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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Commission File No. 0-24241

V.I. TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (617) 926-1551

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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x

The number of shares outstanding of each of the Registrant’s classes of common stock as of May 1, 2003:

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V. I. TECHNOLOGIES, INC.

INDEX

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V. I. TECHNOLOGIES, INC.

Consolidated Balance Sheets

(in thousands, except for share and per share data)

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

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V.I. TECHNOLOGIES, INC.

Consolidated Statements of Operations

(In thousands, except for per share data)

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

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V. I. TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows

(in thousands)

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

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V. I. TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of V.I. Technologies, Inc. (the “Company” or “Vitex”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the quarter ended March 29, 2003 are not necessarily indicative of the results that may be expected for the year ending December 27, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2002 as filed on March 26, 2003.

The Company faces certain risks and uncertainties similar to other biotechnology companies including its ability to obtain additional funding; its future profitability; protection of patents and property rights; uncertainties regarding the development of the Company’s technologies; the success of its clinical trials; competition and technological change; governmental regulations including the need for product approvals; and attracting and retaining key officers and employees.

The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of its assets and the satisfaction of its liabilities in the normal course of business. As shown in these consolidated financial statements, the Company has incurred recurring losses from operations and, as of March 29, 2003, has an accumulated deficit of $135.2 million. For the quarter ended March 29, 2003, the Company consumed in its operations net cash resources of approximately $5.4 million.

The Company had cash of approximately $4.2 million at March 29, 2003. Management believes that these resources will only be adequate to support the Company’s operations to early June 2003. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

Fund Raising Efforts – Rights Offering

On January 21, 2003, the Company filed a registration statement with the Securities and Exchange Commission (the “SEC”) for a proposed offering of its common stock with a maximum value of approximately $20 million through the distribution of subscription rights to all its shareholders. Under the terms of the rights offering, which commenced on March 31, 2003, shareholders received 0.87 subscription rights for each share of common stock owned at the record date of March 31, 2003, thereby entitling them to purchase shares of Vitex common stock representing a total of approximately 19.8 million shares. The exercise price is $1.02 per share, the same pricing as the Pall Corporation (“Pall”) $4 million Phase III milestone investment commitment (see Note 3). Pall is required to complete its equity milestone investment if the Company closes an equity financing of $11 million or more prior to September 30, 2003.

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Assuming proceeds of the rights offering exceed $11 million, the Company intends to close the rights offering concurrently with the Pall milestone investment. As further described in Note 3, if the total financing including the Pall milestone exceeds $15 million, the Company’s credit facility with Pall will mature and the Company will repay the current outstanding balance of $5 million. However, there is no guarantee that the Company will be able to successfully complete these transactions. The rights offering was originally scheduled to expire on May 1, 2003. In response to requests from shareholders for additional time to evaluate the terms of the offering, the Company extended the period of the rights offering until May 15, 2003, at which time it will terminate.

Presentation of Fiscal Years

The Company prepares its consolidated financial statements on the basis of a 52-week fiscal year ending on the Saturday closest to the end of the calendar year. In the notes to the accompanying consolidated financial statements, the years ended December 27, 2003 and December 28, 2002 are referred to as fiscal years 2003 and 2002, respectively, in the notes to the consolidated financial statements.

Revenue Recognition

Reimbursement from collaborators under research programs is recorded within partner research funding revenue when eligible costs are incurred. Prior to the modification of the Pall Corporation (“Pall”) collaboration in August 2002, partner research funding revenue was primarily from Pall, a shareholder (See Note 3). Pall’s reimbursement of costs of the Company’s red blood cell program, net of program costs incurred by Pall, was $1.7 million for the quarter ended March 30, 2002. Also included within partner research funding revenue is amortized revenue related to non-refundable up-front and milestone payments of Amersham Pharmacia Biotech which are amortized over the life of the related agreement. These amounts totaled $0.04 million for the quarters ended March 29, 2003 and March 30, 2002.

Research and Development

All research and development costs are charged to operations as incurred.

Goodwill and Other Intangible Assets

Intangible assets, comprised of core technology, are amortized over its estimated useful life of fifteen years. At March 29, 2003, core technology was recorded at gross carrying value of $3.7 million less accumulated amortization of $0.8 million. Amortization expense was $0.06 million for the quarters ended March 29, 2003 and March 30, 2002. In each of the next five years, amortization expense is estimated to be approximately $0.25 million per annum.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per share is the same as basic net loss per share since the inclusion of potential common stock equivalents (stock options and warrants) in the computation would be anti-dilutive. The dilutive effect of common stock equivalents for the quarters ended March 29, 2003 and March 30, 2002, had they been included in the computation, would have been approximately 69,000, and 215,000, respectively.

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Stock-based Compensation

At March 29, 2003, the Company has two stock-based employee compensation plans, a director stock-based compensation plan and an employee stock purchase plan. The Company accounts for those plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and complies with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and SFAS No. 148, “Accounting for Stock-Based Compensation- Transition and Disclosure”. No stock-based compensation cost is reflected in net loss, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grants.

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not

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necessarily provide a reliable single measure of the fair value of its employee stock options.

2. Receivables from Precision Pharma Services, Inc.

In August 2001, the Company completed the divestiture of its plasma operations located in Melville, New York to Precision Pharma Services, Inc. (“Precision”). Precision was a newly-formed company owned by management of the plasma operations and Ampersand Ventures, a Vitex shareholder. The divestiture terms included a $3.0 million holdback of the purchase price by Precision, payable on the second anniversary of the divestiture, subordinated to Precision’s superior indebtedness to a financial institution. The net present value of the Precision $3.0 million holdback at March 29, 2003 is $2.9 million. It is included in the consolidated balance sheet in other receivables at March 29, 2003 and December 28, 2002.

Additionally, Precision is required to fund a $3.5 million continuing obligation of the Company at maturity. This obligation was originally due in March 2003 and was recently rescheduled. It is now amortized over the three year period through February 2006 (see Note 5). The corresponding $3.5 million receivable from Precision is included in the balance sheet at March 29, 2003 in two parts: amounts due within the next year of $1.3 million are recorded within other receivables and amounts due beyond one year of $2.2 million are included in other assets. The total $3.5 million amount is recorded in other receivables in the balance sheet at December 28, 2002. Subsequent to the quarter ended March 29, 2003, Precision paid $0.5 million to the Company, an amount equivalent to the debt amortization payments made to date by the Company.

3. Modification of Pall Collaboration

In August 2002, the Company and Pall Corporation (“Pall”) modified their collaboration (the “modified collaboration”) on the program for the INACTINE^TM Pathogen Reduction System for red cells to permit the addition of new distribution partners to advance commercialization of the program. Vitex acquired worldwide distribution rights previously held by Pall and has a one-year period expiring in August 2003 in which to negotiate new partnership agreements. At the end of the one-year period, Pall has the option either to reacquire rights in geographic areas not covered by new partners, subject to renegotiation of terms, or to earn a royalty on each INACTINE^TM treatment of red cells. Vitex has assumed full research and development funding responsibility for the program.

Under the modified collaboration, Pall is required to make an equity milestone investment of $4.0 million related to the initiation of Phase III clinical trials. The milestone was achieved on December 31, 2002 and Pall and the Company agreed that the investment will close at a price of $1.02 per share concurrently with an additional equity offering in a minimum amount of $11 million closing prior to September 30, 2003. Pall also made available to the Company a one-year revolving credit facility of $5.0 million secured by liens on certain of the Company’s assets. The credit facility will expire on the earlier of August 1, 2003 or the date of closing of a financing of more than $15 million, at which time all outstanding amounts are due and payable. At March 29, 2003, $5.0 million was outstanding under the credit facility at an interest rate of 6.25% (prime rate plus 2%).

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4. Stockholders’ Equity

As discussed in Note 1, in January 2003, the Company filed a registration statement with the Securities and Exchange Commission for a rights offering of common stock with a maximum value of approximately $20 million through the distribution of subscription rights to all the Company’s stockholders. The maximum numbers of shares to be distributed in conjunction with the rights offering is approximately 19.8 million shares. The rights offering commenced March 31, 2003. The rights offering was originally scheduled to expire on May 1, 2003. In response to requests from shareholders for additional time to evaluate the terms of the offering, the Company extended the period of the rights offering until May 15, 2003, at which time it will terminate.

On March 10, 2003 the Company held a Special Meeting of Stockholders at which stockholders approved an amendment to the Company’s restated certificate of incorporation to increase from 45 million shares to 60 million shares the aggregate number of shares of common stock authorized to be issued by the Company.

5. Subsequent Events

Subsequent to March 29, 2003, the Company executed an agreement modifying the repayment terms of a $3.5 million advance from a former customer of its now-divested plasma operations. Under the revised terms, 10% of the advance was payable immediately and the remaining balance is scheduled to be amortized on a monthly basis at a 10% interest rate over three years. Principal repayment is subject to acceleration in the approximate amounts of $0.1 million and $0.2 million, respectively, if the Company achieves certain targets in its rights offering and in the closing of an agreement with a marketing partner. In April 2003, the Company made amortization payments on this advance totaling $0.5 million which were, in turn, funded by Precision (see Note 2).

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Based on the demonstrated effectiveness of our science as presented in industry publications and presentations, and on our competitive analysis, we believe that we are a leading developer of innovative biotechnology products designed to improve the safety of the world’s blood supply. We have designed our proprietary INACTINE^TM Pathogen Reduction System for red cells (the “INACTINE^TM system”) to inactivate a wide range of viruses, bacteria, parasites and lymphocytes from red blood cells while maintaining the therapeutic properties of the red blood cells. The INACTINE^TM system has also demonstrated in non-clinical trials high efficiency in removing prion proteins. Prion proteins in their pathogenic forms are the agents that cause “Mad Cow Disease”, or in humans, variant Creutzfeldt-Jakob Disease (“vCJD”), which is 100% fatal, and for which no diagnostic or therapy currently exists. The technology works by binding to the RNA or DNA of the pathogen. Once bound, the compound forms an irreversible bond to the nucleic acid, preventing replication and thereby “killing” the pathogens. Our lead product candidate, INACTINE^TM red blood cell system for pathogen reduction, is in pivotal Phase III clinical trials. We are designing our INACTINE^TM system to work with existing red blood cell collection systems and to be easily integrated into the blood banking infrastructure. Over 40 million red cell units are transfused annually in the U.S., Europe and Japan, representing an over $4 billion market opportunity. We currently do not have any approved products and we have not made any commercial sales of our products under development.

Blood safety and availability remain a significant concern as new pathogens are discovered and the demand for blood products continues to increase. To reduce the risk of contamination of the blood supply with pathogens, blood banks currently screen donors using detailed questionnaires and screen the donated blood for five known pathogens. Although these safety measures have increased the safety of blood products overall, the risk of transmitting pathogens remains. Our goal is to diminish this risk with our INACTINE^TM system.

In order to accelerate product development and commercialization of our INACTINE^TM system, we are actively engaged in discussions with potential distribution partners. We have a continuing relationship with Pall Corporation (“Pall”) and also have a contract development and manufacturing agreement with Haemonetics Corporation and a collaboration with Amersham Pharmacia Biotech.

RECENT DEVELOPMENTS

On January 21, 2003, we announced the achievement of the Phase III clinical trial milestone under our agreement with Pall Corporation, thereby qualifying us for a $4 million investment by Pall in Vitex common stock. This investment will be priced at $1.02 per share, the average of market prices at the time the milestone was achieved, and will close if we secure more than an additional $11 million in equity financing, including through the rights offering described below, on or before September 30, 2003.

On January 21, 2003, we announced the filing of a registration statement with the Securities and Exchange Commission for a proposed rights offering of our common stock with a maximum value of approximately $20 million through the distribution of subscription rights to all our shareholders. Under the terms of the rights offering, which commenced on March 31, 2003,

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shareholders received 0.87 subscription rights for each share of common stock owned at the record date of March 31, 2003, thereby entitling them to purchase shares of Vitex common stock representing a total of approximately 19.8 million shares. Holders who exercise their basic subscription right will have oversubscription rights to purchase any unsubscribed shares. The exercise price is $1.02 per share, the same pricing as the Pall $4 million Phase III milestone investment commitment. Assuming proceeds of the rights offering exceed $11 million, we intend to close the rights offering concurrently with the Pall investment commitment. The rights offering was originally scheduled to expire on May 1, 2003. In response to requests from shareholders for additional time to evaluate the terms of the offering, we extended the period of the rights offering until May 15, 2003, at which time it will terminate.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements as well as reported revenues and expenses during the reporting periods. Our actual results could differ from these estimates.

The significant accounting policies that we believe are most critical to aid in fully understanding and evaluating our reported financial results and the accounting policies most critical to the preparation of our consolidated financial statements include the following:

Research and Development Revenue and Cost Recognition

We recognize revenue in accordance with Staff Accounting Bulletin (SAB) No. 101 (SAB101), “Revenue Recognition in Financial Statements”. Revenues under partner research collaborations are recognized as we incur research costs eligible for reimbursement under the collaboration agreements. Non-refundable up-front and milestone payments related to license and distribution agreements are deferred and amortized over the period in which the licensee has distribution rights. We continually review these estimates for any events which could result in a change in the deferral period. Amounts received in advance of the incurrence of reimbursable research expenses are deferred and recognized when the related expenses have been incurred.

Research and development costs are charged to operations as incurred.

Long-Lived Assets

Our long-lived assets, which consist of property and equipment and intangible assets, are recorded at cost and amortized over the estimated useful life of the asset. We generally depreciate property and equipment using the straight-line method over their economic life, which ranges from 3 to 15 years. We amortize acquired intangible assets using the straight-line method over their economic lives, which range from 5 to 15 years. Determining the economic lives of our long-lived assets requires us to make significant judgments and estimates, and can materially impact our operating results.

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Asset Impairments

We review the valuation of long-lived assets, including property and equipment and intangible assets, under the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. We are required to assess the recoverability of long-lived assets on an interim basis whenever events and circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an interim impairment review include the following:

In accordance with SFAS No. 144, when we determine that the carrying value of applicable long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we evaluate whether the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of that asset. If such a circumstance were to exist, we would measure an impairment loss to the extent the carrying amount of the particular long-lived asset or group of assets exceeds its fair value. We would determine the fair value based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. Use of different estimates and judgments on any of these factors could yield materially different results in our analysis, and could result in significantly different asset impairment charges.

Effective January 1, 2002, we adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill is required to be tested for impairment annually in lieu of being amortized. We have selected the fourth quarter as the period to perform the annual test. Furthermore, goodwill is required to be tested for impairment on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. An impairment loss shall be recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. Impairment losses shall be recognized in operations.

We adopted SFAS No. 142 during the first quarter of 2002 without a material impact on our financial position or results of operations.

Contingencies

Contingencies are addressed by assessing the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of losses. A determination of the amount of reserves required, if any, for these contingencies is made after reviewing the relevant facts and circumstances, seeking outside professional advice of lawyers or accountants where appropriate, and then making and recording our best judgment of potential loss under the guidance of Statement of Financial Accounting Standards No. 5, “Contingencies”. This process is repeated in each reporting period as circumstances evolve and are reevaluated. Any changes in our assumptions or estimates that impact our estimates of loss will be recorded in operations immediately in the period of the change.

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RESULTS OF OPERATIONS

Comparison of Quarter Ended March 29, 2003 and March 30, 2002

Net Revenues

Partner research funding decreased by $1.9 million or 95 percent to $0.1 million for the quarter ended March 29, 2003 in comparison with the quarter ended March 30, 2002 as a result of our August 2002 modification of the Pall collaboration. Under terms of that modification, we assumed responsibility from Pall for funding of the INACTINE^TM red cell program. Prior to August 2002, partner research funding was principally from Pall Corporation.

Research and Development

Our research and development activities all relate to the development of pathogen inactivation technologies for blood products of which our INACTINE^TM chemistry is currently the core technology and our INACTINE^™ Pathogen Reduction System for red cells (the “INACTINE^TM system”) is the lead product candidate. The INACTINE^TM system has completed Phase I and Phase II clinical trials in human subjects and has now entered Phase III trials in the United States.

Our research and development spending on pathogen inactivation technologies principally includes our internal research efforts, scientific and development work under contract to independent vendors, our intellectual property protection efforts and clinical trials conducted by medical institutions. Research and development spending on pathogen inactivation technologies totaled $5.3 million for the quarter ended March 29, 2003 as compared to $4.8 million for the quarter ended March 30, 2002, an increase of $0.5 million, or 10 percent. The increase from 2002 is due primarily to INACTINE^™ system component development costs, as well as costs of the Phase III clinical trials which commenced in the first quarter of 2003 and outside studies of the safety profile of the INACTINE^TM system.

Cumulatively, we have invested $133.5 million in research and development on pathogen inactivation technologies for blood products since our inception in 1995, including the cost of in-process research and development resulting from our 1999 merger with Pentose Pharmaceuticals, Inc.

Our Phase III clinical trial program for the INACTINE^TM system began in December 2002 and we expect that program to continue into the second half of fiscal 2004. After that point, we will prepare a Biologics License Application (BLA) for submission to the FDA which initiates the final step of FDA review, leading to a decision by the FDA on approval to market the system in the U.S. The time involved in this stage of the FDA review is not within our control and we cannot reasonably estimate this time period. We intend to introduce the INACTINE^™ system into the U.S. market shortly after receiving BLA approval. We anticipate that our research and development spending during the time leading to our filing of a BLA, including the cost of conducting clinical trials, will be in the annual range of approximately $25 million.

In parallel with this process, we will be developing and implementing a strategy to achieve marketing approval of the INACTINE^™ system in the European Community and Japan. We are currently in the course of developing this strategy and have not yet arrived at estimates of the timing and related cost.

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The exact nature, timing and estimated costs of the efforts necessary to bring to market the product resulting from our pathogen inactivation research and development projects involve a number of key variables which are either unpredictable or outside our control, including the enrollment rates and results of the Phase III clinical trials, the length of the FDA and foreign regulatory approval processes, the success of our fundraising efforts, our ability to establish and maintain relationships with marketing partners and strategic collaborators, and the timing of commencement of commercialization of our product. These factors are also described in the section entitled “Risk Factors” in our Annual Report on Form 10-K filed on March 26, 2003. Accordingly, we are unable to estimate, with any degree of precision, either the total future costs that will be required to continue and complete the commercialization of the INACTINE^TM system, or the period in which we can expect material net cash inflows from the system.

General and Administrative Expenses

General and administrative expenses were $1.1 million in the first quarter of 2003 versus $1.2 million in the prior year period. The decrease is due to lower staffing and discretionary expenditures.

Interest (Expense) Income, Net

We incurred net interest expense of $0.02 million for the period ended March 29, 2003 versus net interest income of $0.1 million for the prior year period. The difference was due to lower cash balances in 2003 combined with interest expense on the Pall revolving credit facility.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations through sales of common stock, issuance of short-term and long-term debt, capital lease financing arrangements and research and development funding.

At March 29, 2003, we had a working capital deficit of $0.7 million, including cash and cash equivalents of $4.2 million, in comparison with working capital of $5.5 million, including cash and cash equivalents of $7.2 million at December 28, 2002. The primary objectives for our investment of cash balances are safety of principal and liquidity.

During the quarter ended March 29, 2003, our cash position decreased by $3.1 million reflecting operating losses and changes in working capital of $5.4 million, repayment of capital lease obligations of $0.1 million and payment of rights offering costs of $0.1 million, offset by borrowings of $2.5 million under the Pall Corporation revolving credit facility.

Under our collaboration agreement, Pall Corporation is obligated to make a $4 million investment in our common stock at an average market price upon initiation of Phase III clinical trials. This milestone was achieved on December 31, 2002 resulting in pricing of $1.02 per share for the investment. The investment is expected to close concurrently with the rights offering as described below if we receive $11 million or more from the rights offering or another equity financing before September 30, 2003. In addition, Pall made available to us a revolving credit facility in the total amount of $5.0 million which we have fully drawn down as of March 29, 2003.

We are involved in discussions with potential distribution partners for the INACTINE^™ red cell system. These companies have marketing capabilities in different regions of the world and also

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have substantial technology and financial resources. We expect that if we enter marketing collaborations with new partners, the terms of the arrangements would involve upfront and milestone payments to Vitex. At this date, we cannot predict the likelihood of closing new marketing partnerships in the near future or the likely terms of those partnerships.

On January 21, 2003, we filed a registration statement with the Securities and Exchange Commission (the “SEC”) for a proposed offering of our common stock with a maximum value of approximately $20 million through the distribution of subscription rights to all our shareholders. Under terms of the rights offering, which commenced March 31, 2003, shareholders received 0.87 subscription rights for each share of common stock owned at the record date of March 31, 2003 thereby entitling them to purchase shares of our common stock representing a total of approximately 19.8 million shares. The exercise price is $1.02 per share, the same pricing as the Pall $4 million Phase III milestone investment commitment. Pall is required to complete its equity milestone investment if we close an equity financing of $11 million or more prior to September 30, 2003. Assuming proceeds of the rights offering exceed $11 million, we intend to close the rights offering concurrently with the Pall milestone investment. If the total financing exceeds $15 million, our credit facility with Pall will mature and we will repay the outstanding balance of $5 million. The rights offering was originally scheduled to expire on May 1, 2003. In response to requests from shareholders for additional time to evaluate the terms of the offering, we extended the period of the rights offering until May 15, 2003, at which time it will terminate. However, there is no guarantee that we will be able to successfully complete these transactions.

At March 29, 2003, we had cash balances of $4.2 million. Management believes that these resources will only be adequate to support our operations to early June 2003.

The following table represents our outstanding contractual obligations at March 29, 2003, in thousands:

FORWARD-LOOKING STATEMENTS

This document and other documents we may file with the Securities and Exchange Commission contain forward-looking statements. Also, our company management may make forward-looking statements orally to investors, analysts, the media and others. Forward-looking statements express our expectations or predictions of future events or results. They are not guarantees and are subject to many risks and uncertainties. There are a number of factors that could cause actual events or results to be significantly different from those described in the forward-looking statement. Forward-looking statements might include one or more of the following:

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Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate”, “estimate”, “expect”, “project”, “intend”, “opportunity”, “plan”, “potential”, “believe” or words of similar meaning. They may also use words such as “will”, “would”, “should”, “could” or “may”. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should review carefully the risks and uncertainties identified in this report and in more detail in our Annual Report on Form 10-K. We may not revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and cash flows are subject to fluctuations due to the effects of changes in interest rates on our borrowings under the Pall revolving credit facility and on our investments of available cash balances in money market funds and in portfolios of investment grade corporate and U.S. government securities. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes.

ITEM 4. CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our company’s disclosure controls and procedures (as such term is defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to our company required to be included in our periodic filings under the Exchange Act. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls.

PART II.—OTHER INFORMATION

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

On March 10, 2003, we held a Special Meeting of Stockholders. The following matter was approved at that meeting: An amendment to our restated certificate of incorporation to increase from 45,000,000 shares to 60,000,000 shares the aggregate number of shares of common stock authorized to be issued by us. There were 15,679,669 shares of common stock voted for such amendment, 350,074 shares of common stock voted against such amendment and 1,200 shares of common stock abstained from the vote.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

The Company filed a Current Report on Form 8-K on February 6, 2003 announcing an update on expressions of interest received from certain institutional and venture capital shareholders to purchase shares of the Company’s common stock under the proposed $20 million rights offering.

The Company filed a Current Report on Form 8-K on February 21, 2003 announcing the favorable settlement of a long-standing dispute with the Bureau of Alcohol, Tobacco and Firearms resulting in a credit of $1.3 million reported for the year ended December 28, 2002.

The Company filed a Current Report on Form 8-K on February 28, 2003 announcing its financial results for the fourth quarter and year ended December 28, 2002.

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SIGNATURES

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

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CERTIFICATIONS

I, John R. Barr, certify that:

Date: May 7, 2003

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I, Thomas T. Higgins, certify that:

Date: May 7, 2003

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EXHIBIT INDEX

++ Certain confidential material contained in the document was omitted and filed separately with the SEC pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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