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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
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CALYPTE BIOMEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1226727
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1265 HARBOR BAY PARKWAY, ALAMEDA, CALIFORNIA 94502
(Address of principal executive offices) (Zip Code)
(510) 749-5100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of February 28, 2001, 25,772,578 shares of the registrant's common stock,
$.001 par value, were outstanding. The aggregate market value of the common
stock held by non-affiliates of the registrant (i.e., excluding shares held by
executive officers, directors, and control persons as defined in Rule 405) on
that date was $25,402,974 computed at the closing price of the common stock on
that date on the NASDAQ SmallCap Market.
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CALYPTE BIOMEDICAL CORPORATION
FORM 10-K
INDEX
PAGE
NO.
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PART I.
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 19
Item 3. Legal Proceedings........................................... 19
Item 4. Submission of Matters to a Vote of Security Holders......... 19
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 20
Item 6. Selected Consolidated Financial Data........................ 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 22
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 34
Item 8. Financial Statements and Supplementary Data................. 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 35
PART III.
Item 10. Executive Officers, Directors and Significant Employees of
the Registrant.............................................. 36
Item 11. Executive Compensation...................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 42
Item 13. Certain Relationships and Related Transactions.............. 44
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 46
Signatures.................................................. II-1
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS ANNUAL REPORT ON
FORM 10-K, THE MATTERS DISCUSSED HEREIN CONTAIN FORWARD-LOOKING STATEMENTS THAT
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE PROJECTED. THESE RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO, UNCERTAIN MARKET ACCEPTANCE OF OUR NEW METHOD
OF DETERMINING THE PRESENCE OF HIV ANTIBODIES, LACK OF EXPERIENCE SELLING AND
MARKETING OUR HIV-1 URINE-BASED SCREENING TEST, LIMITED OPERATING HISTORY, AND
INABILITY TO OBTAIN ADDITIONAL FINANCING, IF NEEDED, AS WELL AS THE OTHER RISKS
AND UNCERTAINTIES DESCRIBED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-K. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
PART I
ITEM 1. BUSINESS
THE COMPANY
Calypte Biomedical Corporation ("Calypte" or the "Company") believes that it
is a leader in the development of a urine-based screening test for the detection
of antibodies to the Human Immunodeficiency Virus, Type-1 ("HIV-1"), the
putative cause of Acquired Immunodeficiency Syndrome ("AIDS"). The Company has
integrated several proprietary technologies to develop a test which, in clinical
trials, detected the presence of HIV antibodies in urine with 99.7% sensitivity
in subjects known to be HIV-1 infected (as identified through blood-based
(serum/plasma) screening tests). In subjects at low risk for HIV ("low risk
subjects"), the specificity of the screening test with a companion Western Blot
supplemental test was 100%. Specificity and sensitivity in other populations,
including those at high risk and those with other medical conditions, is reduced
compared to testing with blood specimens. Calypte believes that its proprietary
urine-based test offers significant advantages compared to existing blood-based
tests, including ease-of-use, lower costs, and significantly reduced risk of
infection from collecting and handling specimens. Urine collection is
non-invasive and painless, and urine is the most commonly collected body fluid.
The Company estimates that the cost of collecting, handling, testing and
disposing of urine specimens will be significantly less than that of blood
specimens. Independent studies report that the likelihood of finding infectious
HIV virus in urine is extremely low, which greatly reduces the risk and cost of
accidental exposure to health care workers, laboratory personnel, and patients
being tested.
In August 1996, the Company received a product license and an establishment
license from the Food & Drug Administration ("FDA") to manufacture and sell, in
interstate and foreign commerce, the Company's urine-based HIV-1 screening test
for use in professional laboratory settings. In May 1998, Cambridge Biotech
Corporation ("Cambridge Biotech") also received such licenses from the FDA with
respect to the urine HIV-1 Western Blot test that confirms the presence of
antibodies to HIV-1 in urine samples. This test is used on samples that are
repeatedly reactive in Calypte's HIV-1 urine antibody screening test. Calypte's
screening test, when used with the Western Blot supplemental test for urine,
provides the only complete FDA-approved urine-based HIV testing method.
In December 1998, Calypte acquired from Cambridge Biotech certain assets
relating to Cambridge Biotech's Western Blot product line for certain infectious
diseases. The acquisition included the urine-based and serum-based HIV-1 Western
Blot products, as well as a supplemental test for Lyme Disease and Human
T-Lymphotropic Virus (HTLV).
In November 1999, Calypte received FDA approval of a "Day Assay" format for
its "Cambridge Biotech" HIV-1 serum Western Blot assay. The FDA approval now
permits use of this supplemental test in either a "Day Assay" (five hour) or
overnight format, and will provide more rapid test results for customers and
their patients who need the results of their HIV tests as rapidly as possible.
The Company intends to develop additional or improved urine and blood-based
tests for other infectious and viral diseases. The Company will also continue to
explore the potential for an over-the-counter in-home urine collection kit.
Calypte markets its urine-based HIV-1 screening test through direct sales
personnel and distributors depending upon the market segment and the location of
the market. Calypte believes that its urine-based tests offer significant
advantages in terms of safety, cost, convenience, and painless collection of the
fluid to be tested. There can be no assurance that the Company's products or the
Company's planned products will receive or maintain FDA clearance or approval
and become commercially available.
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BACKGROUND
HIV is the putative cause of AIDS, which is a leading cause of death for
persons ages 25 to 44 in the U.S. Those infected with HIV generally do not show
symptoms of AIDS until several years after HIV infection, if at all. Because
most persons infected with HIV are asymptomatic for AIDS and are unaware of
their HIV status, such persons do not avail themselves of medical treatment and
may unknowingly expose others to the risk of infection. Prior exposure to HIV
can be detected in laboratory tests even though the individual infected with HIV
is asymptomatic.
According to the World Health Organization and the Joint United Nations
Programme on HIV/AIDS, by the end of 2000, an estimated 57 million people have
been infected with HIV, of whom over 21 million have already died from the
disease, and each day 15,000 more become infected. HIV is spread by a transfer
of bodily fluids primarily through sexual contact, blood transfusions, the
sharing intravenous needles, accidental needle sticks and transmission from
infected mothers to newborns. The World Health Organization reports that about
3.0 million people died of AIDS in 2000 and the annual death toll is likely to
continue to rise for years to come.
The discovery in 1984 of circulating HIV antibodies in the blood led to the
development and widespread use of HIV blood screening tests. Testing by blood
banks of blood used in transfusions soon followed in an effort to maintain and
protect the integrity of the blood supply. Most HIV antibody screening tests are
enzyme immunoassays ("EIAs"). These tests operate on the principle that
antibodies will react with a known antigen; this reaction is detected by using
enzymes as indicators. Outside of blood bank screening, physicians, the life
insurance industry, the military, the criminal justice system, and the
Immigration and Naturalization Service generate the largest domestic demand for
HIV testing.
To minimize the risk of incorrectly reporting that an individual is infected
with HIV (a false positive result), most countries require a strict testing
protocol. The protocol is to first test a sample for the presence of HIV. Any
sample found to be reactive in the initial screen is then retested in duplicate.
If either of the retests are reactive, the same sample is tested again using a
more precise and expensive supplemental test. The presence of HIV antibodies,
based on the results of the supplemental test, is considered diagnostic for HIV
infection.
HIV blood testing can be expensive and poses risk of infection to health
care personnel. The typical HIV screening test requires a trained health care
worker or phlebotomist to draw and centrifuge a blood sample, which is then
tested for the presence of HIV antibodies. Blood is typically drawn at physician
offices, clinics, hospitals or blood draw stations, where trained personnel are
available, and then sent to a laboratory for HIV testing. Blood samples and
related blood-sampling equipment require careful handling if healthcare
personnel are to avoid accidental exposure to blood-borne pathogens, including
HIV. In addition, the use of blood-based tests has become increasingly costly
because of the costs of disposing of potentially infected specimens, syringes,
needles and transfer tubes. The overall cost of blood-based testing has
precluded large public health screening programs, particularly in less developed
countries, many of which have significantly higher rates of HIV infection than
that of the U.S. Even in the United States, certain populations are not
routinely screened due to the high cost of blood-based testing.
In December 1994, the FDA approved the first non-invasive method for HIV-1
testing, an oral fluid-based screening test and collection device. Collection of
oral fluid is technique dependent, and detailed instructions on the proper use
of the oral fluid collection device need to be carefully followed. In addition,
oral fluid is not commonly collected and is rarely tested for other diagnostic
purposes. In June 1996, one manufacturer received approval from the FDA for a
Western Blot oral-fluid supplemental test.
HIV screening can also be performed by using a dried blood spot ("DBS")
specimen. DBS sampling, which was developed in the late 1980's, is a variant of
blood sampling initially designed for the testing of newborns. The DBS sampling
method involves sticking a baby's heel or an adult's finger with a sharp lancet
and collecting five or six drops of blood onto filter paper. The laboratory
punches the dried blood spots out
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of the filter paper, and the non-cellular components of the blood spot are
eluted back in liquid form by soaking the punches in diluent. The resulting
fluid is then assayed by one of several traditional serum/plasma enzyme
immunoassays licensed for use with DBS.
The DBS method, which is comparable in cost to traditional serum tests, is
susceptible to problems in sample variability, the adequacy of volume for
testing, pain on blood sampling and invasiveness.
The human immune system typically requires a number of weeks or months to
begin producing antibodies following exposure to HIV. There is no consensus in
the scientific community as to whether antibodies can first be detected in
blood, urine or oral fluid.
THE CALYPTE URINE-BASED HIV-1 SCREENING AND SUPPLEMENTAL TESTS
Calypte's proprietary urine-based HIV-1 screening test is non-invasive, easy
to use, reliable and avoids many of the costs and risks associated with
blood-based testing. The Company's screening test, when used with the Western
Blot supplemental test for urine provides the only complete urine-based HIV
testing method. Laboratories using the Company's method can complete the entire
testing profile for HIV-1 antibody using a single urine specimen. The Company
believes that the benefits of its testing method will enable it to penetrate
existing markets and expand into new markets that are not served currently by
the more expensive blood and oral fluid-based HIV test systems. Key benefits of
the Company's test include:
EASE OF USE/NON-INVASIVE COLLECTION. Urine is the most commonly collected
bodily fluid for laboratory testing as it is already being collected for testing
purposes other than the detection of the HIV-1 antibody. Collection of the urine
can take place any time of day, and the test does not require a 24-hour voided
specimen or a midstream, clean-catch sample. Because it requires no special
preservatives or containers, it is also easier to collect, handle, and discard
than blood. Furthermore, the Company's test is in standard EIA format and is
designed to be used with standard laboratory equipment. Blood sampling is
invasive and, for many patients, stressful and painful. The ability to screen
non-invasively for HIV in all types of patients, including injection drug users
and newborns, will enhance patient comfort and may significantly increase the
voluntary testing rates in patients who might otherwise decline testing.
Moreover, unlike urine collection, obtaining an oral fluid specimen is highly
technique-dependent, requiring specific placement of a collection device in the
mouth, rubbing the collection device along the gum line, and holding it in place
for no less than two and no more than five minutes. Unlike oral fluid, the
collection of urine does not require specially trained personnel, nor is its
collection restricted to patients of certain ages.
LOWER OVERALL COST. The Company's urine-based screening test may lower
significantly the overall cost of testing for HIV infection because the cost of
collecting, transporting, testing and disposing of urine specimens can be
significantly less than that of blood specimens, and less than the cost of an
oral fluid screening test. Additional cost savings may accrue as a function of
reduced needlestick incidents and their associated counseling, testing and lost
productivity. With respect to oral fluid screening tests, the Company believes
that each oral fluid collection device costs between $2.00 to $4.00, while a
urine collection cup costs approximately $0.20. Moreover, since urine is often
already being collected for other testing purposes, the incremental cost of
collecting urine samples is likely to be lower than collecting oral fluids.
Nonetheless, the total cost of deploying urine, blood or oral-based HIV
screening tests or a combination thereof will vary according to the testing
purpose and protocol and whether other diagnostic tests are performed
simultaneously. The ancillary costs (such as collection method, accidental
exposure to HIV and sample disposal) associated with blood testing are more
expensive than urine testing.
SAFETY. Independent studies have concluded that the likelihood of finding
infectious HIV virus in urine is extremely low. There have been no reported
cases of transmission of HIV virus through contact with urine of HIV-infected
patients. Accordingly, the risk of HIV infection to health care and laboratory
workers accidentally exposed to urine samples is negligible. Since no needles
are used in the Calypte urine sampling process, the test eliminates this route
of accidental infection. In developing countries, where the
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supply of sterile needles and syringes cannot be guaranteed, the safety benefits
of using urine sampling extend to patients as well as to health care workers.
RELIABILITY. The Company has performed clinical studies demonstrating the
effectiveness of using urine as a reliable and clinically valid sample for HIV
testing. In Company-funded clinical trials conducted by or on behalf of the
Company, for the HIV-1 urine EIA and the urine Western Blot supplemental test,
more than 11,000 paired blood and urine specimens were tested. Two measures of
the reliability of our urine-based HIV test were employed--specificity and
sensitivity. Specificity is the ability of an assay or method to identify all
non-HIV infected individuals correctly. Sensitivity is the ability of the assay
or method to detect truly HIV-infected individuals. In recent studies where
specificity was assessed by testing specimens from a combined subset of low risk
subjects, the resulting specificity was 100% for the screening test in
conjunction with the supplemental test. Specificity and sensitivity in other
populations, including those at high risk and those with other medical
conditions, is reduced compared to testing with blood specimens. Sensitivity
(correlation to blood tests) of the urine testing method was estimated by
testing samples from a subset of individuals known to be infected with HIV-1,
including those with a clinical diagnosis of AIDS. The sensitivity in that
subset was measured at 99.7%.
In spite of the benefits of the Company's urine-based screening and
supplemental tests, such tests represent a new method of determining the
presence of HIV antibodies. Blood-based and oral fluid based tests, which
constitute competitive products, have the advantage of already being
commercially marketed and have gained acceptance from the medical community.
Furthermore, both blood-based and oral fluid based tests have been shown to be
reliable media for detection of HIV. There can be no assurance that the
Company's urine-based screening test will gain any significant degree of market
acceptance among physicians, patients or health care payors, even if the
necessary reimbursement approvals are obtained.
CALYPTE'S HIV-1 ANTIBODY TEST IS A MUCH-NEEDED ALTERNATIVE FOR PEOPLE WHO
FAIL TO GET TESTED FOR HIV BECAUSE THEY ARE AFRAID OF NEEDLES. It's critical
for all people at potential risk for HIV infection to learn their status because
early detection and treatment have been shown to prevent debilitating
opportunistic infections and to extend life. Studies have shown that between 21%
to 50% of people would prefer a urine test rather than a blood test, and up to
80% of these individuals cited fear of needles as the reason for preferring a
urine test. Between 650,000 - 900,000 Americans are living with HIV, and an
estimated one in three do not know they are infected.
TEST METHODOLOGY. The Company's urine-based screening test uses an
industry-standard 96 well microtiter plate to detect antibodies to HIV-1 in
urine. The HIV-1 antibodies, when present in urine, bind to Calypte's
proprietary antigen coated on prepared microtiter plates. A subsequent enzymatic
reaction produces a color change revealing the presence of HIV-1 antibodies.
The screening test requires only 200 microliters of urine (approximately
four drops) and can be performed using standard laboratory equipment. Samples
can be shipped and stored at 15 to 30 degrees centigrade for up to 55 days, or
for up to 1 year at 2 degrees to 8 degrees centigrade, before testing. The
laboratory protocol for testing urine is nearly identical to that of blood, and
therefore requires few, if any, modifications to existing laboratory protocols.
The Cambridge Biotech HIV-1 Western Blot is an in vitro qualitative assay
for the detection and identification of antibodies to Human Immunodeficiency
Virus Type 1 (HIV-1). This more specific assay is used as a supplemental test
with specimens (serum, plasma or urine) that tested repeatedly reactive using
the screening procedure (EIA).
The Cambridge Biotech HIV-1 Western Blot is manufactured from HIV-1
propagated in an H9/HTLV-IIIB T-Lymphocyte cell line. The virus is inactivated
and specific HIV-1 proteins are bound to a nitrocellulose strip. Each strip
contains all of the proteins and glycoproteins of HIV arranged in bands across
the strip in order of molecular weight. If HIV-1 antibodies are present in the
specimen, they will
6
bind to the viral antigens present on the nitrocellulose strip. The position of
bands on the nitrocellulose strips allows this antibody reactivity to be
associated with specific viral antigens.
The Company's urine-based supplemental test uses the same commercially
available Western Blot kit components as provided for the blood based Cambridge
Biotech supplemental test. The urine-based supplemental test requires
1.0 milliliter of urine added directly to the standard kit diluent and is
performed with additional times of incubation for the two detection steps as the
only changes in procedure. The same laboratory equipment is used for both the
blood and urine supplemental tests.
The Cambridge Biotech HIV-1 Western Blot kit for use with urine is dedicated
to urine testing by virtue of the urine Western Blot controls included with the
Western Blot blood kit and a different blot interpretation criterion. For urine,
blots showing the presence of a single band, gp160, equal to or greater
intensity than the low positive urine Western Blot control are interpreted as a
positive HIV-1 result. Urine blots have a lower indeterminate rate than blood,
allowing more definitive negative or positive results.
In December 1998, Calypte acquired from Cambridge Biotech certain assets
relating to the Western Blot product line for certain infectious diseases. The
acquisition included Cambridge Biotech's urine-based and serum-based HIV-1
Western Blot products, as well as supplemental test for Human T-Lymphotropic
Virus (HTLV). The Company has made significant investments in the Rockville
Facility to enhance manufacturing capability and establish quality system
compliance as a core competency.
THE CAMBRIDGE BIOTECH BLOOD-BASED HIV-1 SUPPLEMENTAL TEST
As the first of the four supplemental blot tests for blood HIV-1 antibodies
to be FDA-licensed, the Cambridge Biotech HIV-1 Western Blot kit has been in
commercial distribution for more than 9 years. Since the FDA's November 1999
approval of a "Day Assay" format, the supplemental test is available in both a
five-hour and an overnight format.
THE SENTINEL TESTING SERVICE
In May 2000, the Company launched its participation in a new national
urine-based testing service for HIV-1 antibody, chlamydia, and gonorrhea. The
service, called Sentinel-TM-, has been a collaboration between the Company,
Wampole Laboratories, a division of Carter-Wallace, Inc. and Clinical Reference
Laboratory. The service is a painless, non-invasive, urine-based sampling method
designed to identify HIV-1 antibody, and chlamydia and gonorrhea sexually
transmitted diseases ("STDs"). The Sentinel service provides a three-day
response and is priced below the Medicaid reimbursement level in most states.
The service is targeted to medical clinics, physicians, and community-based
organizations. The Company manufactures the HIV-1 antibody tests used in the
Sentinel service.
PRODUCTS UNDER DEVELOPMENT
The Company's research and development efforts are directed toward process
improvements and the development of select high-priority new diagnostic
products. Priority is determined on the basis of feasibility, probable cost to
develop, regulatory complexity, market size and competition.
RAPID TEST. The Company has investigated the feasibility of a rapid test in
response to the reports by the Center for Disease Control and Prevention (CDC)
on the value of immediate HIV antibody test results and development is in an
early stage. The high number of individuals who do not return for test results
and counseling constitutes a threat to the public health. In addition, in
emergency rooms, delivery rooms and other settings, there is an urgent need to
know the HIV status of the patient. Since AZT treatment of pregnant mothers,
even at delivery and for the newborn, has been shown to result in a substantial
decrease in HIV transmission, there appears to be a new market for the reliable
rapid test format. At this time, the Company believes it would be premature to
issue predictions as to the product's reliability and cost or the likelihood of
success and timing of product development.
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OTHER DIAGNOSTICS. The Company intends to develop additional or improved
urine and blood-based tests for other infectious and viral diseases. The Company
is focusing development on products which are complementary to its existing
product line and market opportunities. These may include development of
urine-based tests for assessment of liver and cardiac risk to be used in the
insurance underwriting industry and a supplemental test for HTLV.
OTC. The Company will continue to explore the potential for an
over-the-counter in-home urine collection kit for use in HIV diagnosis. However,
due to regulatory approval uncertainties and cost concerns, this is not a
high-priority development for the Company.
RESEARCH AND DEVELOPMENT SPENDING. The Company has invested the funds in
research and development that it believes to be necessary and appropriate to
bring its innovative HIV-1 urine-based screening test to the market. The Company
spent $2.3 million, $4.1 million and $3.9 million on product research and
development in 2000, 1999 and 1998, respectively. Future spending will be
devoted to product and process improvements and new product development and the
level of spending is expected to increase in 2001.
SALES, MARKETING AND DISTRIBUTION
The Company's marketing strategy is to use distributors, focused direct
selling, telemarketers, and direct mail to penetrate certain targeted domestic
markets. The Company maintains a small direct sales force to sell the Company's
HIV-1 screening test and potential future products to laboratories serving the
life insurance and other markets. International and other U.S. markets have been
addressed utilizing diagnostic product distributors. In late summer of 1998, the
Company began selling its urine-based HIV-1 test with the Western Blot
supplemental test in the U.S. To date, the Company has received approval for the
sale of its product outside of the U.S. in Indonesia, the Republic of South
Africa, the People's Republic of China, and Malaysia. Several international
approvals are pending, and the Company is working collaboratively with its
distributors to obtain regulatory approval to market and promote the products in
their local markets.
The Company anticipates that a portion of its revenues for the next several
years will be derived from international distributor sales. International sales
and operations involve a number of inherent risks and may be limited or
disrupted by 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 exchange
rates. Certain of the Company's distributors have limited international
marketing experience, and there can be no assurance that the Company's
distributors will be able to market successfully the Company's products in any
international market.
8
The following table summarizes the markets and geographic regions covered by
the Company and its distributors for its HIV-1 tests. It includes distribution
arrangements that were in effect during 2000 and/or will be come effective in
the first half of 2001.
COMPANY GEOGRAPHIC REGION MARKETS
- ------- ----------------------------- -----------------------------
Calypte...................... United States Laboratories serving the life
insurance testing market
Calypte...................... Canada All
Wampole Laboratories......... United States All but the above
laboratories
Organon-Teknika.............. Worldwide Serum HIV-1 Western Blot
products
Ortho Clinical Diagnostics... Worldwide Serum HIV-1 Western Blot
products
Otsuka....................... Japan All
Teva Medical Ltd............. Israel All
Pacific Business
Development, Inc........... South Korea All
Chemitech International
Company.................... Egypt, Oman, Yemen, Kuwait, All
Jordan, Lebanon, United
Arab Emirates
POS Biological Espana,
S.L........................ Spain and Portugal All
Uni-Health Services Sdn.
Bhd........................ Malaysia All
BioBras S.A.................. Brazil All
American Edge Medical
Company.................... Sub-Saharan Africa All
Beijing Hua Ai Science and
Technology Development Co.
Ltd........................ People's Republic of China All
The agreements generally have terms of from one to three years. Continuing
exclusivity and agreement renewal or extension is typically dependent upon
specific minimum purchases following successful local regulatory approval of the
product.
The Company's products represent an alternative to the blood-based method of
determining the presence of HIV antibodies and there can be no assurance that
these products will gain any significant degree of market acceptance among
physicians, patients or health care payors, even if necessary international and
U.S. regulatory and reimbursement approvals are obtained. The Company believes
that recommendations and endorsements by the medical community will be essential
for market acceptance of the products, and there can be no assurance that any
such recommendations or endorsements will be obtained. The Company has little
experience marketing and selling its products either directly or through its
distributors. The Company's marketing strategy relies upon its alliance with
third-party distributors for the success of its products. There can be no
assurance that the Company's direct sales force will be effective, that its
distributors will market successfully the Company's products or that, if such
relationships are terminated, the Company will be able to establish
relationships with other distributors on satisfactory terms, if at all. Any
disruption in the Company's distribution, sales or marketing network, or failure
of the Company's products to achieve market acceptance, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
9
In 2000, the Company's revenue from product sales totaled $3.3 million. Over
96% of Calypte's 2000 product sales revenues arose from sales to customers in
the United States. Due to an unexpected delay in obtaining FDA approval for its
Alameda, California manufacturing facility the Company had a $502,000 backlog of
unfilled orders at December 31, 2000.
The Company is currently negotiating with other potential distributors of
its HIV product line in various countries, including Mexico and Taiwan.
MANUFACTURING
The manufacture of the Company's urine-based HIV test involves antigen
production, plate processing and preparation of certain washes and other
reagents. All processes are carried out under FDA Good Manufacturing Practices
("GMP") regulations. Antigen production involves cell culture, antigen
expression and purification. Following purification, the antigen is tested
extensively and optimized for plate coating. The coating of standard 96 well
microtiter plates with antigen is completed using standard plate coating
equipment. Following binding of the antigen to the plates, the plates are
blocked and stabilized to prevent nonspecific binding of the antigen. The plates
are then dried and packaged in foil pouches. The washes and reagents are
produced using standard solution preparation techniques.
In January 2001, Calypte's Alameda, California manufacturing facility was
granted "pre-market approval" by the U.S. Food and Drug Administration (FDA).
The capacity of the Alameda facility is approximately 20 million tests per year
and is expected to significantly increase the Company's production and
distribution capabilities. In addition, Calypte expects to significantly reduce
its overhead costs by consolidating its West Coast manufacturing and
distribution operations with its headquarters offices. The Company closed its
Berkeley site in February 2001. The Company's other manufacturing site, located
in Rockville, Maryland, remains in operation.
In December 1998, the Company acquired certain assets of Cambridge Biotech
Corporation, including the manufacturing facilities for its HIV-1 product line
in Rockville, Maryland. The Rockville facility also has an approved Biologics
License ("BL") from the FDA for the urine and blood-based Western Blots.
In May 1999, the Company received a Warning Letter from the FDA following an
inspection by the FDA of its manufacturing plant in Rockville, Maryland. The
Warning Letter was based upon an inspection of the Rockville manufacturing
facility that was conducted between November 20 and December 11, 1998, which
cited a number of significant observations. 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 and is awaiting
the FDA's reply. On March 21, 2000, the Company received a response from the FDA
requesting additional information. The Company 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 its responses appeared to be satisfactory
and will be verified during a subsequent inspection.
Although the FDA indicates it is currently satisfied with the Company's
responses, if the FDA subsequently determines that it is not satisfied with the
Company's responses and corrective actions regarding these matters 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.
10
Calypte purchases raw materials and uses components in the manufacture of
its products that it obtains from various suppliers and relies on single sources
for a few of these components. Establishment of additional or replacement
suppliers for these components cannot be accomplished quickly. The Company uses
some single-source components, and any delay or interruption in supply of these
components could significantly impair the Company's ability to manufacture
products in sufficient quantities, particularly as Calypte increases
manufacturing activities in support of commercial sales.
The Company has limited experience in the commercial-scale manufacture of
its products. The Company currently manufactures its products for sale, for
submission to FDA for ongoing compliance, for clinical trials, and for building
its inventory. Calypte may encounter difficulties in scaling-up production of
its products, including problems involving production yields, quality control
and assurance, raw material supply and shortages of qualified personnel. Due to
Calypte's limited manufacturing experience, its estimates with regard to these
and other operational requirements may be incomplete or inaccurate and
unanticipated events and circumstances are likely to occur. Difficulties
encountered by the Company in manufacturing scale-up to meet demand could have a
material adverse effect on its business, financial condition and results of
operations.
Due to the nature of its manufacturing processes, the Company is subject to
stringent federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, discharge,
handling and disposal of certain materials and wastes. There can be no assurance
that the Company will not be required to incur significant costs to comply with
land use and environmental regulations as manufacturing is scaled-up to
commercial levels, nor that the operations, business or financial condition of
the Company will not be materially and adversely affected by current or future
environmental laws, rules, regulations and policies. There can be no assurance
that the Company will be able to obtain and maintain all required permits in
connection with the operation of its manufacturing facilities. When the Company
begins to produce products on a larger commercial scale, it will be a
significant user and disposer of water. The disposal of water used in the
Company's manufacturing processes must comply with applicable federal, state and
local environmental protection laws, and compliance with these laws may be
costly and difficult.
The manufacturing facility in Maryland is a specialized facility
incorporating Biosafety Level 3 controls for the manipulation of potentially
infectious biological agents (HIV and HTLV viruses) as well as the use of
hazardous chemical materials. As such, this facility and the products
manufactured there are subject to rigorous Federal, State and local regulatory
controls including registration, licensing and specific material use permits.
Should it become necessary at some future point to move the Maryland operations
to a different location, significant costs, time and resources would likely be
required to validate such a transfer and obtain the required regulatory
clearances.
TECHNOLOGY
The Company's HIV-1 urine-based test is based on the finding of scientists
at the New York University Medical Center in 1988 that antibodies to HIV-1 could
be found in urine. Prior to this discovery, it was commonly held that antibodies
to systemic infections could not pass through the kidneys, and thus, could not
be found in the urine of infected individuals. The researchers showed that
antibodies to HIV-1 envelope antigens were present in all urine samples from
HIV-1 seropositive subjects. Building on this discovery, the Company developed
an HIV-1 urine enzyme immunoassay ("EIA") to detect antibodies to HIV-1 in
urine. There are two proprietary features of the Company's HIV-1 urine-based EIA
that result in a format sensitive enough to detect the low levels of HIV
antibodies in urine: the antigen target and the sample buffer in the assay.
Recognizing the prominence of envelope antibodies in urine, the antigen
target in the assay is a full length, recombinant glycosylated HIV-1 envelope
protein, rgp160. Although this antigen is a recombinant glycoprotein, it is
identical to the viral envelope protein gp160 in amino acid sequence and in the
presence
11
of carbohydrate at glycosylation sites. This kind of antigen target can
efficiently capture the full range of HIV-1 envelope specific antibodies
produced in the human polyclonal response to the virus. The microwell assay
format permits the high availability of epitopes of the recombinant envelope
glycoprotein for antibody binding. This availability of epitopes results in the
sensitivity verified in clinical trials.
The Company has non-exclusive rights to the proprietary process used to
express the recombinant HIV-1 envelope glycoprotein from Texas A&M University.
This proprietary process for manufacture of rgp160 begins with the baculovirus
expression vector system established in an insect cell culture. The consistent
and high levels of rgp160 expression in baculovirus infected insect cell culture
is a critical step in the overall manufacturing of rgp160. The Company improved
and upgraded the Repligen Corporation ("Repligen") process with a proprietary
process which uses a system in which the HIV-1 envelope protein is produced in
the insect cell membrane rather than typical tissue culture systems where the
protein is secreted into insect cell culture media. Rgp160 is an insoluble
protein and requires detergent based extraction and purification procedures
which are proprietary.
The Company developed and has obtained a U.S. patent claiming a sample
buffer formulation, which is used in the HIV-1 urine test. This sample buffer
acts as a diluent for urine in the assay procedure and significantly increases
test specificity by reducing non-specific binding of immunoglobulins
(non-specific antibodies) and other substances in urine that would decrease
specificity and sensitivity of HIV-1 antibody binding. Sample buffer is
manufactured in the Company's Alameda, California facility.
The Company's products incorporate established immunoassay technology based
on antibody-antigen reactions. Antibodies are immune system proteins produced as
a result of an organism's immune response to substances (antigens) foreign to
the body and specifically bind to antigens and signal the immune system to
assist in eliminating them. Immunoassays are used for diagnostic applications
where the presence or absence of a specific analyte is being evaluated and allow
the detection of some analytes at levels as low as one part per billion.
Antigens include viruses, bacteria, parasites, chemical toxins and other foreign
substances and hormones.
The HIV-1 urine assay format includes a standard 96 well microtiter plate
which is compatible with standard laboratory instrumentation. The microwell
plates are coated with proprietary recombinant HIV-1 envelope protein antigen.
Patient urine and the unique specimen diluent are introduced to the microwell
simultaneously. If HIV-1 antibodies are present, they bind to the antigen coated
well and remain during the subsequent wash steps. An enzyme labeled conjugate is
added to the well. This conjugate binds specifically to human antibody which
remains from the previous step. Following another wash, substrate reagent is
added and color development occurs due to the presence of the enzyme conjugate
in the well. This color is measured spectrophotometrically on a standard
laboratory microwell plate reader. The presence of HIV antibody in the specimen
is indicated by the development of color in the microwell, and the intensity of
the color is proportional to the amount of antibody.
The Company's HIV-1 urine-based supplemental test uses the Cambridge Biotech
HIV-1 Western Blot kit with a procedure developed by Calypte for testing urine
specimens. The Cambridge Biotech HIV-1 Western Blot kit is based on the
combination of electrophoretic separation of complex mixtures of proteins with
the highly sensitive immunoblotting technique. This method has been highly
useful in characterizing the antigenic profile of HIV-1 and describing the
immune response to HIV-1 in the serum/plasma of exposed or infected persons.
The Cambridge Biotech HIV-1 Western Blot kit is used for testing both blood
and urine specimens. The manufacture of the kit involves the production of an
inactivated, partially purified HIV-1 lysate from HIV-1 propagated in an
H9/HTLV-III(b) T-lymphcyte cell line. HIV-1 proteins are separated by molecular
size using gel electrophoresis of the lysate in the presence of detergent
(sodium dodecylsulfate). These separated HIV-1 proteins are electrotransferred
from gel to a nitrocellulose membrane which is washed, blocked to minimize non-
specific immunoglobulin binding and packaged. The kit provides controls and
components which enable the detection and visualization of HIV-1 antibodies
present in the specimen
12
incubated with individual nitrocellulose membrane strips. Bands corresponding to
specific location of HIV-1 proteins are used to interpret a positive, negative
or indeterminate result.
INVESTMENT IN PEPGEN
In October 1995 Calypte purchased an equity interest in Pepgen Corporation
("Pepgen"), a development-stage therapeutic research and drug development
company with two lead compounds. The first compound is an interferon product,
called interferon-tau, which early animal trials have shown to be promising both
as an anti-viral and anti-tumor agent with less toxicity than other interferons.
In February 1999, Pepgen received clearance from the FDA to commence Phase I
human clinical trials of interferon-tau for patients who have multiple
sclerosis. Pepgen's second lead compound is hybrid interferon alpha. Preliminary
studies indicate that hybrid interferon alpha shows lower levels of toxicity
than currently available alpha interferons while retaining the anti-viral and
anti-tumor activity of alpha interferon. Pepgen expects to conduct additional IN
VITRO and IN VIVO preclinical studies on hybrid interferon alpha and, if such
studies are successful, Pepgen plans to submit an investigational new drug
application (IND) to the FDA.
The Company purchased its equity position in Pepgen for $2.5 million,
comprised of $1.0 million paid at closing, $1.0 million payable to Pepgen
pursuant to a promissory note and options to purchase the Company's Common Stock
valued at $500,000. The $1.0 million promissory note balance was paid in
October 1996. The options were granted to Pepgen shareholders for the purchase
of an aggregate of 475,000 shares of the Company's Common Stock at a price of
$7.50 per share, of which 100,000 shares were immediately exercisable and the
remaining 375,000 shares are exercisable upon attainment of certain milestones.
The options expire at the earlier of September 2005 or three years after
becoming exercisable. In addition, Calypte is entitled to elect one of the four
Board members of Pepgen.
During 1998, the Company loaned Pepgen $768,000 at an interest rate of 10%.
The loan was subsequently written off as research and development expense in
1999. Additional amounts totaling $63,000 were spent on research and development
related to Pepgen during 1999. In October 1999, Pepgen secured $3.8 million in a
new round of financing, reducing the Company's equity interest to 38%. In June
2000, Pepgen secured an additional $2.0 million in another round of financing,
further reducing the Company's equity interest to 29%. See Note 12 in the
Consolidated Financial Statements.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company believes that its future success will depend in large part on
its ability to protect its patents and proprietary rights. Accordingly, the
Company's ability to compete effectively will depend in part on its ability to
develop and maintain proprietary aspects of its technology. The Company has two
U.S. patents, one pending U.S. patent application, six foreign patents, and
eight pending foreign patent applications. In addition, the Company currently
has the right to utilize certain patents and proprietary rights under licensing
agreements with New York University ("NYU"), Cambridge Biotech Corporation,
Repligen, and Texas A&M University System. These license arrangements secure
intellectual property rights for the manufacture and sale of the Company's
products.
The Company has licensed from NYU, on an exclusive basis, a U.S. patent for
the detection of antibodies to HIV in urine. The rights under the license extend
until the expiration of the U.S. patent in 2009 provided the Company makes
certain payments. The Company has the right to make, use, sell and sublicense
products utilizing the technology described in the patent and is obligated to
make certain fixed and royalty payments to NYU to maintain exclusivity of the
license. In connection with the NYU license, the Company also funded research at
NYU through 1999. The Company has exclusive worldwide license to NYU inventions
that arise from the research funded by the Company.
The Company has sublicensed from Cambridge Biotech Corporation proprietary
technology related to the HIV envelope glycoprotein. The sublicense grants to
the Company a non-exclusive worldwide
13
sublicense to make, have made, use and sell products that relate to the licensed
technology. The Company is required to pay Cambridge Biotech Corporation
royalties on products incorporating the licensed technology. The license extends
until the expiration of the licensed patents in 2005, although the Company can
terminate the agreement at any time upon 30 day's written notice.
The Company has been granted a non-exclusive license from Texas A&M
University to make, have made, use and sell products based on its proprietary
recombinant expression systems. The Company is required to pay certain fixed and
royalty payments to Texas A&M University on net sales varying with the content
of Texas A&M's technology in the Company's products.
The Company licensed from Repligen HIV-1 gp160 recombinant virus seed stock.
The Company has been granted (i) an exclusive license to make, have made, use
and sell products incorporating this material for diagnostic purposes, and
(ii) non-exclusive license to make, have made, use and sell the gp160 seed stock
for research purposes. For seven years beginning on the date the Company first
realizes net sales from products incorporating gp160, the Company must pay to
Repligen certain royalties on net sales derived from such products and certain
royalties on net sublicensing revenue derived from sales of products
incorporating gp160.
In the event that the Company does not develop alternate sources of
revenues, its obligation to make minimum royalty payments under licenses
requiring such payments could have a material adverse impact on the Company's
results of operations. Failure to make required minimum royalty payments may
also result in the loss by the Company of exclusivity under, or termination of,
such certain licenses.
The HIV testing industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Litigation or
interference proceedings could result in significant diversion of efforts by the
Company's management and technical personnel. There are a number of filed and
issued patents involved with the detection of HIV antibodies. One such patent is
currently owned by Chiron Corporation. While the Company, based on the opinion
of its patent counsel, believes that its urine-based HIV-1 screening test does
not infringe the Chiron patent, there can be no assurances that Chiron will not
assert such claims against the Company. Patent litigation can be costly and
protracted. The expense of litigating a claim against the Company for patent
infringement could have a material adverse effect on the Company's business,
financial condition and results of operations. In the event that the Company was
found to be infringing a validly issued patent, and the Company could not obtain
a license to such patent on reasonable terms, the Company could be forced to pay
damages, obtain a license to such patent at a significantly higher rate or,
possibly, remove its urine-based HIV-1 screening test from the market. Such an
event would have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, there can be no assurance that competitors, many of which have
substantial resources and have made substantial investments in competing
technologies, do not have, or will not seek to apply for and obtain, patents
that will prevent, limit or interfere with the Company's ability to make, use or
sell its products either in the U.S. or in international markets. There can be
no assurance that the Company will not be required to obtain additional cross
licenses in the future or that the Company will not in the future become subject
to patent infringement claims and litigation or interference proceedings
declared by the U.S. Patent and Trademark Office ("USPTO") to determine the
priority of inventions. The defense and prosecution of intellectual property
suits, USPTO interference proceedings and related legal and administrative
proceedings are both costly and time consuming. Litigation may be necessary to
enforce patents issued to or licensed by the Company, to protect trade secrets
or know-how owned by the Company or to determine the enforceability, scope and
validity of the proprietary rights of others.
Although patent and intellectual property disputes in the medical diagnostic
area have often been settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial and could include ongoing
royalties. Furthermore, there can be no assurance that necessary licenses would
be available to the Company on satisfactory terms if at all. Adverse
determinations in a
14
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing and selling its products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to maintain exclusivity under or maintain its current license
agreements. Termination of any of these licenses could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company relies on trade secrets and proprietary know-how, which it seeks
to protect, in part, through appropriate confidentiality and proprietary
information agreements. These agreements generally provide that all confidential
information developed or made known to the individual by the Company during the
course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties, except in specific
circumstances. The agreements generally provide that all inventions conceived by
the individual in the course of rendering services to the Company shall be the
exclusive property of the Company; however, certain of the Company's agreements
with consultants, who typically are employed on a full-time basis by academic
institutions or hospitals, do not contain assignment of invention provisions.
There can be no assurance that proprietary information or confidentiality
agreements with employees, consultants and others will not be breached, that the
Company would have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known to or independently developed by
competitors.
GOVERNMENT REGULATION
OVERVIEW
The Company's products are subject to extensive regulation by the FDA and,
to varying degrees, by state and foreign regulatory agencies. The Company's
products are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act
(the "Act"), as amended by the Medical Device Amendments of 1976, the Safe
Medical Devices Act of 1990, and the FDA Modernization Act of 1997 among other
laws. Under the Act, the FDA regulates the preclinical and clinical testing,
manufacturing, labeling, distribution, sale and promotion of medical devices in
the U.S. The FDA prohibits a device, whether or not cleared under a 510(k)
premarket notification, or approved under a pre-market approval ("PMA") or a
biologics license application, from being marketed for unapproved uses. If the
FDA believes that a company is not in compliance with the regulations, it can
institute proceedings to detain or seize a product, issue a recall, prohibit
marketing and sales of the company's products and assess civil and criminal
penalties against the company, its officers or its employees. Furthermore, the
Company plans to sell products in certain foreign countries which impose local
regulatory requirements. The preparation of required applications and subsequent
FDA and foreign regulatory approval process is expensive, lengthy and uncertain.
Failure to comply with FDA and foreign regulatory requirements could result in
civil monetary penalties or criminal sanctions, restrictions on or injunctions
against marketing of the Company's products. Additional enforcement actions may
potentially include seizure or recall of the Company's products, and other
regulatory action. There can be no assurance that the Company will be able to
obtain necessary regulatory approvals or clearances in a timely manner or at
all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, or failure
to comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
HIV-1 SCREENING AND SUPPLEMENTAL TESTS
The Company's HIV-1 screening and supplemental tests are regulated by the
FDA Center for Biologics Evaluation and Research. When the screening test was
submitted to the FDA in September 1992, the FDA required a product license
application ("PLA") and an establishment licensing application ("ELA") for the
Company's Berkeley, California manufacturing facility. In August 1996, the
Company received a product license and an establishment license from the FDA to
manufacture and sell, in
15
interstate and foreign commerce, the Company's urine-based HIV-1 screening test
for use in laboratory settings.
In December 1998, Calypte acquired the assets relating to the Western Blot
product line of Cambridge Biotech Corporation for HIV-1. Both the urine and
serum-based HIV-1 Western Blot products have received a product license and an
establishment license from the FDA. In March 1999, the licenses were transferred
from Cambridge Biotech Corporation to Calypte and replaced with a Biologics
License ("BL"). In January 2001, the HIV-1 screening test was transferred from
the biologics license to an approved PMA application concurrent with the
approval of the Company's Alameda, California manufacturing facility.
MANUFACTURING FACILITIES
The FDA requires the Company's products to be manufactured in compliance
with GMP regulations. In addition, the Company is subject to certain additional
manufacturing regulations imposed by the State of California and the State of
Maryland for the Rockville facility where the blots are manufactured. These
regulations require that the Company manufacture its products and maintain
related documentation for testing and control activities. The Company's
facilities and manufacturing processes have been periodically inspected by the
FDA and other agencies and remain subject to audit from time to time. The
Company believes that it is in substantial compliance with all applicable
federal and state regulations. Nevertheless, there can be no assurance its
manufacturing facilities will satisfy FDA GMP or California and Maryland
manufacturing requirements. Enforcement of the GMP regulations has increased
significantly in the last several years, and the FDA has publicly stated that
compliance will be more strictly enforced. In the event that the FDA determines
the Company to be out of compliance with its regulations and to the extent that
the Company is unable to convince the FDA of the adequacy of its compliance, the
FDA has the power to assert penalties, including injunctions or temporary
suspension of shipment until compliance is achieved. In addition, the FDA will
not approve a biologics license or PMA if the facility is found in noncompliance
with GMPs. Such penalties could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Manufacturing"
section with respect to Warning Letters received by the Company from the FDA in
November, 1998 and May 1999 and observations made in subsequent FDA inspections.
In addition, the manufacture, sale or use of the Company's products are
subject to regulation by other federal entities, such as the Occupational Safety
and Health Agency, the Environmental Protection Agency, and by various state
agencies, including the California Environmental Protection Agency. Federal and
state regulations regarding the manufacture, sale or use of the Company's
products are subject to future change, and these changes could have a material
adverse effect on the Company's business, financial condition and results of
operations.
PRODUCT LIABILITY AND RECALL RISK; LIMITED INSURANCE COVERAGE. The
manufacture and sale of medical diagnostic products subject Calypte 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.
16
INTERNATIONAL
Distribution of the Company's products outside the United States is also
subject to regulatory requirements that vary from country to country. In a
number of foreign countries, FDA approval is required prior to approval in that
country. The export by the Company of certain of its products that have not yet
been approved for domestic commercial distribution may be subject to FDA export
restrictions. Approval and registration processes are underway in several
countries including Brazil, South Korea, Hungary, Philippines, and Mexico. To
date, in countries operating their own agencies for the evaluation and
registration of HIV testing kits, the Company has received approval in Malaysia
and The People's Republic of China. Additionally, the HIV screening test has
been authorized for importation into The Republic of South Afica. Failure to
obtain additional regulatory approvals or failure to comply with regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
Competition in the IN VITRO diagnostic market is intense and expected to
increase. Within the United States, the Company will face competition from a
number of well-established manufacturers of blood-based HIV tests, plus at least
one system for the detection of HIV antibodies using oral fluid samples. In
addition, the Company may face intense competition from competitors with
significantly greater financial, marketing and distribution resources than the
Company.
The suppliers of blood-based HIV tests in the United States include Abbott
Laboratories ("Abbott"), Organon-Teknika Corporation ("Organon-Teknika"), Ortho
Clinical Diagnostics ("Ortho") and Bio-Rad Laboratories ("Bio-Rad"). All of
these companies have many years of HIV market experience, and they typically
offer a number of different testing products. Abbott, Bio-Rad and Ortho
currently sell FDA-licensed blood-based HIV-1/HIV-2 combination tests on the
market in the United States, and other companies may be developing HIV-1/HIV-2
products.
The Company believes that HIV screening tests designed to use oral fluid may
offer significant competition to the Company's urine-based HIV-1 screening test.
The OraSure-TM- collection device manufactured by OraSure, Inc., formerly
Epitope, Inc., used in conjunction with an HIV-1 EIA manufactured by
Organon-Teknika received FDA approval for marketing in the United States in
December 1994. In June 1996, Epitope received approval from the FDA for a
western blot oral-fluid confirmatory test.
The Company is not aware of any competitors which have submitted urine-based
HIV screening tests to the FDA, but there can be no assurance that such tests
will not be submitted in the future for approval by the FDA. The Company is
aware of only one other manufacturer, Murex Corporation ("Murex"), now owned by
Abbott Laboratories which has publicly announced urine capability for an HIV
test. Murex manufactures a number of HIV assays in microtiter format. The
Company is not aware that any of these assays have been submitted to the FDA for
review. One such microtiter assay, "gacelisa," is intended for use on saliva and
urine samples but is marketed only outside of the U.S. primarily as a research
assay. Murex markets one HIV product in the U.S., the FDA-licensed SUDS rapid
test, which is intended for use on serum and plasma only. Although urine
capability for this test has been reported in scientific literature, the Company
is not aware of any applications for expanded sampling claims for this assay. In
addition, the SUDS assay format is not conducive to high-volume testing.
Essentially all of the Company's competitors actively market their
diagnostic products outside of the U.S. In addition, outside of the U.S., where
the regulatory requirements for HIV screening tests are less demanding than
those of the FDA, a much wider range of competitors can be found. Manufacturers
from Japan, Canada, Europe, and Australia offer a number of HIV screening tests
in those markets including HIV-1/HIV-2 tests, rapid tests and other non-EIA
format tests, which are not approved for sale in the U.S. market. There can be
no assurances that the Company's products will compete effectively against these
products in foreign markets, or that these competing products will not achieve
FDA approval.
17
EMPLOYEES
As of December 31, 2000, the Company had 65 full time employees, six of whom
were engaged in or directly supported the Company's research and development
activities, 43 of whom were in manufacturing, facilities and quality assurance,
five of whom were in marketing and sales and 11 of whom were in administration.
The Company's employees are not represented by a union or collective bargaining
entity. The Company believes its relations with its employees are good.
SCIENTIFIC ADVISORY BOARD
The Scientific Advisory Board is composed of certain of the Company's
scientists and other leading scientists who have been actively involved in
pioneering HIV research. Scientific Advisory Board members meet as a group and
individually with management and key scientific employees of the Company on an
as-needed basis. Scientific Advisory Board members have taken an active role in
helping the Company identify scientific and product development opportunities
and recruiting and evaluating the Company's scientific staff. The Company has
granted options to acquire its Common Stock to members of the Scientific
Advisory Board.
The members of the Scientific Advisory Board and their experience are set
forth below:
ABUL K. ABBAS, M.D., Professor, Chairman, Department of Pathology,
University of California, San Francisco Medical Center. Dr. Abul Abbas is an
expert in the cellular interactions and cytokine regulation of the immune
response. Professor Abbas received his M.D. in India in 1968 and interned at
Harvard Medical School in 1970. He held the position of Professor of Pathology
at Harvard University Medical School from 1991 to 1999. Professor Abbas has also
received the Parke-Davis Award for Experimental Pathology (1987).
MARIO CLERICI, M.D., Associate Professor, Department of Immunology,
University of Milan, Italy. Dr. Clerici is a medical researcher with expertise
in the field of AIDS and HIV research. He is listed in Science Magazine as one
of the top ten quoted AIDS researchers from 1993-1995, and as a co-discoverer of
individuals with natural resistance to HIV. Dr. Clerici graduated in 1985 from
the University of Milan.
ALVIN FRIEDMAN-KIEN, M.D., Professor, New York University Medical Center,
New York. Since 1994, Dr. Friedman-Kien has been a Professor of Microbiology and
Dermatology at New York University Medical Center and Bellevue Hospital.
Dr. Friedman-Kien is a clinician and researcher with expertise in the field of
AIDS and AIDS related opportunistic infections. In particular, Professor
Friedman-Kien is an expert in the etiological relationship between HIV and other
human viruses. The detection of antibodies to HIV in urine was first reported by
Dr. Friedman-Kien. Dr. Friedman-Kien graduated in 1956 with a B.A. degree from
Brown University and received an M.D. degree from Yale University Medical School
in 1960.
TOBY D. GOTTFRIED, PH.D. has served as the Company's Director of Research
and Development since joining the Company in 1988. From 1983 until 1988 she was
a founding Senior Scientist of Carcinex Corporation, a cancer therapeutic
company. From 1978 until 1980, Dr. Gottfried was a scientist at the Hepatitis
Research Laboratory of the University of California, San Francisco Medical
Center. Her post-doctoral fellowship from 1980 until 1988 at the University of
California, Berkeley, was in the area of monoclonal antibody attachment to
toxins for targeting cancer cells. Dr. Gottfried received her Ph.D. in
Biochemistry from the University of Pennsylvania and her B.S. from Cornell
University.
NORMAN KLINMAN, M.D., PH.D., Member, Department of Immunology, The Scripps
Research Institute, La Jolla, California. Dr. Klinman received his M.D. in 1962
and Ph.D. in Microbiology in 1965 from the University of Pennsylvania. He served
on the faculty of the Department of Pathology and Microbiology at the University
of Pennsylvania for 10 years before accepting his current position in 1978 in
the Department of Immunology at Scripps.
DANIEL LANDERS, M.D., Director for the Division of Reproductive and
Infectious Diseases and Immunology, Department of Obstetrics, Gynecology &
Reproductive Sciences, Magee-Womens Hospital at the
18
University of Pittsburgh. From 1992 to 1995, Dr. Landers was Associate Professor
for the Department of Obstetrics, Gynecology and Reproductive Sciences at UCSF.
He is a well-known expert in sexually transmitted diseases in women, and the
recipient of numerous awards, including the Susman Memorial Award for the
Infectious Diseases Society of America, Young Investigator Award for Infectious
Disease Society for OB/GYN, an NIH Physician-Scientist Award, and the Pediatric
AIDS Foundation Scholar Award. He received his M.D. in 1980 at UCSF.
LUC MONTAGNIER, M.D., Director of Viral Oncology, Pasteur Institute, Paris,
France. Professor Montagnier began his career as a researcher at the Centre
National de la Recherche Scientifique. In 1972, he joined the Pasteur Institute
and formed the Division of Viral Oncology. In 1983, he discovered the HIV virus
and showed its etiologic role in AIDS. In 1985, his research team isolated the
second human AIDS virus (HIV-2) from West African patients. In 1998, Professor
Montagnier expanded his research efforts to the United States by accepting an
endowed professorship at Queens College, New York. He is in charge of the Center
for Molecular and Cellular Biology, where research efforts are focused on HIV
therapeutics and vaccines. Professor Montagnier also continues his research
efforts in Paris at both the Pasteur Institute and his World Foundation AIDS
Research and Prevention. Among the numerous honors and prizes received by
Professor Montagnier are the Rosen Price (1971), The Gallien Prize (1985), the
Lasker Prize (1986), the Gairdner Price (1987), the Japan Prize (1988), and the
Amsterdam Prize (1994). He is also a Comandeur de l'Ordre National merite and is
a Director of the French National Center of Scientific Research.
HOWARD B. URNOVITZ, PH.D. is the Company's Chief Science Officer, a
Director, and its founder. Prior to founding the Company in 1988, Dr. Urnovitz
was a Senior Scientist at the Institute of Cancer Research in San Francisco from
1985 to 1987. He was Director of Molecular and Cellular Engineering at Xoma
Corporation, a biotechnology corporation, from 1983 to 1985. Prior to this, he
was Director of the Hybridoma Laboratory at the University of Iowa.
Dr. Urnovitz received a B.S. in Microbiology and a Ph.D. in Microbiology from
the University of Michigan, and completed a post-doctoral study at Washington
University.
RISK FACTORS
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 2. PROPERTIES
The Company leases approximately 22,000 square feet of office, research, and
manufacturing space in Alameda, California under a lease that expires in
November 2003 and includes an option to renew for one five-year period. The
Company closed its Berkeley, California manufacturing facility in February 2001
after relocating all of its West Coast manufacturing operations to its Alameda
facility following that facility's approval by the FDA.
Calypte also subleases properties in Rockville, Maryland. The sublease of
approximately 42,000 square feet of office and manufacturing space expires in
October 2006. The Company believes that existing facilities are adequate to
support its activities for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
For a discussion on the submission of matters to a vote of the security
holders at the Company's 2000 annual meeting, please see the Company's quarterly
report on Form 10-Q for the period ended June 30, 2000.
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock commenced trading on the NASDAQ SmallCap Market
on July 26, 1996 under the symbol "CALY." High and low sales prices reported by
NASDAQ during the periods indicated are shown below.
FISCAL YEAR QUARTER HIGH LOW
- ----------- -------- -------- --------
2000........................................................ 1st 7.250 2.188
2000........................................................ 2nd 3.250 1.750
2000........................................................ 3rd 5.125 1.281
2000........................................................ 4th 2.875 1.000
1999........................................................ 1st 4.500 1.500
1999........................................................ 2nd 3.063 1.000
1999........................................................ 3rd 2.375 0.844
1999........................................................ 4th 2.063 0.688
On February 27, 2001, there were 316 holders of record of the Common Stock,
and the closing price of the Common Stock was $1.125. The Company has never paid
any cash dividends, and the Board of Directors does not anticipate paying cash
dividends in the foreseeable future. The Company intends to retain any future
earnings to provide funds for the operation and expansion of its business.
SALES OF COMMON STOCK
The Company and Townsbury Investments Limited ("TIL") signed a common stock
purchase agreement dated as of November 2, 2000, subsequently amended on
January 24, 2001 for the future issuance and purchase of the Company's common
stock. The initial closing of the transaction took place on November 2, 2000.
The stock purchase agreement established what is sometimes termed an equity line
of credit or an equity draw down facility. In general, the draw down facility
operates to allow the investor, TIL, who 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 TIL will provide to the Company and the number of
shares that will be issued to TIL 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. TIL receives a 5% discount to the
market price for the 22 day period and the Company receives the settled amount
of the draw down. In addition, the Company issued a 3-year warrant to TIL to
purchase up to 1,000,000 shares of its stock at an exercise price of $1.55 per
share.
The Company is to pay a 5% brokerage fee, upon each settlement of a draw
down request, to Ladenburg Thalmann & Co., an investment bank which introduced
the Company to TIL. The net proceeds from the sale of common stock are to be
utilized to fund Calypte's continuing operations, provided that, so long as
there continues to be an outstanding amount on the Company's convertible
debentures (described in "Subsequent Events" below), one-half of the net
proceeds must be paid to the debentureholder(s) against such outstanding amount.
The shares that will be issued in draw-downs under the equity line are
20
exempt from registration with the Securities and Exchange Commission pursuant to
Section 4(2) of the Securities Act of 1933 as amended ("Securities Act").
Number of shares registered for resale (1).................. 6,085,018
Aggregate proceeds (1)...................................... Up to
$25,000,000
Price per share............................................. See Note (2)
Form S-3 Filing Date (3).................................... November 3, 2000
Form S-3 File Number (3).................................... 333-49246
- ------------------------
(1) The number of shares that the Company will sell and the aggregate proceeds
are directly related to the trading price of its common stock during each
draw down period. As the price of the Company's common stock decreases, and
if the Company decides to draw down on the equity line of credit, it will be
required to issue more shares of its common stock for any given dollar
amount invested by TIL. Contractually, the Company can sell up to 5,085,018
shares of our common stock under the equity line of credit without seeking
stockholder approval to sell additional shares. An additional 1 million
shares are issuable upon the exercise of warrants issued to TIL.
(2) The shares issued during each 22-day draw down period are sold to TIL at a
5% discount to the volume-weighted average price for such period.
(3) The Company withdrew its registration statement on Form S-3 on January 19,
2001 as it believed that it was unable to proceed with the financing under
the agreed terms of the stock purchase agreement because the staff of the
Securities and Exchange Commission had questioned whether the transaction
between the Company and TIL met the requirements for use of Form S-3 in
connection with the resale of the common stock issued to TIL pursuant to the
stock purchase agreement. The Company thereafter amended the equity line and
filed a new registration statement on Form S-2 (registration number
333-54316) on January 25, 2001, subsequently amended on February 9, 2001.
The registration statement became effective on February 12, 2001.
SUBSEQUENT EVENT
On January 22, 2001, the Company signed an agreement to place up to
$1.1 million in convertible short-term debentures. Under this arrangement, the
Company has the right to issue two convertible debentures to the debentureholder
with a principal amount of $550,000 each at a 6% interest rate. Each debenture
will be issued at an original issue discount of 9.1% and will mature 90 days
from the date of issue. Under the terms of the debentures, the debentureholder
can elect at any time prior to maturity to convert the balance outstanding on
the debentures into shares of the Company's common stock at a fixed price that
represents a 5% discount to the average trading price of the shares for the 10
trading days preceding the issuance of each debenture. If the Company chooses
not to redeem the debentures upon maturity, the conversion discount to the
debentureholder increases to 15% of the average low bid price for our common
stock for any three of the 22 trading days prior to the date of conversion. The
Company issued the first debenture on January 24, 2001. On that date, the
Company also issued a warrant to the debentureholder for 200,000 shares of
common stock at an exercise price of $1.50. The Company is obligated to file a
registration statement for the shares issuable upon conversion of the debentures
and warrants with the SEC by April 15, 2001. The Company may issue the second
debenture, at its sole discretion, 30 days following the issuance of the first
debenture. If the Company issues both debentures, it expects to receive
aggregate net proceeds under the two debentures of approximately $925,000.
21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Presented below is the selected consolidated financial data for the years
ended December 31, 2000, 1999, 1998, 1997 and 1996 (in thousands).
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales....................................... $ 3,296 $ 3,728 $ 951 $ 376 $ 130
-------- -------- ------- ------- --------
Total revenue..................................... 3,296 3,728 951 376 130
-------- -------- ------- ------- --------
Operating expenses:
Product costs....................................... 5,891 4,721 1,912 2,305 1,085
Research and development............................ 2,254 4,123 3,881 3,685 5,751
Selling, general and administrative................. 7,568 5,081 3,925 2,317 3,333
-------- -------- ------- ------- --------
Total expenses.................................... 15,713 13,925 9,718 8,307 10,169
-------- -------- ------- ------- --------
Loss from operations............................ (12,417) (10,197) (8,767) (7,931) (10,039)
Interest income (expense), net........................ 166 171 308 139 (74)
Other income.......................................... 9 2 1 -- 15
-------- -------- ------- ------- --------
Loss before income taxes and extraordinary
item.......................................... (12,242) (10,024) (8,458) (7,792) (10,098)
Income taxes.......................................... (2) (2) (2) (2) (2)
-------- -------- ------- ------- --------
Net loss........................................ (12,244) (10,026) (8,460) (7,794) (10,100)
Less dividend on mandatorily redeemable Series A
preferred stock..................................... (120) (120) (120) (120) (120)
-------- -------- ------- ------- --------
Net loss attributable to common stockholders.... $(12,364) $(10,146) $(8,580) $(7,914) $(10,220)
======== ======== ======= ======= ========
Net loss per share attributable to common
stockholders.................................. $ (0.52) $ (0.52) $ (0.64) $ (0.72) $ (1.17)
======== ======== ======= ======= ========
Weighted average shares used to compute net loss
per share attributable to common
stockholders.................................. 23,859 19,333 13,432 11,028 8,753
======== ======== ======= ======= ========
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 723 $ 2,652 $ 3,121 $ 10,820 $ 7,924
Securities available for sale............................ -- 503 650 -- --
Working capital (deficit)................................ (875) 1,860 4,444 8,917 6,067
Total assets............................................. 5,006 7,821 9,945 12,950 10,347
Long-term portion of capital lease obligations and notes
payable................................................ 78 50 23 282 764
Mandatorily redeemable Series A preferred stock.......... 2,336 2,216 2,096 1,976 1,856
Accumulated deficit...................................... (79,025) (66,781) (56,755) (48,295) (40,501)
Total stockholders' equity (deficit)..................... (1,531) 1,330 4,631 8,069 5,416
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Calypte's efforts currently are primarily focused on expanding the sales and
marketing of its HIV-1 urine-based and serum-based diagnostic tests and on
improving its products and processes. In the summer of 1998, upon receipt of
license for both its screening and supplemental tests, the Company began the
marketing and sale in the U.S. of the only available FDA-approved urine-based
HIV test methods. There can be no assurance the Company will have significant
revenues from sales of the HIV-1 urine screening assay or the supplemental test.
22
In December 1998, Calypte acquired from Cambridge Biotech certain assets
relating to the Western Blot product line for certain infectious diseases. The
acquisition included the urine-based and serum-based HIV-1 Western Blot
products, as well as a supplemental test for Human T-Lymphotropic Virus (HTLV).
The Company expects operating losses to continue in the near future as it
continues to expand its marketing and sales 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 will be 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.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Calypte's sales revenues decreased 12% from $3.7 million for the year ended
December 31, 1999 to $3.3 million for the year ended December 31, 2000. Sales of
Calypte's screening test were essentially unchanged between years. The impact of
so-called "Triple X" legislation, which essentially eliminated the availability
of 30-year life insurance policies after 1999, caused noticeable increases in
fourth quarter 1999 and first quarter 2000 revenues as testing associated with
final applications for 30-year policies was completed. International sales of
the Company's screening test were insignificant in 2000, but the Company expects
such sales to constitute an increasing proportion of revenues in 2001 and
thereafter now that we have received regulatory approval of the product in
countries such as the Republic of South Africa, the People's Republic of China,
and Malaysia. The Company is actively pursuing product approval in several other
countries. Sales of the Company's Western Blot supplemental tests declined in
2000 versus 1999, following a trend experienced for the past few years.
Increased sensitivity and specificity of screening tests and international
testing algorithms that do not always require a supplemental test continue to
make the supplemental test market a declining one. The Company expects revenues
from supplemental tests to increase in 2001, however, as a result of its
recently signed agreement to supply Organon-Technika with HIV-1 serum Western
Blot tests.
Product costs increased from $4.7 million in 1999 to $5.9 million in 2000,
an increase of 25%. Product costs for the Company's screening test decreased
slightly versus 1999 levels, primarily due to the requirement to produce
non-saleable validation inventory at the Company's Alameda manufacturing
facility in 1999 in anticipation of the facility's inspection and approval.
Although the facility did not produce non-saleable validation inventory in 2000,
the Company did incur duplicative costs for the operation of both its Alameda
and Berkeley screening test production facilities throughout 2000. Product costs
at the Company's supplemental test manufacturing facility increased noticeably
in 2000 compared to 1999 as the Company added personnel and made significant
expenditures to correct FDA inspection observation conditions and ensure
compliance with FDA and good manufacturing practices requirements.
Research and development expenses decreased from $4.1 million in 1999 to
$2.3 million in 2000, a 45% decrease. Included in 1999 research and development
expense was the $1.0 million write-off of a note receivable and accrued interest
from Pepgen. In 2000, the Company also renegotiated one of its license
agreements, significantly reducing the minimum annual payment under the
agreement that had been expensed as research and development. The Company also
experienced a reduction in the cost of clinical studies applicable to the FDA
approval for its Alameda facility during 2000. The Company expects research and
development expenditures to increase in 2001 as it continues to pursue product
improvements and new product development.
23
Selling, general and administrative expenses increased in 2000 by 49%
compared to 1999, from $5.1 million to $7.6 million. The increase is primarily
attributable to beginning commercialization initiatives designed to increase
awareness of the Company and its products among targeted audiences, including
government agencies and programs, public health, AIDS activist, and
community-based outreach groups, and within the investment community. The
Company also increased its use of consultants and other outside service
providers in projects as diverse as developing a new website to defining its
most attractive potential international markets. In conjunction with securing
new international distribution agreements, the Company also incurred an
increased level of travel and related costs in 2000.
Interest income decreased slightly in 2000 as a result of lower invested
cash balances compared to 1999. Interest expense also decreased slightly in 2000
as a result of scheduled principal repayments under the bank term loan agreement
and the capital lease obligations.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Calypte's product sales increased by 289% to $3.7 million for the year ended
December 31, 1999 compared to $951,000 for the year ended December 31, 1998.
$2.5 million of the increase in sales revenues in 1999 is due to the inclusion
of product sales related to the December 1998 acquisition of certain assets of
Cambridge Biotech Corporation. Sales of Calypte's HIV-1 urine screening test
also increased compared to 1998.
Product costs increased by 147% to $4.7 million for the year ended
December 31, 1999 compared to $2.8 million for the year ended December 31, 1998.
The increase was a result of increased sales volume of the Company's HIV-1
screening test, an increase of $2.0 million in costs from product sales related
to acquired assets of Cambridge Biotech Corporation and costs associated with
the production of non-saleable inventory during the validation of the Company's
Alameda manufacturing facility.
Research and development expenses increased by 6% to $4.1 million for the
year ended December 31, 1999 versus $3.9 million for the prior year. The
increase is a result of higher minimum product license fees, the write-off of
the notes and accrued interest from Pepgen as research and development costs and
the expense of consultants and other costs associated with the validation of the
Alameda manufacturing facility, offset by a reduction in research and
development personnel and the cost of clinical investigations.
Selling, general and administrative expenses increased 29% to $5.1 million
for the year ended December 31, 1999 versus $3.9 million for the year ended
December 31, 1998. The increase results primarily from the inclusion for the
entire year of 1999 of general and administrative expenses related to the
Maryland manufacturing facility acquired from Cambridge Biotech Corporation in
December 1998, offset by a reduction in the use of consultants in 1999.
Interest income and other income, net of interest expense, decreased by 44%
to $173,000 for the year ended December 31, 1999 from $309,000 for the year
ended December 31, 1998. The decrease was primarily due to a reduction in
interest earned on cash balances and securities available for sale coupled with
an increase in interest expense related to borrowings under the bank line of
credit.
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, its 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 January 1999, the Company completed a private placement of 3,102,500
shares of Common Stock to institutional investors at $1.00 per share. Calypte
received net proceeds of approximately $3.1 million
24
after deducting placement agent commissions and additional expenses associated
with the private placement.
In April 1999, the Company completed a private placement of 3,398,000 shares
of its Common Stock to institutional investors at $2.25 per share. Calypte
received net proceeds of approximately $6.8 million after deducting agent
commissions and additional expenses associated with the private placement.
In January 1999, the Company entered into a loan agreement with a bank to
borrow up to $2.0 million at an interest rate of prime plus 1 1/4%. The
agreement requires the Company to maintain certain financial covenants and
comply with certain reporting and other requirements. In addition, the Company's
assets secure its borrowings under the agreement. In January 2000, the loan was
modified to extend the repayment term through August 2000. In May 2000, the loan
was again modified to increase the then outstanding principal balance by
$250,000. At December 31, 2000 the Company had $471,000 outstanding under this
facility. The loan was repaid in full in January 2001.
In April 2000, the Company completed a private placement of 4,096,000 shares
of its Common Stock at $2.05 per share. The Company received proceeds of
approximately $8.3 million, after deducting expenses associated with the
transaction. In connection with a bridge loan of $1 million from one of the
investors, Calypte also issued warrants for 100,000 shares of Common Stock with
an exercise price of $3.62 per share. The bridge loan was converted to equity
upon closing of the private placement.
On January 22, 2001, the Company signed an agreement to place up to
$1.1 million in convertible short-term debentures. Under this arrangement, the
Company has the right to issue two convertible debentures to the debentureholder
with a principal amount of $550,000 each at a 6% interest rate. Each debenture
will be issued at an original issue discount of 9.1% and will mature 90 days
from the date of issue. Under the terms of the debentures, the debentureholder
can elect at any time prior to maturity to convert the balance outstanding on
the debentures into shares of the Company's common stock at a fixed price that
represents a 5% discount to the average trading price of the shares for the 10
trading days preceding the issuance of each debenture. If the Company chooses
not to redeem the debentures upon maturity, the conversion discount to the
debentureholder increases to 15% of the average low bid price for our common
stock for any three of the 22 trading days prior to the date of conversion. The
Company issued the first debenture on January 24, 2001. On that date, the
Company also issued a warrant to the debentureholder for 200,000 shares of
common stock at an exercise price of $1.50. The Company is obligated to file a
registration statement for the shares issuable upon conversion of the debentures
and warrants with the SEC by April 15, 2001. The Company may issue the second
debenture, at its sole discretion, 30 days following the issuance of the first
debenture. If the Company issues both debentures, it expects to receive
aggregate net proceeds under the two debentures of approximately $925,000.
On January 24, 2001 the Company amended a common stock purchase agreement
for the future issuance and purchase of the Company's common stock. The initial
closing of the transaction took place on November 2, 2000. The stock purchase
agreement establishes what is sometimes termed an equity line of credit or an
equity draw down facility. In general TIL 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 TIL will provide to the Company and the number of
shares the Company will issue to TIL 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. TIL receives a 5% discount to the
market price for the 22 day period and the Company receives the settled amount
of the draw down. In addition, the Company issued a 3-year warrant to TIL to
purchase up to 1,000,000 shares of its stock at an exercise price of $1.55 per
share.
The Company does not believe that current cash will be sufficient to meet
the Company's current and ongoing operating expenses and capital requirements
and it is continuing to explore financing alternatives.
25
The Company's future liquidity and capital requirements will depend on numerous
factors, including market acceptance of its products, improvements in the costs
and efficiency of its manufacturing processes, regulatory actions by the FDA and
other international regulatory bodies, intellectual property protection, and the
ability to raise additional capital in a timely manner.
The report of KPMG LLP covering the December 31, 2000 consolidated financial
statements contains an explanatory paragraph that states that the Company's
recurring losses from operations and accumulated deficit raise substantial doubt
about its ability to continue as a going concern.
There can be no assurance that the Company will be able to achieve
improvements in its manufacturing processes 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. There can be no
assurance that the Company will raise additional capital that will be required
or that such capital will be available on acceptable terms, if at all. Any
failure to raise additional financing will likely place us in significant
financial jeopardy. Therefore, the Company cannot predict the current or future
adequacy of its capital resources.
OPERATING ACTIVITIES
For the years ended December 31, 2000 and 1999, the Company's cash used in
operations was $10.7 million and $8.0 million, respectively. The cash used in
operations was primarily to fund research and development as well as
manufacturing expenses related to the urine-based and serum-based HIV-1 tests
along with selling, general and administrative expenses of the Company.
RISK FACTORS
In addition to the other information in this Prospectus or incorporated
herein by reference, the following risk factors should be considered carefully
in evaluating our business before purchasing the shares offered in this
Prospectus.
UNCERTAIN MARKET ACCEPTANCE OF THE COMPANY'S UNIQUE METHOD OF DETERMINING
THE PRESENCE OF HIV ANTIBODIES.
The Company's products incorporate a unique method of determining the
presence of HIV antibodies. There can be no assurance that the Company 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.
The Company has FDA approval to market its urine HIV-1 screening and
supplemental tests and test kits in the United States and it has been marketing
these products since July, 1998. To date, however, these products have only
generated limited revenues and not achieved significant market penetration. The
failure of the Company's products to obtain market acceptance could cause us to
cease operations.
THE COMPANY HAS LIMITED EXPERIENCE SELLING AND MARKETING OUR HIV-1
URINE-BASED SCREENING TEST.
The Company has limited experience marketing and selling its products either
directly or through its distributors. The success of its products depends upon
alliances with third-party distributors. There can be no assurance that:
- the Company's direct selling efforts will be effective;
- the Company's distributors will successfully market its products; or
- if the Company's relationships with distributors terminate, it will be
able to establish relationships with other distributors on satisfactory
terms, if at all.
26
Any disruption in its distribution, sales or marketing network could reduce
the Company's sales revenues and cause it to expend more resources on market
penetration.
THE COMPANY'S DISTRIBUTION AND SALES NETWORK FOR U.S. HOSPITALS, PUBLIC
HEALTH AND REFERENCE LABORATORY MARKETS HAS THUS FAR FAILED TO YIELD SIGNIFICANT
SALES AND REVENUES.
The Company has 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. Those arrangements have thus
far failed to yield significant sales and revenues. The Company is continuing to
examine alternative approaches to penetrate domestic healthcare markets
including restructuring its existing distribution relationships and expanding
its direct sales efforts. If the Company's efforts to market our products to
domestic hospitals, public health and reference laboratories fail to yield
significant amounts of revenues, the Company may have to cease operations.
THE COMPANY HAS SUSTAINED LOSSES IN THE PAST AND EXPECTS TO SUSTAIN LOSSES
IN THE FUTURE.
The Company has incurred losses in each year since our inception. The
Company's net loss for the year ended December 31, 2000 was $12.2 million and
our accumulated deficit as of December 31, 2000 was $79.0 million. The Company
expects operating losses to continue as it continues its marketing and sales
activities of its FDA-approved products and conduct additional research and
development for subsequent products.
THE COMPANY'S QUARTERLY RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY,
MARKETING AND COMPETITIVE FACTORS OVER WHICH IT HAS LITTLE OR NO CONTROL.
The factors listed below, some of which the Company cannot control, may
cause its revenues and results of operations to fluctuate significantly:
- actions taken by the FDA or foreign regulatory bodies relating to the
Company's products;
- the extent to which the Company's products gain market acceptance;
- the timing and size of distributor purchases; and
- introductions of alternative means for testing for HIV by competitors.
THE COMPANY MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING THAT IT WILL NEED
IN THE FUTURE.
The report of KPMG LLP covering the December 31, 2000, consolidated
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations and accumulated deficit raise
substantial doubt about its 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. The Company will need to raise more
money to continue to finance our operations. The Company may not be able to
obtain additional financing on acceptable terms, or at all. Any failure to raise
additional financing will likely place the Company in significant financial
jeopardy.
THE COMPANY DEPENDS UPON THE VIABILITY OF THREE PRODUCTS--ITS HIV-1
URINE-BASED SCREENING TEST ITS URINE AND BLOOD-BASED SUPPLEMENTAL TESTS.
The Company's HIV-1 urine-based screening test and its urine and blood-based
supplemental tests are its only products. Accordingly, the Company may have to
cease operations if its tests fail to achieve market acceptance or generate
significant revenues.
27
THE COMPANY'S PRODUCTS DEPEND UPON RIGHTS TO TECHNOLOGY THAT IT HAS LICENSED
FROM THIRD PARTY PATENT HOLDERS AND THERE CAN BE NO ASSURANCE THAT THE RIGHTS IT
HAS UNDER THESE LICENSING AGREEMENTS ARE SUFFICIENT OR THAT THE COMPANY CAN
ADEQUATELY PROTECT THOSE RIGHTS.
The Company currently has the right to use patent and proprietary rights
that are material to the manufacture and sale of its HIV-1 urine-based screening
test under licensing agreements with New York University, Repligen and the Texas
A&M University System. The Company also has the right to use patent and
proprietary rights that are material to the manufacture and sale of its HIV-1
serum-based supplemental test under a licensing agreement with National
Institutes of Health.
THE COMPANY RELIES ON SOLE SOURCE SUPPLIERS THAT IT CANNOT QUICKLY REPLACE
FOR CERTAIN COMPONENTS CRITICAL TO THE MANUFACTURE OF ITS PRODUCTS.
Any delay or interruption in the supply of these components could have a
material adverse effect on the Company by significantly impairing its ability to
manufacture products in sufficient quantities, particularly as the Company
increases its manufacturing activities in support of commercial sales.
THE COMPANY HAS LIMITED EXPERIENCE IN MANUFACTURING ITS PRODUCTS AND LITTLE
EXPERIENCE IN MANUFACTURING ITS PRODUCTS IN COMMERCIAL QUANTITIES.
The Company 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 THE COMPANY'S PLANS TO ENTER INTERNATIONAL MARKETS MAY BE
LIMITED OR DISRUPTED DUE TO RISKS RELATED TO INTERNATIONAL TRADE AND MARKETING
AND THE CAPABILITIES OF ITS DISTRIBUTORS.
The Company anticipates that international distributor sales will generate a
significant portion of its revenues for the next several years. The Company
believes that its 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 following risks may limit or
disrupt the Company's 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 exchange rates.
Some of the Company's distributors have limited international marketing
experience. There can be no assurance that these distributors will be able to
market successfully the Company's products in foreign markets.
28
THE COMPANY FACES INTENSE COMPETITION IN THE MEDICAL DIAGNOSTIC PRODUCTS
MARKET AND RAPID TECHNOLOGICAL ADVANCES BY COMPETITORS.
Competition in the Company's diagnostic market is intense and it is expected
to increase. Within the United States, the Company's 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 the Company's competitors have significantly greater financial,
marketing and distribution resources than it does. The Company's competitors may
succeed in developing or marketing technologies and products that are more
effective than its own. These developments could render the Company's
technologies or products obsolete or noncompetitive or otherwise effect its
ability to increase or maintain our products' market share.
THE COMPANY'S ABILITY TO MARKET ITS PRODUCTS DEPENDS UPON OBTAINING AND
MAINTAINING FDA AND FOREIGN REGULATORY APPROVALS.
Numerous governmental authorities in the United States and other countries
regulate the Company's products. The FDA regulates the Company's 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 the Company fails to comply with FDA regulations, or the
FDA believes that it is not in compliance with such regulations, the FDA can:
- detain or seize the Company's products;
- issue a recall of the Company's products;
- prohibit marketing and sales of the Company's products; and
- assess civil and criminal penalties against the Company, its officers or
employees.
The Company also plans to sell its 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 the Company by delaying or reducing the growth in its sales revenue or
causing it to expend more resources to penetrate its target markets. The
regulatory approval process in the United States and other countries is
expensive, lengthy and uncertain. The Company may not obtain necessary
regulatory approvals or clearances in a timely manner, if at all. The Company
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 the Company by disrupting its marketing and sales
efforts.
IN THE PAST THE COMPANY RECEIVED A WARNING LETTER FROM THE FDA REGARDING THE
SUFFICIENCY OF ITS MANUFACTURING RECORDS AND PRODUCTION PROCEDURES IN ITS
ROCKVILLE, MARYLAND FACILITY AND THE COMPANY MUST CONTINUE TO SATISFY THE FDA'S
CONCERNS IN ORDER TO AVOID REGULATORY ACTION AGAINST IT.
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 its 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 Company's
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. The Company 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 its responses
appeared to be satisfactory and will be verified during a subsequent inspection.
Although the FDA indicates that it is currently satisfied with the Company's
29
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 of 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 its ability to manufacture and ship its products.
THE COMPANY'S RESEARCH AND DEVELOPMENT OF HIV URINE TESTS INVOLVES THE
CONTROLLED USE OF HAZARDOUS MATERIALS.
There can be no assurance that the Company's safety procedures for handling
and disposing of hazardous materials such as azide will comply with applicable
regulations. In addition, the Company cannot eliminate the risk of accidental
contamination or injury from these materials. The Company may be held liable for
damages from such an accident and that liability could have a material adverse
effect on us.
THE COMPANY MAY NOT BE ABLE TO RETAIN ITS KEY EXECUTIVES AND RESEARCH AND
DEVELOPMENT PERSONNEL.
As a small company with only 65 employees, the Company's 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 the Company.
AS A SMALL MANUFACTURER OF A MEDICAL DIAGNOSTIC PRODUCT, THE COMPANY IS
EXPOSED TO PRODUCT LIABILITY AND RECALL RISKS FOR WHICH INSURANCE COVERAGE IS
EXPENSIVE, LIMITED AND POTENTIALLY INADEQUATE.
The Company manufacture medical diagnostic products which subjects it 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 which exceeds its insurance coverage could
have a material adverse effect on the Company. The Company maintains a
$10,000,000 claims-made policy of product liability insurance. However, product
liability insurance is expensive. In the future the Company may not be able to
obtain coverage on acceptable terms, if at all. Moreover, the Company's
insurance coverage may not adequately protect it from liabilities which it incur
in connection with clinical trials or sales of its products.
THE COMPANY'S CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER.
Certain provisions of the Company's Certificate of Incorporation and Bylaws
could:
- discourage potential acquisition proposals;
- delay or prevent a change in control of the Company;
- diminish stockholders' opportunities to participate in tender offers for
the Company's common stock, including tender offers at prices above the
then current market price; or
- inhibit increases in the market price of the Company's common stock that
could result from takeover attempts.
THE COMPANY HAS ADOPTED A STOCKHOLDER RIGHTS PLAN THAT HAS CERTAIN
ANTI-TAKEOVER EFFECTS.
On December 15, 1998, the Board of Directors of the Company declared a
dividend distribution of one preferred share purchase right for each outstanding
share of Common Stock of the Company. The dividend is 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
30
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 us because the rights do not become
exercisable in the event of an offer or other acquisition exempted by the
Company's Board of Directors.
AN INVESTOR'S ABILITY TO TRADE THE COMPANY'S COMMON STOCK MAY BE LIMITED BY
TRADING VOLUME.
The trading volume in the Company's common shares has been relatively
limited. A consistently active trading market for the Company's common stock may
not continue. The average daily trading volume in the Company's common shares on
the Nasdaq SmallCap Market was approximately 375,000 shares for the twelve
months ending December 31, 2000. The Company's daily trading volume during that
period ranged from 17,800 to 22,257,600 shares.
THE COMPANY MAY BE REMOVED FROM THE NASDAQ SMALLCAP MARKET IF IT FAILS TO
MEET CERTAIN MAINTENANCE CRITERIA.
The Nasdaq Stock Market inquired on two occasions whether the Company
continues to meet the maintenance criteria for trading on the Nasdaq SmallCap
Market. At the close of our most recently reported fiscal quarter, December 31,
2000, we did not meet all of the maintenance criteria. Our ability to meet the
criteria will depend on 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 and whether we continue to meet at least
one of the following three criteria:
- our net tangible assets equal at least $2.0 million;
- our market capitalization is equal to $35.0 million in public float; or
- we recognized net income of at least $500,000 in our most recent fiscal
year or in two of our three previous fiscal years.
As of December 31, 2000, our net tangible assets were ($1.5) million. Our
market capitalization has fluctuated between $23.7 million and $48.8 million
since November 1, 2000. At the close of business on February 28, 2001, our
market capitalization was approximately $25.4 million in public float. We also
have not recognized net income in any of our previous fiscal years.
We currently expect that our access to funds under the equity line of credit
will enhance our ability to meet the Nasdaq net tangible asset criteria.
Nonetheless, we cannot ensure that we will be able to meet Nasdaq's maintenance
criteria. Also, the minimum daily trading price for our common stock has
exceeded $1.00 per share for the twelve months ending December 31, 2000. If the
market capitalization of Calypte remains constant, a 19.9% increase in the
number of our common shares through sales under the equity line of credit could
cause the corresponding price of our shares to trade closer to or below the
maintenance criteria.
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. In addition, we would no longer meet one of the conditions that must be
satisfied before TIL is obligated to purchase our shares pursuant to the equity
line of credit. In such an event, we might have to seek alternate sources of
financing.
31
THE PRICE OF THE COMPANY'S COMMON STOCK HAS BEEN HIGHLY VOLATILE DUE TO
SEVERAL FACTORS WHICH WILL CONTINUE TO AFFECT THE PRICE OF ITS STOCK.
The Company's common stock has traded as low as $1.00 per share and as high
as $7.25 per share in the twelve months ending December 31, 2000. Some of the
factors leading to this volatility include:
- price and volume fluctuations in the stock market at large which do not
relate to the Company's operating performance;
- fluctuations in the Company's operating results;
- announcements of technological innovations or new products which we or the
Company's competitors make;
- FDA and international regulatory actions;
- availability of reimbursement for use of the Company 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 the Company,
- other medical products companies or the medical product industry
generally; and
- fluctuations in market demand for and supply of the Company's products.
THE COMPANY AND THE PRICE OF ITS STOCK MAY BE ADVERSELY AFFECTED BY THE
PUBLIC SALE OF A SIGNIFICANT NUMBER OF THE SHARES ELIGIBLE FOR FUTURE SALE.
All outstanding shares of the Company's common stock are freely tradable.
Sales of common stock in the public market could materially adversely affect the
market price of its common stock. Such sales also may inhibit our ability to
obtain future equity or equity-related financing on acceptable terms.
THE ISSUANCE OF STOCK PURSUANT TO THE EQUITY LINE OF CREDIT AND THE
CONVERTIBLE DEBENTURES MAY SUBSTANTIALLY DILUTE THE INTERESTS OF OTHER SECURITY
HOLDERS.
The shares issuable to TIL pursuant to the equity line of credit will be
issued at a 5% discount to the average daily price of the Company's common
stock. Accordingly, the shares of common stock then outstanding will be diluted.
Depending on the price per share of the Company's common stock during the twelve
month period of the equity line of credit, the Company 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 the Company's common
stock.
In addition, the holder(s) of the Company's convertible debenture(s) may
elect to convert the debenture(s) into shares of the Company's common stock at
any time at a discount of 5% to the average daily price of the Company's common
stock as of the issuance of the debenture(s). If the Company fails to redeem the
debenture(s) when due, the discount increases to 15% as of the time of
conversion.
32
THE COMPANY CANNOT DETERMINE THE PRECISE AMOUNT BY WHICH THE INTERESTS OF
OTHER SECURITY HOLDERS WILL BE DILUTED BY DRAW DOWNS UNDER THE EQUITY LINE OF
CREDIT AND THE POSSIBLE CONVERSION OF THE CONVERTIBLE DEBENTURE(S) BECAUSE THE
COMPANY'S DECISIONS ON THE NUMBER, SIZE AND THE TIMING OF DRAW DOWNS AND THE
MINIMUM THRESHOLD PRICE FOR EACH DRAW DOWN AND THE POSSIBLE CONVERSION OF
CONVERTIBLE DEBENTURE(S) DEPENDS UPON A NUMBER OF FACTORS.
The Company has substantial discretion over the number, size and timing of
the draw downs that it will make under the equity line of credit. In addition,
at the time the Company makes each draw down request, it has the right to limit
the amount of dilution that will occur by setting a minimum threshold price
below which shares may not be sold in that draw down. However, if the Company
sets the minimum threshold price at a level high enough to limit the sale of its
shares, the amount of funds it can raise in that draw down will also be reduced.
Some of the factors that we will consider in determining the size and amount of
each draw down and the minimum threshold price are:
- the Company's short-term and long-term operating capital requirements;
- the Company's actual and projected revenues and expenses;
- the Company's assessment of general market and economic conditions;
- the Company's assessment of risks and opportunities in its targeted
markets;
- the availability and cost of alternative sources of financing; and
- the trading price of the Company's common stock and its expectations with
respect to its future trading price.
The Company's discretion with respect to the number, size and timing of each
draw down request is also subject to a number of contractual limitations.
In addition, the holder(s) of the convertible debenture(s) may elect to
convert the debenture(s) at any time. The conversion price of the debenture(s)
will also decrease if the debenture(s) are not redeemed when due.
THE COMPANY CANNOT DETERMINE THE PRECISE AMOUNT BY WHICH THE INTERESTS OF
OTHER SECURITY HOLDERS WILL BE DILUTED BY ITS SALES UNDER THE EQUITY LINE OF
CREDIT BECAUSE THE NUMBER OF SHARES THE COMPANY WILL SELL DEPENDS UPON THE
TRADING PRICE OF THE SHARES DURING EACH DRAW DOWN PERIOD.
The number of shares that the Company will sell is directly related to the
trading price of its common stock during each draw down period. As the price of
the Company's common stock decreases, and if the Company decides to draw down on
the equity line of credit, it will be required to issue more shares of our
common stock for any given dollar amount invested by TIL. Contractually, the
Company can sell up to 5,085,018 shares of our common stock under the equity
line of credit without seeking stockholder approval to sell additional shares.
Our common stock has traded as low as $1.00 per share and as high as $7.25 per
share during the twelve-month period ending December 31, 2000. If the daily
weighted average price of the Company's stock throughout each draw down period
is less than $5.00 per share and the Company chose to draw down the maximum
amount of funds possible under the equity line of credit, it could sell up to
the 5,085,018 shares available without stockholder approval. The Company's
decision on whether to seek stockholder approval to make additional draw downs
under the equity line of credit after it reaches the contractual limit would
depend upon the factors described in the preceding risk factor. If the daily
weighted average price of the Company's stock throughout each draw down period
equals or exceeds $5.00 per share, and the Company chooses to draw down the
maximum amount of funds available under the equity line of credit, it would sell
less than the maximum number of shares available without stockholder approval.
For instance, if the daily weighted average sale price is $6.00 per share, the
Company could sell up to 4,166,166 shares before drawing down the entire
$25 million available under the equity line of credit.
33
THE SALE OF MATERIAL AMOUNTS OF THE COMPANY'S COMMON STOCK COULD REDUCE THE
PRICE OF ITS COMMON STOCK AND ENCOURAGE SHORT SALES.
As the Company sells shares of its common stock to TIL pursuant to the
equity line of credit and then TIL sells the common stock, the Company's common
stock price may decrease due to the additional shares in the market. The price
may also decrease if the holder(s) of the convertible debenture(s) elect to
convert the debentures into common stock and to sell the common stock. As the
price of our common stock decreases, and if the Company decides to draw down on
the equity line of credit, it will be required to issue more shares of its
common stock for any given dollar amount invested by TIL, subject to a
designated minimum threshold price specified by us. This may encourage short
sales, which could place further downward pressure on the price of the Company's
common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing the income received from investments
without significantly increasing risk. Some of the securities that the Company
may invest in may be subject to market risk. This means that a change in
prevailing interest rates may cause the value of the investment to fluctuate.
For example, if the Company purchases a security that was issued with a fixed
interest rate and the prevailing interest rate later rises, the value of our
investment will probably decline. To minimize this risk in the future, the
Company intends to maintain its portfolio of cash equivalents and short-term
investments in a variety of securities including commercial paper, money market
funds and government and non-government debt securities. In general, money
market funds are not subject to market risk because the interest paid on such
funds fluctuates with the prevailing interest rate. As of December 31, 2000, the
Company neither had any holdings of derivative financial or commodity
instruments, nor any foreign currency denominated transactions, and all of its
cash and cash equivalents were in money market and checking funds.
The Company had a term loan outstanding at December 31, 2000, which is
carried at cost (see Note 7 to the Consolidated Financial Statements) with an
interest rate which is referenced to market rates. Interest rate changes
generally do not affect the fair value of variable rate debt instruments, but do
impact future earnings and cash flows. Holding debt levels constant, a one
percentage point increase in interest rates would decrease earnings and cash
flows for variable rate debt by approximately $5,000. In January 2001 the
Company repaid the outstanding balance and the term loan terminated.
The Company's Series A redeemable preferred stock is carried at its
redemption value which approximates fair value and it is not subject to interest
rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements are included on pages F-1
through F-29 of this Annual Report on Form 10-K.
The following table presents summarized historical quarterly results of
operations for each of the fiscal quarters in the Company's fiscal years ended
December 31, 2000 and 1999. These quarterly results are unaudited, but, in the
opinion of management, have been prepared on the same basis as the Company's
audited financial information and include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The data should be read in conjunction with the
Financial Statements and related notes included on pages F-1 through F-29 of
this Annual Report on Form 10-K.
The Company expects that its revenues and results of operations may
fluctuate significantly from quarter to quarter and will depend on a number of
factors, many of which are outside the Company's control. These factors include
actions relating to regulatory matters, the extent to which the Company's
products gain market acceptance, the timing and size of distributor purchases,
introduction of alternative means for testing for HIV, competition, the timing
and cost of new product introductions, and general economic conditions.
34
HISTORICAL QUARTERLY RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
RESTATED**
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 2000 QUARTER QUARTER QUARTER QUARTER
- ---------------------------- -------- -------- ---------- --------
Total revenue........................................... $ 1,098 $ 787 $ 835 $ 576
Operating expenses...................................... 3,270 4,092 3,999 4,352
Interest income (expense) and other income.............. (3) 100 61 17
Income taxes............................................ (2) -- -- --
Dividend on mandatorily redeemable Series A preferred
stock................................................. (30) (30) (30) (30)
======= ======= ======= =======
Net loss attributable to common stockholders............ $(2,207) $(3,235) $(3,133) $(3,789)
======= ======= ======= =======
Net loss per share attributable to common
stockholders*......................................... $ (0.11) $ (0.13) $ (0.13) $ (0.15)
======= ======= ======= =======
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1999 QUARTER QUARTER QUARTER QUARTER
- ---------------------------- -------- -------- -------- --------
Total revenue............................................ $ 834 $ 914 $ 1,077 $ 903
Operating expenses....................................... 3,787 3,248 3,447 3,443
Interest income (expense) and other income............... 29 69 45 30
Income taxes............................................. (2) -- -- --
Dividend on mandatorily redeemable Series A preferred
stock.................................................. (30) (30) (30) (30)
======= ======= ======= =======
Net loss attributable to common stockholders............. $(2,956) $(2,295) $(2,355) $(2,540)
======= ======= ======= =======
Net loss per share attributable to common
stockholders*.......................................... $ (0.18) $ (0.11) $ (0.12) $ (0.12)
======= ======= ======= =======
- ------------------------
* The sum of earnings per share for the four quarters is different from the
full year amount as a result of computing the quarterly and full year
amounts on the weighted average number of common shares outstanding in the
respective periods.
** The Company's third quarter 2000 results have been restated to reflect
adjustments found in its annual audit. Total revenue, operating expenses,
net loss attributable to common stockholders and net loss per share
attributable to common stockholders as previously reported were $1,077,000,
$4,167,000, $3,059,000 and $0.12, respectively.
During the quarter ended September 30, 2000, the Company recognized $242,000
in product sales revenue which related to transactions with two customers.
Upon further review of the transactions, it was determined that one
transaction in the amount of $86,000 should be recognized in the Company's
December 31, 2000 quarter and a second transaction in the amount of $156,000
should be recognized in 2001.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
35
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of February 28, 2000:
NAME AGE POSITION
- ---- -------- ------------------------------------------------
David E. Collins(3)(4)....................... 66 Chairman of the Board of Directors
Nancy E. Katz(5)............................. 41 President, Chief Executive Officer, Chief
Financial Officer and Member of the Board of
Directors
William A. Boeger(5)......................... 51 Member of the Board of Directors
Howard B. Urnovitz, Ph.D(5).................. 47 Chief Science Officer and Member of the Board of
Directors
John J. DiPietro (1)(4)...................... 42 Member of the Board of Directors
Paul Freiman(1)(2)(3)........................ 66 Member of the Board of Directors
Julius R. Krevans, M.D.(1)(2)(4)(5).......... 76 Member of the Board of Directors
Mark Novitch, M.D.(1)(2)(3)(4)............... 68 Member of the Board of Directors
Zafar Randawa, Ph.D(5)....................... 53 Member of the Board of Directors
Claudie Williams(2)(3)....................... 50 Member of the Board of Directors
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
(4) Member of the Compliance Committee
(5) Member of the Technology Committee
DAVID E. COLLINS was elected as the Company's Chairman of the Board in June
2000. He served as the Company's Vice Chairman of the Board of Directors from
December 1997 until June 2000, and has been a member of the Board of Directors
since December 1995. From October 1999 until June 2000 he also served as the
Company's Chief Executive Officer. From September 1989 until September 1994 he
served as Executive Vice President with Schering-Plough Corporation, a
pharmaceutical company, and President of the HealthCare Products division,
responsible for all over-the-counter ("OTC") and consumer health care products.
From February 1988 to August 1989, he was a founding partner of Galen Partners,
a venture capital firm. From July 1962 to February 1988, he held several
positions at Johnson & Johnson, including Vice Chairman of the Board of
Directors for Public Affairs & Planning and Vice Chairman for the Executive
Committee & Chairman of the Consumer Sector. Mr. Collins is also a member of the
Board of Directors of Ista Pharmaceutical, Inc., a public company, and
Lander, Inc., Advanced Corneal Systems, Inc., Beansprout Networks, Inc., and
Claneil Enterprises, Inc., all private companies. Mr. Collins received his
L.L.B. at Harvard Law School and his B.A. at the University of Notre Dame.
NANCY E. KATZ was elected the Company's President, Chief Executive Officer
and Chief Financial Officer in June 2000. From October 1999 until June 2000 she
was President, Chief Operating Officer and Chief Financial Officer of the
Company. She has also been a member of the Board since October 1999. Prior to
joining Calypte, Ms. Katz served as president of Zila Pharm Inc., a prescription
and non-prescription oral health care products company. From 1995 to 1998,
Ms. Katz led sales and marketing efforts for LifeScan, the diabetes testing
division of Johnson & Johnson. Ms. Katz also served as vice
36
president of U.S. marketing, directing LifeScan's marketing and customer call
center departments. During her seven-year career at Schering-Plough Healthcare
Products from 1987 to 1994, she held numerous positions including senior
director, and general manager, marketing director, Footcare New Products, and
product director, OTC New Products. Ms. Katz also held various product
management positions at Whitehall Laboratories, a division of American Home
Products, from 1981 to 1987. Ms. Katz is a member of the Board of Directors of
Neoprobe Corporation and Pepgen Corporation, a company in which Calypte has a
minority interest. Ms. Katz received her B.A. from the University of South
Florida.
WILLIAM A. BOEGER has served as a member of the Board since January 1994. He
is currently serving as a consultant to the Company under the terms of an
agreement extending through October 2001. From January 1994 until
September 1995, and from December 1997 until October 1999, Mr. Boeger also
served as the Company's President and Chief Executive Officer and as its
Chairman of the Board from January 1994 until June 2000. Mr. Boeger has been a
director of the Company since 1991. He is a founder and Managing General Partner
of Quest Ventures, a venture capital partnership. Prior to entering the venture
capital field, he worked in research at Harvard Medical School and Peter Bent
Brigham Hospital and served on the faculty of the Amos Tuck Business School at
Dartmouth College. Along with Dr. Urnovitz, the Company's Chief Science Officer,
Mr. Boeger announced the formation of Chronix Biomedical, a commercial company
that will focus on novel ways to detect aberrant genes in individuals with
chronic diseases in March, 2000. Mr. Boeger also serves on the Board of
Directors of IRIDEX Corporation, Cell Pathways, Inc., and several private
life-sciences companies and non-profit corporations. Mr. Boeger received his
M.B.A. from Harvard Business School and his B.S. from Williams College.
HOWARD B. URNOVITZ, Ph.D.is the founder of the Company and serves as Chief
Science Officer. Prior to founding the Company in 1988, Dr. Urnovitz was a
Senior Scientist at the Institute of Cancer Research in San Francisco from 1985
to 1987. He was Director of Molecular and Cellular Engineering at Xoma
Corporation, a biotechnology corporation, from 1983 to 1985. Prior to this, he
was Director of the Hybridoma Laboratory at the University of Iowa. Along with
Mr. Boeger, another member of the Company's Board of Directors, Dr. Urnovitz
announced the formation of Chronix Biomedical, a commercial company that will
focus on novel ways to detect aberrant genes in individuals with chronic
diseases in March, 2000. Dr. Urnovitz is Chairman and Chief Science Officer of
Chronix Biomedical. Dr. Urnovitz also serves as Science Director of both Chronic
Illness Research Foundation, a non-profit organization that conducts basic
research. Dr. Urnovitz received a B.S. in Microbiology and a Ph.D. in
Microbiology from the University of Michigan, and completed a post-doctoral
study at Washington University.
JOHN J. DIPIETRO was elected to the Company's Board of Directors in
October 1999. He also serves as a consultant to the Company under the terms of a
consulting contract extending through September 2001. He is presently the Chief
Financial Officer and Vice President--Finance and Administration of TriPath
Technology, Inc., a semi-conductor manufacturing company. He had served as the
Company's Chief Operating Officer, Vice President of Finance, Chief Financial
Officer and Secretary since December 1997. From October 1995 until
December 1997, he served as the Vice President of Finance, Chief Financial
Officer and Secretary. Prior to joining the Company, he was Vice President of
Finance, Chief Financial Officer and Secretary of Meris Laboratories, Inc., a
full service clinical laboratory, from 1991 until 1995. He is a Certified Public
Accountant and received his M.B.A. from the University of Chicago, Graduate
School of Business and a B.S. in Accounting from Lehigh University.
PAUL FREIMAN has served as a member of the Company's Board of Directors
since December 1997. He has served as the President and Chief Executive Officer
of Neurobiological Technologies, Inc since May 1997. In 1995, Mr. Freiman
retired from his position as Chairman and Chief Executive Officer of Syntex
Corporation, a pharmaceutical company. From 1962 until 1994, he held several
other positions at Syntex Corporation, including President and Chief Operating
Officer. Mr. Freiman is currently serving on the board of Penwest
Pharmaceuticals Corp., Neurobiological Technologies, Inc. and several other
biotechnology companies. He has been chairman of the Pharmaceutical
Manufacturers Association of
37
America (PhARMA) and has also chaired a number of key PhARMA committees.
Mr. Freiman is also an advisor to Burrill & Co., a San Francisco merchant bank.
JULIUS R. KREVANS, M.D. has served on the Company's Board of Directors
since March 1995. Dr. Krevans has been Chancellor Emeritus and Director of
International Medical Care at University of California at San Francisco since
1993. From 1982 until 1993, Dr. Krevans served as Chancellor at UCSF, and was
Dean of the School of Medicine at UCSF from 1971 until 1982. Prior to this,
Dr. Krevans served as Dean for Academic Affairs at John Hopkins University
School of Medicine where he also served on the faculty for 18 years and was
Professor of Medicine from 1968 until 1971. He is also Chairman of the Board of
Directors of Neoprobe Corporation. Dr. Krevans served as a director of Parnassus
Pharmaceuticals Incorporated, which was liquidated under Chapter 7 of the
Federal Bankruptcy Code in 1995. Dr. Krevans received his M.D. from New York
University, College of Medicine and completed a residency in Medicine at John
Hopkins University School of Medicine.
MARK NOVITCH, M.D. has served on the Company's Board of Directors since
September 1995. Dr. Novitch was a Professor of Health Care Sciences at George
Washington University from October 1994 to June 1997. He is presently an Adjunct
Professor at George Washington University Medical Center. Since 1993,
Dr. Novitch has also been a private consultant in the pharmaceutical industry.
From 1985 until 1993, he served in senior executive positions with the Upjohn
Company, a medical products company, including Vice Chairman of the Board of
Directors, Corporate Executive Vice President, Corporate Senior Vice President
for Scientific Administration and Corporate Vice President. Prior to this, for
14 years, Dr. Novitch served with the FDA where from 1983 until 1984 he was
Acting Commissioner. For seven years, Dr. Novitch was on the faculty at Harvard
Medical School. He is Chairman of the Board of Directors of Alkon, Inc. and is
also a member of the Board of Directors of Neurogen Corporation, Guidant
Corporation, Kos Pharmaceutical, and Alteon, Inc. Dr. Novitch received his A.B.
from Yale University, and his M.D. from the New York Medical College.
ZAFAR RANDAWA, PH.D. has served on the Company's Board of Directors since
December 1996. Dr. Randawa is currently the Director of the New Technology
Evaluation Division of Otsuka America Pharmaceutical, Inc. and has served in
this capacity since September 1995. From 1989 until September 1995, Dr. Randawa
served as a Chief Scientist at Otsuka America Pharmaceutical, Inc. Dr. Randawa
received his Ph.D. in Biochemistry at Oregon Health Sciences University, his
Master of Science degree in Biochemistry at Karachi University in Karachi,
Pakistan, his B.S. in Biochemistry from Karachi University and his B.S. in
Chemistry from Panjab University in Lahore, Pakistan.
CLAUDIE WILLIAMS was elected to the Board was elected to the Company's Board
of Directors in April 2000. Ms. Williams is currently Executive Vice President,
Mergers and Acquisitions of Claneil Enterprises, Inc., a private holding
company. Pursuant to an agreement in April, 2000 by which Trilobite Lakes Corp.,
a wholly owned subsidiary of Claneil, purchased 1,951,220 shares of Common Stock
of Calypte, Ms. Williams was designated by Trilobite to be nominated for
election to the Calypte Board of Directors. Prior to joining Claneil in
January 2000, Ms. Williams spent 24 years with Johnson & Johnson, Inc., where
she worked in both the pharmaceutical and consumer products businesses. From
1975 to 1992, Ms. Williams worked with McNeil Pharmaceutical, a Johnson &
Johnson company, where she held a variety of positions in domestic and
international marketing and sales. She served as Vice President of Product
Management and as a member of the Management Board from 1988 to 1992. From 1992
to 1999, Ms. Williams held various marketing and business development positions
with Johnson & Johnson Worldwide Consumer Franchises. From 1997 to 1998, she
served as Vice President, General Manager of the Rx-to OTC Skincare Business
Unit at Johnson & Johnson Consumer products and was a member of the operating
company's Management Board. Ms. Williams received her B.A. degree from the
University of California at Irvine.
38
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who own more than 10% of a registered
class of the Company's equity securities, to file report of ownership on Form 3
and changes in ownership on Form 4 or 5 with the Securities and Exchange
Commission and the National Association of Securities Dealers. Such officers,
directors and ten percent stockholders are also required by the Securities and
Exchange Commission rules to furnish the Company with copies of all
Section 16(a) forms that they file.
The Company believes that during fiscal year 2000, all the Reporting Persons
complied with all applicable filing requirements subject to the following
exceptions: Mr. Boeger had one late filing of a report on Form 4 with respect to
a stock option exercise and sale. Dr. Urnovitz had one late filing of a report
on Form 4 with respect to a stock sale.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
The Company's directors are reimbursed for their out-of-pocket travel
expenses associated with their attendance at Board meetings. Under the Company's
1995 Director Option Plan, non-employee directors of the Company are eligible to
receive grants of options to purchase shares of Common Stock.
The Company's Board of Directors adopted the Director Option Plan in
December 1995 and the stockholders approved it in 1996. It was most recently
amended at the Company's June 2000 Annual Stockholders' Meeting. Under the
Director Option Plan, the Company has reserved 850,000 shares of common stock
for issuance to the directors of the Company pursuant to nonstatutory stock
options. The Company's Board of Directors determines the number of shares of the
Company's stock that will be granted each year to newly-elected and re-elected
directors. Options may be granted under this plan to non-employee directors or
directors who also serve as consultants of the Company. Each option granted
under the Director Option Plan shall be exercisable at 100% of the fair market
value of the Company's common stock on the date such option was granted. Each
grant under the plan will vest monthly over the twelve month period commencing
with the director's date of election or re-election, provided that the option
will become vested and fully exercisable on the date of the next annual meeting
of stockholders if such meeting occurs less than one year after the date of the
grant. The plan shall be in effect for a term of ten years unless sooner
terminated under the Director Option Plan.
There were 101,500 Common Stock options granted in 2000 under the Director
Option Plan.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the years ended December 31, 2000, 1999 and 1998 to its Chief
Executive Officer and each of the other executive officers of the Company
(collectively, the "Named Executive Officers"). The compensation table excludes
other compensation in the form of perquisites and other personal benefits that
constitute the lesser of $50,000 or 10% of the total salary and bonus earned by
each of the named Executive Officers in each fiscal year.
39
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ALL OTHER
SECURITIES UNDERLYING OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) GRANTED (1) ($)
- --------------------------- -------- ---------- --------- ----------------------------- ------------
David E. Collins(2)............ 2000 65,750(3) 0 82,000(4) 3,750(5)
Chairman of the Board of 1999 26,500(3) 0 170,000(6) 7,083(7)
Directors, Former Chief 1998 0 0 3,000(8) 5,000(9)
Executive Officer
Nancy E. Katz(10).............. 2000 240,962 98,775(11) 300,000 0
President, Chief Executive 1999 42,308 0 450,000 0
Officer, Chief Financial
Officer and Member of the
Board of Directors
- ------------------------
(1) All figures in this column represent options to purchase the Company's
common stock.
(2) Mr. Collins was elected Chairman of the Board in June 2000. He served as
Vice Chairman of the Board of Directors from December 1997 through May 2000
and as member of the Board of Directors since December 1995. Mr. Collins
also served as Chief Executive Officer from October 1999 to June 2000.
(3) Represents amounts paid pursuant to the October 1999 Consulting Agreement
between Mr. Collins and the Company.
(4) Reflects option grant for 12,000 shares for service as a Director of the
Company, option grant for 20,000 shares for service as Chairman of the
Board of Directors of the Company, and an option grant for 50,000 shares
made upon cancellation of certain options previously granted.
(5) Represents Directors fees for services rendered in 1999 and 2000.
(6) Reflects option grant for 150,000 shares under the terms of the October
1999 Consulting Agreement between Mr. Collins and the Company and an option
grant for 20,000 shares pursuant to service as a Director of the Company.
(7) Represents $7,083 in Director's fees for services rendered in 1998 and
1999.
(8) Option grant made pursuant to service as a Director of the Company.
(9) Represents Directors fees.
(10) Ms. Katz has served as President, Chief Executive Officer, and Chief
Financial Officer since June 2000. She joined the Company in October 1999
as President, Chief Operating Officer, and Chief Financial Officer.
(11) Represents stock bonus of 25,000 shares valued at $50,000 plus gross-up
for payment of income taxes.
40
The following table sets forth information concerning stock options granted
to the Named Executive Officers during the fiscal year ended December 31, 2000:
STOCK OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR(1) ($/SH)(2) DATE 5%($) 10%($)
- ---- ---------- -------------- --------- ---------- -------- --------
David E. Collins............... 50,000(4) 2.82% 4.0000(4) 4/19/10 125,779 318,748
12,000(5) 0.68% 2.4375 6/13/10 18,395 46,617
20,000(6) 1.13% 2.4375 6/13/10 19,653 49,804
Nancy E. Katz.................. 300,000(7) 16.89% 2.0000 10/3/10 377,337 956,245
- ------------------------
(1) Based on the aggregate of 469,800 options granted under the Company's 1991
Incentive Stock Plan and 1,270,000 options granted under the Company's 2000
Equity Incentive Plan to employees and consultants to the Company and 36,000
options granted to Consultant Directors under the Company's 1995 Director
Option Plan during the year ended December 31, 2000, including the Named
Executive Officers.
(2) The exercise price was based on the closing price of the stock on the date
of grant on the NASDAQ Smallcap Market, except as otherwise indicated.
(3) The assumed 5% and 10% compound rates of annual stock appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future common stock
prices. Assuming a ten-year option term, annual compounding results in total
appreciation of 62.9% (at 5% per year) and 159.4% (at 10% per year).
(4) Represents replacement option grant for 50,000 shares pursuant to Consulting
Agreement between Mr. Collins and the Company. The original option grant was
cancelled in October 1999. Options for all 50,000 shares were immediately
exercisable upon the grant date, April 19, 2000. The options expire ten
years from the date of grant. The option price was unchanged from that of
the original 1997 grant.
(5) Options granted under the Director Option Plan become exercisable at the
rate of 1,000 shares per month beginning July 13, 2000, continuing at that
rate on each monthly anniversary thereafter through the earlier of June 13,
2000, or the date of the next stockholders' meeting, at which time all
unvested options will vest. The options expire ten years from the date of
grant. The grant was made pursuant to service as a Director of the Company.
(6) Options vest at the rate of 3,334 shares on the six month anniversary of the
June 13, 2000 grant date and at 595 shares per month for the following
30 months. The options expire ten years from the date of grant. The grant
was made pursuant to service as the Chairman of the Board of the Company.
(7) Options for 100,000 shares were inadvertently exercisable on the grant date,
October 3, 2000. Options for an additional 100,000 shares become exercisable
on the first anniversary of the grant date and options for the remaining
100,000 shares become exercisable on the second anniversary of the grant
date. The options expire ten years from the date of grant.
41
The following table sets forth information concerning option exercises for
the year ended December 31, 2000, with respect to each of the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN 2000
AND DECEMBER 31, 2000 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISABLE MONEY OPTIONS AT FISCAL
SHARES OPTIONS AT FISCAL YEAR END ($)
ACQUIRED ON VALUE YEAR END (#) (EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) (EXERCISABLE/UNEXERCISABLE)(1) UNEXERCISABLE)(1)(2)
- ---- ------------ ------------ ------------------------------ ----------------------------
David E. Collins............. 55,750 50,732 100,000/0 26,570/0
Nancy E. Katz................ 32,052 40,065 267,963/149,985 71,198/39,851
- ------------------------
(1) Reflects in-the-money options granted under the 1991 Incentive Stock Plan.
(2) Value realized and value of unexercised in-the-money options is based on a
value of $1.0469 per share of the Company's Common Stock, the closing price
on December 31, 2000 as quoted on the NASDAQ Smallcap Market. Amounts
reflect such fair market value minus the exercise price multiplied by the
number of shares to be acquired on exercise and do not indicate that the
optionee actually sold such stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of Mr. Freiman, Dr. Krevans,
Dr. Novitch and Ms. Williams.
EMPLOYMENT AGREEMENTS
In October 1999, the Company entered into an employment agreement with Nancy
E. Katz as the President, Chief Operating Officer, and Chief Financial Officer
of the Company, which provides for an annual salary of $220,000. In addition,
Ms. Katz was granted 450,000 stock options, 150,000 of which vested immediately
and the balance of which vest over 24 months. Ms. Katz is also entitled to a
bonus upon the achievement of milestones mutually agreed to by the officer and
the Board of Directors. In the event Ms. Katz' employment is terminated by the
Company other than for cause, she will receive her base salary for twelve
months. In the event of a change in control, any unvested stock options will
become fully vested. The agreement remained in effect following the election of
Ms. Katz as Chief Executive Officer in June 2000.
In October 1999, the Company entered into a consulting agreement with David
E. Collins, Vice-Chairman of the Board of Directors, to serve as Chief Executive
Officer effective from October 1999 through October 2000. Following the election
of Ms. Katz as Chief Executive Officer in June 2000, Mr. Collins continued to
provide services under the agreement as Chairman of the Board of the Company.
Under the terms of the agreement, Mr. Collins receives compensation of $1,000
for each day devoted to the Company's business and was granted options to
purchase 150,000 shares of the Company's stock. In turn, Mr. Collins committed
to spending at least of five days per month on Company business.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as set forth in the footnotes to this table, the following table sets
forth information known to the Company with respect to the beneficial ownership
of its Common Stock as of February 28, 2001 for (i) all persons known by the
Company to own beneficially more than 5% of its outstanding Common Stock,
42
(ii) each of the Company's directors, (iii) each Named Executive Officer and
(iv) all directors and executive officers of the Company as a group.
SHARES
BENEFICIALLY % OF
5% STOCKHOLDERS, DIRECTORS AND OFFICERS(1) OWNED TOTAL
- ------------------------------------------ ------------ --------
Trilobite Lakes Corp.(2) ................................... 2,068,720(3) 7.99%
Silverside Carr Executive Center, Suite 14
501 Silverside Road
Wilmington, DE 19809
Otsuka Pharmaceutical Co., Ltd.(4) ......................... 1,333,481 5.17%
463-10 Kagsuno
Kawauchi-cho
Tokoshima Japan
Zafar Randawa, Ph.D.(5)..................................... 1,333,481 5.17%
William A. Boeger(6)........................................ 888,682 3.39%
David E. Collins(7)......................................... 2,410,912 9.28%
Nancy E. Katz(8)............................................ 428,534 1.64%
Howard B. Urnovitz, Ph.D.(9)................................ 62,499 *
John DiPietro(10)........................................... 202,348 *
Mark Novitch, M.D.(11)...................................... 67,000 *
Paul Freiman(12)............................................ 92,000 *
Julius Krevans, M.D.(13).................................... 52,000 *
Claudie E. Williams(14)..................................... 2,068,720 7.99%
All directors and executive officers as a group (10 5,537,456 20.31%
persons)..................................................
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) To the Company's knowledge, except as set forth in the footnotes to this
table and subject to applicable community property laws, each person named
in this table has sole voting and investment power with respect to the
shares set forth opposite such person's name. Except as otherwise
indicated, the address of each of the persons in this table is as follows:
c/o Calypte Biomedical Corporation, 1265 Harbor Bay Parkway, Alameda,
California 94502.
(2) This information was obtained from the Form 13D filing of Claneil
Enterprises, Inc., an affiliate of Trilobite, dated March 14, 2000. David
E. Collins, the Chairman of the Board of Calypte serves on the Board of
Directors of Claneil Enterprises, Inc. and is a member of Claneil's
Compensation Committee.
(3) Includes 100,000 shares issuable pursuant to a warrant for the purchase of
common stock and 17,500 shares subject to options exercisable within
60 days.
(4) Includes 40,334 shares subject to options exercisable within 60 days.
(5) Includes 40,334 shares subject to options exercisable within 60 days.
Dr. Randawa is a director of the Company and an affiliate of Otsuka
Pharmaceutical Co., Ltd. All shares listed are held by Otsuka. Dr. Randawa
disclaims beneficial ownership of the shares except to the extent of his
affiliation with Otsuka.
(6) Includes 67,303 shares subject to options exercisable within 60 days owned
by entities affiliated with Quest Ventures LP of which Mr. Boeger is a
partner. Mr. Boeger disclaims beneficial ownership of all shares held by
Quest Ventures except to the extent of his actual pecuniary ownership. Also
includes 385,000 shares subject to options exercisable within 60 days owned
by Mr. Boeger.
43
(7) Includes 102,806 shares subject to options exercisable within 60 days.
Includes 2,068,720 shares held by Trilobite Lakes Corp. Claneil
Enterprises, Inc. is an affiliate of Trilobite Lakes Corp. and Mr. Collins
is a member of the Board of Directors of Claneil Enterprises, Inc.
Mr. Collins disclaims beneficial ownership of these shares except to the
extent of his affiliation with Claneil. Mr. Collins has abstained in the
past and intends to abstain in the future from participating when matters
involving these shares are addressed by the Board of Directors of Claneil
Enterprises, Inc.
(8) Includes 367,963 shares subject to options exercisable within 60 days.
(9) Includes 29,166 shares subject to warrants exercisable within 60 days.
(10) Includes 195,000 shares subject to options exercisable within 60 days.
(11) Includes 67,000 shares subject to options exercisable within 60 days.
(12) Includes 92,000 shares subject to options exercisable within 60 days.
(13) Includes 38,000 shares subject to options exercisable within 60 days.
(14) Includes 2,068,720 shares held by Trilobite Lakes Corp. Ms. Williams is
the designated nominee of Trilobite Lakes Corp. a wholly-owned subsidiary
of Claneil Enterprises, Inc. Ms. Williams is Executive Vice President,
Mergers and Acquisitions, of Claneil Enterprises, Inc. She disclaims
beneficial ownership of these shares except to the extent of her
affiliation with Claneil.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, in recognition of a Technology Rights Agreement entered into
between the Company and Dr. Urnovitz, the Company partially funded the expenses
of the Chronic Illness Research Foundation, a research foundation started by
Dr. Urnovitz with which Mr. Boeger is also affiliated. The Company entered into
a loan agreement with Dr. Urnovitz to repay such funding to the Company and to
limit the funding to a maximum of $165,000. The loan was evidenced by a
promissory note and is secured by Dr. Urnovitz's stock options to purchase
common stock with a market value of 200% of the outstanding loan balance. The
interest on the outstanding principal balance of the loan was a variable rate of
the prime rate plus 1%. The principal amount and all accrued interest was
originally due on December 1, 1997 but was extended through December 31, 1999.
The Company's Board of Directors subsequently extended the due date of the note
to June 12, 2000. Dr. Urnovitz repaid the loan and all accrued interest on
September 12, 2000. The Technology Rights Agreement gives the Company the first
right of refusal for ten years of an exclusive, worldwide license to practice,
make or have made, use, sell, distribute and license to others any invention or
discovery related to urine-based diagnostics made by Dr. Urnovitz in exchange
for a one-time cash payment and the payment of royalties.
In March 2000, Calypte agreed to sell 4,096,000 shares of Common Stock to
institutional investors in a private placement at $2.05 per share. 1,951,220 of
the shares were sold to Trilobite Lakes Corporation ("Trilobite"). Trilobite is
an affiliate of Claneil Enterprises, Inc. David Collins, the Chairman of the
Board of Calypte serves on the Board of Directors of Claneil and is a member of
Claneil's Compensation Committee. Pursuant to the Common Stock Purchase
Agreement dated March 2, 2000, Claudie Williams, a representative designated by
Trilobite was elected to Calypte's Board of Directors. The Calypte Board will
nominate a representative selected by Trilobite for election to the Calypte
Board for so long as Trilobite holds one-half of the shares it acquired through
the Common Stock Purchase Agreement. In connection with the private placement,
Trilobite extended a $1 million line of credit to Calypte and Calypte issued a
warrant for the purchase of 100,000 shares of its common stock at $3.62 per
share. The line of credit converted into shares of common stock of Calypte upon
the closing of the stock purchase.
In March 2000, Calypte announced that William Boeger, a member of its Board
and Howard Urnovitz, its founder, Chief Scientific Officer and also a member of
its Board, had established a commercial company named Chronix Biomedical that
will focus on novel ways to detect aberrant genes in
44
individuals with chronic diseases. Chronix will be financed independently of
Calypte and Calypte will not have an equity interest in Chronix. Calypte will
have a right of first refusal to license any urine-based diagnostic tests that
result from Dr. Urnovitz's work, as well as from Chronix' research efforts,
pursuant to Technology Rights Agreements which Calypte has with Dr. Urnovitz and
with Chronix. Such Technology Rights Agreements expire on March 1, 2007 unless
otherwise agreed in writing by Calypte with the relevant licensor. Under such
Technology Rights Agreements, Calypte will have a period of time, after
disclosure to Calypte by Dr. Urnovitz or Chronix, as the case may be, of the
relevant developed technology, to license such technology on an exclusive,
worldwide basis in perpetuity; in exchange for a license fee equal to the direct
cost of the relevant licensor in developing such technology, plus a running
royalty equal to 5% of Calypte's net sales of products and services using such
licensed technology.
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Certain Documents Filed as Part of the Form 10-K
1. Financial Statements
2. Financial Statement Schedules
The following financial statement schedule of Calypte Biomedical Corporation
for the years ended December 31, 2000, 1999 and 1998 is filed as part of this
Report and should be read in conjunction with the Consolidated Financial
Statements of Calypte Biomedical Corporation.
SCHEDULE PAGES
- -------- --------
Report of KPMG LLP.......................................... S-1
II. Valuation and Qualifying Accounts....................... S-2
Other schedules not listed have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
3. Exhibits
2.1^^^ Asset Purchase Agreement, dated as of November 18, 1998,
between Calypte and Cambridge.
3.3 Bylaws of the Registrant, as amended on April 19, 2000.
3.4** Restated Certificate of Incorporation of Calypte Biomedical
Corporation, a Delaware corporation, filed July 31, 1996.
4.1^^^^ Rights Agreement between the Registrant and ChaseMellon
Shareholders L.L.C. as Rights Agents dated December 15,
1998.
10.1* Form of Indemnification Agreement between the Company and
each of its directors and officers.
10.2* 1991 Incentive Stock Plan, as amended.
10.3* 1995 Director Option Plan, as amended.
10.4* 1995 Employee Stock Purchase Plan.
10.5* Lease Agreement between the Registrant and Charles A. Grant
and Mark Greenberg, dated as of November 30, 1990.
10.6* Second Lease Extension Agreement between Registrant and
Charles A. Grant and Mark Greenberg, dated as of May 14,
1991.
10.7* Lease Extension Agreement between Registrant and Charles A.
Grant and Mark Greenberg, dated as of February 5, 1992.
10.8* Lease Extension Agreement between Registrant and Charles A.
Grant and Mark Greenberg, dated as of April 15, 1993.
10.9* Standard Form Lease 1255-1275 Harbor Bay Parkway Harbor Bay
Business Park between Commercial Center Bank and the
Registrant, dated as of August 22, 1992.
10.12* Employment Agreement between the Registrant and Howard B.
Urnovitz, dated as of January 25, 1995.
10.15^* License Agreement between the Registrant and New York
University, dated as of August 13, 1993.
46
10.16* First Amendment to License Agreement between the Registrant
and New York University, dated as of January 11, 1995.
10.17* Second Amendment to License Agreement between the Registrant
and New York University, dated as of October 15, 1995.
10.18^* Third Amendment to License Agreement between the Registrant
and New York University, dated as of January 31, 1996.
10.19^* Research Agreement between the Registrant and New York
University, dated August 12, 1993.
10.20^* First Amendment to Research Agreement between the Registrant
and New York University, dated as of January 11, 1995.
10.21^* Sublicense Agreement between the Registrant and Cambridge
Biotech Corporation, dated as of March 31, 1992.
10.22^* Master Agreement between the Registrant and Cambridge
Biotech Corporation, dated as of April 12, 1996.
10.23^* Sub-License Agreement between the Registrant and Cambridge
Biotech Corporation, dated as of April 12, 1996.
10.24^* Agreement between the Registrant and Repligen Corporation,
dated as of March 8, 1993.
10.25^* Non-Exclusive License Agreement between the Registrant and
The Texas A&M University System, dated as of September 12,
1993.
10.27^* Distribution Agreement between the Registrant and Otsuka
Pharmaceutical Co., Ltd., dated as of August 7, 1994.
10.29^* Distribution Agreement between the Registrant and Travenol
Laboratories (Israel), Ltd., dated as of December 31, 1994.
10.33* Form of Option Agreement for Stockholders of Pepgen
Corporation, dated as of October 12, 1995.
10.35* Equipment Lease Agreement between the Registrant and Phoenix
Leasing, dated as of August 20, 1993.
10.36* Equipment Lease Agreement between the Registrant and Meier
Mitchell/GATX, dated as of August 20, 1993.
10.37** Lease Extension Agreement between the Registrant and Charles
A. Grant and Mark Greenberg, dated as of February 3, 1997.
10.39** Equipment Lease Agreement between the Registrant and
MMC/GATX, dated September 30, 1996.
10.40^** Joint Venture Agreement between the Registrant and Trinity
Biotech plc
10.41*** Second Addendum to Lease between the Registrant and
Commercial Center Bank dated as of July 21, 1997.
10.42*** Lease extension agreement between the Registrant and Charles
A. Grant and Mark Greenberg, dated December 9, 1997.
10.45^^ Lease extension agreement between the Registrant and Charles
A. Grant and Mark Greenberg, dated April 25, 1998.
10.46**** Employment Agreement between the Registrant and William A.
Boeger dated as of October 28, 1998.
47
10.47**** Employment Agreement between the Registrant and John J.
DiPietro dated as of October 28, 1998.
10.48**** Guaranty made by Chih Ping Liu for the benefit of the
Registrant dated September 30, 1998.
10.49# Loan and Security Agreement between the Registrant and
Silicon Valley Bank, dated December 21, 1998
10.50# Lease Extension Agreement between the Registrant and Charles
A. Grant and Mark Greenberg, dated February 26, 1999
10.51## Non-Exclusive Patent and License Agreement between the
Registrant and Public Health Service, dated June 30, 1999
10.52## Distribution Agreement between the Registrant and
Carter-Wallace, Inc., dated as of September 9,1999
10.53## Letter Agreement between the Registrant and John J.
DiPietro, dated as of September 17, 1999
10.54## Consulting Agreement between the Registrant and John J.
DiPietro, dated as of September 17, 1999
10.55**** Master Lease Agreement between Aquila Biopharmaceuticals,
Inc., Landlord, and Biomerieux Vitek, Inc., Tenant, dated as
of October 22, 1996
10.56**** First Amendment to Lease between Aquila Biopharmaceuticals,
Inc. Landlord, and Biomerieux Vitek, Inc., Tenant, dated
October 2, 1997
10.57**** Sublease Agreement between Registrant and Cambridge Biotech
Corporation, assignee of Biomerieux, Inc. dated as of
December 17, 1998
10.58**** Sublease Agreement between Registrant and Cambridge Biotech
Corporation, sublessee of DynCorp, dated as of December 17,
1998
10.59**** Lease Extension Agreement between the Registrant and Charles
A. Grant and Mark Greenberg, dated October 12, 1999
10.60**** Consulting Agreement between the Registrant and William A.
Boeger dated as of October 18, 1999
10.61**** Consulting Agreement between the Registrant and David
Collins dated as of October 18, 1999
10.62**** Employment Agreement between the Registrant and Nancy E.
Katz, dated as of October 18, 1999
10.63**** Letter of Intent re Modification of Distribution Agreement
between Registrant and Otsuka Pharmaceutical Co., Ltd. dated
as of December 10, 1998
10.64### Loan Modification Agreement between Registrant and Silicon
Valley Bank dated as of November 15, 1999.
10.65### Loan Modification Agreement between Registrant and Silicon
Valley Bank dated as of January 30, 2000.
10.66### Restated Technology Rights Agreement between Registrant and
Howard B. Urnovitz, Ph.D. dated as of March 1, 2000.
10.67### Technology Rights Agreement between Registrant and Chronix
Biomedical dated as of March 1, 2000.
10.68+### Exclusive Independent Contractor Agreement for Project
Sentinel between Clinical Reference Laboratory, Inc. and
Registrant dated as of January 21, 2000.
48
10.69+#### Distribution Agreement between the Registrant and American
Edge Medical, dated as of May 1, 2000.
10.70+#### Distribution Agreement between the Registrant and Biobras
S.A., dated as of May 11, 2000.
10.71+#### Distribution Agreement between the Registrant and Beijing
Hua Ai Science and Technology Development Co. Ltd, dated as
of May 16, 2000.
10.72#### Loan Modification Agreement between the Registrant and
Silicon Valley Bank, dated as of May 24, 2000.
10.73+#### Fourth Amendment to the License Agreement between the
Registrant and New York University, dated as of June 1,
2000.
10.74#### 2000 Equity Incentive Plan.
10.75#### Lease Extension Agreement between the Registrant and
Charles A. Grant and Mark Greenberg, dated June 26, 2000.
10.76#### Secured Promissory Note between the Registrant and
Howard B. Urnovitz, dated June 30, 2000.
10.77+##### Temporary Distribution Agreement between the Registrant and
American Edge Medical Company effective August 1, 2000.
10.78##### Extension of Consulting Agreement between Registrant and
John DiPietro effective as of September 17, 2000.
10.79+++++ Convertible Debentures and Warrants Purchase Agreement
between the Registrant and AMRO International, S.A. dated
January 22, 2001.
10.80 Extension of Consulting Agreement between the Registrant and
William A. Boeger dated as of October 19, 2000.
10.81 Second Amendment to Employment Agreement between the
Registrant and Howard B. Urnovitz dated October 31, 2000.
10.82 Consulting Agreement between the Registrant and David
Collins dated as of October 19, 2000.
10.83+ Agreement between the Registrant and Carter-Wallace, Inc.
dated December 12, 2000.
10.84+++++ Stock Purchase Warrant to purchase common stock dated
January 24, 2001 issued to TIL.
10.85+++++ Common Stock Purchase Agreement between Calypte and TIL
dated November 2, 2000.
10.86+++++ Registration Rights Agreement between Calypte and TIL dated
November 2, 2000.
10.87+++++ Escrow Agreement among Calypte, TIL and Epstein, Becker &
Green, P.C. dated November 2, 2000.
10.88+++++ Amendment to Common Stock Purchase Agreement between Calypte
and TIL dated January 24, 2001.
21.1* Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, Independent Auditors.
24.1 Power of Attorney (see page II-1).
- ------------------------
* Incorporated by reference from exhibits filed with the
Company's Registration Statement on Form S-1 (File No.
333-04105) filed on May 20, 1996, as amended to June 25,
1996, July 15, 1996 and July 26, 1996.
49
^ Confidential treatment has been granted as to certain
portions of this exhibit
** Incorporated by reference from exhibits filed with the
Company's Report on Form 10-K dated March 28, 1997
*** Incorporated by reference from exhibits filed with the
Company's Report on Form 10-K dated March 25, 1998
**** Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-K dated March 25, 1999
^^ Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated August 12, 1998
^^^ Incorporated by reference from an exhibit filed with the
Company's Report on Form 8-K dated January 4, 1999
^^^^ Incorporated by reference from an exhibit filed with the
Company's Report on Form 8-K dated December 16, 1998
# Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated May 15, 1999
## Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated November 15, 1999
***** Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-K dated March 30, 2000.
+ Confidential treatment has been granted as to certain
portions of this exhibit.
++ Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated August 12, 1998.
+++ Incorporated by reference from an exhibit filed with the
Company's Report on Form 8-K dated January 4, 1999.
++++ Incorporated by reference from an exhibit filed with the
Company's Report on Form 8-K dated December 16, 1998.
+++++ Incorporated by reference from an exhibit filed with the
Company's Registration Statement on Form S-2 (File
No. 333-54316) filed on January 25, 2001, as amended on
February 9, 2001.
### Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated May 12, 2000.
#### Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated August 10, 2000.
##### Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated November 7, 2000.
- ------------------------
(b) Reports on Form 8-K
None
50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-9
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Calypte Biomedical Corporation:
We have audited the accompanying consolidated balance sheets of Calypte
Biomedical Corporation and subsidiary (the Company) as of December 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Calypte
Biomedical Corporation and subsidiary as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
San Francisco, California
February 23, 2001
F-2
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
-------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 723 $ 2,652
Restricted cash........................................... 480 --
Securities available for sale............................. -- 503
Accounts receivable, net of allowance of $35 at
December 31, 2000 and 1999.............................. 374 583
Inventory................................................. 1,166 1,460
Notes receivable--officers................................ -- 551
Prepaid expenses.......................................... 464 201
Other current assets...................................... 5 110
-------- --------
Total current assets.................................... 3,212 6,060
Property and equipment, net................................. 1,577 1,543
Intangibles, net............................................ 31 42
Other assets................................................ 186 176
-------- --------
$ 5,006 $ 7,821
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,718 $ 1,290
Accrued expenses.......................................... 1,314 1,476
Note payable.............................................. 471 844
Capital lease obligations--current portion................ 84 90
Deferred revenue.......................................... 500 500
-------- --------
Total current liabilities............................... 4,087 4,200
Deferred rent obligation.................................... 36 25
Capital lease obligations--long-term portion................ 78 50
-------- --------
Total liabilities....................................... 4,201 4,275
-------- --------
Mandatorily redeemable Series A preferred stock, $0.001 par
value; no shares authorized at December 31, 2000 and 1999;
100,000 shares issued and outstanding at December 31,
2000 and 1999; aggregate redemption and liquidation value
of $1,000 plus cumulative dividends....................... 2,336 2,216
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued or outstanding............. -- --
Common stock, $0.001 par value; 50,000,000 and 30,000,000
shares authorized at December 31, 2000 and 1999,
respectively; 25,533,064 and 20,425,403 shares issued
and outstanding as of December 31, 2000 and 1999,
respectively............................................ 26 20
Additional paid-in capital................................ 77,582 68,226
Deferred compensation..................................... (114) (135)
Accumulated deficit....................................... (79,025) (66,781)
-------- --------
Total stockholders' equity.............................. (1,531) 1,330
-------- --------
$ 5,006 $ 7,821
======== ========
See accompanying notes to consolidated financial statements.
F-3
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Revenues:
Product sales............................................. $ 3,296 $ 3,728 $ 951
-------- -------- -------
Total revenue........................................... 3,296 3,728 951
-------- -------- -------
Operating expenses:
Product costs............................................. 5,891 4,721 1,912
Research and development.................................. 2,254 4,123 3,881
Selling, general and administrative....................... 7,568 5,081 3,925
-------- -------- -------
Total expenses.......................................... 15,713 13,925 9,718
-------- -------- -------
Loss from operations.................................. (12,417) (10,197) (8,767)
Interest income............................................. 289 353 424
Interest expense............................................ (123) (182) (116)
Other income................................................ 9 2 1
-------- -------- -------
Loss before income taxes.............................. (12,242) (10,024) (8,458)
Income taxes................................................ (2) (2) (2)
-------- -------- -------
Net loss.............................................. (12,244) (10,026) (8,460)
Less dividend on mandatorily redeemable Series A preferred
stock..................................................... (120) (120) (120)
-------- -------- -------
Net loss attributable to common stockholders................ (12,364) $(10,146) $(8,580)
======== ======== =======
Net loss per share attributable to common stockholders
(basic and diluted)....................................... $ (0.52) $ (0.52) $ (0.64)
======== ======== =======
Weighted average shares used to compute net loss per share
attributable to common stockholders (basic and diluted)... 23,859 19,333 13,432
======== ======== =======
See accompanying notes to consolidated financial statements.
F-4
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM DECEMBER 31, 1997 THROUGH DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON ADDITIONAL TOTAL
COMMON STOCK PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
STOCK SUBSCRIBED CAPITAL COMPENSATION DEFICIT EQUITY
-------- ---------- ---------- ------------ ----------- -------------
Balances at December 31, 1997.......... $13 $-- $56,847 $(496) $(48,295) $ 8,069
Exercise of stock options for 265,787
shares of common stock............... -- -- 144 -- -- 144
Common stock of 5,885 shares issued
under the Employee Stock Purchase
Plan................................. -- -- 16 -- -- 16
Issuance of 400,000 shares of common
stock for purchase of certain assets
of Cambridge Biotech Corporation..... 1 -- 1,589 -- -- 1,590
Costs associated with purchase of
certain assets of Cambridge Biotech
Corporation.......................... -- -- (71) -- -- (71)
3,102,500 shares of common stock
subscribed through a Private
Placement............................ -- 3 3,099 -- -- 3,102
Cost of subscription of common stock
for a Private Placement.............. -- -- (30) -- -- (30)
Dividend requirements of mandatorily
redeemable Series A preferred
stock................................ -- -- (120) -- -- (120)
Compensation relating to granting of
stock options........................ -- -- 82 (82) -- --
Amortization of deferred
compensation......................... -- -- -- 360 -- 360
Deferred compensation reversed for
cancelled options.................... -- -- (80) 80 -- --
Compensation relating to acceleration
of stock option vesting
acceleration......................... -- -- -- 31 -- 31
Net loss............................... -- -- -- -- (8,460) (8,460)
--- --- ------- ----- -------- -------
Balances at December 31, 1998.......... $14 $ 3 $61,476 $(107) $(56,755) $ 4,631
=== === ======= ===== ======== =======
See accompanying notes to consolidated financial statements.
(Continued)
F-5
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
PERIOD FROM DECEMBER 31, 1997 THROUGH DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON ADDITIONAL TOTAL
COMMON STOCK PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
STOCK SUBSCRIBED CAPITAL COMPENSATION DEFICIT EQUITY
-------- ---------- ---------- ------------ ----------- -------------
Balances at December 31, 1998.......... $14 $ 3 $61,476 $(107) $(56,755) $ 4,631
Exercise of stock options for 44,532
shares of common stock............... -- -- 35 -- -- 35
Common stock of 9,918 shares issued
under the Employee Stock Purchase
Plan................................. -- -- 5 -- -- 5
Cost associated with purchase of
certain assets of Cambridge Biotech
Corporation.......................... -- -- (68) -- -- (68)
Issuance of 3,102,500 shares of common
stock subscribed through a private
placement............................ 3 (3) -- -- -- --
3,398,000 shares of common stock issued
through a Private Placement.......... 3 -- 7,642 -- -- 7,645
Cost of issuance of common stock for
Private Placements (including
underwriters' fees).................. -- -- (854) -- -- (854)
Dividend requirements of mandatorily
redeemable Series A preferred
stock................................ -- -- (120) -- -- (120)
Compensation relating to granting of
stock options........................ -- -- 110 (110) -- --
Amortization of deferred
compensation......................... -- -- -- 82 -- 82
Net loss............................... -- -- -- -- (10,026) (10,026)
--- --- ------- ----- -------- -------
Balances at December 31, 1999.......... $20 $-- $68,226 $(135) $(66,781) $ 1,330
=== === ======= ===== ======== =======
See accompanying notes to consolidated financial statements.
(Continued)
F-6
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
PERIOD FROM DECEMBER 31, 1997 THROUGH DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON ADDITIONAL TOTAL
COMMON STOCK PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
STOCK SUBSCRIBED CAPITAL COMPENSATION DEFICIT EQUITY
-------- ---------- ---------- ------------ ----------- -------------
Balances at December 31, 1999.......... $20 $-- $68,226 $(135) $(66,781) $ 1,330
Exercise of stock options for 913,527
shares of common stock............... 2 -- 679 -- -- 681
Common stock of 39,801 shares issued
under the Employee Stock Purchase
Plan................................. -- -- 46 -- -- 46
Common stock bonuses of 58,333 shares
issued under the 2000 Employee
Incentive Plan....................... -- -- 100 -- -- 100
4,096,000 shares of common stock issued
through a Private Placement 4 -- 8,393 -- -- 8,397
Cost of issuance of common stock for
Private Placement.................... -- -- (53) -- -- (53)
Dividend requirements of mandatorily
redeemable Series A preferred
stock................................ -- -- (120) -- -- (120)
Compensation relating to granting of
stock options........................ -- -- 311 (311) -- --
Amortization of deferred
compensation......................... -- -- -- 332 -- 332
Net loss............................... -- -- -- -- (12,244) (12,244)
--- --- ------- ----- -------- --------
Balances at December 31, 2000.......... $26 $-- $77,582 $(114) $(79,025) $ (1,531)
=== === ======= ===== ======== ========
See accompanying notes to consolidated financial statements.
F-7
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net loss.................................................. $(12,244) $(10,026) $(8,460)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 563 622 536
Amortization of deferred compensation................... 332 82 391
Forgiveness of note receivable from officer............. 96 -- 73
Write-off of note and interest to research and
development expense.................................... -- 890 --
Common stock bonuses granted............................ 100 -- --
Loss on sale of equipment............................... 11 -- --
Changes in operating assets and liabilities:
Accounts receivable................................... 209 (426) (24)
Inventory............................................. 294 581 (706)
Prepaid expenses and other current assets............. (287) (133) (66)
Other assets.......................................... (10) 32 20
Accounts payable, accrued expenses and deferred
revenue.............................................. 266 392 767
Deferred rent obligation.............................. 11 (6) (6)
-------- -------- -------
Net cash used in operating activities............... (10,659) (7,992) (7,475)
-------- -------- -------
Cash flows from investing activities:
Purchase of equipment..................................... (528) (370) (203)
Proceeds from sale of equipment........................... 27 -- --
Notes receivable from officers and employees.............. 584 (53) (332)
Purchase of securities available for sale................. (11) (1,454) (1,873)
Sale of securities available for sale..................... 514 1,601 1,223
Loan to Pepgen............................................ -- -- (768)
-------- -------- -------
Net cash provided by (used in) investing
activities.......................................... 586 (276) (1,953)
-------- -------- -------
Cash flows from financing activities:
Proceeds from sale of stock............................... 8,624 7,682 160
Expenses paid related to sale of stock.................... (53) (585) --
Proceeds from common stock subscribed..................... -- 450 2,652
Expenses related to subscription of common stock.......... -- (269) (30)
Purchase of certain assets of Cambridge Biotech Corp...... -- -- (500)
Expenses related to purchase of certain assets of
Cambridge Biotech Corp.................................. -- (68) (71)
Cash pledged to bank pursuant to loan agreement........... (480) -- --
Principal payments on notes payable....................... (623) (1,406) --
Principal payments on capital lease obligations........... (74) (255) (482)
Proceeds from notes payable............................... 750 2,250 --
-------- -------- -------
Net cash provided by financing activities........... 8,144 7,799 1,729
-------- -------- -------
Net decrease in cash and cash equivalents................... (1,929) (469) (7,699)
Cash and cash equivalents at beginning of period............ 2,652 3,121 10,820
-------- -------- -------
Cash and cash equivalents at end of period.................. $ 723 $ 2,652 $ 3,121
======== ======== =======
Supplemental disclosure of cash flow activities:
Cash paid for interest.................................... $ 117 $ 178 $ 116
Cash paid for income taxes................................ 2 2 2
Supplemental disclosure of noncash activities:
Refinance of capital lease obligation..................... 96 82 --
Acquisition of equipment through obligations under capital
leases.................................................. -- -- 34
Dividend on mandatorily redeemable Series A preferred
stock................................................... 120 120 120
Deferred compensation attributable to stock grants........ 311 110 2
Purchase of certain assets of Cambridge Biotech
Corporation............................................. -- -- 1,590
Revaluation of acquisition of certain assets of Cambridge
Biotech Corporation..................................... -- 293 --
Conversion of common stock subscribed to common stock..... -- 3 --
Conversion of note payable to common stock................ 500 -- --
See accompanying notes to consolidated financial statements.
F-8
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(1) THE COMPANY
Calypte Biomedical Corporation ("Calypte" or the "Company") is a public
healthcare 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 infectious diseases.
Calypte's products include its screening enzyme immunoassay ("EIA") and
supplemental Western Blot tests, the only two FDA-approved 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 infectious diseases
may make important contributions to public health by helping to foster an
environment in which testing may be done safely, economically, and painlessly.
Calypte commenced operations in 1989 and was incorporated as a Delaware
corporation in June 1996, concurrent with the initial public offering of its
stock. Prior to March 31, 1998, Calypte was considered a development stage
enterprise. On June 1, 1998, the Company ceased being a development stage
enterprise when it announced that the FDA approved its urine HIV-1 Western Blot
test. That test is used on samples that are repeatedly reactive in the Company's
HIV-1 urine antibody screening test. The supplemental test completed the only
available urine-based HIV-1 test method. Calypte is headquartered in Alameda,
California and manufactures its HIV-1 screening test there. The Company also
conducted screening test manufacturing operations at a facility in Berkeley,
California through February 2001. The Company manufactures its urine and serum
HIV-1 Western Blot and other products at its facilities in Rockville, Maryland.
At December 31, 2000, the Berkeley and Rockville manufacturing facilities were
FDA approved and the Company was awaiting FDA approval of the Alameda facility.
See Note 18.
In December 1998, Calypte acquired from Cambridge Biotech Corporation
certain assets relating to the Western Blot product line for certain infectious
diseases. The acquisition included the urine and serum HIV-1 Western Blot
products, as well as a supplemental test for Human T-Lymphotropic Virus (HTLV)
that Calypte continues to market.
Calypte and its distributors market its products in over 40 countries
worldwide. The Company's marketing strategy is to use distributors, focused
direct selling and marketing partners to penetrate targeted domestic and
international markets. Calypte maintains a small direct sales force to sell its
HIV-1 screening test and potential future products to laboratories serving the
domestic life insurance market, and has recently expanded its direct sales force
to target other selected domestic markets. International markets are addressed
utilizing diagnostic product distributors. To date, in countries that have an
approval process for diagnostic tests, the Company has received approval for the
sale of its product in the Republic of South Africa, the People's Republic of
China, Indonesia and Malaysia. Several additional international approvals are
pending, and the Company is collaborating with its distributors to obtain
regulatory approval to market and promote its products in their local markets.
The Company has incurred net losses of $12.2 million, $10.0 million and
$8.5 million in 2000, 1999, and 1998, respectively. The accumulated deficit at
December 31, 2000 was $79.0 million. As discussed in Note 20, during the first
quarter of 2001 the Company signed agreements for the issuance of $1.1 million
of convertible debentures and filed a registration statement with the Securities
and Exchange Commission ("SEC") for the sale of up to 5,085,018 shares of its
common stock in a private equity placement that would permit the Company to
obtain as much as $25 million in a series of draw downs over a twelve-month
period. The terms of the private placement require that a portion of the
proceeds be used to repay the debentures. The Company does not believe that
current cash plus the proceeds of the stock sales will be sufficient to meet its
current operating expenses and capital requirements and it is continuing to
explore
F-9
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(1) THE COMPANY (CONTINUED)
financing alternatives. The Company's future liquidity and capital requirements
will depend on numerous factors, including market acceptance of its 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. Management expects to be able to raise additional capital;
however, the Company may not be able to obtain additional financing on
acceptable terms, or at all.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the results of
operations of the Company and its wholly owned subsidiary, Calypte, Inc., and
Calypte Biomedical Company (the Company's predecessor entity). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company accounts for its interest in Pepgen Corporation (Pepgen) under
the equity method (Note 13).
CASH AND CASH EQUIVALENTS
Cash equivalents consist primarily of investments in money market accounts
and commercial paper with original maturities of three months or less.
SECURITIES AVAILABLE FOR SALE
The Company had no securities available for sale at December 31, 2000. At
December 31, 1999, securities available for sale represented high grade
commercial paper maturing in less than one year. Unrealized gains and losses
were insignificant.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Machinery and equipment, furniture
and fixtures, and computer equipment are depreciated using the straight-line
method over the estimated useful lives of the assets, generally three to seven
years. Leasehold improvements and equipment under capital leases are amortized
or depreciated over the shorter of the remaining lease term or the useful life
of the improvement.
INTANGIBLES
Intangibles consist of tradenames and trademarks related to the acquisition
of certain assets from Cambridge Biotech Corporation, and are carried at cost
less accumulated amortization which is calculated on a straight-line basis over
five years. Accumulated amortization at December 31, 2000 was $25,000.
F-10
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets and liabilities have carrying values which approximate
their fair values for all periods presented, except for related party financial
assets. The carrying amounts of cash equivalents approximate fair value because
of their short-term nature and because such amounts are invested in accounts
earning market rates of interest. The fair market value of the notes receivable
from officer at December 31, 1999 was not readily determinable due to their
related party nature. The carrying amounts of all other financial instruments,
including the note payable, approximate fair value because of their short-term
maturity.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment to customers and when
all requirements related to the shipments have occurred.
DEFERRED REVENUE
Deferred revenue is recorded on payments received from customers or
distributors in advance of product shipment and will be recognized as revenue
upon shipment of the related products or when all obligations related to the
revenue are fulfilled.
INCOME TAXES
The Company accounts for income taxes under the Statement of Financial
Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109
requires an asset and liability approach for the financial reporting of income
taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, establishes a fair-value method of accounting for
stock options and similar equity instruments. The fair-value method requires
that compensation cost be measured on the value of the award at the grant date,
and recognized over the service period. SFAS No. 123 allows companies to either
account for stock-based compensation to employees under the provisions of SFAS
No. 123 or under the provisions of Accounting Principles Board (APB) Opinion
No. 25 and its related interpretations. The Company accounts for its stock-based
compensation to employees in accordance with the provisions of APB Opinion
No. 25 and provides the pro forma disclosures required under SFAS No. 123.
The Company has recorded deferred compensation for the difference if any,
between the exercise price and the deemed fair market value of the common stock
for financial reporting purposes of stock options granted to employees. The
compensation expense related to such grants is amortized over the vesting period
of the related stock options on a straight-line basis.
F-11
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
(EITF) Issue No. 96-18 ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO
OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR
SERVICES.
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic net loss per share is computed by dividing net loss attributable to
common stockholders by the weighted average number of shares of common stock
outstanding during the year. The computation of diluted earnings per common
share is similar to the computation of basic net 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 were the same
for the three years ended December 31, 2000, 1999 and 1998. Options and warrants
for 4,982,462 shares, 4,453,795 shares and 3,680,161 shares were excluded from
the computation of loss per share at December 31, 2000, 1999 and 1998,
respectively, as their effect is antidilutive.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash equivalents,
trade accounts receivable and notes receivable. The Company has investment
policies that limit investments to short-term, low-risk investments.
Concentration of credit risk with respect to trade accounts receivable are
limited due to the fact that the Company sells its products primarily to
established distributors and laboratories. Concentrations of credit risk with
respect to notes receivable are limited due to the fact that the notes are
either fully collateralized or guaranteed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
Calypte purchases raw materials and components used in manufacturing its
products from various suppliers and relies on single sources for certain
components. Establishment of additional or replacement suppliers for these
components cannot be accomplished quickly. Any delay or interruption in the
supply of these components could have a material adverse effect on the Company
by significantly impairing its ability to manufacture products in sufficient
quantities to meet commercial sales demand.
F-12
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Nasdaq Stock Market inquired on two occasions whether the Company
continues to meet the maintenance criteria for trading on the Nasdaq SmallCap
Market. At the close of our most recently reported fiscal quarter, December 31,
2000, we did not meet all of the maintenance criteria. Our ability to meet the
criteria will depend on 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 and whether we continue to meet at least
one of the following three criteria:
- our net tangible assets equal at least $2.0 million;
- our market capitalization is equal to $35.0 million in public float; or
- we recognized net income of at least $500,000 in our most recent fiscal
year or in two of our three previous fiscal years.
As of December 31, 2000, our net tangible assets were ($1.5) million. Our
market capitalization has fluctuated between $23.7 million and $48.8 million
since November 1, 2000. We also have not recognized net income in any of our
previous fiscal years.
We currently expect that our access to funds under the equity line of credit
will enhance our ability to meet the Nasdaq net tangible asset criteria.
Nonetheless, we cannot ensure that we will be able to meet Nasdaq's maintenance
criteria. Also, the minimum daily trading price for our common stock has
exceeded $1.00 per share for the twelve months ending December 31, 2000. If the
market capitalization of Calypte remains constant, a 19.9% increase in the
number of our common shares through sales under the equity line of credit could
cause the corresponding price of our shares to trade closer to or below the
maintenance criteria.
COMPREHENSIVE LOSS
The Company has no components of other comprehensive loss other than its net
loss, and, accordingly, its comprehensive loss is equivalent to its net loss for
all periods presented.
SEGMENT AND GEOGRAPHIC INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information," requires an enterprise to report segment information based on how
management internally evaluates the operating performance of its business units
(segments). The Company's operations are confined to a single business segment:
the development and sale of HIV diagnostics.
Sales to three major domestic customers amounted to approximately 18%, 13%,
and 11% of total net sales for the year ended December 31, 2000. Sales to the
same customers amounted to 19%, 12%, and 7% for the year ended December 31,
1999. Sales to four major customers for the year ended December 31, 1998, only
one of whom accounted for more than 10% of total revenue in 2000 and 1999,
amounted to 36%, 29%, 13% and 12%.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting
F-13
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the Company's financial
position, results of operations, or cash flows.
(3) INVENTORY
Inventory as of December 31, 2000 and 1999 consisted of the following:
2000 1999
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Raw materials............................................. $ 221 $ 233
Work-in-process........................................... 777 862
Finished goods............................................ 168 365
------ ------
Total inventory......................................... $1,166 $1,460
====== ======
(4) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2000 and 1999 consisted of the
following:
2000 1999
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Computer equipment........................................ $ 717 $ 497
Machinery and equipment................................... 3,335 3,046
Furniture and fixtures.................................... 232 264
Leasehold improvements.................................... 1,728 1,703
------- -------
6,012 5,510
Accumulated depreciation and amortization................. (4,435) (3,967)
------- -------
Property and equipment, net............................... $ 1,577 $ 1,543
======= =======
The Company recognized depreciation expense of $552,000, $610,000, and
$533,000, for the years ended December 2000, 1999 and 1998, respectively.
(5) ACCRUED EXPENSES
Accrued expenses as of December 31, 2000 and 1999 consisted of the
following:
2000 1999
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Accrued royalty payments.................................. $ 742 $1,006
Accrued salary and vacation pay........................... 253 193
Other..................................................... 319 277
------ ------
Total accrued expenses.................................. $1,314 $1,476
====== ======
F-14
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(6) NOTE PAYABLE
In January 1999, the Company entered into a loan agreement with a bank to
borrow up to $2.0 million 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 then outstanding principal balance by
$250,000. At December 31, 2000, the Company had $471,000 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 2000, including at December 31, 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 December 31, 2000 and Statement of Cash Flows
for the period ended December 31, 2000 reflect the $480,000 cash pledge to the
bank that was required to cure the Company's non-compliance as of December 31,
2000. The Company repaid the note in full in January 2001. See Note 18.
(7) LEASE COMMITMENTS
CAPITAL LEASES
The Company has acquired equipment under three capital lease agreements that
are collateralized by the related equipment. The lease agreements carry
effective interest rates of approximately 18% per annum.
During 1993, the Company issued stock warrants for the purchase of 35,155
shares of the Company's common stock at exercise prices ranging from $5.00 to
$7.50 per share as partial consideration for obtaining two of the lease
agreements. These warrants expire in 2003.
In both 2000 and 1999, the Company exercised its option to renew one of the
capital leases for an additional three year term.
Equipment acquired under the lease lines of credit and included in property
and equipment as of December 31, 2000 and 1999 consisted of the following:
2000 1999
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Machinery and equipment................................... $ 1,728 $ 1,632
Other..................................................... 92 105
------- -------
1,820 1,737
Accumulated depreciation and amortization................. (1,726) (1,665)
------- -------
$ 94 $ 72
======= =======
F-15
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(7) LEASE COMMITMENTS (CONTINUED)
Future minimum lease payments under capital leases as of December 31, 2000
were:
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
- ----------------------- --------------
2001........................................................ $104
2002........................................................ 86
Thereafter.................................................. --
----
190
Amount representing interest................................ (28)
----
Present value of capital lease obligations.................. 162
Current portion of capital lease obligations................ (84)
----
Capital lease obligations--long-term portion................ $ 78
====
OPERATING LEASES
The Company leases office and manufacturing space in Alameda, California,
under a noncancelable operating lease. The Company also leases space in
Rockville, Maryland under two operating subleases. The Company also leased
manufacturing space in Berkeley, California through February 2001. Total rent
expense under these leases was $1,285,000, $1,262,000 and $581,000, for the
years ended December 2000, 1999, and 1998, respectively. Future minimum rental
payments under all noncancelable operating leases as of December 31, 2000 were:
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
- ----------------------- --------------
2001........................................................ $1,093
2002........................................................ 931
2003........................................................ 865
2004........................................................ 564
2005........................................................ 556
Thereafter.................................................. 464
------
Total....................................................... $4,473
======
(8) MANDATORILY REDEEMABLE PREFERRED STOCK
At the time of its original incorporation, the Company issued both common
stock and mandatorily redeemable Series A preferred stock. The Company is
required to redeem all shares of mandatorily redeemable Series A preferred stock
within 60 days of any fiscal year-end in which the Company attains $3,000,000 in
retained earnings, and funds are legally available. The mandatorily redeemable
Series A preferred stock is nonvoting and holders of these shares are entitled
to receive cumulative dividends at the rate of $1.20 per share per annum.
Through December 31, 2000, cumulative preferred dividends totaling $1,336,000
have been charged to stockholders' equity to accrete for the mandatorily
redeemable Series A preferred stock redemption value with a corresponding
increase in the recorded amount of the mandatorily redeemable Series A preferred
stock.
F-16
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(8) MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
In anticipation of using a portion of the proceeds from its Initial Public
Offering to redeem the Series A preferred stock, the Company eliminated the
Series A preferred stock from its articles of incorporation upon
re-incorporation of the Company in Delaware in July 1996. However, management
subsequently chose not to redeem the Series A preferred stock and as of
December 31, 2000 it remains outstanding. The holders of such shares maintain
the same rights as held before the re-incorporation.
(9) STOCKHOLDERS' EQUITY
PRIVATE PLACEMENTS
The Company raised net proceeds of $3.1 million, $6.8 million and
$8.3 million in private placement transactions of 3,102,500 shares, 3,398,000
shares and 4,096,000 shares completed in January 1999, April 1999 and
April 2000, respectively.
CHANGE OF CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company and may maintain the incumbency of the Board of Directors
and management. The authorization of undesignated preferred stock makes it
possible for the Board of Directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of the Company. Additionally, in December 1998, the Company's
Board of Directors declared a dividend distribution of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock of the
Company. The dividend was payable to the stockholders of record on January 5,
1999. 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 approved by the Company because the Rights do not
become exercisable in the event of a permitted offer or other acquisition
exempted by the Board.
(10) INCENTIVE STOCK AND STOCK OPTIONS PLANS
2000 EQUITY INCENTIVE PLAN
In June 2000, the Company's Board of Directors and stockholders approved the
adoption of the Company's 2000 Equity Incentive Plan (the "2000 Incentive Plan")
to replace the Company's 1991 Incentive Stock Plan, which expires in
April 2001. A total of 4,000,000 shares of common stock have been reserved for
issuance under the 2000 Incentive Plan. The Compensation Committee of the
Company's Board of Directors administers the Plan. The Board of Directors may
amend or modify the 2000 Incentive Plan at any time. It will expire in
June 2010, unless terminated earlier by the Board of Directors.
Under the terms of the 2000 Incentive Plan, nonstatutory stock options,
restricted stock and stock bonuses may be granted to employees, including
directors who are employees, non-employee directors, and consultants. Incentive
stock options may be granted only to employees.
Nonstatutory stock options may be granted under the 2000 Incentive Plan at a
price not less than 85% of the fair market value of the common stock on the date
the option is granted. Incentive stock options
F-17
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(10) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
may be granted under the 2000 Incentive Plan at a price not less than 100% of
the fair market value of the common stock on the date the option is granted.
Incentive and nonstatutory stock options granted to employees or consultants
who, on the date of grant, own stock representing more than 10% of the voting
power of all classes of stock of the Company are granted at an exercise price
not less than 110% of the fair market value of the common stock. Options granted
under the 2000 Incentive Plan generally vest monthly over periods of up to three
years, as specified in the option agreements. The term of nonstatutory and
incentive stock options granted is 10 years or less from the date of the grant,
as provided in the option agreements.
Restricted stock awards may be granted to purchase stock either in addition
to, or in tandem with, other awards under the 2000 Incentive Plan, under
conditions determined by the Compensation Committee. The purchase price for such
awards must be no less than 85% of the fair market value of the Company's Common
Stock on the date of the grant. The Compensation Committee may also grant stock
bonus awards to employees or consultants for services rendered to the Company.
Such awards may also be granted either in addition to, or in tandem with, other
awards under the 2000 Incentive Plan, under conditions determined by the
Compensation Committee.
Deferred compensation is recorded related to options granted to
non-employees and options granted to employees when the exercise price is below
the fair market value of the underlying common stock, if any. For the year ended
December 31, 2000, the Company recorded no deferred compensation attributable to
common stock options granted under the 2000 Incentive Plan. The Company recorded
$100,000 of compensation expense attributable to stock bonus awards of 58,333
shares of common stock granted during 2000.
The following table summarizes option grant activity under the 2000
Incentive Plan:
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
Outstanding as of December 31, 1999......................... -- $ --
Granted................................................... 1,270,000 1.89
Exercised................................................. -- --
Canceled.................................................. -- --
--------- -----
Outstanding as of December 31, 2000......................... 1,270,000 $1.89
========= =====
Exercisable as of December 31, 2000......................... 212,784 $1.83
========= =====
As of December 31, 2000, 2,671,667 shares of common stock were available for
grant under the 2000 Incentive Plan. The per share weighted-average fair value
of stock options granted during 2000 was $1.00 on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: expected dividend yield 0.00%, risk free interest rate of 5.77%,
volatility of 80%, and an expected life of 5.8 years.
F-18
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(10) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
1991 INCENTIVE STOCK PLAN
In April 1991, the Company's Board of Directors approved the adoption of the
Company's Incentive Stock Plan (the "STOCK PLAN"). A total of 4,240,992 shares
of common stock have been reserved for issuance under the Stock Plan.
Under the terms of the Stock Plan, nonstatutory stock options may be granted
to employees, including directors who are employees, and consultants. Incentive
stock options may be granted only to employees.
Nonstatutory stock options may be granted under the Stock Plan at a price
not less than 85% of the fair market value of the common stock on the date the
option is granted. Incentive stock options may be granted under the Stock Plan
at a price not less than 100% of the fair market value of the common stock on
the date the option is granted. Options granted under the Stock Plan generally
vest monthly over three to five years. The term of the nonstatutory and
incentive stock options granted is 10 years or less from the date of the grant,
as provided in the option agreements.
Incentive and nonstatutory stock options granted to employees and
consultants who, on the date of grant, own stock representing more than 10% of
the voting power of all classes of stock of the Company are granted at an
exercise price not less than 110% of the fair market value of the common stock.
Any options granted are exercisable at the time and under conditions as
determined by the Compensation Committee of the Company's Board of Directors.
The Stock Plan will expire in April 2001, at which time any remaining shares
reserved for grant will be available for grant under the Company's 2000 Equity
Incentive Plan.
Compensation is recorded on an intrinsic value basis related to options
granted to employees when the exercise price is below the fair market value of
the underlying common stock, if any, or on a fair value basis for options
granted to non-employees. For the years ended December 31, 2000, 1999 and 1998,
the Company has recorded deferred compensation of $311,000, $110,000, and
$82,000, respectively, for certain of the Company's common stock options granted
under the Stock Plan. This amount is being amortized over the relevant period of
service. The amortized compensation expense for the years ended December 31,
2000, 1999, and 1998 was $332,000, $82,000, and $391,000, respectively.
F-19
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(10) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
The following table summarizes activity under the Stock Plan:
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
Outstanding as of December 31, 1997......................... 1,829,576 $2.13
Granted................................................... 1,905,108 1.18
Exercised................................................. (265,787) 0.54
Canceled.................................................. (910,891) 3.51
--------- -----
Outstanding as of December 31, 1998......................... 2,558,006 1.09
Granted................................................... 1,080,000 1.07
Exercised................................................. (44,532) 0.80
Canceled.................................................. (401,834) 1.82
--------- -----
Outstanding as of December 31, 1999......................... 3,191,640 0.99
Granted................................................... 469,800 2.09
Exercised................................................. (912,777) 0.74
Canceled.................................................. (487,856) 1.19
--------- -----
Outstanding as of December 31, 2000......................... 2,260,807 $1.37
========= =====
Exercisable as of December 31, 1998......................... 783,453 $1.09
========= =====
Exercisable as of December 31, 1999......................... 1,567,967 $0.90
========= =====
Exercisable as of December 31, 2000......................... 1,606,571 $1.37
========= =====
As of December 31, 2000, 499,671 shares of common stock were available for
grant under the Stock Plan. The following table summarizes the per share
weighted-average fair value of stock options granted during 2000, 1999, and
1998, on the date of grant using the Black-Scholes option-pricing model with the
indicated weighted-average assumptions:
2000 1999 1998
--------- --------- ---------
Per share weighted-average fair value of options
granted............................................. $ 1.35 $ 0.63 $ 0.92
Expected dividend yield............................... 0.00% 0.00% 0.00%
Risk-free interest rate............................... 6.46% 6.03% 4.50%
Volatility............................................ 80% 80% 80%
Expected life......................................... 8.4 years 6.6 years 8.0 years
F-20
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(10) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
1995 DIRECTOR OPTION PLAN
In December 1995, the Company's Board of Directors approved the Company's
Director Option Plan (the Director Option Plan). During 2000, the Board of
Directors and the stockholders approved an increase in the number of shares
reserved for issuance under the Plan by 500,000, bringing the total number of
shares of common stock reserved for issuance to the directors of the Company
pursuant to nonstatutory stock options to 850,000. Under the Director Option
Plan, the Company's Board of Directors determines the number of shares of the
Company's stock that will be granted each year to newly-elected and re-elected
directors. Options may be granted under this plan to non-employee directors or,
pursuant to an agreement between the Company and another person, entity or
affiliate with whom a non-employee director is associated, that other person,
entity, or affiliate. Each option granted under the Director Option Plan shall
be exercisable at 100% of the fair market value of the Company's common stock on
the date such option was granted. Each grant under the plan will vest monthly
over the twelve month period commencing with the director's date of election or
re-election, provided that the option will become vested and fully exercisable
on the date of the next annual meeting of stockholders if such meeting occurs
less than one year after the date of the grant. The plan will expire in
December 2005 unless terminated earlier in accordance with certain provisions of
the Plan.
The Company has not recorded any deferred compensation for the Company's
common stock options granted under the Director Option Plan.
The following table summarizes activity under the Director Option Plan:
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
-------- --------------
Outstanding as of December 31, 1997......................... 37,000 $5.71
Granted................................................... 30,000 2.72
Exercised................................................. -- --
Canceled -- --
------- -----
Outstanding as of December 31, 1998......................... 67,000 4.37
Granted................................................... 140,000 1.56
Exercised................................................. -- --
Canceled.................................................. -- --
------- -----
Outstanding as of December 31, 1999......................... 207,000 2.47
Granted................................................... 101,500 2.41
Exercised................................................. (750) 1.38
Canceled.................................................. -- --
------- -----
Outstanding as of December 31, 2000......................... 307,750 $2.45
======= =====
Exercisable as of December 31, 1998......................... 26,000 $5.13
======= =====
Exercisable as of December 31, 1999......................... 59,669 $3.73
======= =====
Exercisable as of December 31, 2000......................... 251,750 $2.40
======= =====
F-21
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(10) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
As of December 31, 2000, 541,500 shares of common stock were available for
grant under the Director Option Plan. The following table summarizes the per
share weighted-average fair value of stock options granted during 2000, 1999,
and 1998, on the date of grant using the Black-Scholes option-pricing model with
the indicated weighted-average assumptions:
2000 1999 1998
--------- --------- ---------
Per share weighted-average fair value of options granted.... $1.14 $0.75 $2.72
Expected dividend yield..................................... 0.00% 0.00% 0.00%
Risk-free interest rate..................................... 6.30% 6.00% 5.00%
Volatility.................................................. 80% 80% 80%
Expected life............................................... 2.1 years 2.2 years 10 years
The following table summarizes information about stock options outstanding
under the 2000 Equity Incentive Plan, the 1991 Incentive Stock Plan, and the
1995 Director Option Plan at December 31, 2000:
OPTIONS OUTSTANDING
---------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ----------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING YEARS AVERAGE EXERCISABLE AVERAGE
RANGE OF EXERCISE PRICES AT 12/31/00 TO EXPIRATION EXERCISE PRICE AT 12/31/00 EXERCISE PRICE
- ------------------------ ----------- --------------- -------------- ----------- --------------
$0.50--$0.78................... 750,597 7.92 $0.75 490,618 $0.74
$1.00.......................... 825,328 7.60 $1.00 747,938 $1.00
$1.04--$1.81................... 837,444 9.46 $1.33 286,337 $1.39
$2.00--$2.44................... 876,500 9.56 $2.18 271,732 $2.17
$2.47--$7.00................... 548,688 8.58 $3.35 274,480 $4.00
--------- ---------
$0.50--$7.00................... 3,838,557 8.66 $1.63 2,071,105 $1.54
========= =========
1995 EMPLOYEE STOCK PURCHASE PLAN
In December 1995, the Company's Board of Directors approved the Company's
Employee Stock Purchase Plan (the Purchase Plan). The Purchase Plan is intended
to qualify under Section 423 of the Internal Revenue Code (the Code). The
Company has reserved 300,000 shares of common stock for issuance under the
Purchase Plan. Under the Purchase Plan, an eligible employee may purchase shares
of common stock from the Company through payroll deductions of up to 10% of his
or her compensation, at a price per share equal to 85% of the lower of (i) the
fair market value of the Company's common stock on the first day of an offering
period under the Purchase Plan or (ii) the fair market value of the common stock
on the last day of the six month purchase period during the offering period.
Each offering period will last for twenty-four months; stock purchases take
place every 6 months (April 30 and October 31 of each year). For the years ended
December 31, 2000, 1999 and 1998, 39,801, 27,535, and 17,617, shares,
respectively, were purchased under the Purchase Plan. Cumulative purchases under
the Purchase Plan at December 31, 2000 totaled 96,685 shares, leaving 203,315
shares reserved for subsequent purchase.
Under SFAS No. 123, compensation cost is recognized for the fair value of
the employees' purchase rights. The following table summarizes the per share
weighted-average fair value of purchase rights
F-22
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(10) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
granted during 2000, 1999, and 1998, on the date of grant using the
Black-Scholes option-pricing model with the indicated weighted-average
assumptions:
2000 1999 1998
--------- --------- --------
Per share weighted-average fair value of purchase rights $0.72 $0.46 $3.04
granted...................................................
Expected dividend yield..................................... 0.00% 0.00% 0.00%
Risk-free interest rate..................................... 6.13% 5.10% 5.60%
Volatility.................................................. 80% 80% 80%
Expected life............................................... 0.5 years 0.5 years 2 years
PRO FORMA DISCLOSURE
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options and purchase rights under SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts indicated
below for the years ended December 31:
2000 1999 1998
-------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
Net loss attributable to common
stockholders................................
As reported................................. $(12,364) $(10,146) $(8,580)
Pro forma................................... (13,442) (11,057) (9,718)
Net loss per share attributable to common
stockholders................................
As reported................................. $ (0.52) $ (0.52) $ (0.64)
Pro forma................................... $ (0.56) (0.57) (0.72)
Pro forma net loss reflects only options granted since 1995 as well as
purchase rights granted since 1996. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net loss amounts presented above because compensation cost is
reflected over the options' vesting period and compensation cost for options
granted prior to January 1, 1995 is not considered.
(11) SECTION 401(k) PLAN
Effective January 1, 1995, the Company adopted a Retirement Savings and
Investment Plan (the 401(k) Plan) covering the Company's full-time employees
located in the United States. The 401(k) Plan is intended to qualify under
Section 401(k) of the Internal Revenue Code. Under the terms of the
401(k) Plan, employees may elect to reduce their current compensation by up to
the statutorily prescribed annual limit and to have the amount of such reduction
contributed to the 401(k) Plan. The Company has not made any contributions to
the 401(k) Plan.
(12) INVESTMENT IN PEPGEN CORPORATION
In 1995, the Company purchased a 49% equity interest in Pepgen for
$2.5 million, comprised of $1.0 million paid at closing, a $1.0 million
promissory note and options to purchase the Company's common stock valued at
$500,000. The $1.0 million promissory note balance was paid in 1996. The options
F-23
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(12) INVESTMENT IN PEPGEN CORPORATION (CONTINUED)
were granted to Pepgen's stockholders for the purchase of an aggregate of
475,000 shares of the Company's common stock at a price of $7.50 per share, of
which 100,000 of such shares were immediately exercisable upon signing of the
agreement and the remaining 375,000 shares become exercisable upon attainment of
certain milestones. The Company valued the options utilizing the Black-Scholes
option-pricing model which considered the terms of the options, other market
assumptions consistent with those as determined by an independent valuation
appraiser, a volatility index for the biotechnology industry and certain other
factors related to the probability and timing of attaining related milestones.
The options expire at the earlier of September 2005 or three years after
becoming exercisable. In addition, Calypte has the right of first negotiation to
purchase the remaining portion of Pepgen at fair market value, and the Company
is entitled to elect one of the four Board members of Pepgen. The Company may,
but has no obligation nor plans to, provide additional funding to Pepgen.
During 1998, the Company loaned Pepgen $768,000 at an interest rate of 10%.
The loan was subsequently written off as research and development expense in
1999. Additional amounts totaling $63,000 were spent on research and development
related to Pepgen during 1999. In October 1999, Pepgen secured $3.8 million in a
new round of financing, reducing the Company's equity interest to 38%. In
June 2000, Pepgen secured an additional $2.0 million in another round of
financing, further reducing the Company's equity interest to 29%.
The Company's investment in Pepgen is carried at zero, as the proportionate
losses recognized by the Company have reduced the initial investment to this
amount.
(13) INCOME TAXES
The provision for income taxes for all periods presented in the accompanying
consolidated statements of operations represents minimum California franchise
taxes. Income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to pretax losses as a result of the
following:
DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Computed "expected" tax expense........................... $(4,163) $(3,408) $(2,876)
Meals and entertainment expenses, and officer's life
insurance not deductible for income taxes............... 13 17 8
Research expenses......................................... 39 39 32
State tax expense......................................... 1 1 1
Losses and credits for which no benefits have been
recognized.............................................. 4,112 3,360 2,885
Stock option compensation................................. -- -- (48)
Other..................................................... -- 5 --
------- ------- -------
$ 2 $ 2 $ 2
======= ======= =======
F-24
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(13) INCOME TAXES (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets is presented below:
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Employee benefit reserves, including accrued vacation and
bonuses................................................. $ 60 $ 41
Start-up and other capitalization......................... 751 722
Fixed assets, due to differences in depreciation.......... 379 412
Deferred rent and revenue................................. 214 209
Net operating loss carryovers............................. 26,093 21,524
Research and development credits.......................... 1,510 1,320
Other operating reserves.................................. 75 210
Other..................................................... 301 237
-------- --------
Total gross deferred tax assets......................... 29,383 24,675
Valuation allowance......................................... (29,383) (24,675)
-------- --------
Net deferred tax asset.................................... $ -- $ --
======== ========
The net change in the valuation allowance for the years ended
December 2000, 1999 and 1998 was an increase of $4,708,000, $4,386,000, and
$1,371,000, respectively. Because there is uncertainty regarding the Company's
ability to realize its deferred tax assets, a 100% valuation allowance has been
established. When realized, approximately $171,000 of deferred tax assets will
be creditable to paid-in capital.
As of December 31, 2000, the Company had federal tax net operating loss
carryforwards of approximately $71,059,000, which will expire in the years 2004
through 2020. The Company also has federal research and development credit
carryforwards as of December 31, 2000 of approximately $1,003,000, which will
expire in the years 2005 through 2019.
State tax net operating loss carryforwards were approximately $33,120,000
and state research and development credit carryforwards were $474,000 as of
December 31, 2000. The state net operating loss carryforwards will expire in the
years 2001 through 2010 and the state research and development credits will
carryforward indefinitely.
The Company's ability to utilize its net operating loss and research and
development tax credit carryforwards may be limited in the future if it is
determined that the Company experienced an ownership change, as defined in
Section 382 of the Internal Revenue Code.
F-25
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999, AND 1998
(14) ROYALTY, LICENSE, AND RESEARCH AGREEMENTS
ROYALTY AND LICENSE AGREEMENTS
The Company has entered into an agreement that provides for royalty payments
to former related parties based on sales of certain products conceived by the
former related parties prior to March 30, 1989.
The Company has entered into arrangements with various organizations to
receive the right to utilize certain patents and proprietary rights under
licensing agreements in exchange for the Company making certain royalty payments
based on sales of certain products and services. The royalty obligations are
based on a percentage of net sales of licensed products and include minimum
annual royalty payments under some agreements.
RESEARCH AGREEMENT
As amended in 1994, the Company entered into a research agreement that
allowed for a university to perform certain research on behalf of the Company
for a seven-year period. Under the terms of the agreement, the Company may
negotiate certain license rights to the inventions made by the university
resulting from this research. The Company's annual payment under this agreement
was approximately $150,000 through 1999. The Company made no payments
attributable to this agreement in 2000.
(15) DISTRIBUTION AGREEMENTS
UNITED STATES
In September 1999, the Company appointed Wampole Laboratories, a division of
Carter-Wallace Inc., as its exclusive U.S. distributor to the hospital, public
health, and reference lab markets. The agreement has an initial five-year term.
Continuing exclusivity for this term is predicated on the purchase of targeted
volumes of the Company's product over a two year period, which appears unlikely
based on performance through December 31, 2000.
INTERNATIONAL
The Company has entered into distribution agreements with nine international
distributors granting them exclusive rights to distribute the Company's products
in over forty countries. The agreements generally have terms of from one to
three years. Continuing exclusivity and agreement renewal or extension is
typically dependent upon specified minimum purchases following successful local
regulatory approval of the product. At December 31, 2000, the product was
registered for sale in the Republic of South Africa, the People's Republic of
China, and Indonesia. The Company received notice in January 2001 that the
product had been approved for sale in Malaysia. Other regulatory approvals are
in process.
(16) CONSULTING AND EMPLOYEE AGREEMENTS
In January 1995, the Company entered into an employment agreement with an
officer for the year ended December 31, 1995, which provided for an annual
salary of $140,000 plus an annual bonus not to exceed $35,000 per year. The
agreement was amended in November 1999 to provide payment of the officer's base
salary through April 2000. The agreement was subsequently amended in 2000 to
provide for payment of $100,000 in cash and stock for services from April 2000
through March 2001.
F-26
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999, AND 1998
(16) CONSULTING AND EMPLOYEE AGREEMENTS (CONTINUED)
In December 1997, the Company entered into a consulting agreement with a
Board member effective from December 1997 to June 1998. Under the agreement, the
consultant received compensation of $6,000 per month and was granted 50,000
stock options which vested over the period of the agreement. The options were
cancelled as of October 1999. A replacement grant was made in April 2000.
In December 1997, the Company entered into a consulting agreement with a
Board member effective from January 1998 through June 1998. Under the agreement,
the consultant received compensation of $2,500 per month and was granted 50,000
stock options which vested over a 36 month period with the possibility of
immediate vesting under certain conditions. The options were cancelled as of
October 1999. A replacement grant was made in April 2000.
In October 1998, the Company entered into employment agreements with two
officers. Those agreements expired upon the termination of employment and
execution of Consulting Agreements that extended from 1999 to 2000 between the
Company and each of the officers. Those agreements were subsequently extended in
2000 for an additional twelve-month term.
In October 1999, the Company entered into an employment agreement with an
officer and director of the Company that included a base salary, subject to
annual review, and the grant of 450,000 stock options, which vest over
24 months. The officer is also entitled to a bonus upon the achievement of
milestones mutually agreed to by the officer and the Board of Directors. During
2000, the officer received a stock bonus of 25,000 shares of the Company's
common stock and was granted stock options that vest over 24 months to purchase
an additional 300,000 shares of the Company's stock. In the event the Company
terminates the officer's employment other than for cause, the officer is
entitled to receive her base salary for twelve months.
In October 1999, the Company entered into a consulting agreement with a
Board member to serve as an officer of the Company effective from October 1999
through October 2000. Under the terms of the agreement, the director receives
compensation of $5,000 per month and was granted options to purchase 150,000
shares of the Company's stock. The options for 50,000 shares of the Company's
stock vested immediately upon execution of the Agreement, an additional 50,000
shares vested after six months, and the remaining 50,000 shares vested on the
one year anniversary of the agreement. The agreement was renewed for an
additional twelve months through October 2001. The director received a
restricted stock award valued at $60,000 that vests over the twelve month term
of the agreement as compensation for the renewal.
(17) RELATED PARTIES
During 1997, in recognition of a Technology Rights Agreement entered into
between the Company and an officer, the Company partially funded the expenses of
a research foundation started by the officer. The officer entered into a loan
agreement with the Company to repay such funding to the Company. The principal
amount and all accrued interest was originally due on December 1, 1997, but the
Company's Board of Directors extended the due date to December 31, 1999 and then
to June 12, 2000. In June 2000, the Company accepted a new note from the officer
that incorporated the principal and accrued interest from the previous
indebtedness. The June 2000 note 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.
F-27
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999, AND 1998
(17) RELATED PARTIES (CONTINUED)
In January 1998, the Company entered into an agreement with a venture
capital firm, of which the former Chairman of the Board of Directors of the
Company is a general partner, for his services as Chairman of the Board. The
venture capital firm is also a stockholder of the Company. Under the terms of
the agreement, the Company paid the venture capital firm $50,000 during 1998.
The agreement was not renewed for 1999 or 2000.
In March 2000, Calypte agreed to sell 4,096,000 shares of Common Stock to
institutional investors in a private placement at $2.05 per share. 1,951,220 of
the shares were sold to an investment company for which the Company's Chairman
of the Board serves on the Board of Directors and is a member of the
Compensation Committee. Pursuant to the Common Stock Purchase Agreement dated
March 2, 2000, a representative designated by the investment company was elected
to Calypte's Board of Directors. The Calypte Board will nominate a
representative selected by the investment company for election to the Calypte
Board for so long as the investment company holds one-half of the shares it
acquired through the Common Stock Purchase Agreement. In connection with the
private placement, the investment company extended a $1 million line of credit
to Calypte and Calypte issued a warrant for the purchase of 100,000 shares of
its common stock at $3.62 per share. The line of credit converted into shares of
common stock of Calypte upon the closing of the stock purchase.
In March 2000, Calypte announced that a member of its Board and its founder,
who is also its Chief Scientific Officer and a member of its Board, had
established a commercial company named Chronix Biomedical that will focus on
novel ways to detect aberrant genes in individuals with chronic diseases.
Chronix is financed independently of Calypte and Calypte does not have an equity
interest in Chronix. Calypte has a right of first refusal to license any
urine-based diagnostic tests that result from the Officer's work, as well as
from Chronix' research efforts, pursuant to Technology Rights Agreements which
Calypte has with the Officer and with Chronix. Such Technology Rights Agreements
expire on March 1, 2007 unless otherwise agreed in writing by Calypte with the
relevant licensor. Under such Technology Rights Agreements, Calypte will have a
period of time, after disclosure to Calypte by the Officer or Chronix, as the
case may be, of the relevant developed technology, to license such technology on
an exclusive, worldwide basis in perpetuity; in exchange for a license fee equal
to the direct cost of the relevant licensor in developing such technology, plus
a running royalty equal to 5% of Calypte's net sales of products and services
using such licensed technology.
(18) SUBSEQUENT EVENTS
FDA APPROVAL OF ALAMEDA MANUFACTURING PLANT
On January 12, 2001, the FDA notified the Company that it had granted
pre-market approval for the production of the Company's urine HIV-1 EIA
screening test in the Company's Alameda, California manufacturing plant. The
larger facility will significantly increase Calypte's production and
distribution capabilities, while significantly reducing overhead costs. The
Company transferred all of the manufacturing processes for its urine HIV-1
screening test to Alameda and closed its leased manufacturing plant at Berkeley
at the end of February 2001. The Company's Rockville, Maryland manufacturing
site will remain in operation.
F-28
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999, AND 1998
(18) SUBSEQUENT EVENTS (CONTINUED)
FINANCING
On January 22, 2001, the Company signed an agreement to place up to
$1.1 million in convertible short-term debentures. Under this arrangement,
Calypte has the right to issue two convertible debentures to the debentureholder
with a principal amount of $550,000 each at a 6% interest rate. Each debenture
will be issued at an original issue discount of 9.1% and will mature 90 days
from the date of issue. Under the terms of the debentures, the debentureholder
can elect at any time prior to the maturity to convert the balance outstanding
on the debentures into shares of our common stock at a fixed price that
represents a 5% discount to the average trading price of the shares for the 10
trading days preceding the issuance of each debenture. If Calypte chooses not to
redeem the debentures prior to maturity, the conversion discount to the
debentureholder increases to 15% of the average low bid price for Calypte's
common stock for any three of the 22 trading days prior to the date of
conversion. Calypte issued a warrant for 200,000 shares of common stock at an
exercise price of $1.50 with the first debenture. Calypte is obligated to
file a registration statement for the shares issuable upon conversion of the
debentures and warrants with the SEC by April 15, 2001. Calypte issued the first
debenture on January 26, 2001 and may issue the second debenture, at its sole
discretion, after February 26, 2001. If Calypte issues both debentures, it
expects to receive aggregate net proceeds under the two debentures of
approximately $925,000.
On January 24, 2001, Calypte and an investor amended a Common Stock Purchase
Agreement on for the future issuance and purchase of Calypte's common stock. The
initial closing of the agreement took place on November 2, 2000. The stock
purchase agreement established what is sometimes termed an equity line of credit
or an equity draw down facility. In general, the draw down facility operates
like this: The investor 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 investor will provide to Calypte and the number of shares Calypte
will issue 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 investor receives a 5% discount to the market price for
the 22-day period and Calypte receives the settled amount of the draw down. In
addition, the investor received a three-year warrant to purchase 1,000,000
shares of Calypte stock at an exercise price of $1.55 per share. The Company is
to pay a 5% brokerage fee, upon each settlement of a draw down request, to the
investment bank which introduced the Company to the investor. The net proceeds
from the sale of common stock are to be utilized to fund continuing operations,
provided that, so long as there continues to be an outstanding amount on the
Company's convertible debentures (described above), one-half of the net proceeds
must be paid to the debentureholder(s) against such outstanding amount. Calypte
filed a registration statement with the SEC pursuant to this transaction on
January 25, 2001.
NOTE PAYABLE
On January 17, 2001, the Company repaid in full the outstanding principal
balance plus accrued interest under its term loan agreement with the bank. The
Company used the cash pledged to the bank as the source of repayment.
F-29
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Calypte Biomedical Corporation:
Under date of February 23, 2001, we reported on the consolidated balance
sheets of Calypte Biomedical Corporation and subsidiary as of December 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2000, which are included in this Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The audit report on the consolidated financial statements of Calypte
Biomedical Corporation and subsidiary referred to above contains an explanatory
paragraph that states that the Company's recurring losses from operations and
accumulated deficit raise substantial doubt about the entity's ability to
continue as a going concern. The financial statement schedule included in this
Form 10-K does not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
San Francisco, California
February 23, 2001
S-1
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
---------- ---------- ---------- ---------- -------------
YEAR ENDED DECEMBER 31, 2000
Allowance for sales returns and
doubtful accounts receivable......... $ 35 -- -- -- $ 35
YEAR ENDED DECEMBER 31, 1999
Allowance for sales returns and
doubtful accounts receivable......... -- $ 35 -- -- $ 35
YEAR ENDED DECEMBER 31, 1998
Allowance for sales returns and
doubtful accounts receivable......... -- -- -- -- --
YEAR ENDED DECEMBER 31, 2000
Inventory valuation reserves........... $528 -- -- (213) $315
YEAR ENDED DECEMBER 31, 1999
Inventory valuation reserves........... $871 -- -- (343) $528
YEAR ENDED DECEMBER 31, 1998
Inventory valuation reserves........... $692 179 -- -- $871
S-2
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CALYPTE BIOMEDICAL CORPORATION
(Registrant)
Date: March 2, 2001 By: /s/ NANCY E. KATZ
------------------------------------------
Nancy E. Katz
PRESIDENT, CHIEF EXECUTIVE OFFICER, AND
CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting
Officer)
POWER OF ATTORNEY
Each Director of the Registrant whose signature appears below, hereby
appoints Nancy E. Katz as his or her attorney-in-fact to sign in his or her name
and on his or her behalf as a Director of the Registrant, and to file with the
Commission any and all Amendments to this report on Form 10-K to the same extent
and with the same effect as if done personally.
PURSUANT TO THE REQUIREMENT OF THE SECURITIES AND EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW, BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DAVID E. COLLINS
------------------------------------------- Chairman of the Board of March 2, 2001
David E. Collins Directors
President, Chief Executive
/s/ NANCY E. KATZ Officer, and Chief
------------------------------------------- Financial Officer March 2, 2001
Nancy E. Katz (Principal Financial and
Accounting Officer)
/s/ WILLIAM A. BOEGER
------------------------------------------- Director March 2, 2001
William A. Boeger
/s/ HOWARD B. URNOVITZ, PH.D.
------------------------------------------- Chief Science Officer and March 2, 2001
Howard B. Urnovitz, Ph.D. Director
/s/ JOHN J. DIPIETRO
------------------------------------------- Director March 2, 2001
John J. DiPietro
II-1
SIGNATURE TITLE DATE
--------- ----- ----
/s/ PAUL FREIMAN
------------------------------------------- Director March 2, 2001
Paul Freiman
/s/ JULIUS R. KREVANS, M.D.
------------------------------------------- Director March 2, 2001
Julius R. Krevans, M.D.
/s/ MARK NOVITCH, M.D.
------------------------------------------- Director March 2, 2001
Mark Novitch, M.D.
/s/ ZAFAR I. RANDAWA, PH.D.
------------------------------------------- Director March 2, 2001
Zafar I. Randawa, Ph.D.
/s/ CLAUDIE WILLIAMS
------------------------------------------- Director March 2, 2001
Claudie Williams
II-2