manufacturing management positions at
Plastech Corporation, a plastics injection molding company serving various
industries including the medical device industry. From 1979 to 1989, Mr. Boor
Boor held various manufacturing management positions including the Division
management of the Fastener Division of Phillips Plastics Corporation serving the
automotive industry.

David A. Buche. Mr. Buche has served as Vice President of Marketing and Sales
since January 1998. Prior to January 1998, Mr. Buche held the positions of
Director of Marketing from November 1997 and Director of International Marketing
and Sales from March 1995. From 1988 to February 1995, Mr. Buche held various
product and sales management positions at Spectranetics Corporation, a company
that develops and markets technology for interventional cardiovascular therapy.

Michael K. Campbell. Mr. Campbell has served as President of Synovis Micro
Companies Alliance ( Synovis MCA) since July 6, 2001, the acquisition date of
MCA by the Company. Prior to the acquisition he was President and CEO of MCA
from July 2000 through July 2001. From June 1999 to May 2000, Mr. Campbell
served as Executive Vice President of PrimeSource Surgical, a specialty
operating room distributor. From 1979 to June 1999, he was with Futuretech,
Inc., a specialty medical distribution company serving the southeastern United
States, and served as principal board member and Vice President.

Mary L. Frick, M.S.C. Ms. Frick has served as Vice President of
Regulatory/Clinical/Quality Affairs since November 2000 and as Director of
Regulatory/Clinical/Quality Affairs since November 1998. Prior to this, she held
the position of Group Manager of Regulatory/Clinical/Quality Affairs from June
to November of 1998. From 1984 to June 1998, Ms. Frick held a series of
management positions in Research, Operations and Regulatory/Clinical Affairs at
INCSTAR Corporation, a diagnostic medical device manufacturer. From 1979 to
1984, Ms. Frick worked in research at the University of Minnesota-Medical
School.

Evan S. Johnston. Mr. Johnston has served as Vice President of Operations since
November 2000. Joining the Company in September 1998, Mr. Johnston served as
Director of Operations from November 1999. From 1996 to 1998, Mr. Johnston held
the position of Director of Manufacturing and Operations at LecTec Corp., a
manufacturer of skin interface medical devices. From 1995 to 1996, he served as
Director of Manufacturing of Lakeside Nameplate Co., a custom manufacturer of
electronic membrane switches. Mr. Johnston served as Manager of Industrial
Engineering from 1990 to 1995 at Orthomet Inc., a manufacturer of orthopedic
implants and related surgical instruments. From 1986 to 1990, Mr. Johnston held
various project management positions for Honeywell, Control Systems Division, a
developer of automation solutions for government and commercial industries.

Connie L. Magnuson. Ms. Magnuson joined the Company as Chief Financial Officer
and Vice President of Finance in November 1997 and has served as Corporate
Secretary since February 1998. From March 1997 to November 1997, Ms. Magnuson
served as Treasurer of Northern Technologies International Corporation. From
1996 to March

13

1997, Ms. Magnuson served as a private financial consultant. From 1983 to 1996,
Ms. Magnuson held a series of positions with Deloitte and Touche LLP, a public
accounting firm, including Audit Senior Manager and Director of Human Resources
for their Minneapolis office.

B. Nicholas Oray, Ph.D. Dr. Oray joined the Company as Vice President of
Research and Development in April 1998. From 1997 to April 1998, he served as
Director of Research and Development at Seatrace Pharmaceuticals Inc. From 1993
to 1996, Dr. Oray held a series of positions with CryoLife Inc., including
Director of Bioadhesive Manufacturing and Associate Director of Biomedical
Products Laboratory. From 1991 to 1993, he held several positions with F.A.C.T.,
a clinical research organization, including Director of Regulatory Affairs and
Associate Director of Clinical Trials Operations. From 1988 to 1990, Dr. Oray
served as Director of Manufacturing, Director of Sterile Manufacturing and
Director of Purification and Production Group at Carrington Laboratories, Inc.

14

PART II

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

The information under the caption "Common Stock Information" on page 36 of the
Company's 2002 Annual Report is incorporated herein by reference.

ITEM 6 - SELECTED FINANCIAL DATA

The financial information in the tables and charts under the caption "Financial
Highlights" on pages 2-3 of the Company's 2002 Annual Report is incorporated
herein by reference.

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16-20 of the Company's
2002 Annual Report is incorporated herein by reference.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's quantitative and qualitative disclosures about market risk are
included in Item 7.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Consolidated Financial Statements and related Notes thereto on
pages 21-34 and the Independent Auditors' Report for fiscal 2002 and 2001 on
page 35 of the Company's 2002 Annual Report are incorporated herein by
reference, as is the unaudited information set forth under the caption
"Quarterly Results" on page 36 of the Company's 2002 Annual Report. The Report
of Independent Accountants for fiscal 2000 is included on page 20 of this Form
10-K.

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

On April 19, 2001, the Company concluded the services of its prior independent
auditors, PricewaterhouseCoopers LLP (PricewaterhouseCoopers) and on May 10,
2001, appointed Deloitte and Touche LLP its new independent auditors. This
determination followed the Company's decision to seek proposals and competitive
bids from independent accounting firms, including PricewaterhouseCoopers, with
respect to the engagement of independent accountants to audit the Company's
consolidated financial statements for the fiscal year ending October 31, 2001.
The decision to appoint Deloitte and Touche LLP was approved by the Company's
Audit Committee of the Board of Directors.

The reports of PricewaterhouseCoopers on the consolidated financial statements
of the Company for the fiscal year ended October 31, 2000 did not contain any
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. During the Company's two
most recent fiscal years and the subsequent interim period through April 19,
2001, (i) there were no disagreements between the Company and
PricewaterhouseCoopers on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of PricewaterhouseCoopers, would have caused
PricewaterhouseCoopers to make reference to the subject matter of the
disagreement in connection with its reports for such periods and (ii) there were
no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K of the
Securities and Exchange Commission.

The Company initially reported the change in accountants on Form 8-K on April
26, 2001. The Form 8-K contained a letter from PricewaterhouseCoopers to the
Securities and Exchange Commission stating that it agreed with the statements
concerning their firm made therein.

15

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Directors of the Registrant:

The information under the captions "Election of Directors - Information
About Nominees" and "Election of Directors - Other Information About
Nominees" in the Registrant's 2003 Proxy Statement is incorporated herein
by reference.

(b) Executive Officers of the Registrant:

Information concerning Executive Officers of the Company is included in
this Report on pages 13 and 14 under Item 4A, "Executive Officers of the
Registrant."

(c) Compliance with Section 16(a) of the Exchange Act:

The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Registrant's 2003 Proxy Statement is
incorporated herein by reference.

ITEM 11 - EXECUTIVE COMPENSATION

The information under the captions "Executive Compensation" and "Election of
Directors - Directors' Compensation" in the Registrant's 2003 Proxy Statement is
incorporated herein by reference.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of October 31, 2002 with respect
to compensation plans under which equity securities the Company are authorized
for issuance.

A B C
Number of securities
remaining available for
Number of securities to be Weighted-average future issuance under
issued upon exercise of exercise price of equity compensation plans
oustanding options, oustanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column A)(1)

Equity compensation
Plans approved by the
Company's stockholders 995,911 $5.10 668,295

Equity compensation
Plans not approved by the
Company's stockholders 122,860(2) $2.73 --
--------- ----- ---------

Total 1,118,771 $4.84 668,295
========= ===== =========

- ----------
(1.) Included in the securities remaining available for issuance (Column C)
are 430,866 shares associated with various stock award and stock
option plans, 161,429 shares associated with the Company's Employee
Stock Purchase Program and 76,000 shares associated with the Company's
Director Plan.

(2.) The 122,860 shares included in the equity compensation plans not
approved by the Company's stockholders are stock options granted to
non-employees between November 1987 and May 1997 for various services
performed. No securities remain available for future issuance.

16

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

ITEM 14 - CONTROLS AND PROCEDURES

The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) evaluated
the effectiveness of the design and operation of the Company's disclosure
controls and procedures within 90 days before the filing date of this annual
report. Based on that evaluation, the CEO and CFO concluded that the Company's
disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls subsequent to the date
the CEO and CFO completed their evaluation.

PART IV

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

(a) List of documents filed as part of this Report:

1) Financial Statements, Related Notes and the Independent Auditors'
Report:

All of the following items are incorporated herein by reference from
the pages indicated in the Company's 2002 Annual Report, except for
the Report of Independent Accountants - PricewaterhouseCoopers LLP:

Page
----

- Consolidated Statements of Income for the years ended
as of October 31, 2002, 2001 and 2000 21
- Consolidated Balance Sheets for the years ended
October 31, 2002 and 2001 22
- Consolidated Statements of Shareholders' Equity for the years ended
October 31, 2002, 2001 and 2000 23

- Consolidated Statements of Cash Flows for the years ended
October 31, 2002, 2001 and 2000 24
- Notes to Consolidated Financial Statements 25-34
- Independent Auditors' Report of Deloitte & Touche LLP 35
- Report of Independent Accountants - PricewaterhouseCoopers LLP (see page
20 of this Report on Form 10-K)

The unaudited selected quarterly financial data included under the
caption "Quarterly Results" on page 36 of the Company's 2002 Annual
Report is incorporated herein by reference.

2) Financial Statement Schedule:

The following financial statement schedule and Independent Auditors'
Report thereon are included herein and should be read in conjunction
with the Consolidated Financial Statements referred to above (page
numbers refer to pages in this Report on Form 10-K):

Page
----

- Independent Auditors' Reports on Schedule 21
- Schedule II - Valuation and Qualifying Accounts 22

All other financial statement schedules not listed have been omitted
because the required information is included in the Consolidated
Financial Statements or the Notes thereto, or is not applicable.

17

3) Exhibits:

The exhibits to this Report on Form 10-K are listed in the Exhibit Index
on pages E-1 and E-2 of this Report.

The Company will furnish a copy of any exhibit to a shareholder who
requests a copy in writing to the Company. Requests should be sent to:
Chief Financial Officer, Synovis Life Technologies, Inc., 2575 University
Avenue W., St. Paul, Minnesota 55114-1024.

The following is a list of each management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Annual Report of
Form 10-K pursuant to Item 15(c):

A. 1995 Stock Incentive Plan, as amended (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report of
Form 10-K for the year ended October 31, 1998 (File No.
0-13907)).

B. Employee Stock Purchase Plan, as amended (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report of
Form 10-K for the year ended October 31, 2000 (File No.
0-13907)).

C. Form of Change in Control Agreement entered into between the
Company and Karen Gilles Larson (incorporated by reference to
Exhibit 10.28 to the Company's Annual Report on Form 10-K for
the year ended October 31, 1994 (File No. 0-13907)).

D. Form of Change in Control Agreement entered into between the
Company and each of Connie L. Magnuson dated January 12, 1998
and David A. Buche dated January 29, 1998 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended January 31, 1998 (File No.
0-13907)).

E. Change in Control Agreement dated February 1, 1999 between the
Company and Dr. B. Nicholas Oray (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the period ended January 31, 1999 (File No. 0-13907)).

F. Change in Control Agreement dated March 1, 2000 between the
Company and Fariborz Boor Boor (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended April 30, 2000 (File No. 0-13907)).

G. Amendment to form of change in control agreement between the
Company and Karen Gilles Larson, Connie L. Magnuson, David A.
Buche, Dr. B. Nicholas Oray and Fariborz Boor Boor
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended July 31,
2000 (File No. 0-13907)).

H. Change in control agreement dated November 1, 2000 between the
Company and each of the following: Mary Frick and Evan
Johnston (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended
January 31, 2001 (File No. 0-13907)).

I. Employment agreement, including a change of control agreement,
dated July 6, 2001 between the Company and Michael K. Campbell
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended July 31,
2001 (File No. 0-13907)).

18

(b) Reports on Form 8-K:

No reports on Form 8-K were filed during the fiscal quarter ended October
31, 2002.

(c) Exhibits:

The response to this portion of Item 15 is included as a separate section
of this Report on Form 10-K on pages E-1 and E-2.

(d) Financial Statement Schedule:

The response to this portion of Item 15 is included as a separate section
of this Report on Form 10-K beginning on page 21.

19

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Synovis Life Technologies, Inc.

In our opinion, the consolidated statements of income, shareholders' equity and
of cash flows for the year ended October 31, 2000 appearing on pages 21 through
24 of the Synovis Life Technologies, Inc. (formerly Bio-Vascular, Inc.) 2002
Annual Report to Shareholders which has been incorporated by reference in this
Form 10-K present fairly, in all material respects, the results of operations
and cash flows of Synovis Life Technologies, Inc. and its subsidiaries for the
year ended October 31, 2000 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.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
December 1, 2000

20

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

To the Board of Directors and Shareholders of Synovis Life Technologies, Inc.

We have audited the consolidated financial statements of Synovis Life
Technologies, Inc. and subsidiaries (the Company) as of October 31, 2002 and
2001, and for the years then ended, and have issued our report thereon dated
November 27, 2002; such financial statements and report are included in your
2002 Annual Report to Shareholders and are incorporated herein by reference. Our
audit also included information for the years ended October 31, 2002 and 2001 on
the financial statement schedule of the Company, listed in Item 15(a)(2). This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audit. In our opinion,
this financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Minneapolis, Minnesota
November 27, 2002

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Shareholders and Board of Directors of Synovis Life Technologies, Inc.

Our audits of the consolidated financial statements referred to in our report
dated December 1, 2000 appearing in the 2002 Annual Report to Shareholders of
Synovis Life Technologies, Inc. (formerly Bio-Vascular, Inc.) also included an
audit of the financial statement schedule listed in Item 15(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
December 1, 2000

21

SCHEDULE II

SYNOVIS LIFE TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS

Balance at Charged to Balance
beginning cost and at end of
Description of period expenses Deductions period
- ----------- --------- -------- ---------- ------

Allowance for doubtful accounts:

Year ended October 31, 2002 .... $111,000 $ 78,000 $ 34,000 $155,000

Year ended October 31, 2001 .... 115,000 29,000 33,000 111,000

Year ended October 31, 2000 .... 98,000 48,000 31,000 115,000

22

SIGNATURES

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

SYNOVIS LIFE TECHNOLOGIES, INC.

By /s/ Karen Gilles Larson
---------------------------
Karen Gilles Larson, President and
Chief Executive Officer
(Principal Executive Officer)

Dated: January 24, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on January 24, 2003 by the following persons on behalf of
the registrant and in the capacities indicated.

/s/ Karen Gilles Larson
- -----------------------
Karen Gilles Larson
President, Chief Executive Officer and Director

/s/ Connie L. Magnuson
- ----------------------
Connie L. Magnuson
Vice President of Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)

/s/ Timothy M. Scanlan
- ----------------------
Timothy M. Scanlan
Chairman, Board of Directors

/s/ Richard W. Perkins
- ----------------------
Richard W. Perkins, Director

/s/ Anton R. Potami
- -------------------
Anton R. Potami, Director

/s/ William G. Kobi
- -------------------
William G. Kobi, Director

/s/ Edward E. Strickland
- ------------------------
Edward E. Strickland, Director

23

I, Karen Gilles Larson, certify that:

1. I have reviewed this annual report on Form 10-K of Synovis Life Technologies,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

January 24, 2003

/s/ Karen Gilles Larson
- -----------------------
Karen Gilles Larson
President and Chief Executive Officer

24

I, Connie L. Magnuson, certify that:

1. I have reviewed this annual report on Form 10-K of Synovis Life Technologies,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

January 24, 2003

/s/ Connie L. Magnuson
- ----------------------
Connie L. Magnuson
Vice-President of Finance and Chief Financial Officer

25

SYNOVIS LIFE TECHNOLOGIES, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED OCTOBER 31, 2002

3.1 Restated Articles of Incorporation of the Company, as amended,
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1997 (File No.
0-13907)).

3.2 Amendment to Restated Articles of Incorporation of the Company, as
amended, dated March 20, 1997 (incorporated by reference to Exhibit 3.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended April
30, 1997 (File No. 0-13907)).

3.3 Amended and Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-4 (File No.
33-74750)).

3.4 Amendment to the Articles of Incorporation, effective May 1, 2002,
regarding the Company name Change from `Bio-Vascular, Inc.' to `Synovis
Life Technologies, Inc.' (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended April 30,
2002 (File No. 0-13907)).

4.1 Form of common stock Certificate of the Company (incorporated by reference
to Exhibit 4.1 to the Company's registration statement on Form 10 (File
No. 0-13907)).

4.2 Form of Rights Agreement, dated as of June 12, 1996, between Bio-Vascular,
Inc. and American Stock Transfer & Trust Company, which includes as
Exhibit A the form of Rights Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated June 12,
1996 (File No. 0-13907)).

4.3 Restated Articles of Incorporation of the Company, as amended (see Exhibit
3.1).

4.4 Amendment to Restated Articles of Incorporation of the Company, as
amended, dated March 20, 1997 (see Exhibit 3.2).

4.5 Amended and Restated Bylaws of the Company (see Exhibit 3.3).

10.1 1995 Stock Incentive Plan, as amended (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report of Form 10-K for the year
ended October 31, 1998 (File No. 0-13907)).

10.2 Employee Stock Purchase Plan, as amended (incorporated by reference to
Exhibit 10.16 to the Company's Annual Report of Form 10-K for the year
ended October 31, 2000 (File No. 0-13907)).

10.3 Form of Change in Control Agreement entered into between the Company and
Karen Gilles Larson (incorporated by reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the year ended October 31, 1994
(File No. 0-13907)).

10.4 Form of Change in Control Agreement entered into between the Company and
each of Connie L. Magnuson dated January 12, 1998 and David A. Buche dated
January 29, 1998 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended January 31,
1998 (File No. 0-13907)).

10.5 Change in Control Agreement dated February 1, 1999 between the Company and
Dr. B. Nicholas Oray (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended January 31,
1999 (File No. 0-13907)).

10.6 Change in Control Agreement dated March 1, 2000 between the Company and
Fariborz Boor Boor (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended April 30,
2000 (File No. 0-13907)).

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SYNOVIS LIFE TECHNOLOGIES, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED OCTOBER 31, 2002

10.7 Amendment to form of change in control agreement between the Company and
Karen Gilles Larson, Connie L. Magnuson, David A. Buche, B. Nicholas Oray
and Fariborz Boor Boor (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended July 31, 2000
(File No. 0-13907)).

10.8 Change in control agreement dated November 1, 2000 between the Company and
each of the following: Mary Frick and Evan Johnston (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended January 31, 2001 (File No. 0-13907)).

10.9 Acquisition Agreement and Plan of Reorganization by and among the Company,
MCA Acquisition, Inc., Medical Companies Alliance, Inc. and Michael K.
Campbell, dated July 6, 2001 (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the period ended July 31,
2001 (File No. 0-13907)).

10.10 Employment agreement, including a change of control agreement, dated July
6, 2001 between the Company and Michael K. Campbell (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the period ended July 31, 2001 (File No. 0-13907)).

10.11 Lease Agreement effective August 1, 1995 between the Company and CSM
Investors, Inc. (incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended October 31, 1995
(File No. 0-13907)).

10.12 Lease Agreement effective August 27, 1997 between Jer-Neen Manufacturing
Co., Inc. (d/b/a Synovis Interventional Solutions, Inc.) and F&G
Incorporated (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended January 31, 1999 (File
No. 0-13907)).

10.13 Acquisition agreement and Plan of Reorganization by and among the Company
and Emtech, Inc., dated March 6, 2002 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period
ended April 30, 2002 (File No. 0-13907)).

10.14 Amendment to Lease Agreement effective August 1, 1995 between the Company
and CSM Investors, Inc., dated September 19, 2002 (filed herewith
electronically).

13.1 Portions of the Company's 2002 Annual Report to Shareholders incorporated
herein by reference (filed herewith electronically).

21.1 List of Subsidiaries of the Company (filed herewith electronically).

23.1 Consent of Deloitte and Touche LLP (filed herewith electronically).

23.2 Consent of PricewaterhouseCoopers LLP (filed herewith electronically).

99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith
electronically).

E-2