Filed Pursuant to Rule 424(b)(3)
Registration Number 333-125051
PROSPECTUS
CALYPTE BIOMEDICAL CORPORATION
73,198,583 Shares of common stock, $0.03 Par Value
o This Prospectus relates to the resale of our common stock by the selling
security holders, all of whom were issued securities in connection with
our April 2005 private placement and our April 2005 credit facility
agreement, of up to 73,198,583 shares of our common stock, including:
o 26,666,666 shares of common stock that may be issued upon the
conversion by the selling security holders of $8,000,000 of our
Secured 8% Convertible Promissory Notes at a conversion price of
$0.30 per share; and
o 26,666,666 shares of common stock underlying Series A common stock
purchase warrants exercisable beginning six months after issuance at
an exercise price of $0.325 per share issued to the selling security
holders concurrently with the 8% Notes; and
o 12,000,000 shares of common stock underlying Series B common stock
purchase warrants exercisable beginning six months after issuance at
an exercise price of $0.325 per share issued to the selling security
holders concurrently with the 8% Notes; and
o 2,662,916 shares of common stock issuable as compensation to
non-exclusive placement agents who are selling security holders, of
which
o 325,000 shares are issuable upon conversion of a $97,500
Secured 8% Convertible Promissory Note issued to a selling
security holder;
o 325,000 shares are issuable upon the exercise of a Series A
common stock purchase warrant exercisable at $0.325 per share
issued to a selling security holder;
o 146,250 shares are issuable upon the exercise of a Series B
common stock purchase warrant exercisable at $0.325 per share
issued to a selling security holder;
o 533,333 shares are issuable upon exercise of warrants
exercisable at $0.30 per share and having substantially the
same terms, but excluding the anti-dilution protection
provisions, as the Series A common stock purchase warrants
noted above issued to selling security holders; and
o 1,333,333 shares are issuable upon exercise of warrants
exercisable at $0.23 per share and having substantially the
same terms, but excluding the anti-dilution protection
provisions, as the Series A common stock purchase warrants
noted above issued to selling security holders;
o 4,702,335 shares of common stock underlying Shares issuable upon
conversion of the Secured 8% Convertible Promissory Notes which
constitute interest accreted to principal on the Secured 8%
Convertible Promissory Notes; and
o 500,000 shares of common stock underlying a common stock purchase
warrant exercisable beginning six months after issuance at an
exercise price of $0.40 per share issued to a selling security
holder in connection with a $5,500,000 Credit Facility Agreement.
o Except for proceeds from the exercise of the common stock purchase
warrants, the selling security holders, and not us, will receive all of
the proceeds from any sales of the shares, less any brokerage or other
expenses of the sale incurred by them.
o Our common stock is traded on the American Stock Exchange under the symbol
"HIV." The last reported sales price for our common stock on June 24, 2005
was $0.192 per share.
o Our principal executive offices are located at 5000 Hopyard Road, Suite
480, Pleasanton, California 94588, and our telephone number is (925)
730-7200.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
We may amend or supplement this Prospectus from time to time by filing
amendments or supplements as required. You should read the entire Prospectus and
any amendments or supplements carefully before you make your investment
decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is July 6, 2005.
TABLE OF CONTENTS
PAGE
Prospectus Summary 1
Risk Factors 3
Forward-Looking Statements 17
Use of Proceeds 18
Selling Security Holders 18
Plan of Distribution 22
Legal Matters 24
Experts 24
Incorporation of Certain Documents by Reference 24
Where You Can Find More Information 25
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities 25
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed
with the Securities and Exchange Commission utilizing a "shelf registration"
process. You should read this prospectus and any supplement, together with
additional information described under "Where You Can Find More Information" and
the information we incorporate by reference in this prospectus described under
the heading "Incorporation of Certain Documents by Reference."
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THIS SUMMARY
DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE
INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY,
ESPECIALLY THE DISCUSSION REGARDING THE RISKS OF INVESTING IN THE COMMON STOCK
OF CALYPTE BIOMEDICAL CORPORATION UNDER THE SECTION ENTITLED "RISK FACTORS,"
BEFORE INVESTING IN CALYPTE BIOMEDICAL CORPORATION'S COMMON STOCK. REFERENCES IN
THIS PROSPECTUS TO "WE," "US" AND "OUR" REFER TO CALYPTE BIOMEDICAL CORPORATION,
A DELAWARE CORPORATION.
ABOUT CALYPTE BIOMEDICAL CORPORATION
We develop, manufacture, and distribute in vitro diagnostic tests, primarily for
the diagnosis of Human Immunodeficiency Virus ("HIV") infection. Historically,
we have manufactured and marketed urine-based HIV-1 diagnostic screening tests
and urine and serum-based Western Blot supplemental tests for use in
laboratories, which we refer to as our "Legacy Business." Since we began
marketing our urine diagnostic testing products following their approval by the
FDA and through the first quarter of 2005, our revenues have been almost
exclusively generated from sales of these products. The Legacy Business tests
are manufactured in formats that make them most suitable for high-volume
laboratory settings.
Over the last two years, however, we have been broadening our historical focus
to include other HIV tests, such as a blood-based incidence test and various
rapid tests using other specimens. In the last quarter of 2004, we introduced
our HIV-1 BED incidence EIA test (the "BED Incidence Test") that detects HIV-1
infections that have occurred within approximately the prior 6 months and that
can be used by public health agencies to identify those regions and the
populations within those regions where HIV transmission is occurring most
recently. We are currently focusing on the development and commercialization of
our new test products for the rapid detection of antibodies to HIV-1 and HIV
Type 2, a second type of HIV ("HIV-2"), in blood, oral fluid and urine samples
using a lateral flow dipstick design (the "HIV-1/2 Rapid Tests") and the
commercialization of the BED Incidence Test on a worldwide basis.
Rapid tests provide test results in less than 20 minutes and are particularly
suitable for point-of-care testing, especially in lesser developed countries
which lack the medical infrastructure to support laboratory based testing. We
have completed field trials of our HIV-1/2 Rapid Tests that have validated our
prototype products. We have recently completed clinical trials in Uganda and
China and are currently engaged in clinical trials in other countries in pursuit
of regulatory approvals for these tests.
In an effort to reduce our cash burn rate and prolong our resources, in April
2005 we announced our plans to restructure our business (the "Plan") to
consolidate our domestic operations and focus our capital resources on the
global commercialization of the HIV-1/2 Rapid Tests and the BED Incidence Test.
As part of the Plan, we are discontinuing the production of our Legacy Business
products currently manufactured at our facility in Rockville, Maryland. Pursuant
to the Plan, we will pursue various options ranging from selling the Legacy
Business to discontinuing manufacturing operations at the Rockville facility
pending a final determination of its disposition.
In furtherance of the Plan, on April 18, 2005, we entered into a non-binding
letter of intent to sell the Legacy Business to Maxim Biomedical, Inc.
("Maxim"). Effective May 1, 2005, we entered into a manufacturing services and
management agreement (the "Agreement") with Maxim pursuant to which Maxim will
manufacture, ship and perform quality control procedures for us in connection
with the Legacy Business. Pursuant to the Agreement, Maxim has the right, but
not the obligation, to purchase the assets of the Legacy Business on terms to be
negotiated between the parties. We will remain liable for our Rockville facility
and equipment lease obligations, however, we expect to lower our operating
expenses through this arrangement.
1
Over the next couple of months, we expect to complete either the sale of the
Legacy Business to Maxim or the closure of the Rockville facility and
termination of Legacy Business operations as well as the transition of our
corporate headquarters to the Portland, Oregon area. We will incur severance
costs for certain personnel terminated at Rockville and certain administrative
personnel not transitioning to Oregon. Our restructuring activities are expected
to result in severance-related charges of approximately $500,000. We also expect
to incur approximately $1 million in expenses from the write-down of inventory.
We may also be liable for lease costs for the California offices through July
2007 in the event we are unable to sublease that facility.
Upon successful completion of a sale of the Legacy Business, we believe that we
will have significantly reduced our monthly operating burn rate as compared with
historical levels. If we are unable to complete such a transaction, we may incur
costs to decommission the Rockville facilities; on-going facility lease costs,
until and unless sub-lease opportunities are available and on-going lease or
lease termination costs associated with leased equipment. We cannot currently
estimate those costs, but they will increase our cash burn rate in comparison
with the sale alternative. Under either scenario, the revenue stream from our
Legacy Business products will have been eliminated and we will rely on revenues
from the sale of our BED Incidence Test and, following regulatory approvals,
from the sale of our HIV 1-2 Rapid Tests internationally.
We believe that the geographic consolidation of our domestic operations and the
termination of our Legacy Business resulting from this restructuring will
improve our operational efficiency, decrease our cash burn and permit us to
concentrate on expediting the procedures necessary to commercialize the HIV1-2
Rapid Tests and thereby begin the process of building the revenue stream
necessary to support our operations and achieve our financial objective of
sustained profitable operations and increased stockholder value.
THE OFFERING
TOTAL SHARES OF
COMMON STOCK OUTSTANDING 171,908,903 as of June 24, 2005
COMMON STOCK BEING OFFERED FOR
RESALE BY SELLING SECURITY
HOLDERS Up to 73,198,583 shares which may be
issued to the selling security holders
upon their conversion of our Secured 8%
Convertible Promissory Notes or exercise
of common stock purchase warrants. All
of the shares offered by this Prospectus
are being sold by the selling security
holders.
RISK FACTORS The shares involve a high degree of
risk. Investors should carefully
consider the information set forth under
"RISK FACTORS" beginning on page 3.
USE OF PROCEEDS We will not receive any proceeds from
the sale of our common stock offered
through this Prospectus by the selling
security holders. All proceeds from the
sale of our common stock sold under this
Prospectus will go to the selling
security holders. We will, however,
receive an aggregate of up to
approximately $13.2 million gross
proceeds if the selling stockholders
exercise all of their warrants to
purchase common stock. We would expect
to use these proceeds for general
corporate purposes.
DETERMINATION OF OFFERING PRICE This Prospectus may be used from time to
time by the selling security holders who
offer our common stock in transactions
(which may include block transactions)
at prevailing market prices at the time
of sale, at prices related to the
prevailing market prices, or at other
negotiated prices. The selling security
holders will act independently in
determining the offering price of each
sale.
TRADING SYMBOL FOR OUR COMMON STOCK HIV
2
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE DECIDING TO
INVEST IN OUR COMMON STOCK. AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH
DEGREE OF RISK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR
THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY
OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE
HARMED. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND
YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. IN ASSESSING THESE RISKS, YOU
SHOULD ALSO REFER TO THE OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE NOTES THERETO.
RISKS RELATED TO OUR FINANCIAL CONDITION
If We are Unable to Obtain Additional Financing If and When Required We May Have
to Significantly Curtail the Scope of Our Operations and Alter Our Business
Model.
There can be no assurance that the proceeds from our issuance of $8.0 million of
Secured 8% Convertible Notes in April 2005 and the availability of $5,500,000
under the terms of a Credit Facility Agreement entered into in April 2005 will
be adequate to sustain our operations at expected levels through 2005. We
believe we will need to arrange additional financing to fund our operations and
make the investments necessary to continue to execute our business plan early in
2006 or thereafter. In addition, there is no assurance that we will achieve or
sustain profitability or positive cash flows in the future.
In the absence of adequate resources from current working capital and existing
financing arrangements, we may be required to raise additional capital to
sustain our operations. There can be no assurance that additional financing
would be available, or if it is available, be on acceptable terms. We would or
might be required to consider strategic opportunities, including merger,
consolidation, sale or other comparable transaction, to sustain our operations.
We do not currently have any agreements in place with respect to any such
additional financing or strategic opportunity, and there can be no assurance
that any such opportunity will be available to us on acceptable terms, or at
all. If additional financing is not available to us if and when required or is
not available to us on acceptable terms, or we are unable to arrange a suitable
strategic opportunity, we will be in significant financial jeopardy and we may
be unable to continue our operations at current levels, or at all. The terms of
a subsequent financing may involve a change of control, require stockholder
approval, and/or trigger anti-dilution protection clauses contained in the
Secured 8% Convertible Notes and Series A and Series B warrants issued in
connection therewith that would result in substantial dilution to our existing
stockholders. Further, our pledge of the rights to our assets as collateral
security for the issuance of the Secured 8% Convertible Notes may inhibit our
ability to secure financing in the future. There can be no assurance that we
will enter into such agreements or secure such financing, or that our
stockholders will approve the terms of such financing, if so required. If such
additional financing is not available to us when required or is not available to
us on acceptable terms, or we are unable to arrange a suitable strategic
opportunity, we will be in significant financial jeopardy and we may be unable
to continue our operations at current levels, or at all.
Our 2004 PIPEs Contain Anti-Dilution Protection Provisions Which, If Approved By
Our Stockholders, Will Result in Dilution to Stockholders Not Entitled To Such
Protection.
Subject to approval by our stockholders, the terms of the Secured 8% Convertible
Notes trigger the anti-dilution protection provisions granted to investors in
our 2004 PIPEs, as amended, and require that we issue approximately 7.1 million
additional shares of our common stock, reprice the 10.7 million warrants issued
in the 2004 PIPEs from an exercise price of $0.50 per share to $0.45 per share
and grant additional warrants to purchase approximately 1.3 million shares of
our Common Stock at an exercise price of $0.325 per share to those investors.
Certain investors in the 2004 PIPEs who held shares of our common stock prior to
their investment in those transactions and who also continue to be our
stockholders have entered into a voting agreement to vote their eligible shares
in favor of approval of such anti-dilution entitlements. If approved by our
stockholders, the issuance of such additional shares and warrants will dilute
the interest of stockholders not subject to such anti-dilution protection
rights.
3
Our Financial Condition has Adversely Affected Our Ability to Pay Suppliers,
Service Providers and Licensors on a Timely Basis Which May Jeopardize Our
Ability to Continue Our Operations and to Maintain License Rights Necessary to
Continue Shipments and Sales of Our Products.
As of March 31, 2005 our accounts payable totaled $2.0 million, of which $1.1
million was over sixty days past due. Additionally, at March 31, 2005, we were
delinquent on an aggregate of $0.8 million in payments under the terms of
intellectual property license agreements necessary in the production and sale of
our rapid tests. Further, we currently have many cash-only arrangements with
suppliers. Certain vendors and service providers may choose to bring legal
action against us to recover amounts they deem due and owing. While we may
dispute certain of these claims, should a creditor prevail, we may be required
to pay all amounts due to the creditor. If the working capital that will enable
us to make the required payments is not available when required, we will be
placed in significant financial jeopardy and we may be unable to continue our
operations at current levels, or at all.
We Have Incurred Losses in the Past and We Expect to Incur Losses in the Future.
We have incurred losses in each year since our inception. Our net loss for the
three months ended March 31, 2005 and the year ended December 31, 2004 was $3.3
million and $17.3 million; respectively, and our accumulated deficit at March
31, 2005 was $148.4 million. We expect operating losses to continue during 2005,
as we complete the commercialization of our rapid tests, complete our domestic
restructuring and international technology transfers, and conduct additional
research and development and clinical trials for potential new products.
We May be Faced with A Legal Claim for Damages with Respect to the Issuance of
Shares of Common Stock on a Claimed Conversion of Our 12% Convertible
Debentures.
A claim has been made by Logisticorp, Inc. (Logisticorp) and Southwest Resource
Preservation, Inc. (Southwest) with respect to an aggregate of $60,000 of 12%
Convertible Debentures assigned to Logisticorp and Southwest by a debenture
holder. Logisticorp's and Southwest's claim is that each tendered their
respective conversion notice requests in August, 2003 and that as a result of
their separate notices of election to convert their debentures, that Southwest
is entitled to receive 427,807 registered shares of common stock, and
Logisticorp 213,903 registered shares of common stock for an aggregate of
641,710 shares of common stock. Additionally, Logisticorp claims damages in the
sum of at least $235,000, and Southwest claims damages in the sum of at least
$471,000, or an aggregate of at least $706,000. We have advised Logisticorp and
Southwest that we dispute their claims with respect to the conversion notice
date, the conversion price and the number of shares based upon the formula in
the debenture and the registration rights for the underlying shares. We have
been unable to contact Logisticorp and Southwest for the past several months and
have not yet achieved a resolution of the claims. There can be no assurance that
we will not be responsible for damages including legal fees and expenses in the
event that the claim is pursued.
RISKS RELATED TO THE MARKET FOR OUR COMMON STOCK
Our Registration of a Significant Amount of Our Stock Issuable upon Conversion
of Notes or Exercise of Warrants and Eligible for Future Sale May Have a
Negative Effect on the Trading Price of Our Stock.
Under the terms of the April 2005 Secured 8% Convertible Notes and warrants (the
"April 2005 Private Placement") and in connection with the 2005 Credit Facility,
we are required to file a registration statement to register for resale
approximately 73.2 million shares of our common stock, of which approximately
66.1 million shares may be issued upon the conversion of our Secured 8%
Convertible Notes or the exercise of our Series A Warrants and Series B
Warrants, and the remaining 7.1 million shares may be issued under fee
agreements or, subject to stockholder approval, as interest on the Notes. Upon
the effectiveness of the registration statement and the conversion of the notes
4
or exercise of the warrants, the investors will hold freely tradable shares. The
issuance of such shares would increase by approximately 42% the number of shares
currently outstanding, essentially all which are also registered and freely
tradable. If investors in the April 2005 Private Placement or other investors
holding a significant number of freely tradable shares decided to sell them in a
short period of time, such sales could contribute significant downward pressure
on the trading price of our stock. Such sales might also inhibit our ability to
obtain future equity or equity-related financing on acceptable terms, if and
when that becomes necessary.
From inception through March 31, 2005, we have issued approximately 171.2
million shares of our common stock and raised approximately $143 million. At a
Special Meeting of Stockholders on February 14, 2003, our stockholders approved
an increase in the number of authorized shares of our common stock from 200
million to 800 million. After considering the share reserves required for the
April 2005 Private Placement, we have the ability to issue in excess of 400
million shares of our common stock for financing or for other purposes. The
perceived risk of dilution from this amount of authorized but unissued stock may
cause our existing stockholders and other holders to sell their shares of stock,
which would contribute to a decrease in our stock price. In this regard,
significant downward pressure on the trading price of our stock may also cause
investors to engage in short sales, which would further contribute to
significant downward pressure on the trading price of our stock.
Our Stockholders May Experience Substantial Dilution as a Result of the 8%
Convertible Notes Issued in the April 2005 Private Placement and the
Anti-Dilution Provisions Contained Therein.
Subject to stockholder approval, the terms of the April 2005 Private Placement
include anti-dilution protection provisions that would require us to issue
additional shares upon conversion of the Notes and to re-price downward the
Sereis A Warrants if we issue additional shares of common stock or common stock
equivalents at less than the note conversion or warrant exercise price pursuant
to financing(s) completed within one year of that transaction. Should we
complete a transaction triggering these anti-dilution provisions, the interests
of our existing stockholders not subject to such anti-dilution protection rights
could be even further diluted.
Our Issuance of Warrants, Options and Stock Grants to Consultants for Services
and the Granting of Registration Rights for the Underlying Shares of Common
Stock May Have a Negative Effect on the Trading Price of Our Common Stock.
As we continue to look for ways to minimize our use of cash while obtaining
required services, we expect to continue to issue warrants and options at or
below the current market price or make additional stock bonus grants. During
2004, we issued approximately 2.1 million shares in payment for consulting
services and for the acquisition of intellectual property and equipment. During
the first quarter of 2005, we issued approximately 0.1 million shares and
approximately 1.2 million options at market in payment of consulting services.
In addition to the potential dilutive effect of issuing a large number of shares
or options, there is the potential that a large number of the shares may be sold
on the open market at any given time, which could place additional downward
pressure on the trading price of our common stock.
The Price of Our Common Stock Has Been Highly Volatile Due to Several Factors
Which Will Continue to Affect the Price of Our Stock.
Our common stock has traded as low as $0.18 per share and as high as $0.745 per
share in the twelve months ended March 31, 2005. We believe that some of the
factors leading to the volatility include:
o price and volume fluctuations in the stock market at large which do not
relate to our operating performance;
o fluctuations in our operating results;
o concerns about our ability to finance our continuing operations;
o financing arrangements which may require the issuance of a significant
number of shares in relation to the number of shares currently
outstanding, including anti-dilution provisions;
5
o announcements of technological innovations or new products which we or our
competitors make;
o FDA, SEC and international regulatory actions;
o availability of reimbursement for use of our products from private health
insurers, governmental health administration authorities and other
third-party payors;
o developments with respect to patents or proprietary rights;
o public concern as to the safety of products that we or others develop;
o changes in health care policy in the United States or abroad;
o changes in stock market analysts' recommendations regarding Calypte, other
medical products companies or the medical product industry generally;
o fluctuations in market demand for and supply of our products;
o certain world conditions, such as an economic downturn, natural disasters
or terrorist attacks; and
o anti-American sentiment in certain international markets where we market
or anticipate marketing our products.
We Are Subject to Governmental and Stock Exchange Regulations That Impose
Operational and Reporting Requirements.
The Sarbanes-Oxley Act of 2002 and our listing on the American Stock Exchange
(Amex) in August 2004 required us to modify or supplement some of our corporate
governance and securities disclosure and compliance practices. The Securities
and Exchange Commission and the Amex have revised, and continue to revise, their
regulations and policies. These developments have increased, and are expected to
increase, our legal, compliance and financial reporting costs. Failure to comply
with present or future laws, rules and regulations of any kind that govern our
business could result in suspension or cessation of all or a portion of our
operations, or the imposition of significant administrative, civil or criminal
penalties, any of which could harm our business.
Failure to Achieve and Maintain Internal Controls in Accordance With Section 404
of the Sarbanes-Oxley Act of 2002 Could Have A Material Adverse Effect on Our
Business and Stock Price.
We are in the process of examining and evaluating our internal control
procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act,
which will require our management to annually assess the effectiveness of our
internal controls over financial reporting and our independent registered public
accounting firm to report on our assessment beginning with our Annual Report on
Form 10-KSB for the year ending December 31, 2006. While we expect to complete
our documentation, testing and remediation of any identified deficiencies in
time to meet the deadline for compliance with the requirements of Section 404,
there can be no assurance that we will do so. In addition, if we fail to
maintain the adequacy of our internal controls or fail to implement required new
or improved controls, as such control standards are modified, supplemented or
amended from time to time, we may not be able to ensure that we can conclude on
an ongoing basis that we have effective internal controls over financial
reporting in accordance with Section 404. Effective internal controls are
necessary for us to produce reliable financial reports and are important in the
prevention of financial fraud. If we cannot produce reliable financial reports
or prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information, and there could be
a material adverse effect on our stock price.
Our Charter Documents May Inhibit a Takeover.
Certain provisions of our Certificate of Incorporation and Bylaws could:
o discourage potential acquisition proposals (i.e. stockholder rights plan
also known as a "poison pill");
o delay or prevent a change in control;
6
o diminish stockholders' opportunities to participate in tender offers for
our common stock, including tender offers at prices above the then-current
market price;
o inhibit increases in the market price of our common stock that could
result from takeover attempts; or
o grant to the Board of Directors the discretionary right to designate
specific rights and preferences of preferred stock greater than those of
our common stock.
Furthermore, we are subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware (DGCL). In general, the DGCL prohibits
a publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person becomes an interested stockholder, unless
the business combination is approved in a prescribed manner. An "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the prior three years did own, 15% or more of the corporation's voting
stock. This provision could make it more difficult for an "interested
stockholder" to obtain control of us without the approval of the Board of
Directors.
We Have Adopted a Stockholder Rights Plan That Has Certain Anti-takeover
Effects.
On December 15, 1998, the Board of Directors of Calypte declared a dividend
distribution of one preferred share purchase right (Right) for each outstanding
share of our common stock. The dividend was payable to the stockholders of
record on January 5, 1999, with respect to each share of common stock issued
thereafter until a subsequent "distribution date" defined in a Rights Agreement
and, in certain circumstances, with respect to shares of common stock issued
after the Distribution Date.
The Rights have certain anti-takeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire us 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 we approve because the Rights do not become exercisable in the
event of an offer or other acquisition exempted by our Board of Directors.
Our Board of Directors has Certain Discretionary Rights With Respect to Our
Preferred Shares That May Adversely Affect the Rights of our Common
Stockholders.
Our Board may, without stockholder approval, designate and issue our preferred
stock in one or more series. Additionally, our Board may designate the rights
and preferences of each series of preferred stock it designates which may be
greater than the rights of our common stock. Potential effects on our common
stock may include among other things:
o restricting dividends;
o dilution of voting power;
o impairment of liquidation rights; and
o delaying or preventing a change in control of the Company.
Additionally, as a result of the 1:30 reverse split of our common stock that
became effective in May 2003, we currently have over 400 million shares of
common stock that could be issued for financing or other purposes. Dilution
resulting from such issuance could also adversely affect the rights of our
current common stockholders.
Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the
Trading Market In Our Securities is Limited, Which Makes Transactions in Our
Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.
7
Shares of our common stock are "penny stocks" as defined in the Exchange Act.
The "penny stock" rules adopted by the Commission under the Exchange Act subject
the sale of the shares of our common stock to certain regulations which impose
sales practice requirements on broker/dealers. For example, brokers/dealers
selling such securities must, prior to effecting the transaction, provide their
customers with a document that discloses the risks of investing in such
securities. Included in this documents are the following:
o thebid and offer price quotes in and for the "penny stock", and the number
of shares to which the quoted prices apply.
o the brokerage firm's compensation for the trade.
o the compensation received by the brokerage firm's sales person for the
trade.
In addition, the brokerage firm must send the investor:
o a monthly account statement that gives an estimate of the value of each
"penny stock" in the investor's account.
o a written statement of the investor's financial situation and investment
goals.
Legal remedies, which may be available to you as an investor in "penny stocks",
are as follows:
o if "penny stock" is sold to you in violation of your rights listed above,
or other federal or states securities laws, you may be able to cancel your
purchase and get your money back.
o if the stocks are sold in a fraudulent manner, you may be able to sue the
persons and firms that caused the fraud for damages.
o if you have signed an arbitration agreement, however, you may have to
pursue your claim through arbitration.
If the person purchasing the securities is someone other than an accredited
investor or an established customer of the broker/dealer, the broker/dealer must
also approve the potential customer's account by obtaining information
concerning the customer's financial situation, investment experience and
investment objectives. The broker/dealer must also make a determination whether
the transaction is suitable for the customer and whether the customer has
sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the Commission's rules may limit the number of
potential purchasers of the shares of our common stock.
Resale restrictions on transferring "penny stocks" are sometimes imposed by some
states, which may make transaction in our stock more difficult and may reduce
the value of the investment. Various state securities laws impose restrictions
on transferring "penny stocks" and as a result, investors in our common stock
may have the ability to sell their shares of our common stock impaired.
RISKS RELATED TO OUR BUSINESS
We May Be Unsuccessful in Implementing Our Restructuring Plans as Anticipated.
In April 2005, we commenced a restructuring plan under which we expect to
consolidate our domestic operations and discontinue the production of our HIV-1
Urine EIA and supplemental HIV-1 Western Blot serum and urine diagnostic tests
at our Rockville, Maryland plant and focus our efforts and resources on our
rapid HIV diagnostic and HIV-1 BED Incidence tests. During 2004, we consolidated
our U.S. manufacturing operations into a single facility at Rockville and have
recently completed the internal validation and comparability studies and
submitted our application to the FDA for approval of our facility changes and
urine EIA manufacturing operations in Rockville. The restructuring plan calls
for management to pursue options ranging from selling our urine EIA and Western
Blot business, in which case the acquirer would likely continue to operate the
Rockville facility, to terminating the employees and discontinuing manufacturing
operations at the Rockville facility pending a final determination of its
disposition. We terminated a significant number of our manufacturing and quality
systems personnel at Rockville in April 2005 and expect to terminate the
remainder during May 2005.
8
In the course of implementing the restructuring plan, in April 2004 we entered
into a non-binding letter of intent to sell our urine EIA, serum Western Blot
and urine Western blot diagnostic test business. In May 2005, we entered into a
manufacturing services agreement with the potential acquirer under which the
potential acquirer has hired certain of our former employees and contractors and
is acting as a contract manufacturer of our EIA and Western Blot products at the
Rockville facility. The terms of the proposed transaction are currently being
negotiated and we expect to execute a definitive agreement for the sale of the
EIA and Western Blot business during the second quarter of 2005.
There can be no assurance that we will consummate a transaction for the sale of
our EIA and Western Blot business. In addition to reaching a definitive
agreement with the potential acquirer, there are other requirements not under
our control necessary to concluding the proposed transaction, including, but not
limited to, obtaining FDA approval for the manufacture of the urine EIA product
at Rockville and the transfer of licenses and certifications to the potential
acquirer, landlords' approval for the execution of subleases for the two
Rockville facilities, equipment lessor's approval for a sublease of the
equipment, intellectual property licensors' approval for the transfer or
sublicense of technology or proprietary knowledge rights, and approval of the
Noteholders in the April 2005 Private Placement with respect to their security
interest in our assets. If we are able to successfully complete a transaction,
we believe that we will significantly reduce our monthly operating burn rate as
compared with historical levels. If we are unable to complete such a
transaction, we may incur costs to decommission the Rockville facilities;
on-going facility lease costs, until and if sub-lease opportunities are
available and on-going lease or lease termination costs associated with leased
equipment. We cannot currently estimate those costs. Whether or not we
consummate a transaction for the sale of our urine EIA and Western Blot products
business, we expect to incur approximately $1 million in one-time costs
associated with the transfer or disposition of inventories and supplies.
Additionally, the restructuring plan calls for us to close our corporate
headquarters in Pleasanton, California and re-staff those functions at a
facility we plan to lease in the vicinity of Portland, Oregon, where most of our
research & development staff is presently based. We expect to retain current
headquarters staff for the period required to provide an orderly transition. We
expect to incur approximately $0.5 million as the cost of terminating employees
at our Rockville and Pleasanton locations, including the payment of accrued
vacation expense, essentially all of which will be paid in 2005. In the absence
of sublease opportunities, we will be liable for approximately $190,000 in lease
costs from the expected July 2005 closure of our Pleasanton office through the
June 2007 expiration of the lease.
We May Not Be Able to Retain Our Key Executives and Other Personnel.
As a result of the restructuring plan we are implementing, a number of our key
executives and senior administrative, quality systems and research and
development personel and staff have left the company or do not plan to
transition to the new operation in Oregon when we close the Rockville and
Pleasanton facilities. As a small company, our success depends on the services
of key employees in these positions. Our inability to replace key employees in
certain positions as a result of our financial condition or for other reasons
could have a material adverse effect on our operations.
We Have Historically Depended for Our Revenues Upon the Viability of Our ELISA
Products -- Our HIV-1 Urine-Based Screening Test and Our Urine and Blood Based
Supplemental Tests - Which We Are Discontinuing.
We are discontinuing the production of our HIV-1 urine-based screening test and
urine and blood-based supplemental tests as a part of our restructuring plan and
will not derive any revenue from the sale of these products when the plan is
fully implemented. We have completed the technology transfer for our HIV-1
incidence test and have that product available for sale, but we have little
experience marketing that test and no experience marketing our rapid tests that
are currently being commercialized. If we cannot profitably introduce
significant new products on a timely basis and if these products fail to achieve
market acceptance or generate significant revenues, we may have to seek
additional financing, which may not be available on the timetable required or on
acceptable terms, or we may have to curtail our operations, or both.
9
We are Dependent Upon Patents, Licenses and Other Proprietary Rights From Third
Parties.
To facilitate the development and commercialization of a proprietary technology
base for our rapid test products, we have obtained licenses to patents or other
proprietary rights from other parties. Obtaining such licenses has required the
payment of substantial amounts and will require the payment of royalties to
maintain them in the future.
We have recently acquired licenses to technologies that we believe are critical
to our ability to sell our rapid tests currently being commercialized and other
rapid tests that we may plan to develop and/or commercialize in the future.
There are numerous patents in the United States and other countries which claim
lateral flow assay methods and related devices, some of which cover the
technology used in our rapid test products and are in force in the United States
and other countries. In the second quarter of 2004, we entered into a
non-exclusive sublicense agreement with Abbott Laboratories that grants us
worldwide rights related to patents for lateral flow assay methods and related
devices. We believe that the acquisition of these rights will enable us to make
or sell our rapid test products in countries where these patents are in force.
In the third quarter of 2004, we acquired a sublicense from Bio-Rad Laboratories
and Bio-Rad Pasteur for patents related to the detection of the HIV-2 virus.
HIV-2 is a type of the HIV virus estimated to represent a small fraction of the
known HIV cases worldwide. Nevertheless, HIV-2 is considered to be an important
component in the testing regimen for HIV in many markets. We believe that this
sub-license agreement makes it possible for us to sell HIV-2 tests in countries
where such patents are in force, or to manufacture in countries where such
patents are in force and then sell into non-patent markets. Additionally, late
in 2003 we licensed an antigen necessary for certain of our rapid HIV-1/2
products from Adaltis, Inc., and in the third quarter of 2004, we acquired
rights from Ani Biotech for its rapid test diagnostic platform and sample
applicator, which we believe is a viable alternative to current lateral flow
technologies and with potentially worldwide applicability. The loss of any one
of these licenses or challenges to the patents would be detrimental to the
commercialization of our rapid tests by delaying or limiting our ability to sell
our rapid test products, which would adversely affect our results of operations,
cash flows and business.
We currently have the right to use patent and proprietary rights which are
material to the manufacture and sale of the HIV-1 urine-based screening test
under licensing agreements with New York University, Cambridge Biotech
Corporation and the Texas A&M University System. We also have the right to use
patent and proprietary rights material in the manufacture and sale of the HIV-1
serum- and urine-based supplemental tests under a licensing agreement with
National Institutes of Health. Subject to the agreement of our licensors, where
required, we plan to assign the patent rights attributable to our legacy
products to the party that acquires our EIA and Western Blot business, although
we will require license agreements from certain of these parties for
technologies used in our rapid tests and other potential new products.
As of March 31, 2005 we had accrued an aggregate of approximately $1,035,000 in
past due royalty and upfront intellectual property rights obligations to our
patent licensors. Much of these past due amounts have been repaid subsequent to
quarter-end, including what we believe are the essential licenses for our Legacy
Products. In the event that our financial condition inhibits our ability to pay
license fees or royalty payments due under our license agreements, our rights to
use, transfer or sublicense those licenses could be jeopardized in the event of
a default in payment of fees or royalties. The loss of any of the foregoing
licenses could have a materially adverse effect on our ability to produce our
products or introduce new HIV diagnostic products in countries covered by those
patents since the license agreements provide necessary proprietary processes or
components for the manufacture of our products.
We May Not be Able to Successfully Develop and Market New Products That We Plan
to Introduce.
We plan to develop and/or commercialize other urine-based, serum-based and
oral-fluid based diagnostic products including our rapid HIV-1/2 screening tests
and tests for other infectious diseases or health conditions. We also plan to
develop, along with the United States Centers for Disease Control and
Prevention, a blood-based rapid HIV test for diagnostic and surveillance
purposes. There are numerous developmental and regulatory issues that may
preclude the introduction of these products into commercial sale. If we are
unable to demonstrate the feasibility of these products, successfully transfer
the technology for commercial-scale manufacturing to either internal, joint
venture or outsourced manufacturers or meet regulatory requirements or resolve
potential patent licensing or government distribution or licensing requirements
with respect to their marketing, we may have to abandon them and alter our
business plan. Such modifications to our business plan will likely delay
achievement of sustainable cash flow from product sales and profitability. As a
result, we may have to seek additional financing, which may not be available on
the timetable required or on acceptable terms, or we may have to curtail our
operations, or both.
10
The Time Needed to Obtain Regulatory Approvals and Respond to Changes in
Regulatory Requirements Could Adversely Affect Our Business.
Our existing and proposed products are subject to regulation by the Chinese FDA
(the SFDA), the FDA and other governmental or public health agencies. In
particular, we are subject to strict governmental controls on the development,
manufacture, labeling, distribution and marketing of our products. In addition,
we are often required to obtain approval or registration with other foreign
governments or regulatory bodies before we can import and sell our products in
these countries.
The process of obtaining required approvals or clearances from governmental or
public health agencies can involve lengthy and detailed laboratory testing,
human clinical trials, sampling activities and other costly, time-consuming
procedures. The submission of an application to the SFDA, the FDA or other
regulatory authority does not guarantee that an approval or clearance to market
a product will be received. Each authority may impose its own requirements and
delay or refuse to grant approval or clearance, even though a product has been
approved in another country or by another agency.
Moreover, the approval or clearance process for a new product can be complex and
lengthy. This time span increases our costs to develop new products as well as
the risk that we will not succeed in introducing or selling.
Newly promulgated or changed regulations could also require us to undergo
additional trials or procedures, or could make it impractical or impossible for
us to market our products for certain uses, in certain markets, or at all.
Failure to Comply With SFDA, FDA or Similar International Regulatory Bodies or
Other Requirements May Require Us to Suspend Production of Our Products Which
Could Result in a Loss of Revenues.
We can manufacture and sell products, both in China, the United States and
elsewhere abroad, only if we comply with regulations of government agencies such
as the SFDA and the FDA. We have implemented or plan to implement quality
assurance and other systems that are intended to comply with applicable
government regulations with regard to both our planned manufacturing in China
and our contract manufacturing operations.
The SFDA, the FDA, or another government or public health agency could force us
to stop manufacturing our products if it concludes that we are out of compliance
with applicable regulations. They could also require us to recall products if we
fail to comply with applicable regulations, which could force us to stop
manufacturing such products. Either of these events would result in a material
adverse effect on our business.
We Have No Experience Marketing a Rapid Test.
We have no experience marketing and selling rapid test products. Our success
depends upon alliances with third-party international distributors and joint
venture partners and upon our ability with such distributors and partners to
penetrate expanded markets. There can be no assurance that:
o our international distributors and joint ventures will successfully market
our products;
o our future selling efforts will be effective, as we have not yet
introduced either an HIV-1/2 product or a rapid point of care test, both
of which are necessary in many areas of the world;
o we will obtain market acceptance in the medical or public health
community, including governments and humanitarian funding sources critical
in many international markets, which are essential for acceptance of our
products; or
o if our relationships with distributors terminate, we will be able to
establish relationships with other distributors on satisfactory terms, if
at all.
11
We May Need to Establish Additional Collaborative Agreements, and this Could
Have a Negative Effect on Our Freedom to Operate Our Business or Profit Fully
from Sales of Our Products.
We may seek to collaborate with other companies to gain access to their research
and development, manufacturing, marketing and financial resources. However, we
may not be able to negotiate arrangements with any collaborative partners on
acceptable terms. Any collaborative relationships that we enter into may include
restrictions on our freedom to operate our business or to profit fully from the
sales of our products.
Once a collaborative arrangement is established, the collaborative partner may
discontinue funding any particular program or may, either alone or with others,
pursue alternative technologies for the protects or diseases we are targeting.
Competing products, developed by a collaborative partner or to which a
collaborative partner has rights, may result in the collaborative partner
withdrawing support as to all or a portion of our technology.
Without collaborative arrangements, we must fund our own research and
development activities, accelerating the depletion of our capital and requiring
us to develop our own marketing capabilities. Therefore, if we are unable to
establish and maintain collaborative arrangements, we could experience a
material adverse effect on our ability to develop products and, once developed,
to market them successfully.
Our Research, Development and Commercialization Efforts May Not Succeed or Our
Competitors May Develop and Commercialize More Effective or Successful
Diagnostic Products.
In order to remain competitive, we must regularly commit substantial resources
to research and development and the commercialization of new products.
The research and development process generally takes a significant amount of
time and money from inception to commercial product launch. This process is
conducted in various stages. During each stage there is a substantial risk that
we will not achieve our goals on a timely basis, or at all, and we may have to
abandon a product in which we have invested substantial amounts of money.
During the three months ended March 31, 2005 and the year ended December 31,
2004, we incurred $0.8 million and $2.1 million, respectively, in research and
development expenses. We expect to continue to incur significant costs as a
result of our research and development activities in the future.
A primary focus of our efforts has been, and is expected to continue to be,
rapid HIV tests that we are commercializing or that are in the process of being
developed. However, there can be no assurance that we will succeed in our
commercialization of these tests or in our research and development efforts with
respect to rapid tests or other technologies or products.
Successful products require significant development and investment, including
testing, to demonstrate their cost-effectiveness or other benefits prior to
commercialization. In addition, regulatory approval must be obtained before most
products may be sold. Regulatory authorities may not approve these products for
commercial sale. In addition, even if a product is developed and all applicable
regulatory approvals are obtained, there may be little or no market for the
product at a price that will allow us to earn a reasonable profit, or we may be
unable to obtain the requisite licenses to sell the product or to qualify for a
government tender, which are often requirements in third world countries where
the greatest need and largest market for HIV diagnostic testing exists.
Accordingly, if we fail to develop commercially successful products, or if
competitors develop more effective products or a greater number of successful
new products, or there are governmental limitations affecting our ability to
sell our products, customers may decide to use products developed by our
competitors. This would result in a loss of current or anticipated future
revenues and adversely affect our results of operations, cash flows and
business.
12
We Face Intense Competition in the Medical Diagnostic Products Market and Rapid
Technological Advances by Competitors.
Competition in our diagnostic market is intense and we expect it to increase.
Many of our competitors have significantly greater financial, marketing and
distribution resources than we do. Our competitors may succeed in developing or
marketing technologies and products that are more effective than ours. In
addition, if acceptance for oral fluid or urine testing expands, we may
experience competition from companies in areas where intellectual property
rights may not be as stringent as in the United States. These developments could
render our technologies or products obsolete or noncompetitive or otherwise
affect our ability to increase or maintain our products' market share. Further,
the greater resources of our competitors could enable them to develop competing
products more quickly so as to make it difficult for us to develop a share of
the market for these products. By having greater resources, our competitors may
also be able to respond more quickly to technology changes in the marketplace
and may be able to obtain regulatory approval for products more quickly than we
can. Our future success will depend on our ability to remain competitive with
other developers of medical devices and therapies.
A Viable Market for Our Products May Not Develop.
Our future success will depend, in part, on the market acceptance, and the
timing of such acceptance, of new products such as our rapid HIV tests currently
being commercialized, rapid HIV tests that we expect to develop and other new
products or technologies that may be developed or acquired. To achieve market
acceptance, we must make substantial marketing efforts and spend significant
funds to inform potential customers and the public of the perceived benefits of
these products. We currently have limited resources with which to stimulate
market interest in and demand for our products and limited evidence on which to
evaluate the market's reaction to products that may be developed. Consequently,
there can be no assurance that any products will obtain market acceptance and
fill the market need that is perceived to exist.
Our Success Depends on Our Ability to Protect Our Proprietary Technologies.
The medical diagnostics test industry places considerable importance on
obtaining patent, trademark, and trade secret protection, as well as other
intellectual property rights, for new technologies, products and processes. Our
success depends, in part, on our ability to develop and maintain a strong
intellectual property portfolio or to obtain licenses to patents for products
and technologies, both in the United States and in other countries.
As appropriate, we intend to file patent applications and obtain patent
protection for our proprietary technology. These patent applications and
patents, when filed, are intended to cover, as applicable, compositions of
matter for our products, methods of making those products, methods of using
those products, and apparatus relating to the use or manufacture of those
products. We will also rely on trade secrets, know-how, and continuing
technological advancements to protect our proprietary technology. There is,
however, no assurance that we will be successful in obtaining the required
patent protection or that such protection will be enforced in certain countries
in which we compete.
We have entered, and will continue to enter, into confidentiality agreements
with our employees, consultants, advisors and collaborators. However, these
parties may not honor these agreements and we may not be able to successfully
protect our rights to unpatented trade secrets and know-how. Others may
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets and know-how.
Many of our employees, including scientific and management personnel, were
previously employed by competing companies. Although we encourage and expect all
of our employees to abide by any confidentiality agreement with a prior
employer, competing companies may allege trade secret violations and similar
claims against us.
We have collaborated in the past and expect to collaborate in the future with
universities and governmental research organizations which, as a result, may
acquire part of the rights to any inventions or technical information derived
from collaboration with them.
13
We may incur substantial costs and be required to expend substantial resources
in asserting or protecting our intellectual property rights, or in defending
suits against us related to intellectual property rights. Disputes regarding
intellectual property rights could substantially delay product development or
commercialization activities. Disputes regarding intellectual property rights
might include state, federal or foreign court litigation as well as patent
interference, patent reexamination, patent reissue, or trademark opposition
proceedings in the United States Patent and Trademark Office. Opposition or
revocation proceedings could be instituted in a foreign patent office. An
adverse decision in any proceeding regarding intellectual property rights could
result in the loss or limitation of our rights to a patent, an invention or
trademark.
Our Quarterly Results May Fluctuate Due to Certain Regulatory, Marketing and
Competitive Factors Over Which We Have Little or No Control.
The factors listed below, some of which we cannot control, may cause our
revenues and results of operations to fluctuate significantly:
o actions taken by the FDA or foreign regulatory bodies relating to products
we are commercializing or seeking to develop;
o the extent to which our current or proposed new products gain market
acceptance;
o the timing and size of purchases by our customers, distributors or joint
venture partners;
o introductions of alternative means for testing for HIV by competitors;
o changes in the way regulatory authorities evaluate HIV testing, including
supplemental testing of the results of a rapid HIV screening test; and
o customer concerns about the stability of our business which could cause
them to seek alternatives to our product.
We Rely on Sole Source Suppliers that We Cannot Quickly Replace for Certain
Components Critical to the Manufacture of Our Products.
Among the critical items we purchase from qualified sole source suppliers are
various conjugates, fetal bovine serum, and HIV-positive and HIV-negative urine
samples. Any delay or interruption in the supply of these or other sole source
components could have a material adverse effect on us by significantly impairing
our or our contract manufacturer's ability to manufacture products in sufficient
quantities, particularly as we increase our manufacturing activities in support
of commercial sales. In addition, if our financial condition impairs our ability
to pay for critical components on a timely basis, our suppliers may delay or
cease selling critical components to us, which could also restrict our ability
to manufacture. We typically do not have long-term supply agreements with these
suppliers, relying instead on periodic purchase orders to acquire materials with
the result that suppliers could delay or decline to ship components until
payment is made in advance or on a COD basis.
We Engage Contract Manufacturers to Produce Some of Our Products, Including Our
Rapid Tests Currently Being Commercialized.
We have engaged a contract manufacturer in Thailand to produce our rapid HIV
tests and we plan to establish manufacturing operations in China through our
affiliate. We intend to subsequently introduce a new line of products using the
recently acquired Ani technology platform, and again expect to rely on
outsourced or overseas manufacturing organizations. Additionally, we may
consider a contract manufacturing arrangment for the production of our BED
Incidence test. Initially, none of these entities will have more than limited
experience, if any, in manufacturing our products and will have no experience in
manufacturing them in commercial quantities. While outsourcing our manufacturing
processes to contract manufacturers may permit us to expand our manufacturing
capacity more quickly, it may also subject us to problems in such areas as:
o transferring the technology from the laboratory or pilot operation to the
contract manufacturer on a commercial scale;
14
o lack of technical knowledge regarding regulated procedures;
o uncertain or unreliable production yields;
o maintaining quality control and assurance;
o regulatory compliance, since most rapid test manufacturers do not produce
products that are as stringently controlled as HIV diagnostics;
o misappropriation of intellectual property, particularly in foreign
countries where patent protection is less stringent, and depending on the
extent of manufacturing processes that are outsourced;
o developing market acceptance for new product;
o production yields;
o quality control and assurance;
o raw material supply; and
o shortages of qualified personnel.
Any of these problems could affect our ability to meet increases in demand
should our products gain market acceptance and could impede the growth of our
sales revenues.
The Success of Our Plans to Enter International Markets May Be Limited or
Disrupted Due to Risks Related to International Trade and Marketing and the
Capabilities of Our Distributors, Manufacturers and Joint Venture Partners.
As a result of implementing our restructuring plan, we expect that our revenues
will now be generated from sales of our current or planned incidence and rapid
tests, largely to international distributors and/or joint ventures. We believe
that our alternative fluid-based tests can provide significant benefits in
countries that do not have the facilities or personnel to safely and effectively
collect and test blood samples. To date, however, sales to international
customers have accounted for only a small proportion of our sales. In our fiscal
years ended December 31, 2004 and 2003, international sales accounted for only
approximately 16% and 15%, respectively, of our revenues. A majority of the
companies with which we compete in the sale of HIV screening tests actively
market their diagnostic products outside of the United States. Manufacturers
from Japan, Canada, Europe, and Australia offer a number of HIV screening tests
in those markets, including HIV-1/2 rapid tests, which are not approved for sale
in the U.S. market. There can be no assurance that our products will compete
effectively against these products in foreign markets. The following risks may
limit or disrupt the success of our international efforts:
o the imposition of government controls (regulatory approval);
o export license requirements;
o political and economic instability;
o trade restrictions;
o changes in tariffs;
o difficulties in managing international operations (difficulty in
establishing a relationship with a foreign distributor, joint venture
partner, or contract manufacturer with the financial and logistical
ability to maintain quality control of product);
o the ability to secure licenses for intellectual property or technology
that are necessary to manufacture or sell our products in the selected
countries;
o fluctuations in foreign currency exchanges rates;
o the financial stability of our distributors and/or their expertise in
obtaining local country regulatory approvals;
15
o the financial capabilities of potential customers in lesser-developed
countries or, alternatively, our inability to obtain approvals which would
enable such countries access to outside financing, such as the World Bank;
o the ability of our distributors to successfully sell into their
contractual market territory or to successfully cover their entire
territory;
o the possibility that a distributor may be unable to meet minimum
contractual commitments;
o establishing market awareness; and
o external conditions such as regional conflicts, health crises or natural
disasters.
Some of our distributors have limited international marketing experience. There
can be no assurance that these distributors will be able to successfully market
our products in foreign markets. Any such failure will delay or disrupt our
plans to expand our business.
The Chinese Government Could Change Its Policies Toward Private Enterprises or
Even Nationalize or Expropriate Them, Which Could Result in the Total Loss of
Business in That Country.
We have established a joint venture in China with an entity related to our
largest stockholder through which we are planning to manufacture and sell our
products. Our business in China is subject to political or economic
uncertainties and may be adversely affected by political, economic and social
developments in China. Over the past decade, the Chinese government has pursued
economic reform policies, including the encouragement of private economic
activity and greater economic decentralization. The Chinese government may
choose to end these policies or alter them significantly to our detriment with
little, if any, notice.
Changes in policies, laws and regulations or in their interpretation or the
imposition of taxation, restrictions on currency conversion, restrictions or
devaluations of currency, nationalization or other expropriation of private
enterprises could have a material adverse effect on our business in China.
Nationalization or expropriation could result in the total loss of business in
China.
An Economic Downturn or Terrorist Attacks May Adversely Affect Our Business or
Our Customers May Not Be Able to Satisfy Their Contractual Obligations and We
May Not Be Able to Deliver Our Products as a Result of the Impact of Conditions
Such as Certain World Events or Natural Disasters.
Changes in economic conditions could adversely affect our business. For example,
in a difficult economic environment, customers may be unwilling or unable to
invest in new diagnostic products, may elect to reduce the amount of their
purchases or may perform less HIV testing. A weakening business climate could
also cause longer sales cycles and slower growth, and could expose us to
increased business or credit risk in dealing with customers adversely affected
by economic conditions.
Terrorist attacks and subsequent governmental responses to these attacks could
cause further economic instability or lead to further acts of terrorism in the
United States and elsewhere. These actions could adversely affect economic
conditions outside the United States and reduce demand for our products
internationally. Terrorist attacks could also cause regulatory agencies, such as
the FDA or agencies that perform similar functions outside the United States, to
focus their resources on vaccines or other products intended to address the
threat of biological or chemical warfare. This diversion of resources could
delay our ability to obtain regulatory approvals required to manufacture, market
or sell our products in the United States and other countries.
Our business model and future revenue forecasts call for a significant expansion
of sales in the People's Republic of China as well as in Africa upon successful
commercialization of our rapid products. Should conditions beyond our control,
such as disease outbreaks, natural disasters, war or political unrest, redirect
attention from the worldwide HIV/AIDS epidemic, our customers' ability to meet
their contractual purchase obligations and/or our ability to supply product
16
internationally for either evaluation or commercial use may prevent us from
achieving the revenues we have projected. As a result, we may have to seek
additional financing beyond that which we have projected, which may not be
available on the timetable required or on acceptable terms that are not
substantially dilutive to our stockholders, or we may have to curtail our
operations, or both.
Our Research and Development of HIV Urine Tests Involves the Controlled Use of
Hazardous Materials.
There can be no assurance that our safety procedures for handling and disposing
of hazardous materials such as azide will comply with applicable regulations.
For example, azide, when present in high concentrations and not diluted with
water, can have an explosive reaction. Azide is a chemical used as a
preservative in our kits. In addition, we cannot eliminate the risk of
accidental contamination or injury from these materials. We may be held liable
for damages from such an accident and that liability could have a material
adverse effect on our business.
As a Small Manufacturer of Medical Diagnostic Products, We Are Exposed to
Product Liability and Recall Risks For Which Insurance Coverage is Expensive,
Limited and Potentially Inadequate.
We manufacture medical diagnostic products, which subjects us to risks of
product liability claims or product recalls, particularly in the event of false
positive or false negative reports. A product recall or a successful product
liability claim or claims that exceed our insurance coverage could have a
material adverse effect on us. We maintain a $10,000,000 claims made policy of
product liability insurance. However, product liability insurance is expensive.
In the future we may not be able to obtain coverage on acceptable terms, if at
all. Moreover, our insurance coverage may not adequately protect us from
liability that we incur in connection with clinical trials or sales of our
products.
FORWARD-LOOKING INFORMATION
This Prospectus and the documents incorporated by reference herein contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In addition, from time to time, information we
provide or statements made by our directors, officers or employees may
constitute forward-looking statements. Such forward-looking statements are based
on current expectations and are subject to uncertainties and other factors which
may involve known and unknown risks that could cause our actual results, levels
of activity, performance or achievements to differ materially from those
projected or implied. Forward-looking statements include information concerning
our possible or assumed future results of operations and statements preceded by,
followed by or including the words "believes," "plans," "anticipates," "will
likely result," "will continue," "projects," "expects," and similar expressions
are intended to identify "forward-looking statements". Such statements are
subject to certain risks and uncertainties, including those risks defined above.
We caution readers not to place undue reliance on any forward-looking
statements, which are based on certain assumptions and expectations which may or
may not be valid or actually occur, and which involve certain risks and
uncertainties, including but not limited to:
o fluctuations in our operating results;
o announcements of technological innovations or new products which we or our
competitors make;
o FDA and international regulatory actions;
o developments with respect to patents or proprietary rights;
o changes in stock market analysts' recommendations regarding Calypte, other
medical products companies or the medical product industry generally;
o changes in domestic or international conditions beyond our control that
may disrupt our or our customers' or distributors' ability to meet
contractual obligations;
o changes in health care policy in the United States or abroad;
o our ability to obtain additional financing as necessary to fund both our
long-and short-term business plans;
17
o fluctuations in market demand for and supply of our products;
o public concern as to the safety of products that we or others develop and
public concern regarding HIV and AIDS;
o availability of reimbursement for use of our products from private health
insurers, governmental health administration authorities and other
third-party payors;
o price and volume fluctuations in the stock market at large which do not
relate to our operating performance;
o growth of our market and customers;
o our objectives and plans for future operations and products; and
o our liquidity and capital resources.
For a further discussion of these and other significant factors to consider in
connection with forward-looking statements, see the discussion in this
Prospectus under the heading "RISK FACTORS."
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock offered
through this Prospectus by the selling security holders. All proceeds from the
sale of our common stock sold under this Prospectus will go to the selling
security holders. However, we will receive proceeds from the cash exercise of
common stock purchase warrants held by the selling security holders, if any,
that are included in this Prospectus. We would receive an aggregate of up to
approximately $13.2 million if the selling security holders exercise their
common stock purchase warrants as follows: (a) up to approximately $8.7 million
if the selling security holders exercise their Series A Warrants, which are
presently out-of-the-money, at an exercise price of $0.325 per share, to acquire
26,991,666 shares of our common stock, (b) up to approximately $3.9 million if
the selling security holders exercise their Series B Warrants, which are
presently out-of-the-money, at an exercise price of $0.325 per share, to acquire
12,146,250 shares of our common stock, (c) up to approximately $0.4 million if
the selling security holders exercise their fee warrants, at exercise prices
ranging from $0.23 to $0.30 per share, to acquire an aggregate of 1,866,666
shares of our common stock, and (d) up to $0.2 million if the selling security
holder exercises its warrant, currently out-of-the-money, issued in conjunction
with the $5,500,000 Credit Facility Agreement, at an exercise price of $0.40 per
share to acquire 500,000 shares of our common stock. Such proceeds, if any, will
be used for working capital and other general corporate purposes, including
without limitation, the commercialization of our HIV-1/2 Rapid Tests and the
development of diagnostic tests for other sexually transmitted diseases. Certain
warrants held by the selling security holders may be exercised through a
cashless exercise in certain circumstances while the underlying shares are
unregistered, in which event we would not receive any proceeds from the
exercise.
In connection with the private placement of the Secured 8% Senior Convertible
Promissory Notes, we received net proceeds of approximately $7,667,500 from the
sale of an aggregate of $8.0 million in principal amount of the Secured 8%
Senior Convertible Promissory Notes, net of placement fees of $332,500 and
related transaction costs estimated to be an additional $130,000. We used
$2,000,000 of the net proceeds to repay a 7% Promissory Note issued to Marr in
January 2005. The balance of the proceeds will be used for working capital and
general corporate purposes, including without limitation, the commercialization
of our HIV-1/2 Rapid Tests and the development of diagnostic tests for other
sexually transmitted diseases.
SELLING SECURITY HOLDERS
The number of shares set forth in the table for the various subscribers
represents the number of shares of common stock to be offered by them. The
actual number of shares of common stock offered in this Prospectus, and included
in the registration statement of which this Prospectus is a part, includes such
additional number of shares of common stock as may be issued or issuable upon
exercise of warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416 under the
Securities Act of 1933, as amended. Other than as disclosed in this Prospectus,
18
no selling security holder has had any position, office or other material
relationship with us during the past three years. Marr Technologies BV (Marr),
our largest stockholder, holds approximately 27% of our currently outstanding
stock and has identified itself as our affiliate in public filings with the
Commission. In conjunction with an aggregate investment of $12.5 million by Marr
during 2003, for which the underlying shares are not included in this
Prospectus, the Nominating Committee of our Board of Directors granted Marr the
right to nominate two mutually-agreeable representatives to our Board of
Directors. During 2004, we added two directors initially nominated by Marr to
our Board of Directors. Marr is also our joint venture partner in Beijing
Calypte Biomedical Technology Ltd., which was created to market our products in
the People's Republic of China.
The applicable percentage of ownership listed below is based on 171,908,903
shares of common stock outstanding as of June 24, 2005.
Common Stock
Beneficially Owned Common Stock Common Stock Beneficially Owned
Prior to Offering Offered Hereby (b) After Offering (b)
(a)
------------------------------------------------------------------------------
Holder Number Number Number Percent
SF Capital Partners Ltd. (1) 18,408,000 (8) 34,989,524 9,714,924 5.54%
Marr Technologies BV (2) 59,062,225 (9) 24,992,666 46,915,151 27.21%
Morningtown Limited (3) 1,530,333 (10) 3,936,321 -0- *
Smithfield Fiduciary LLC (4) 1,700,371 (11) 4,373,691 -0- *
Iroquois Master Fund Ltd. (5) 850,185 (12) 2,186,845 -0- *
Capstone Investments (6) 300,000 (13) 533,333 300,000 *
Merchant Intercapital Corporation (7) 731,572 (14) 2,186,203 400,000 *
------------- ------------- -------------
82,582,686 73,198,583 57,330,075 32.20%
============= ============= =============
- ----------
* Represents beneficial ownership of less than 1%
(a) The agreements under which shares are being registered contain percentage
ownership restrictions and restrictions which prevent the exercise of
warrants within the next 60 days. As noted in the footnotes herein, the
restrictions limit the number of shares reported as beneficially owned
prior to the offering. (b) Assumes all shares included in this offering
are sold by the selling security holder.
(1) SF Capital Partners Ltd.'s primary offices are located at 3600 South Lake
Drive, St. Francis, WI 53235. Michael A. Roth and Brian J. Stark possess
voting and dispositive power over all of the shares owned by SF Capital
Partners Ltd. This number includes 6,214,924 shares of common stock and
3,500,000 shares of common stock issuable upon exercise of warrants not
included in this offering. Under the terms of the 8% Secured Convertible
Promissory Notes (the "Notes") and warrants ("Warrants") acquired by SF
Capital Partners Ltd. in April 2005, SF Capital may convert the Notes into
13,333,333 shares of our common stock and the Warrants may be exercised
for the purchase of 19,333,333 shares of our common stock. We are
registering all of the shares of common stock underlying the Notes and
Warrants in this registration statement. The Warrants are not exercisable
prior to October 4, 2005 and, accordingly, are excluded from the number of
shares beneficially owned prior to the offering. The Notes are convertible
only to the extent that the number of shares of common stock issuable
pursuant to the Notes or Warrants, together with the number of shares of
common stock owned by SF Capital (but not including shares of common stock
underlying unconverted portions of the Notes or unexercised portions of
the Warrants) would not exceed 9.999% of the then-outstanding common stock
as determined in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of shares of stock shown as beneficially owned by
SF Capital prior to this offering is limited to 9.999% of the
then-outstanding shares. In the absence of ownership limitations, SF
Capital would beneficially own 23,317,887 shares or 12.34%, including
269,630 shares underlying convertible notes issuable in payment of
interest on the Notes within 60 days, of our then-outstanding common stock
as determined in accordance with Section 13(d) of the Exchange Act.
(2) Marr Technologies, BV is engaged in the business of investing in publicly
traded equity securities for its own account. Marr Technologies' primary
offices are located at Strawinskylaan 1431, 1077XX Amsterdam, The
Netherlands. Marat Safin has voting and investment control over
investments held by Marr Technologies. This number includes 46,415,151
shares of common stock and 500,000 shares of common stock issuable upon
exercise of warrants not included in this offering. Under the terms of the
8% Secured Convertible Promissory Notes (the "Notes") and warrants
("Warrants") acquired by Marr in April 2005, Marr may convert the Notes
into 9,333,333 shares of our common stock and the Warrants may be
exercised for the purchase of 14,033,333 shares of our common stock. This
figure also includes 188,741 shares of common stock underlying convertible
notes which may be issued in payment of interest on the Notes within 60
days. We are registering all of the shares of common stock underlying the
Notes and Warrants in this registration statement. The Warrants are not
exercisable prior to October 4, 2005 and, accordingly, are excluded from
the number of shares beneficially owned prior to the offering. Marr is not
subject to any percentage ownership limitations.
19
(3) Morningtown Limited is engaged in the business of investing in publicly
traded equity securities for its own account. Morningtown's primary
offices are located at 2nd Floor, Barkly Wharf, Le Caudan Waterfront, Port
Louis, Mauritius. Janak Kumar Basnet has voting and investment control
over investments held by Morningtown. Under the terms of the 8% Secured
Convertible Promissory Notes (the "Notes") and warrants ("Warrants")
acquired by Morningtown in April 2005, Morningtown may convert the Notes
into 1,500,000 shares of our common stock and the Warrants may be
exercised for the purchase of 2,175,000 shares of our common stock. This
figure also includes 30,333 shares of common stock underlying convertible
notes which may be issued in payment of interest on the Notes within 60
days. We are registering all of the shares of common stock underlying the
Notes and Warrants in this registration statement. The Warrants are not
exercisable prior to October 4, 2005 and, accordingly, are excluded from
the number of shares beneficially owned prior to the offering. Morningtown
is subject to a 9.999% ownership limitation which is not currently
applicable.
(4) Smithfield Fiduciary LLC is engaged in the business of investing in
publicly traded equity securities for its own account. Smithfield's
primary offices are located in care of Highbridge Capital Management LLC,
9 West 57th Street, 27th Floor, New York, NY 10019. Highbridge Capital
Management, LLC is the trading manager of Smithfield Fiduciary LLC and
consequently has voting control and investment discretion over securities
held by Smithfield. Glenn Dubin and Henry Swieca control Highbridge. Each
of Highbridge, Glenn Dubin and Henry Swieca disclaims beneficial ownership
of the securities held by Smithfield. Under the terms of the 8% Secured
Convertible Promissory Notes (the "Notes") and warrants ("Warrants")
acquired by Smithfield in April 2005, Smithfield may convert the Notes
into 1,666,667 shares of our common stock and the Warrants may be
exercised for the purchase of 2,416,667 shares of our common stock. This
figure also includes 33,704 shares of common stock underlying convertible
notes which may be issued in payment of interest on the Notes within 60
days. We are registering all of the shares of common stock underlying the
Notes and Warrants in this registration statement. The Warrants are not
exercisable prior to October 4, 2005 and, accordingly, are excluded from
the number of shares beneficially owned prior to the offering. Smithfield
is subject to a 9.999% ownership limitation which is not currently
applicable.
(5) Iroquois Master Fund Ltd. is engaged in the business of investing in
publicly traded equity securities for its own account. Iroquois' primary
offices are located at 641 Lexington Avenue, 26th Floor, New York, NY
10022. Joshua Silverman has voting and investment control over investments
held by Iroquois Master Fund. Under the terms of the 8% Secured
Convertible Promissory Notes (the "Notes") and warrants ("Warrants")
acquired by Iroquois in April 2005, Iroquois may convert the Notes into
833,333 shares of our common stock and the Warrants may be exercised for
the purchase of 1,208,333 shares of our common stock. This figure also
includes 16,852 shares of common stock underlying convertible notes which
may be issued in payment of interest on the Notes within 60 days. We are
registering all of the shares of common stock underlying the Notes and
Warrants in this registration statement. The Warrants are not exercisable
prior to October 4, 2005 and, accordingly, are excluded from the number of
shares beneficially owned prior to the offering. Iroquois is subject to a
9.999% ownership limitation which is not currently applicable.
(6) Capstone Investments is engaged in the business of investing in publicly
traded equity securities for its own account. Capstone's primary offices
are located at 4660 La Jolla Village Drive, Suite 1040, San Diego, CA
92122. Steven Capozza has voting and investment control over investments
held by Capstone Investments. This number includes 300,000 shares of
common stock issuable upon exercise of warrants not included in this
offering. Capstone was granted a warrant to purchase 533,333 shares of
common stock, which underlying shares are being registered in this
registration statement, but which is not exercisable prior to October 4,
2005 Accordingly, those shares of common stock are excluded from the
number of shares beneficially owned prior to the offering.
(7) Merchant Intercapital Corporation. is engaged in the business of investing
in publicly traded equity securities for its own account. Merchant
Intercapital's primary offices are located at 115 E.57th Street, 11th
Floor, New York, NY, 10022. Ronny M. Kraft has voting and investment
control over investments held by Merchant Intercapital. This number
includes 400,000 shares of common stock issuable upon exercise of warrants
and options not included in this offering. Under the terms of the 8%
Secured Convertible Promissory Notes (the "Notes") and warrants
("Warrants") acquired by Merchant Intercapital in April 2005, Merchant
Intercapital may convert the Notes into 325,000 shares of our common stock
and the Warrants may be exercised for the purchase of 471,250 shares of
our common stock. This figure also includes 6,572 shares of common stock
underlying convertible notes which may be issued in payment of interest on
the Notes within 60 days. We are registering all of the shares of common
stock underlying the Notes and Warrants in this registration statement.
The Warrants are not exercisable prior to October 4, 2005 and,
accordingly, are excluded from the number of shares beneficially owned
prior to the offering. Merchant Intercapital was also granted a warrant to
purchase 1,333,333 shares of common stock, which underlying shares are
being registered in this registration statement, but which is also not
exercisable prior to October 4, 2005 Accordingly, those shares of common
stock are excluded from the number of shares beneficially owned prior to
the offering.
20
(8) Includes 13,333,333 shares of common stock that are issuable upon
conversion of an 8% Secured Convertible Promissory Note issued to the
selling security holder, 19,333,333 shares of common stock that are
issuable upon exercise of a Series A Warrant and a Series B Warrant issued
to the selling security holder and 2,322,858 shares of common stock that
are issuable upon the conversion of 8% Secured Convertible Notes that are
issuable for payment of interest.
(9) Includes 9,333,333 shares of common stock that are issuable upon
conversion of an 8% Secured Convertible Promissory Note issued to the
selling security holder, 13,533,333 shares of common stock that are
issuable upon exercise of a Series A Warrant and a Series B Warrant issued
to the selling security holder, 1,626,000 shares of common stock that are
issuable upon the conversion of 8% Secured Convertible Notes that are
issuable for payment of interest and 500,000 shares of common stock that
are issuable upon the exercise of a warrant issued to the selling security
holder in conjunction with a $5,500,000 Credit Facility Agreement.
(10) Includes 1,500,000 shares of common stock that are issuable upon
conversion of an 8% Secured Convertible Promissory Note issued to the
selling security holder, 2,175,000 shares of common stock that are
issuable upon exercise of a Series A Warrant and a Series B Warrant issued
to the selling security holder and 261,321 shares of common stock that are
issuable upon the conversion of 8% Secured Convertible Notes that are
issuable for payment of interest.
(11) Includes 1,666,667 shares of common stock that are issuable upon
conversion of an 8% Secured Convertible Promissory Note issued to the
selling security holder, 2,416,667 shares of common stock that are
issuable upon exercise of a Series A Warrant and a Series B Warrant issued
to the selling security holder and 290,357 shares of common stock that are
issuable upon the conversion of 8% Secured Convertible Notes that are
issuable for payment of interest.
(12) Includes 833,333 shares of common stock that are issuable upon conversion
of an 8% Secured Convertible Promissory Note issued to the selling
security holder, 1,208,333 shares of common stock that are issuable upon
exercise of a Series A Warrant and a Series B Warrant issued to the
selling security holder and 145,179 shares of common stock that are
issuable upon the conversion of 8% Secured Convertible Notes that are
issuable for payment of interest.
(13) Includes 533,333 shares of common stock that are issuable upon the
exercise of a warrant issued to the selling security holder as partial
compensation for services as a placement agent.
(14) Includes 325,000 shares of common stock that are issuable upon conversion
of an 8% Secured Convertible Promissory Note issued to the selling
security holder, 471,250 shares of common stock that are issuable upon
exercise of a Series A Warrant and a Series B Warrant issued to the
selling security holder, 56,620 shares of common stock that are issuable
upon the conversion of 8% Secured Convertible Notes that are issuable for
payment of interest and 1,333,333 shares of common stock that are issuable
upon the exercise of a warrant issued to the selling security holder as
partial compensation for services as a placement agent.
SUMMARY OF SHARES BEING REGISTERED
The following table summarizes the shares of common stock being registered for
resale by the Selling Security holders, which shares may be issuable upon
conversion of secured convertible promissory notes or exercise of warrants.
Dollar amounts are in thousands.
SHARES
SHARES SHARES ISSUABLE
SHARES ISSUABLE ISSUABLE SHARES UNDER
8% NOTE 8% NOTE ISSUABLE UNDER UNDER ISSUABLE AGENT FEE SHARES
GROSS NET UNDER SERIES A SERIES B FOR INTEREST WARRANTS BEING
INVESTOR AMOUNT PROCEEDS NOTES WARRANTS WARRANTS ON NOTES AND OTHER REGISTERED
- ------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
APRIL 2005 PLACEMENT
SF Capital Partners Ltd. $ 4,000 $ 3,720 13,333,333 13,333,333 6,000,000 2,322,858 -- 34,989,524
Marr Technologies BV 2,800 2,800 9,333,333 9,333,333 4,200,000 1,626,000 -- 24,492,666
Morningtown Limited 450 450 1,500,000 1,500,000 675,000 261,321 -- 3,936,321
Smithfield Fiduciary LLC 500 465 1,666,667 1,666,667 750,000 290,357 -- 4,373,691
Iroquois Master Fund Ltd. 250 232 833,333 833,333 375,000 145,179 -- 2,186,845
Capstone Investments (1) -- -- -- -- -- -- 533,333 533,333
Merchant Intercapital Corp.(1) -- -- 325,000 325,000 146,250 56,620 1,333,333 2,186,203
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
April 2005 Placement $ 8,000 $ 7,667 26,991,666 26,991,666 12,146,250 4,702,335 1,866,666 72,698,583
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
2005 CREDIT FACILITY
Marr Technologies, BV -- -- -- -- -- -- 500,000 500,000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 8,000 $ 7,667 26,991,666 26,991,666 12,146,250 4,702,335 2,366,666 73,198,583
========== ========== ========== ========== ========== ========== ========== ==========
- ----------
(1) Reflects shares underlying notes and/or warrants issued pursuant to
placement agent agreements.
21
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, donees, transferees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of Common Stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The Selling Stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits Investors;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o to cover short sales made after the date that this Registration Statement
is declared effective by the Commission;
o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
22
The Selling Stockholders may from time to time pledge or grant a security
interest in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of Common Stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
Upon the Company being notified in writing by a Selling Stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
Common Stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such Selling Stockholder and of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such the shares of Common Stock were sold, (iv)the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction. In addition,
upon the Company being notified in writing by a Selling Stockholder that a donee
or pledge intends to sell more than 500 shares of Common Stock, a supplement to
this prospectus will be filed if then required in accordance with applicable
securities law.
The Selling Stockholders also may transfer the shares of Common Stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
The Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
Securities will be paid by the Selling Stockholder and/or the purchasers. Each
Selling Stockholder has represented and warranted to the Company that it
acquired the securities subject to this registration statement in the ordinary
course of such Selling Stockholder's business and, at the time of its purchase
of such securities such Selling Stockholder had no agreements or understandings,
directly or indirectly, with any person to distribute any such securities.
Each Selling Stockholder has acknowledged that Shares registered on this
Registration Statement may not be used to cover short sales of Common Stock made
prior to the date on which this Registration Statement shall have been declared
effective by the Commission. If a Selling Stockholder uses this prospectus for
any sale of the Common Stock, it will be subject to the prospectus delivery
requirements of the Securities Act. The Selling Stockholders will be responsible
to comply with the applicable provisions of the Securities Act and Exchange Act,
and the rules and regulations thereunder promulgated, including, without
limitation, Regulation M, as applicable to such Selling Stockholders in
connection with resales of their respective shares under this Registration
Statement.
23
The Company is required to pay all fees and expenses incident to the
registration of the shares, but the Company will not receive any proceeds from
the sale of the Common Stock. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the shares being offered hereby will be passed
upon for us by Paula Winner Barnett, Esq., Encino, California.
EXPERTS
The consolidated financial statements, incorporated in this prospectus by
reference to the Annual Report on Form 10-KSB/A (No. 1) for the year ended
December 31, 2004, have been so incorporated in reliance on the report of in
reliance upon the reports of Odenberg Ullakko Muranishi & Co. LLP, independent
auditors and upon the authority of said firm as experts in accounting and
auditing.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this Prospectus.
o Our Annual Report filed on Form 10-KSB/A (No. 2) for the fiscal year
ended December 31, 2004;
o Our Quarterly Report on Form 10-QSB/A (No. 1) for the quarter ended
March 31, 2005;
o Our Current Reports on Form 8-K filed on April 5, 2005, April 21,
2005, and June 24, 2005; and
o The description of the common stock contained in our Registration
Statement filed on Form 8-A, as filed with the SEC on July 10, 1996
and December 16, 1998.
Additionally, all documents we file with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of the offering of the shares offered hereby shall be
deemed to be incorporated by reference into this prospectus and shall
automatically update and supersede this information.
We will provide, without charge, to each person to whom a copy of this
prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the documents incorporated by reference in this prospectus (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this prospectus
incorporates). Such requests should be directed to:
Calypte Biomedical Corporation
5000 Hopyard Road, Suite 480
Pleasanton, California 94588
Attention: President
Telephone: (925) 730-7200.
24
You should rely only on information provided in this Prospectus. We have not
authorized anyone else to provide you with different information.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3/A (No. 1) under
the Securities Act of 1933, as amended, with respect to the common stock offered
by this prospectus. This prospectus, filed as part of the registration
statement, does not contain all of the information set forth in the registration
statement and its exhibits and schedules. For further information regarding us
and the shares offered hereby, please refer to the registration statement. The
statements in this prospectus are qualified in their entirety by reference to
the contents of any agreement or other document incorporated in this prospectus
by reference. You may inspect a copy of the registration statement without
charge at the SEC's principal offices, and you may obtain copies of all or any
part of the registration statement from such office upon payment of the fees
prescribed by the SEC.
We are required by the Securities Exchange Act of 1934, as amended, to file
reports, proxy statements and other information with the SEC. These filings may
be inspected and copied (at prescribed rates) at the SEC's Public Reference Room
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying a fee for the
copying cost. Please call the SEC at 1-800-SEC-0330 for further information on
the Public Reference Room. Our filings with the SEC are also available to the
public on the SEC's web site at http://www.sec.gov and at our website at
http://www.calypte.com. Our reports, proxy statements and other information may
also be inspected at the offices of the National Association of Securities
Dealers, Inc. located at 1735 K Street, N.W., Washington, D.C. 20006.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article VIII of our Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
Article VI of our Bylaws provides for the indemnification of officers, directors
and third parties acting on behalf of the corporation if such person acted in
good faith and in a manner reasonably believed to be in and not opposed to the
best interest of the corporation, and, with respect to any criminal action or
proceeding, the indemnified party had no reason to believe his conduct was
unlawful.
We have entered into indemnification agreements with our directors and executive
officers, in addition to indemnification provided for in our Bylaws, and intend
to enter into indemnification agreements with any new directors and executive
officers in the future.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
25