<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
-------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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: 000-20985
CALYPTE BIOMEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1226727
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
1265 HARBOR BAY PARKWAY, ALAMEDA, CALIFORNIA 94502
(Address of principal executive offices) (Zip Code)
(510) 749-5100
(Registrant's telephone number, including area code)
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
--------- --------
The registrant had 25,238,037 shares of common stock outstanding as of
November 2, 2000.
================================================================================
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 (unaudited).................. 3
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended September 30,
2000 and 1999 (unaudited)............................................. 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (unaudited)............. 5
Notes to Condensed Consolidated Financial
Statements (unaudited)................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................................... 22
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................. 23
Item 6. Exhibits and Reports on Form 8-K...................................... 23
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 3,273 $ 2,652
Restricted cash................................................................ 672 -
Securities available for sale.................................................. - 503
Accounts receivable, net of allowance of $35 at September 30, 2000
and December 31, 1999................................................... 740 583
Inventories.................................................................... 1,019 1,460
Notes receivable - officers and employees...................................... - 551
Prepaid expenses............................................................... 265 201
Other current assets........................................................... 105 110
---------------- ---------------
Total current assets.................................................. 6,074 6,060
Property and equipment, net of accumulated depreciation of $4,296 at
September 30, 2000 and $3,967 at December 31, 1999............................. 1,554 1,543
Intangibles, net of accumulated amortization of $23 at September 30,
2000
and $14 at December 31, 1999................................................... 33 42
Other assets........................................................................ 175 176
---------------- ---------------
$ 7,836 $ 7,821
================ ===============
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 943 $ 1,290
Accrued expenses............................................................... 1,178 1,476
Note payable - current portion................................................. 648 844
Capital lease obligations - current portion.................................... 83 90
Deferred revenue............................................................... 500 500
---------------- ----------------
Total current liabilities............................................. 3,352 4,200
Deferred rent obligation............................................................ 33 25
Capital lease obligations - long-term portion....................................... 104 50
---------------- ----------------
Total liabilities..................................................... 3,489 4,275
---------------- ----------------
Mandatorily redeemable Series A preferred stock, $0.001 par value; no
shares authorized, 100,000 shares issued and outstanding; aggregate
redemption and liquidation value of $1,000 plus cumulative dividends........... 2,306 2,216
---------------- ----------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares authorized; no
shares issued and outstanding.............................................. - -
Common Stock, $0.001 par value; 50,000,000 shares authorized;
25,238,037 and 20,425,403 shares issued and outstanding as of
September 30, 2000 and December 31, 1999, respectively..................... 25 20
Additional paid-in capital..................................................... 77,275 68,226
Deferred compensation.......................................................... (67) (135)
Accumulated deficit............................................................ (75,192) (66,781)
---------------- ----------------
Total stockholders' equity............................................ 2,041 1,330
---------------- ----------------
$ 7,836 $ 7,821
================ ================
</TABLE>
-3-
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales............................................... $ 1,077 $ 1,077 $ 2,962 $ 2,825
------------ ------------ ------------ ------------
Operating expenses:
Product costs............................................... 1,771 1,266 4,495 3,382
Research and development costs.............................. 481 864 1,597 3,437
Selling, general and administrative costs................... 1,915 1,317 5,437 3,663
------------ ------------ ------------ ------------
Total expenses............................................ 4,167 3,447 11,529 10,482
------------ ------------ ------------ ------------
Loss from operations.................................... (3,090) (2,370) (8,567) (7,657)
Interest income, interest expense and other income............. 61 45 158 143
------------ ------------ ------------ ------------
Loss before income taxes................................ (3,029) (2,325) (8,409) (7,514)
Income taxes................................................... - - (2) (2)
------------ ------------ ------------ ------------
Net loss.............................................. (3,029) (2,325) (8,411) (7,516)
Less dividends on mandatorily redeemable Series A
preferred stock.............................................. (30) (30) (90) (90)
------------ ------------ ------------ ------------
Net loss attributable to common stockholders................... $ (3,059) $ (2,355) $ (8,501) $ (7,606)
============ ============ ============ =============
Net loss per share attributable to common stockholders
(basic and diluted).......................................... $ (0.12) $ (0.12) $ (0.36) $ (0.40)
============ ============= ============ =============
Weighted average shares used to compute
net loss per share attributable to common
stockholders (basic and diluted)............................. 24,969 20,399 23,362 18,966
============ ============ ============ ============
</TABLE>
-4-
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................................. $ (8,411) $ (7,516)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization......................................................... 415 559
Amortization of deferred compensation................................................. 282 56
Reduction in note receivable from officer............................................. 96 -
Write-off of note and interest receivable to research and development costs........... - 890
Loss on sale of equipment............................................................. 11 -
Changes in operating assets and liabilities:
Accounts receivable............................................................... (157) (375)
Inventories....................................................................... 441 451
Prepaid expenses and other current assets......................................... (188) (112)
Other assets...................................................................... 1 20
Accounts payable, accrued expenses and deferred
revenue...................................................................... (645) 100
Deferred rent obligation.......................................................... 8 (5)
------------ -------------
Net cash used in operating activities...................................... (8,147) (5,932)
------------ ------------
Cash flows from investing activities:
Purchase of equipment..................................................................... (359) (62)
Proceeds from sales of equipment.......................................................... 27 -
Notes receivable from officers............................................................ 584 (6)
Loan to Pepgen............................................................................ - (64)
Purchase of securities available for sale................................................. (11) (1,450)
Sales of securities available for sale.................................................... 514 1,380
------------ ------------
Net cash provided by (used in) investing activities........................ 755 (202)
------------ -------------
Cash flows from financing activities:
Proceeds from sale of stock............................................................... 8,481 8,132
Expenses related to sale of stock......................................................... (51) (854)
Expenses related to purchase of certain assets of Cambridge Biotech....................... - (68)
Proceeds from notes payable............................................................... 750 2,000
Principal payments on notes payable....................................................... (446) (1,100)
Cash pledged to bank pursuant to loan agreement........................................... (672) -
Principal payments on capital lease obligations........................................... (49) (214)
------------- -------------
Net cash provided by financing activities.................................. 8,013 7,896
------------ ------------
Net increase in cash and cash equivalents.................................................... 621 1,762
Cash and cash equivalents at beginning of period............................................. 2,652 3,121
------------ ------------
Cash and cash equivalents at end of period................................................... $ 3,273 $ 4,883
============ ============
Supplemental disclosure of cash flow activities:
Cash paid for interest.................................................................. $ 93 $ 154
Cash paid for income taxes.............................................................. 2 2
Supplemental disclosure of noncash activities:
Refinance of capital lease obligation................................................... 96 82
Dividends accrued on mandatorily redeemable Series A preferred stock.................... 90 90
Conversion of note payable to common stock.............................................. 500 -
Deferred compensation attributable to stock grants...................................... 214 -
Revaluation of acquisition of certain assets of Cambridge Biotech....................... - 293
Conversion of common stock subscribed to common stock................................... - 3
</TABLE>
-5-
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(1) THE COMPANY AND BASIS OF PRESENTATION
Calypte Biomedical Corporation (the Company) is a health care company dedicated
to the development and commercialization of urine-based diagnostic products and
services for Human Immunodeficiency Virus Type 1 (HIV-1), sexually transmitted
diseases and other chronic illnesses. The Company's tests include the screening
enzyme immunoassay (EIA) and supplemental Western Blot tests, the only two
FDA-licensed HIV-1 antibody tests that can be used on urine samples. The Company
believes that accurate, non-invasive urine-based testing methods for HIV and
other chronic diseases make important contributions to public health by helping
to foster an environment in which testing may be done safely, economically, and
painlessly.
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC), and reflect all adjustments (consisting only of
normal recurring adjustments) which, in the opinion of management, are necessary
for a fair presentation of the Company's financial position as of September 30,
2000 and the results of its operations for the three months and nine months
ended September 30, 2000 and 1999 and its cash flows for the nine months ended
September 30, 2000 and 1999. Interim results are not necessarily indicative of
the results to be expected for the full year. This information should be read in
conjunction with the Company's audited consolidated financial statements for
each of the years in the three year period ended December 31, 1999 included in
its Form 10-K filed with the SEC on March 30, 2000.
Certain information in footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to the rules and regulations of the SEC.
The data disclosed in these condensed consolidated financial statements and in
the related notes is unaudited.
(2) SIGNIFICANT ACCOUNTING POLICIES
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic net loss per share attributable to common stockholders is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding during the period presented. The
computation of diluted earnings per common share is similar to the computation
of basic loss per share attributable to common stockholders, except that the
denominator is increased for the assumed conversion of convertible securities
and the exercise of dilutive options using the treasury stock method. The
weighted average shares used in computing basic and diluted net loss per share
attributable to common stockholders are equivalent for the periods presented.
Options and warrants for 4,669,184 and 3,463,595 shares at September 30, 2000
and 1999, respectively, were excluded from the computation of loss per share
attributable to common stockholders as their effect was antidilutive.
-6-
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(3) INVENTORY
Inventory is stated at the lower of cost or market and the cost is determined
using the first-in, first-out method. Inventory as of September 30, 2000 and
December 31, 1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
2000 1999
---------- ---------
<S> <C> <C>
Raw Materials $ 236 $ 233
Work-in-Process 606 862
Finished Goods 177 365
---------- ---------
Total Inventory $ 1,019 $ 1,460
========== =========
</TABLE>
(4) NOTES RECEIVABLE - OFFICERS AND EMPLOYEES
In June 2000, the Company accepted a new note from an officer who is also a
director. The new note incorporated the principal and accrued interest from
previous indebtedness of the officer and was secured by the officer's owned
stock and vested stock options in the Company. The note required interest at the
prime rate and was due on December 31, 2000. On September 12, 2000, the officer
repaid the note and accrued interest in full.
(5) NOTE PAYABLE
At December 31, 1999, the Company was a party to a loan agreement with a bank
under which $844,000 was outstanding at an interest rate of prime plus 1 1/4%.
The Company's assets secure borrowings under the loan. The agreement called for
the loan to be repaid in twelve equal monthly installments of principal, plus
accrued interest, beginning in August 1999. In January 2000, the loan was
modified to extend the repayment term through August 2001. In May 2000, the loan
was again modified to increase the outstanding principal balance by $250,000. At
September 30, 2000, the Company had $648,000 outstanding under this facility and
the prime rate was 9.5%.
The loan agreement requires the Company to maintain certain financial conditions
and comply with certain reporting and other requirements. At times during the
first nine months of 2000, including at September 30, 2000, the Company was not
in compliance with certain of the financial covenants of the agreement. In the
event of such non-compliance, the agreement requires the Company to pledge cash
to the bank in an amount equal to 105% of the outstanding loan balance. Upon the
pledge of such cash, the Company is deemed to have cured any default arising
from any non-compliance with the financial covenants of the agreement. The
accompanying Consolidated Balance Sheet as of September 30, 2000 and Statement
of Cash Flows for the period ended September 30, 2000 reflect the $672,000 cash
pledge to the bank that was required to cure the Company's non-compliance as of
September 30, 2000.
(6) STOCK OPTION PLANS
In February 2000, the Company's Board of Directors authorized the modification
of stock options granted to employees from October 1998 through December 1999
under the Company's 1991 Stock Option Plan
-7-
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
to decrease the vesting period from five years to three years. Neither the
exercise price nor the life of the option was modified.
At the annual stockholders' meeting in June 2000, the Company's stockholders
approved the adoption of the 2000 Equity Incentive Plan as a replacement for the
Company's 1991 Stock Option Plan and authorized 4,000,000 shares of the
Company's Common Stock for issuance under the new plan. The stockholders also
approved amendments to the 1995 Director Option Plan to (i) increase by 500,000
the number of shares of Common Stock reserved for issuance under the Plan; (ii)
to remove the requirement that the number of shares in each option granted to
each newly-elected director be equal and that the number of shares in each
option granted to each re-elected director be equal; (iii) to provide that if a
non-employee director whose outstanding options have been assumed or substituted
pursuant to a merger or asset sale is removed from the Board of Directors
without cause within six months of such merger or asset sale, such director's
outstanding options shall become fully vested and exercisable; and (iv) to
provide that if a non-employee director is designated for nomination to the
Board of Directors pursuant to an agreement between the Company and another
person or entity, options granted under the Director Option Plan may be granted
to such other person or entity or an affiliate of the same.
(7) FINANCING
On April 7, 2000, the Company completed the sale of 4,096,000 shares of common
stock at $2.05 per share in a private placement that raised approximately $8.3
million after deducting the expenses of the transaction. Approximately one-half
of the financing came from a private holding company that was not a prior
investor in the Company and with which one of the Company's Directors is
affiliated. A representative of the holding company was elected as a member of
the Company's Board of Directors in April 2000. The balance of the private
placement financing came primarily from the Company's existing investors. In
March 2000, in conjunction with the private placement, one of the investors
advanced the Company $500,000 with the intent that the loan would be converted
to equity upon the closing of the private placement. The private placement
closed following the effectiveness of a registration statement filed with the
SEC, and the Company received the expected proceeds. The bridge loan was
converted to equity upon the closing of the private placement. In conjunction
with the private placement the Company issued 100,000 warrants exercisable at
$3.62 per share and 50,000 options exercisable at $2.05 per share. The warrants
and options were valued on the date of grant at $3.03 per share and $2.86 per
share, respectively, using the Black-Scholes option-pricing model with the
following assumptions: expected dividend yield of 0.0%; risk free interest rate
of 6.5%, the contractual life of 5 years for the warrants and 10 years for the
options, and volatility of 80%. The expense associated with the warrants and
options was accounted for as a transaction cost of the private placement.
(8) STOCKHOLDERS' EQUITY
At the annual stockholders' meeting in June 2000, the stockholders approved an
increase in the number of authorized shares of the Company's Common Stock from
30,000,000 to 50,000,000.
(9) SUBSEQUENT EVENT
On November 3, 2000, the Company signed a common stock purchase agreement with a
private investment fund for the future issuance and purchase of up to $25
million worth of its Common Stock. The stock purchase agreement establishes what
is sometimes termed an equity line of credit or an equity
-8-
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
draw down facility. Under the terms of the facility, the Company will have
the right, but not obligation, to obtain as much as $25 million through the
issuance of common stock to the fund in a series of draw downs over a twelve
month period. The actual amount of the funds that the Company will be able to
draw down is based upon a formula that considers the trading volume and the
price of the Company's shares over a predetermined period. The Company will
have control over the timing of any stock sales and is under no obligation to
sell any shares.
The draw down facility operates essentially as follows: the investment fund
has committed up to $25 million to purchase the Company's common stock over a
twelve month period. Once during each draw down pricing period, the Company
may request a draw of up to $6 million of that money, subject to a formula
based on average stock price and average trading volume setting the maximum
amount of any request for any given draw. The amount of money that the
investment fund will provide to the Company and the number of shares the
Company will issue to the investment fund in return for that money is settled
twice during a 22 day trading period following the draw down request based on
the formula in the stock purchase agreement. The investment fund receives
stock at a 5% discount to the market price for the 22 day period and the
Company receives the settled amount of the draw down. At each drawdown, the
Company will issue warrants to the investment fund for a number of shares
equal to 6% of the shares issued in the drawdown. The warrants will have an
exercise price of 115% of the market price.
On November 3, 2000, the Company filed with the SEC a Form S-3 Registration
Statement covering up to 6,000,000 shares of its Common Stock to be issued
pursuant to the equity line facility. The Company may begin to draw down on the
facility after the SEC declares the registration statement to be effective.
-9-
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE STATEMENTS IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" THAT RELATE TO FUTURE PLANS, EVENTS OR PERFORMANCE
ARE FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS, EVENTS OR PERFORMANCE MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF FACTORS, INCLUDING
THOSE SET FORTH UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR
PERFORMANCE" BELOW. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE
THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE
DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
OVERVIEW
Calypte's efforts are currently focused on expanding the sales and marketing of
its HIV-1 urine-based and serum-based diagnostic tests, both domestically and
internationally, on improving those products and their related manufacturing
processes, and on developing new products. Since mid-1998, when it received a
license for both its screening and supplemental tests, the Company has been
marketing and selling in the U.S. the only available FDA-approved urine-based
HIV-1 test method. There can be no assurance the Company will achieve or sustain
significant revenues from sales of the HIV-1 urine screening assay or the
supplemental test.
The Company expects operating losses to continue in the near future as it
continues to expand its sales and marketing activities for its current
FDA-approved products and conducts additional research and development for
process improvements and new products. The Company's marketing strategy is to
use distributors, focused direct selling and marketing partners to penetrate
certain targeted domestic markets. The Company maintains a small direct sales
force to sell the Company's urine-based HIV-1 test to laboratories serving the
life insurance market. International and other U.S. markets are addressed
utilizing diagnostic product distributors. There can be no assurance that the
Company's products will be successfully commercialized or that the Company will
achieve significant product revenues. In addition, there can be no assurance
that the Company will achieve or sustain profitability in the future.
-10-
<PAGE>
RESULTS OF OPERATIONS
The following represents selected financial data:
<TABLE>
<CAPTION>
(in thousands) (in thousands)
------------------- --------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2000 1999 2000 1999
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Total revenue $ 1,077 $ 1,077 $ 2,962 $ 2,825
--------- -------- -------- ---------
Operating expenses:
Product costs 1,771 1,266 4,495 3,382
Research and development 481 864 1,597 3,437
Selling, general and administrative 1,915 1,317 5,437 3,663
--------- -------- -------- ---------
Total expenses 4,167 3,447 11,529 10,482
--------- -------- -------- ---------
Loss from operations (3,090) (2,370) (8,567) (7,657)
Interest income (net of interest expense) and other income 61 45 158 143
--------- -------- -------- ---------
Loss before income taxes $ (3,029) $ (2,325) $ (8,409) $ (7,514)
========= ======== ========= =========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues for the third quarter of 2000 were unchanged from the $1,077,000
reported for the third quarter of 1999. Although aggregate revenues were
unchanged, the product mix varied noticeably. Third quarter sales of the
Company's urine HIV-1 screening test increased nearly three-fold compared to
third quarter 1999 levels. This increase includes the impact of the Company's
first sales to its distributor servicing South Africa and a territory that
includes over 40 other countries in sub-Saharan Africa. Additionally, sales of
the Company's screening test to domestic reference laboratories servicing the
life insurance industry doubled versus third quarter 1999 levels. Primarily as a
result of a change in the timing of an annual purchase by one of the Company's
customers, revenues from the sale of supplemental tests and related products
were reduced to half of the level achieved in the third quarter of 1999.
Product costs increased $505,000 or 40% to $1.8 million for the quarter ended
September 30, 2000 from $1.3 million for the quarter ended September 30,
1999. In addition to a sales mix having higher direct costs, the increase is
primarily attributable to a continuation of both personnel and consultant
costs incurred to expand, upgrade and validate production and other processes
and to ensure compliance with good manufacturing practices at the Company's
Rockville, Maryland facility. The Company continues to operate both of its
FDA licensed manufacturing facilities at Berkeley, California and Rockville
Maryland. Additionally, the Company continues to incur duplicative costs to
operate and validate processes at its Alameda, California manufacturing
facility prior to its inspection and approval by the FDA to manufacture
product for sale. We expect that these redundant manufacturing costs will
continue until the Alameda facility receives FDA approval, at which time the
Company will relocate its EIA manufacturing process to Alameda and close its
smaller Berkeley facility.
Research and development expenses decreased by $383,000 or 44% to $481,000 for
the three months ended September 30, 2000 from $864,000 in the corresponding
period of 1999. The Company's expenditures for pure research and clinical trials
decreased in the third quarter of 2000 as it focused more of its resources on
-11-
<PAGE>
expanded marketing efforts to improve awareness and visibility for its existing
products and entered into discussions regarding the development of potential new
products. Additionally, the renegotiation during the second quarter of 2000 of a
license agreement that allows the Company access to certain patents and
proprietary rights led to a reduction of research and development expenses by
reducing the contractual minimum payments required under the agreement for 2000
through the agreement's expiration in 2009.
Selling, general and administrative expenses increased $598,000 or 45% to $1.9
million for the three months ended September 30, 2000 from $1.3 million for the
three months ended June 30, 1999. The increase was primarily related to
professional services expenses incurred in the continuation of various
initiatives begun in the second quarter of 2000 designed to generate and
increase awareness of the Company and its products among consumers, physicians,
and international healthcare and governmental organizations.
Interest income (net of interest expense) and other income increased by $16,000
or 36% to $61,000 for the three months ended September 30, 2000 from $45,000 for
the three months ended September 30, 1999. The increase was primarily due to the
reduction in interest expense on borrowings under a bank loan agreement and on
capital lease obligations.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
In the first nine months of 2000, revenue increased by $137,000 or 5% to $3.0
million from $2.8 million in the prior year's comparable period. Sales of the
Company's urine HIV-1 EIA screening test increased 62% in 2000 compared to sales
for the first nine months of 1999. Strong first and third quarter sales of the
Company's screening test to reference laboratories servicing the domestic life
insurance industry coupled with the Company's first sales to its distributor
servicing South Africa and over 40 other countries in sub-Saharan Africa
combined to generate this increase. Revenues from the sale of the Company's
supplemental tests decreased by 16% for the first three quarters of 2000
compared to revenues for the same period in 1999.
Product costs increased by $1,113,000 or 33% to $4.5 million for the nine
months ended September 30, 2000 from $3.4 million for the nine months ended
September 30, 1999. In addition to the direct costs associated with an
increase in sales volume, product costs during the first nine months of 2000
were higher due to increased personnel and professional services costs
incurred to prepare and retain in readiness the Company's Alameda, California
manufacturing facility for inspection and approval by the FDA, to exhaustive
measures to expand, upgrade and validate its Rockville, Maryland facility's
processes, and to ensure compliance with good manufacturing practices at all
of its locations. The Company continues to incur duplicative costs to operate
and validate processes in its Alameda facility prior to the facility's
approval by the FDA to manufacture product for sale domestically, while
simultaneously incurring costs to operate its two licensed facilities in
Berkeley, California and Rockville, Maryland. We expect that these redundant
manufacturing costs will continue until the Alameda facility receives FDA
approval, at which time the Company will close its smaller Berkeley facility.
Research and development expenses decreased by $1.8 million or 54% to $1.6
million for the nine months ended September 30, 2000 from $3.4 million in the
corresponding period of 1999. The decrease was primarily due to the write-off of
notes and interest receivable from a related party as research and development
in 1999 and reductions in the costs of third party research projects and
clinical trials. During the second quarter of 2000, the Company renegotiated a
license agreement that allows it access to certain patents and proprietary
rights. The modification of the agreement reduced research and development
expense by reducing the contractual minimum payments required under the
agreement for 2000 through its expiration in 2009.
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Selling, general and administrative expenses increased $1,774,000 or 48% to $5.4
million for the nine months ended September 30, 2000 from $3.7 million for the
nine months ended September 30, 1999. The increase was primarily related to
increased expenditures for advertising and various complementary initiatives
begun in the second quarter of 2000 designed to generate and increase awareness
of the Company and its products among consumers, physicians, and international
and governmental organizations. Travel and professional services expenses
associated with the acquisition of various new international distribution
agreements also contributed to the increase in this expense.
Interest income (net of interest expense) and other income increased slightly
between the years. A decrease in interest income due to lower average invested
cash balances in 2000 was offset by a reduction in interest expense resulting
from scheduled principal repayments on the Company's bank loan and capital lease
obligations.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING ACTIVITIES
The Company has financed its operations from its inception primarily through the
private placement of preferred stock and common stock, the Company's Initial
Public Offering (IPO) of common stock and, to a lesser extent, from payments
related to research and development agreements, a bank line of credit, equipment
lease financings and borrowings from notes payable.
In July 1996, the Company completed its IPO of 2,536,259 shares of its Common
Stock at $6.00 per share. After deducting underwriters' discounts and
commissions and additional expenses associated with the IPO, the Company
received net proceeds of $13.2 million.
In October 1997, the Company completed a private placement of 2,600,999 shares
of its Common Stock at $4.25 per share. The Company received net proceeds of
approximately $10.2 million after deducting placement agent commissions and
additional expenses associated with the private placement.
In January 1999, the Company completed a private placement of 3,102,500 shares
of its Common Stock at $1.00 per share. The Company received net proceeds of
approximately $2.8 million after deducting placement agent commissions and
additional expenses associated with the private placement.
In January 1999, the Company executed a $2.0 million loan agreement with a bank.
Borrowings under the loan agreement are secured by Calypte's assets. The loan
was originally to be repaid in twelve equal monthly installments of principal,
plus accrued interest, beginning July 20, 1999. In November 1999, the agreement
was modified to increase the amount borrowed by $250,000 and to extend the
repayment term through August 2000. In January 2000, the agreement was modified
to extend the repayment term through August 2001. The agreement was subsequently
modified in May 2000 to increase the then-outstanding principal by $250,000.
In April 1999, the Company completed a private placement of 3,398,000 shares of
its Common Stock at $2.25 per share. The Company received net proceeds of
approximately $7.0 million after deducting placement agent commissions and
additional expenses associated with the private placement.
In April 2000, the Company completed a private placement of 4,096,000 shares
of its Common Stock at $2.05 per share following the effectiveness of a
registration statement that the Company filed covering the
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resale of the shares by the investors. The Company received proceeds of
approximately $8.3 million after deducting expenses of the transaction. In
conjunction with the equity financing, the Company also issued warrants for
100,000 shares of Common Stock with an exercise price of $3.62 per share to one
of the investors in return for a short-term bridge loan commitment. The Company
drew $500,000 on the bridge loan during March 2000. The bridge loan was
converted to equity upon the closing of the private placement transaction.
On November 3, 2000, the Company signed a common stock purchase agreement
with a private investment fund for the future issuance and purchase of up to
$25 million worth of its Common Stock. The stock purchase agreement
establishes what is sometimes termed an equity line of credit or an equity
draw down facility. Under the terms of the facility, the Company will have
the right, but not the obligation, to obtain as much as $25 million through
the issuance of common stock to the fund in a series of draw downs over a
twelve month period. The actual amount of the funds that the Company will be
able to draw down is based upon a formula that considers the trading volume
and the price of Calypte shares over a predetermined period. The Company will
have control over the timing of any stock sales and is under no obligation to
sell any shares. On November 3, 2000, the Company filed with the SEC a Form
S-3 Registration Statement covering up to 6,000,000 shares of its Common
Stock to be issued pursuant to the equity line facility. The Company may
begin to draw down on the facility after the SEC declares the registration
statement to be effective.
The Company recognizes that its current cash position may be insufficient to
meet its operating expenses and capital requirements for the next twelve
months. It continues to pursue sources for additional capital beyond that
which may be provided by the equity line facility discussed previously. The
Company's future liquidity and capital requirements will depend on numerous
factors, including expanded market acceptance of its current products,
improvements in the costs and efficiency of its manufacturing processes, its
ability to develop and commercialize new products, regulatory actions by the
FDA and other international regulatory bodies, intellectual property
protection and the ability to raise additional capital in a timely manner.
There can be no assurance that the Company will be able to achieve improvements
in its manufacturing processes or that it will achieve significant product
revenues from its current or potential new products. In addition, there can be
no assurance that the Company will achieve or sustain profitability in the
future. There can be no assurance that additional capital that the Company plans
to raise will be available on acceptable terms, if at all. Any failure to raise
additional financing will likely place the Company in significant financial
jeopardy. Therefore, the Company cannot predict the adequacy of its capital
resources on a long-term basis.
OPERATING ACTIVITIES
For the nine months ended September 30, 2000 and September 30, 1999, the Company
used cash of $8.1 million and $5.9 million, respectively, in its operations. The
cash used in operations was primarily for promoting and marketing the Company's
complete urine-based HIV-1 testing method, funding research and development, and
for manufacturing, selling, and general and administrative expenses of the
Company.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), summarizing the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. In March
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2000, the SEC issued Staff Accounting Bulletin No. 101A ("SAB 101A"),
delaying the implementation date of SAB 101. In June 2000, the SEC issued
Staff Accounting Bulletin No. 101B ("SAB 101B") further delaying the
implementation date of SAB 101. As amended, registrants must adopt SAB 101 no
later than the fourth fiscal quarter of their fiscal year beginning after
December 15, 1999. On October 12, 2000, the SEC staff released a Frequently
Asked Questions (FAQ) document to provide additional guidance on implementing
SAB 101. The FAQ does not change the implementation date of SAB 101, or any
of the guidance included in the SAB. Management believes that compliance with
these Bulletins will not have a significant impact on our financial position,
results of operations, or cash flows.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133, as recently amended by SFAS No. 137 and SFAS No. 138,
is effective for fiscal years beginning after June 15, 2000. Management believes
the adoption of SFAS No. 133 will not have a material effect on our financial
position, results of operations, or cash flows.
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FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR PERFORMANCE
Calypte has identified a number of risk factors and uncertainties that it faces.
These factors, among others, may cause actual results, events or performance to
differ materially from those expressed in any forward-looking statements made in
this Form 10-Q or in press releases or other public disclosures. Investors
should be aware of the existence of these factors.
UNCERTAIN MARKET ACCEPTANCE OF OUR UNIQUE METHOD OF DETERMINING THE
PRESENCE OF HIV ANTIBODIES. Our products incorporate a unique method of
determining the presence of HIV antibodies. There can be no assurance that we
will obtain:
- any significant degree of market acceptance among physicians,
patients or health care payors; or
- recommendations and endorsements by the medical community which are
essential for market acceptance of the products.
We have FDA approval to market our urine HIV-1 screening and supplemental tests
in the United States and have been marketing these products since July 1998. To
date, however, this testing method has generated only limited revenues and not
achieved significant market penetration. The failure of our products to obtain
market acceptance could cause us to cease operations.
WE HAVE LIMITED EXPERIENCE SELLING AND MARKETING OUR HIV-1 URINE-BASED
SCREENING TEST. We have limited experience marketing and selling our products
either directly or through our distributors. The success of our products depends
upon alliances with third-party distributors. There can be no assurance that:
- our direct selling efforts will be effective;
- our distributors will successfully market our products; or
- if our relationships with distributors terminate, we will be able to
establish relationships with other distributors on satisfactory
terms, if at all.
Any disruption in our distribution, sales or marketing network could reduce our
sales revenues and cause us to expend more resources on market penetration.
OUR DISTRIBUTION AND SALES NETWORK FOR U.S. HOSPITALS, PUBLIC HEALTH AND
REFERENCE LABORATORY MARKETS HAS THUS FAR FAILED TO YIELD SIGNIFICANT SALES AND
REVENUES. We have entered into distribution agreements with distributors of
medical products to domestic healthcare markets, including the distribution
agreement announced in September 1999 with Carter Wallace Inc. and the Sentinel
HIV and STD Testing Service announced in May 2000. These agreements have thus
far failed to yield significant sales and revenues. We are continuing to examine
alternative approaches to penetrate the domestic healthcare markets, including
restructuring our existing distribution relationships and expanding our direct
sales efforts. If our efforts to market our products to domestic hospitals,
public health and reference laboratories fail to yield significant amounts of
revenue, we may have to cease operations.
WE HAVE SUSTAINED LOSSES IN THE PAST AND WE EXPECT TO SUSTAIN LOSSES IN THE
FUTURE. We have incurred losses in each year since our inception. Our net loss
for the nine months ended September 30, 2000 was $8.4 million and our
accumulated deficit as of September 30, 2000 was $75.2 million. We expect
operating losses to continue as we continue our marketing and sales activities
for our FDA-approved products and conduct additional research and development
for product and process improvements and new products.
OUR QUARTERLY RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING
AND COMPETITIVE FACTORS OVER WHICH WE HAVE LITTLE OR NO CONTROL. The factors
listed below, some of which we cannot control, may cause our revenues and
results of operations to fluctuate significantly:
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- actions taken by the FDA or foreign regulatory bodies relating to our
products;
- the extent to which our products gain market acceptance;
- the timing and size of distributor purchases; and
- introductions of alternative means for testing for HIV by competitors.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING THAT WE EXPECT TO NEED IN
THE FUTURE. The report of KPMG LLP covering the December 31, 1999 consolidated
financial statements contains an explanatory paragraph that states that our
recurring losses from operations and accumulated deficit raise substantial doubt
about our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty. We plan to raise more money to continue to finance our
operations. We may not be able to obtain additional financing on acceptable
terms, or at all. Any failure to raise additional financing will likely place us
in significant financial jeopardy.
WE DEPEND UPON THE VIABILITY OF THREE PRODUCTS - OUR HIV-1 URINE-BASED
SCREENING TEST AND OUR URINE AND BLOOD BASED SUPPLEMENTAL TESTS. Our HIV-1
urine-based screening test and urine and blood-based supplemental tests are our
only products. Accordingly, we may have to cease operations if our screening and
supplemental tests fail to achieve market acceptance or generate significant
revenues.
OUR PRODUCT DEPENDS UPON RIGHTS TO TECHNOLOGY THAT WE HAVE LICENSED FROM
THIRD PARTY PATENT HOLDERS AND THERE CAN BE NO ASSURANCE THAT THE RIGHTS WE HAVE
UNDER THESE LICENSING AGREEMENTS ARE SUFFICIENT OR THAT WE CAN ADEQUATELY
PROTECT THOSE RIGHTS. We currently have the right to use patent and proprietary
rights which are material to the manufacture and sale of our HIV-1 urine-based
screening test under licensing agreements with New York University, Cambridge
Biotech Corporation, Repligen Corporation, and the Texas A&M University System.
We also have the right to use patent and proprietary rights material to the
manufacture and sale of our HIV-1 serum-based supplemental test under a
licensing agreement with National Institutes of Health.
WE RELY ON SOLE SOURCE SUPPLIERS THAT WE CANNOT QUICKLY REPLACE FOR CERTAIN
COMPONENTS CRITICAL TO THE MANUFACTURE OF OUR PRODUCTS. Any delay or
interruption in the supply of these components could have a material adverse
effect on us by significantly impairing our ability to manufacture products in
sufficient quantities, particularly as we increase our manufacturing activities
in support of commercial sales.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND LITTLE
EXPERIENCE IN MANUFACTURING OUR PRODUCTS IN COMMERCIAL QUANTITIES. We may
encounter difficulties in scaling-up production of new products, including
problems involving:
- production yields;
- quality control and assurance;
- raw material supply; and
- shortages of qualified personnel.
THE SUCCESS OF OUR PLANS TO ENTER INTERNATIONAL MARKETS MAY BE LIMITED OR
DISRUPTED DUE TO RISKS RELATED TO INTERNATIONAL TRADE AND MARKETING AND THE
CAPABILITIES OF OUR DISTRIBUTORS. We anticipate that international distributor
sales will generate a significant portion of our revenues for the next several
years. We believe that our urine-based test can provide significant benefits in
countries that do not have the facilities or personnel to safely and effectively
collect and test blood or other bodily fluid samples. The
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following risks may limit or disrupt our international sales;
- the imposition of government controls;
- export license requirements;
- political instability;
- trade restrictions;
- changes in tariffs;
- difficulties in managing international operations; and
- fluctuations in foreign currency exchanges rates.
Some of our distributors have limited international marketing experience.
There can be no assurance that these distributors will be able to market
successfully our products in foreign markets.
WE FACE INTENSE COMPETITION IN THE MEDICAL DIAGNOSTIC PRODUCTS MARKET AND
RAPID TECHNOLOGICAL ADVANCES BY COMPETITORS. Competition in our diagnostic
market is intense and we expect it to increase. Within the United States, our
competitors include a number of well-established manufacturers of HIV tests
using blood samples, plus at least one system for the detection of HIV
antibodies using oral fluid samples. Many of our competitors have significantly
greater financial, marketing and distribution resources than we do. Our
competitors may succeed in developing or marketing technologies and products
that are more effective than ours. These developments could render our
technologies or products obsolete or noncompetitive or otherwise affect our
ability to increase or maintain our products' market share.
OUR ABILITY TO MARKET OUR PRODUCT DEPENDS UPON OBTAINING AND MAINTAINING
FDA AND FOREIGN REGULATORY APPROVALS. Numerous governmental authorities in the
United States and other countries regulate our products. The FDA regulates our
products under federal statutes and regulations related to pre-clinical and
clinical testing, manufacturing, labeling, distribution, sale and promotion of
medical devices in the United States.
If we fail to comply with FDA regulations, or if the FDA believes that we
are not in compliance with such regulations, the FDA can:
- detain or seize our products;
- issue a recall of our products;
- prohibit marketing and sales of our products; and
- assess civil and criminal penalties against us, our officers or our
employees.
We also plan to sell our products in certain foreign countries where they
may be subject to similar local regulatory requirements. The imposition of any
of the sanctions described above could have a material adverse effect on us by
delaying or reducing the growth in our sales revenue or causing us to expend
more resources to penetrate our target markets.
The regulatory approval process in the United States and other countries is
expensive, lengthy and uncertain. We may not obtain necessary regulatory
approvals or clearances in a timely manner, if at all. We may lose previously
obtained approvals or clearances or fail to comply with regulatory requirements.
The occurrence of any of these events would have a material adverse effect on
Calypte by disrupting our marketing and sales efforts.
Before we begin to manufacture our product at the Alameda facility, we must
obtain FDA approval for that facility. Delays in receiving the FDA's approval or
other difficulties which we encounter in scaling-up our manufacturing capacity
to meet demand could affect our ability to maintain competitive pricing for our
products and disrupt the orderly flow of product to our customers.
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THE COMPANY'S LEASE OF ITS BERKELEY, CALIFORNIA MANUFACTURING FACILITY
EXPIRES ON DECEMBER 31, 2000, AND THE FDA HAS NOT YET APPROVED ITS ALAMEDA,
CALIFORNIA FACILITY FOR MANUFACTURING. The FDA has informed the Company that
it plans to conduct its pre-approval inspection of the Company's Alameda
manufacturing facility in mid-November 2000. If the FDA does not complete its
inspection prior to December 31, 2000 or if it raises questions regarding the
facility during its inspection that will require time beyond December 31,
2000 for the Company to adequately address, there may be a period of time
between the closure of the Berkeley facility and the approval of the Alameda
facility during which the Company is unable to manufacture its licensed urine
screening test. Such an interruption could disrupt the orderly flow of
product to customers and result in a decrease in our sales revenues.
IN THE PAST, WE HAVE RECEIVED WARNING LETTERS FROM THE FDA REGARDING THE
SUFFICIENCY OF OUR MANUFACTURING RECORDS AND PRODUCTION PROCEDURES AND WE MUST
CONTINUE TO SATISFY THE FDA'S CONCERNS IN ORDER TO AVOID REGULATORY ACTION
AGAINST US. In November 1998, the Company received a Warning Letter from the FDA
following an inspection by the FDA of the Company's manufacturing facilities in
Berkeley and Alameda, California. On December 11, 1998, the Company responded in
writing to each of the deficiencies cited in the Warning Letter. The Company
subsequently received another letter from the FDA requesting further responses
regarding certain of the deficiencies. The Company responded to the subsequent
letter on June 1, 1999. The FDA conducted a follow-up inspection of the Berkeley
and Alameda facilities from September 28 through October 7, 1999, which resulted
in observations requiring corrective action or response from the Company. The
Company submitted its written responses to the FDA's inspection observations on
November 4, 1999. On March 21, 2000, the Company received a response from the
FDA requesting additional information. Company representatives met with and
provided information to FDA officials on April 27, 2000 and on May 5, 2000
responded in writing to requests for additional information. On June 6, 2000,
the Company received a response from the FDA indicating that the Company's
responses appear to be satisfactory and will be verified during a subsequent
inspection.
In May 1999, the Company received a Warning Letter from the FDA that
cited a number of significant observations related to its November 20 through
December 11, 1998 inspection of the Company's manufacturing plant in
Rockville, Maryland. On May 24, 1999, the Company responded in writing to
each of the deficiencies cited in the Warning Letter. On November 19, 1999,
the Company received a letter from the FDA stating that the Company's
responses were considered adequate, and the Warning Letter was formally
closed. Between November 30, and December 9, 1999, the FDA conducted a
follow-up inspection of the Rockville facility that resulted in observations
requiring corrective actions or response from the Company. On January 7,
2000, the Company responded in writing to each of the FDA observations. On
March 21, 2000, the Company received a response from the FDA requesting
additional information. Company representatives met with and provided
information to FDA officials on April 27, 2000 and on May 5, 2000 responded
in writing to requests for additional information. On June 6, 2000, the
Company received a response from the FDA indicating that the Company's
responses appear to be satisfactory and will be verified during a subsequent
inspection.
Although the FDA indicates that it is currently satisfied with the
Company's responses to the items addressed in its inspections, if the FDA
subsequently determines that it is not satisfied with the Company's records,
procedures or corrective actions at either its Alameda or Rockville
facilities, the FDA could take regulatory actions against the Company,
including license suspension, revocation, and/or denial, seizure of products
and/or injunction, and/or civil penalties or criminal sanctions. Any such FDA
action is likely to have a material adverse effect upon the Company's ability
to conduct operations by limiting our ability to manufacture and ship our
products. In addition, failure of the Company to satisfy the FDA on these
matters may adversely affect receiving approval for manufacturing at the
Alameda facility and/or the Company's ability to export its products to
certain international markets.
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AS A SMALL MANUFACTURER OF MEDICAL DIAGNOSTIC PRODUCTS, WE ARE EXPOSED TO
PRODUCT LIABILITY AND RECALL RISKS FOR WHICH INSURANCE COVERAGE IS EXPENSIVE,
LIMITED AND POTENTIALLY INADEQUATE. We manufacture medical diagnostic products,
which subjects us to risks of product liability claims or product recalls,
particularly in the event of false positive or false negative reports. A product
recall or a successful product liability claim or claims that exceed our
insurance coverage could have a material adverse effect on us. We maintain a
$10,000,000 claims made policy of product liability insurance. However, product
liability insurance is expensive. In the future we may not be able to obtain
coverage on acceptable terms, if at all. Moreover, our insurance coverage may
not adequately protect us from liability that we incur in connection with
clinical trials or sales of our products.
OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER. Certain provisions of our
Certificate of Incorporation and Bylaws could:
- discourage potential acquisition proposals;
- delay or prevent a change in control of Calypte;
- diminish stockholders' opportunities to participate in tender
offers for our common stock, including tender offers at prices
above the then current market price; or
- inhibit increases in the market price of our common stock that
could result from takeover attempts.
WE HAVE ADOPTED A SHAREHOLDER RIGHTS PLAN THAT HAS CERTAIN ANTI-TAKEOVER
EFFECTS. On December 15, 1998, the Board of Directors of Calypte declared a
dividend distribution of one preferred share purchase right ("Right") for each
outstanding share of Common Stock of the Company. The dividend was payable to
the stockholders of record on January 5, 1999 with respect to each share of
Common Stock issued thereafter until a subsequent "distribution date" defined in
a Rights Agreement and, in certain circumstances, with respect to shares of
Common Stock issued after the Distribution Date.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the
Company without conditioning the offer on the Rights being redeemed or a
substantial number of Rights being acquired. However, the Rights should not
interfere with any tender offer, or merger, which is approved by the Company
because the Rights do not become exercisable in the event of an offer or
other acquisition exempted by Calypte's Board of Directors.
AN INVESTOR'S ABILITY TO TRADE OUR COMMON STOCK MAY BE LIMITED BY TRADING
VOLUME. The trading volume in our common shares has been relatively limited. A
consistently active trading market for our common stock may not continue.
WE MAY BE REMOVED FROM THE NASDAQ SMALLCAP MARKET IF WE FAIL TO MEET CERTAIN
MAINTENANCE CRITERIA. The Nasdaq Stock Market inquired on two occasions in the
past whether we continued to meet the maintenance criteria for trading on the
Nasdaq SmallCap Market. We currently meet the maintenance criteria but our
ability to continue to do so will depend on whether we are able to maintain net
tangible assets of $2,000,000 and whether the minimum bid price for our common
stock exceeds $1.00 per share for at least ten consecutive business days during
any period of 120 consecutive business days. The ability of our stockholders to
sell their shares into an active trading market could be significantly impaired
if we fail to meet the maintenance criteria and are removed from the Nasdaq
SmallCap Market. In that case, our common stock would trade on either the OTC
bulletin board, a regional exchange or in the pink sheets, which would likely
result in an even more limited trading volume.
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THE PRICE OF CALYPTE'S COMMON STOCK HAS BEEN HIGHLY VOLATILE DUE TO SEVERAL
FACTORS WHICH WILL CONTINUE TO AFFECT THE PRICE OF OUR STOCK. Our common stock
has traded as low as $1.28 per share and as high as $7.25 per share between
January and September 2000. Some of the factors leading to the volatility
include:
- price and volume fluctuations in the stock market at large which do
not relate to our operating performance;
- fluctuations in our operating results;
- announcements of technological innovations or new products which we
or our competitors make; o FDA and international regulatory
actions;
- availability of reimbursement for use of our products from private
health insurers, governmental health administration authorities and
other third- party payors;
- developments with respect to patents or proprietary rights;
- public concern as to the safety of products that we or others
develop;
- changes in health care policy in the United States or abroad;
- changes in stock market analysts' recommendations regarding
Calypte, other medical products companies or the medical product
industry generally, and
- fluctuations in market demand for and supply of our products.
CALYPTE AND THE PRICE OF CALYPTE SHARES MAY BE ADVERSELY AFFECTED BY THE
PUBLIC SALE OF A SIGNIFICANT NUMBER OF THE SHARES ELIGIBLE FOR FUTURE SALE. All
outstanding shares of our common stock are freely tradable. Sales of common
stock in the public market could materially adversely affect the market price of
our common stock. Such sales also may inhibit our ability to obtain future
equity or equity-related financing on acceptable terms.
OUR RESEARCH AND DEVELOPMENT OF HIV URINE TEST INVOLVES THE CONTROLLED USE
OF HAZARDOUS MATERIALS. There can be no assurance that our safety procedures for
handling and disposing of hazardous materials such as azide will comply with
applicable regulations. In addition, we cannot eliminate the risk of accidental
contamination or injury from these materials. We may be held liable for damages
from such an accident and that liability could have a material adverse effect on
us.
WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT
PERSONNEL. As a small company with only 65 employees, our success depends on the
services of key employees in executive and research and development positions.
The loss of the services of one or more of such employees could have a material
adverse effect on us.
THE SALE OF STOCK PURSUANT TO THE EQUITY LINE OF CREDIT MAY SUBSTANTIALLY
DILUTE THE INTERESTS OF OTHER SECURITY HOLDERS. The shares issuable to the
investment fund pursuant to the equity line of credit will be issued at a 5%
discount to the average daily price of our common stock. Accordingly, the
shares of common stock then outstanding will be diluted. Depending on the
price per share of our common stock during the twelve-month term of the
equity line of credit, we may need to register additional shares for resale
to access the full amount of financing available, which could have a further
dilutive effect on the value of our common stock.
THE SALE OF MATERIAL AMOUNTS OF OUR COMMON STOCK COULD REDUCE THE PRICE
OF OUR COMMON STOCK AND ENCOURAGE SHORT SALES. As we sell shares of our
common stock to the investment fund pursuant to the equity line of credit and
the investment fund then sells the common stock, our common stock price may
decrease
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due to the additional shares in the market. As the price of our common stock
decreases, and if we decide to draw down on the equity line of credit, we will
be required to issue more shares of our common stock for any given dollar amount
invested by the investment fund, subject to a designated minimum put price
specified by us. This may encourage short sales, which could place further
downward pressure on the price of our common stock.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 31, 1999, there have been no material changes in the Company's
market risk exposure.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three years ended September 30, 2000, the Company completed
four private placements of shares of its Common Stock. See "Financing
Activities" in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section. The shares sold in each of the private
placements were exempt from registration with the Securities and Exchange
Commission pursuant to Rule 506 of Regulation D of the Securities Act of 1933 as
amended ("Securities Act"). Shares were sold only to accredited investors as
defined in Rule 501 of the Securities Act and were registered for resale by such
investors on Forms S-3 filed on October 21, 1997, November 14, 1998, March 30,
1999, and March 13, 2000. The proceeds from each private placement have been
used to finance operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 10.77 * Temporary Distribution Agreement between the Registrant
and American Edge Medical Company effective August 1,
2000
Exhibit 10.78 Extension of Consulting Agreement between Registrant
and John DiPietro effective as of September 17, 2000
Exhibit 27 Financial Data Schedule
* Confidential treatment has been requested as to certain portions of
this exhibit.
b. Reports on Form 8-K
None.
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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.
CALYPTE BIOMEDICAL CORPORATION
--------------------------------------------
(Registrant)
Date: November 7, 2000 By: /s/ Nancy E. Katz
-----------------------------------------
Nancy E. Katz
CHIEF EXECUTIVE OFFICER, PRESIDENT, CHIEF
FINANCIAL OFFICER
(Principal Accounting Officer)
