CURRENT DEMAND FOR OUR ORTHOPAEDIC TISSUE PRESERVATION SERVICES IS MINIMAL AND
MAY NOT RETURN
As a result of the FDA Order and related adverse publicity the Company has received only nominal revenue from the cryopreservation of orthopaedic tissues since August 14, 2002. For the year ended December 2001, human tissue preservation services revenues for orthopaedic tissues were $22.5 million, which represented 26% of the Company's revenues. For the six months ended June 30, 2002, revenues for preservation services for orthopaedic tissues were $11.9 million, which represented 23% of the Company's revenues. Even if the Company is able to address the observations in the FDA's Warning Letter and the Company is allowed to resume processing and shipping of orthopaedic tissues, because orthopaedic tissue is generally not involved in life-saving or limb-saving procedures and due to the adverse publicity, the demand for orthopaedic tissue from the Company may be minimal and may never return to the levels in existence before the FDA Order. As a result, this portion of the Company's business may have to be permanently discontinued or may only continue at an extremely reduced level. Any of these occurrences would result in a significant decrease in the Company's revenues and profitability in the future as compared to historical results.EFFECTS OF FDA ORDER ON LIQUIDITY AND CAPITAL RESOURCES
Based upon the FDA Order, the Company anticipates a continued decrease in liquidity. Based upon the anticipated decrease in revenues and profits from the FDA Order and associated adverse publicity, the Company expects that cash generated by operations will continue to decrease over the near term and working capital could decrease. Although the Company has reduced its level of operation and the number of personnel employed in response to the FDA Order, there is a possibility that the Company may not have sufficient funds to fund its primary capital requirements or to meet its operating and development needs.