AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 2003
REGISTRATION NO. 333-106862
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
Amendment No. 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CALYPTE BIOMEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3826 06-1226727
(STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION
NO.)
1265 HARBOR BAY PARKWAY
ALAMEDA, CALIFORNIA 94502
(510) 749-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT`S PRINCIPAL EXECUTIVE OFFICES)
JAY OYAKAWA
PRESIDENT AND CHIEF OPERATING OFFICER
CALYPTE BIOMEDICAL CORPORATION
1265 HARBOR BAY PARKWAY
ALAMEDA, CALIFORNIA 94502
(510) 749-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
JOSEPH A. BARATTA, ESQ.
BARATTA & GOLDSTEIN
597 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 750-9700 (PHONE)
(212) 750-8297 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. |X|.
If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this form, check the following box. |X|.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|
If delivery of this Prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
==================================================
Common Stock, $0.03 par value per share 52,500,000 $ 0.24 $ 12,600,000 $ 1,020
(1) Shares of common stock which may be offered pursuant to this registration
statement, which shares are issuable upon conversion of secured convertible
debentures. The number of shares of common stock registered hereunder
represents a good faith estimate by the Company of the number of shares of
common stock issuable upon conversion of the debentures. In addition to the
shares set forth in the table, the amount to be registered includes an
indeterminate number of shares issuable upon conversion of the debentures,
as such number may be adjusted as a result of stock splits, stock dividends
and similar transactions in accordance with Rule 416 under the Securities
Act of 1933, as amended.
(2) Estimated in accordance with Rule 457(c) for the purpose of computing the
amount of the registration fee based on the average of the closing bid and
ask prices of the Company`s common stock on the Over-the-Counter Bulletin
Board on July 2, 2003.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JULY 16, 2003
PROSPECTUS
CALYPTE BIOMEDICAL CORPORATION
52,500,000 Shares of Common Stock
o This Prospectus relates to the resale of our common stock by the selling
security holders, all of whom were issued securities pursuant to an
exemption under Regulation S, of up to:
o 29,410,000 shares of common stock that may be issuable upon the
conversion of $3,232,000 aggregate original principal amount of our 8%
secured convertible notes, including 831,216 shares that have
previously been issued to certain selling security holders as a result
of their conversions of $298,749 principal amount, plus interest and
liquidated damages;
o 450,000 shares of our common stock, of which 366,667 shares have
previously been issued to certain selling security holders in
connection with our $1.50 PIPE transaction, including 100,000 shares
issued in payment of liquidated damages;
o 52,493 shares of our common stock that have been issued to certain
selling security holders in connection with their prior conversions of
our 8% convertible debentures in the aggregate principal amount of
$200,000, plus interest and fee shares;
o 905,000 shares of our common stock that may be issued upon the
conversion of $126,083 principal amount of our 10% convertible notes,
plus accrued interest;
o 12,804,172 shares of common stock that may be issued upon the
conversion of $1,950,000 aggregate principal amount of our 10%
convertible debentures, including accrued interest;
o 8,878,333 shares of common stock that may be issued upon the
conversion of $1,600,000 aggregate principal amount of our 12%
convertible debentures, including accrued interest, including 100,000
shares of common stock underlying warrants issued as part of the
consideration for one of the transactions, and 16,667 shares issued as
fee shares for one of the transactions.
o We will not receive any proceeds from the sale of these shares. We will
receive proceeds from the purchase of $750,000 principal amount of
additional 12% convertible debentures that certain selling security holders
have agreed to purchase by no later than 5 days following the effectiveness
of this registration statement and from the exercise of warrants issued to
certain of the selling stockholders. Any proceeds received will be used for
general corporate purposes.
o The subscribers (as detailed below) may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended, in connection
with its sales.
o Our common stock is traded on the Over-the-Counter Bulletin Board under the
symbol "CYPT." The last reported sales price for our common stock on July
15, 2003 was $0.145 per share.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
SEE " RISK FACTORS" BEGINNING ON PAGE 5.
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 __, 2003
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TABLE OF CONTENTS
PAGE
====
Where You Can Find More Information 1
The Company 2
The Offering 4
Risk Factors 5
Recent Developments 16
Legal Proceedings 24
Use of Proceeds 25
Dilution 25
Description of the Securities 26
Selling Security Holders 33
Description of Capital Stock 35
Plan of Distribution 35
Legal Matters 36
Experts 37
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file at the SEC`s public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC`s web site at HTTP://WWW.SEC.GOV and at our website at our website at www.calypte.com.
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. We incorporate by reference the documents listed below which we have previously filed with the SEC.
1. The Company`s Annual Report filed on Form 10-K for the fiscal year ended
December 31, 2002
2. The Company`s Current Report on Form 8-K filed January 21, 2003
3. The Company`s Definitive Schedule 14A filed on April 14, 2003
4. The Company`s Current Report on Form 8-K filed April 25, 2003
5. The Company`s Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2003
6. The Company`s Current Report on Form 8-K filed May 21, 2003
7. The Company`s Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 2003 and related Current Report on Form 8-K filed June 24, 2003
8. The Company`s Current Report on Form 8-K filed June 27, 2003
A copy of our above-mentioned 10-K is included with this Prospectus. You may
request another copy of the 10-K, at no cost, by writing or telephoning us at
the following address:
Calypte Biomedical Corporation
1265 Harbor Bay Parkway
Alameda, California 94502
Attention: President
Telephone: (510) 749-5100.
You should rely only on information incorporated by reference or provided in this Prospectus. We have not authorized anyone else to provide you with different information.
From time to time, information we provide or statements made by our directors, officers or employees may constitute "forward-looking" statements and are subject to numerous risks and uncertainties. Any statements made in this Prospectus, including any statements incorporated herein by reference, that are not statements of historical fact are forward-looking statements (including, but not limited to, statements concerning the characteristics and growth of our market and customers, our objectives and plans for future operations and products and our liquidity and capital resources). Such forward-looking statements are based on current expectations subject to uncertainties and other factors which may involve known and unknown risks that could cause actual results of operations to differ materially from those projected or implied. Further, certain forward-looking statements are based upon assumptions about future events which may not prove to be accurate. Risks and uncertainties inherent in forward looking statements include, but are not limited to:
o our ability to obtain additional financing that will be necessary to
fund our continuing operations;
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 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
and public concern regarding HIV and AIDS;
o changes in health care policy in the United States or abroad;
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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 fluctuations in market demand for and supply of our products; and
o price and volume fluctuations in the stock market at large which do
not relate to our operating performance.
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".
THE COMPANY
Calypte Biomedical Corporation ("Calypte" or the "Company" or "we") develops, manufactures and markets urine-based screening and supplemental tests for the detection of antibodies to the Human Immunodeficiency Virus, Type-1 ("HIV-1"), the putative cause of Acquired Immunodeficiency Syndrome ("AIDS"). Calypte is the only company that has obtained Food and Drug Administration ("FDA") approval for the marketing and sale of urine-based screening tests for the detection of antibodies to the HIV-1. The Company has integrated several proprietary technologies to develop novel urine HIV antibody-tests, the "Calypte urine-based HIV-1 screening test" and the Cambridge Biotech HIV-1 Urine supplemental test. In clinical trials using the screening and supplemental tests together, the urine HIV antibody testing algorithm detected the presence of HIV antibodies in urine with 99.7% sensitivity in subjects known to be HIV-1 infected (as identified through blood-based screening tests). In subjects at low risk for HIV ("low risk subjects"), the specificity of the Calypte urine-based HIV-1 screening test when used along with the companion urine-based Western Blot supplemental test was 100%. Specificity is the ability of an assay or method to identify all non-HIV infected individuals correctly. Sensitivity is the ability of the assay or method to detect truly HIV-infected individuals. In testing for the presence of HIV antibodies, the Food and Drug Administration ("FDA") requires that a reactive result in a screening test be confirmed by a supplemental (second) test. In the case of Calypte`s HIV-1 antibody screening test, the urine-Western Blot serves as the required supplemental test. Calypte believes that its proprietary urine-based test offers significant advantages compared to existing blood-based tests, including ease-of-use, lower costs, and significantly reduced risk of infection from collecting and handling specimens. Urine collection is non-invasive and painless, and urine is the most commonly collected body fluid. The Company estimates that most customers will find the cost of collecting, handling, testing and disposing of urine specimens to be significantly less than that of blood or other bodily fluid specimens. Independent studies report that the likelihood of finding infectious HIV virus in urine is extremely low, which greatly reduces the risk and cost of accidental exposure to health care workers, laboratory personnel, and patients being tested.
In order for us to successfully implement our business plan, we must overcome certain impediments which have recently delayed our progress. Specifically, in April of 2002, we announced the winding down of our business operations in that we lacked sufficient capital to continue to successfully implement our business model. Subsequently, in May of 2002, we announced an arrangement for new funding, which allowed for Calypte to resume and recommence regular business operations. Based upon our continued tenuous financial condition, our independent auditors have issued an opinion that raises substantial doubt about our ability to continue our business operations as a going concern. We continue to reassess our business plan and capital requirements as a result of the wind-down and subsequent restart of our operations. We do not believe that our currently available financing will be adequate to sustain operations at current levels through the third quarter of 2003 unless new financing is arranged. Although, as of June 30, 2003, we have completed new financings in which we have received an aggregate of approximately $9.0 million, exceeding the initial $5 million new funding commitment more fully discussed in Recent Developments, we do not know if we will succeed in raising additional funds through further offerings of debt or equity. We must achieve profitability for our business model to succeed. Prior to accomplishing this goal, we believe that we will need to arrange additional financing of at least $10 million in the next twelve months. There can be no assurance that subsequent additional financings will be made available to the Company on a timely basis or that the additional capital that the Company requires will be available on acceptable terms, if at all. The terms of a subsequent financing may involve a change of control and/or require stockholder approval, or require the Company to obtain waivers of certain covenants that are contained in existing agreements.
We are actively engaged in seeking additional financing in a variety of venues and formats and we continue to impose actions designed to minimize our operating losses. We would consider strategic opportunities, including investment in the Company, a merger or other comparable transaction, to sustain our operations. We do not currently have any agreements in place with respect to any such strategic opportunity, and there can be no assurance that such opportunity will be available to us on acceptable terms, or at all. If additional financing is not available when required or is not available on acceptable terms, or we are unable to arrange a suitable strategic opportunity, it will place the Company in significant financial jeopardy and we may be unable to continue our operations at current levels, or at all.
We were incorporated as a Delaware corporation in 1996. As of June 20, 2003, we had approximately 55 full-time employees. We are located at 1265 Harbor Bay Parkway, Alameda, California 94502, telephone number (510) 749-5100.
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As described in our Current Report on Form 8-K filed on May 21, 2003 and incorporated into this Registration Statement by reference, at our Annual Meeting of Stockholders held on May 20, 2003, our stockholders approved a 1:30 reverse split of our common stock. The split became effective on May 28, 2003. All references to our common stock in this document, including market prices and the number of shares outstanding, issued upon conversion, potentially issuable or being registered, reflect information on the post-split basis and refer to our common stock at its post-split $0.03 par value. Prior to the effective date of the split, our stock traded on the Over-the-Counter Bulletin Board under the ticker symbol "CALY". Since the effective date of the split, our stock trades on the Over-the Counter Bulletin Board under the ticker symbol "CYPT".
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THE OFFERING
Common Stock outstanding as of July 15, 2003 18,878,274 shares
Shares offered by selling security holders 52,500,000 shares
Risk Factors The shares involve a high degree of risk. Investors
should carefully consider the information set forth under
"RISK FACTORS".
Use of Proceeds We will not receive any proceeds from the sale of the shares by
the selling security holders.
Over-the-Counter Bulletin Board trading symbol CYPT
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RISK FACTORS
In addition to the other information in this Prospectus or incorporated herein by reference, the following risk factors should be considered carefully in evaluating our business before purchasing the shares offered in this Prospectus.
RISKS RELATED TO OUR FINANCIAL CONDITION
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS WE MAY HAVE TO SIGNIFICANTLY CURTAIL
THE SCOPE OF OUR OPERATIONS AND ALTER OUR BUSINESS MODEL.
We do not believe that our currently available financing will be adequate to sustain operations at current levels through the third quarter of 2003 unless new financing is arranged. Although, from May 10, 2002 through March 31, 2003, we have completed new financings in which we have received an aggregate of approximately $8.7 million, exceeding the initial $5 million letter agreement commitment, we do not know if we will succeed in raising additional funds through further offerings of debt or equity. We must ultimately achieve profitability for our business model to succeed. Prior to accomplishing this goal, we believe that we will need to arrange additional financing of at least $10 million to sustain our operations for the next twelve months. There can be no assurance that subsequent additional financings will be made available to the Company on a timely basis or that the additional capital that the Company requires will be available on acceptable terms, if at all. The terms of a subsequent financing may involve a change of control, require stockholder approval, and/or require the Company to obtain waivers of certain covenants that are contained in existing agreements.
As of March 31, 2003 our cash on hand was $294,000. We are actively engaged in seeking additional financing in a variety of venues and formats and we continue to impose actions designed to minimize our operating losses. We would consider strategic opportunities, including investment in the Company, a merger or other comparable transaction, to sustain our operations. We do not currently have any agreements in place with respect to any such strategic opportunity, and there can be no assurance that such opportunity will be available to us on acceptable terms, or at all. If additional financing is not available when required or is not available on acceptable terms, or we are unable to arrange a suitable strategic opportunity, it will place the Company in significant financial jeopardy and we may be unable to continue our operations at current levels, or at all.
OUR INDEPENDENT AUDITORS HAVE STATED THAT OUR RECURRING LOSSES FROM OPERATIONS AND OUR WORKING CAPITAL AND ACCUMULATED DEFICITS RAISE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
The report of KPMG LLP dated February 7, 2003, except Note 20 which is as of March 24, 2003, covering the December 31, 2002 consolidated financial statements contains an explanatory paragraph that states that our recurring losses from operations and working capital deficit and accumulated deficit raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. We will need to raise more money to continue to finance our operations. We may not be able to obtain additional financing on acceptable terms, or at all. Any failure to raise additional financing will likely place us in significant financial jeopardy.
OUR PRIOR ANNOUNCEMENT THAT WE WOULD BE WINDING DOWN OUR BUSINESS OPERATIONS MAY
HAVE A DETRIMENTAL EFFECT ON OUR BUSINESS.
During the first quarter of fiscal year 2002, our financial condition and availability of operating funds deteriorated significantly, to the point that in early April 2002, it was determined that we would need to curtail our business operations and possibly consider filing for bankruptcy protection. We announced that our financial condition had reached a critical point in mid-April 2002 at which time we publicly announced and began the process of furloughing employees as a part of the winding down of our business operations. We had announced that the complete cessation of our business operations was a likely possibility at that time. Subsequently, in May of 2002, before we finalized the winding down process, we received a commitment for sufficient additional financing to allow us to resume our operations. The winding down of operations and the subsequent recommencement of our business did not have a materially adverse effect on the majority of our relationships with suppliers and customers, however, we did encounter certain non-recurring costs associated with the restart of operations in our second quarter of 2002 and expect that these costs will continue through mid-2003. Additionally, we experienced certain instances of delays in obtaining materials required for our manufacturing processes as a result of the need to develop payment arrangements with vendors concerned about our financial stability. Most of our supply arrangements with our materials vendors are currently on a cash-only basis, and some require the repayment of past due amounts in addition to payment for current orders. Although to date we have not seen a significant adverse effect from our prior announcement of winding down and our subsequent recommencement of our business, there can be no assurance that it will not have an adverse effect on our future revenues and customer base. If we are unable to re-establish our manufacturing efficiency, including the ability to procure an orderly flow of manufacturing materials and supplies, we may subsequently have difficulty fulfilling orders and maintaining customers.
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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.
We have engaged in negotiations with our creditors to restructure and reschedule our payment of certain obligations. On February 12, 2002, we closed a restructuring of approximately of $1.7 million of our trade debt, including approximately $1.0 million of royalty obligations, pursuant to which 27 creditors agreed to discharge such debt and minimum royalty obligations in exchange for a total of approximately 47,000 shares of our common stock. As of March 31, 2003, our accounts payable totaled $3.4 million, of which $3.1 million was over 60 days old. We currently have primarily cash-only arrangements with suppliers and certain arrangements require that we pay down certain outstanding amounts due when we make a current payment. These past due payments vary monthly depending on the items purchased and range from approximately $50,000 to $200,000 per month. As of March 31, 2003, we have accrued an aggregate of approximately $464,000 in royalty obligations to our key patent licensors, of which approximately $242,000 were past due. Although we anticipated that past due royalties could be brought current by the end of 2002 under agreed payment plans, we have been unable to remain current on our royalty payment obligations through March 31, 2003. The licenses attributable to past due royalty payments relate to technology utilized in both our urine EIA screening test and our supplemental urine and serum tests. Because of the interdependence of the screening and supplemental tests in our testing algorithm, the inability to use any one of the patents could result in the disruption of the revenue stream from all of our products. If we are unable to obtain additional financing on timely and acceptable terms, our ability to make payment on past due negotiated royalty obligations, make timely payments to our critical suppliers, service providers and to licensors of intellectual property used in our products will be jeopardized and we may be unable to obtain critical supplies and services and to maintain licenses necessary for us to continue to manufacture, ship and sell our products. With one exception, we have not made any royalty payments since year-end 2002. We have entered into a payment arrangement with one of our patent licensors under which we had agreed to pay approximately $42,000 by June 30, 2003. That payment was made as required.
Additionally, certain vendors and service providers with whom we have not currently arranged payment plans have or may choose to bring suit against the Company to recover amounts they deem owing. While we may dispute these claims, should the creditor prevail and if additional financing is not available when required or is not available on acceptable terms, the Company will be placed in significant financial jeopardy and we may be unable to continue our operations at current levels, or at all. Further, as described in Legal Proceedings, we have reached a settlement agreement that requires a total payout of $463,000 for prior legal services beginning with a $50,000 payment due on June 15, 2003, which we made. The terms of the settlement require a payment of $20,000 per month plus a percentage of our net financings. There are certain exceptions that may delay the payments subsequent to June 15, 2003 for up to 3 months, but should we default on the payment plan, the creditor may exercise a stipulated judgement against us, and if so, the Company may be placed in significant financial jeopardy and we may be unable to continue our operations at current levels, or at all.
THE COMPANY AND THE PRICE OF OUR SHARES MAY BE ADVERSELY AFFECTED BY THE PUBLIC
SALE OF A SIGNIFICANT NUMBER OF THE SHARES ELIGIBLE FOR FUTURE SALE.
At March 31, 2003, approximately 7.1 million or 90% of the outstanding shares of our common stock were freely tradable. Sales of common stock in the public market could materially adversely affect the market price of our common stock. Such sales also may inhibit our ability to obtain future equity or equity-related financing on acceptable terms.
From inception through March 31, 2003, the Company has issued approximately 7.9 million shares and raised approximately $99 million. At a Special Meeting of Stockholders on February 14, 2003, our stockholders approved an increase in the number of authorized shares of the Company`s common stock from 200 million to 800 million. The continuing need to raise additional funds through the sale of equity in the Company will likely result in the issuance of a significant number of shares of common stock in relation to the number of shares currently outstanding. At our Annual Meeting of Stockholders held on May 20, 2003, our stockholders approved a 1:30 reverse split of our common stock, which has resulted in our having over 700 million authorized shares potentially available for future sale. In the past, we have raised money through the sale of shares of our common stock or thrugh debt instruments that may convert into shares of our common stock at a discount to the current market price. Such arrangements have included the private sale of shares to investors on the condition that we register such shares for resale by the investors to the public. These arrangements have taken various forms including private investments in public equities or "PIPE" transactions, equity lines of credit, and other transactions summarized in the table included in the Recent Developments section of this document.
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We will continue to seek financing on an as-needed basis on terms that are negotiated in arms-length transactions. Moreover, the perceived risk of dilution 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.
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 losses for the quarter ended March 31, 2003 and for the year ended December 31, 2002 were $6.4 million and $13.3 million, respectively, and our accumulated deficit at March 31, 2003 was $107.8 million. We expect operating losses to continue for at least the next several quarters as we continue our marketing and sales activities for our FDA-approved products and conduct additional research and development for product and process improvements and clinical trials on potential new products.
RISKS RELATED TO OUR RECENT FINANCINGS -- OUR EQUITY LINE OF CREDIT WITH
TOWNSBURY AND THE CONVERTIBLE DEBENTURES AND WARRANTS AGREEMENT WITH BRISTOL AND
THE OTHER RECENT FINANCINGS
WE MAY BE IN DEFAULT IN PAYMENT OF PRINCIPAL AND INTEREST UNDER THE TERMS OF OUR
PREVIOUSLY ISSUED 8% CONVERTIBLE NOTES.
On February 14, 2003 we completed the registration process for $525,000 of the Bristol Debentures, and this is the registration statement for the Other Recent Financings. As described more completely in footnote 3 to the Recent Financings table in Recent Developments, many of these financings have requirements for registration and impose liquidated damages for delays beyond 30 days from the transaction date allowed for filing a registration statement or 90 days for the registration to be declared effective. Additionally, the holders of the original face value of $3,125,000 of the 8% Convertible Notes have the right to demand immediate repayment of the outstanding principal balance plus accrued interest due to the non-registration of the underlying shares. Although none of the holders has demanded repayment, we may be required to repay the outstanding balance of approximately $2.8 million. Further, $2,225,000 original face value of the convertible notes may have become eligible for resale under Section 144 on May 24, 2003. The convertible note transactions generally require liquidated damages at the rate of 2% of the original principal balance for each month`s delay. The PIPE financing at $0.05 per share requires liquidated damages at the rate of 8,333 shares of Calypte common stock for each 10 days of delay. In most instances, the investor has the option of receiving liquidated damages in either cash or the Company`s common stock, although the PIPE financing agreement specifies damages to be paid in stock. Liquidated damages attributable to registration delays on the convertible notes and debentures continue to accrue at a rate of approximately $63,000 per month plus 25,000 shares attributable to the PIPE transaction.
OUR "RECENT FINANCINGS" AND THE ISSUANCE OF SHARES PURSUANT TO THE "RECENT FINANCINGS" MAY CAUSE SIGNIFICANT DILUTION TO OUR STOCKHOLDERS AND MAY HAVE A NEGATIVE IMPACT ON THE MARKET PRICE OF OUR COMMON STOCK.
The resale by the investors providing Recent Financings of the common stock that they purchase from us has increased and will continue to increase the number of our publicly traded shares, which could put downward pressure on the market price of our common stock. As of March 31, 2003, of the 7.9 million shares outstanding, approximately one-third have been issued pursuant to these recent financings.
There are currently no funded or registrable amounts available to us under the terms of the Bristol agreements and only an insignificant amount of registered shares remaining under the Townsbury agreement, which expires in October 2003. However, the investors that have provided Other Recent Financings, with agreements in place, have the ability to convert their Notes and Debentures, and their related warrant shares, into approximately an additional 21.5 million shares based upon the market price of our common stock as of March 31, 2003. Additionally, through March 31, 2003, the Company has issued approximately 740,000 restricted shares of common stock to these investors. The common stock and the common stock underlying the notes and debentures issued to the investors providing Other Recent Financings are unregistered, however they may be subject to Rule 144, and $2,225,000 million original face value of Other Recent Financings had been held for one year on May 24, 2003. All of the agreements include ownership limitations by the investors that would prohibit a change of control. None of the Other Recent Financings permit ownership by the respective investors of more than 9.9% of the Company`s outstanding stock without the Company`s agreement. These notes and debentures are convertible at discounts to the market price of our common stock.
If investors convert the shares underlying their securities when our stock price
is low, our existing stockholders would experience substantial dilution.
Refer to the table in "Recent Developments" for a summary of potential dilution
as of the most recent practicable date by type of security.
Consequently, the issuance of shares to the investors described above on the conversion of their Notes and Debentures will dilute the equity interest of existing stockholders and, coupled with the registration of restricted shares, could have an adverse effect on the market price of our common stock. In addition, depending on the price per share of our common stock during the life of these financings, we may need to register additional shares for resale, which could have a further dilutive effect on the value of our common stock.
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The perceived risk of dilution may cause our stockholders to sell their shares, which would contribute to a downward movement in the market price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.
WE CANNOT DETERMINE THE PRECISE AMOUNT BY WHICH THE INTERESTS OF OUR STOCKHOLDERS WILL BE DILUTED BY CONVERSIONS UNDER THE RECENT FINANCINGS BECAUSE THE NUMBER, SIZE AND THE TIMING OF DEBENTURE AND WARRANT CONVERSIONSDEPENDS UPON FACTORS NOT IN OUR CONTROL.
We have little discretion regarding the timing of conversion of the various convertible debenture and note instruments we have issued and the ultimate number of shares that we may have to issue upon their conversion. The investors who hold these notes and debentures will make conversion decisions based on their own investment strategies and requirements, which may not include consideration of the dilutive impact of their conversions. Accordingly, it may be difficult to predict the number of shares of our common stock that will be sold on the public market, which may adversely affect the market price of our common stock.
THE SALE OF MATERIAL AMOUNTS OF OUR COMMON STOCK COULD REDUCE THE PRICE OF OUR
COMMON STOCK AND ENCOURAGE SHORT SALES.
As we issue shares of our common stock pursuant to the Recent Financings and the investors then resell the common stock, our common stock price may decrease due to the additional shares in the market. If the price of our common stock decreases, and if investors convert the notes or debentures and resell the stock they receive upon conversion as we either register the underlying shares or the underlying shares qualify for sale under Rule 144, we will be required to issue more shares of our common stock for any given dollar amount invested. This may encourage short sales, which could place further downward pressure on the price of our common stock.
BECAUSE THE INVESTORS IN THE RECENT FINANCINGS ARE RESIDENTS OF FOREIGN COUNTRIES, IT MAY BE DIFFICULT OR IMPOSSIBLE TO OBTAIN OR ENFORCE JUDGMENTS AGAINST THEM AND THE INVESTORS ARE ALSO SUBJECT TO UNITED STATES AND FOREIGN LAWS THAT COULD AFFECT OUR ABILITY TO ACCESS THE FUNDS.
The unaffiliated investors who have provided the Recent Financings are off-shore investors and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult or impossible to effect service of process on the investors within the United States. It may also be difficult or impossible to enforce judgments entered against the investors in courts in the United States based on civil liability provisions of the securities laws of the United States. In addition, judgments obtained in the United States, especially those awarding punitive damages, may not be enforceable in foreign countries.
As overseas investment funds, the investors are also subject to United States and foreign laws regulating the international flow of currency over which we have no control and which could affect the availability of the funds. Any delay in our ability to receive funds under the Recent Financings when expected could prevent us from receiving necessary capital and place us in significant financial jeopardy.
WE HAVE OR MAY HAVE TO GRANT PARTIAL OR COMPLETE LIENS ON SUBSTANTIALLY ALL OF
OUR ASSETS.
In the event of a default under the terms of securities purchase agreements obtained as part of our Recent Financings to date and in the future, the security holders can typically foreclose on the security interest in our assets. If this were to happen, we may be required to file a petition under Chapter 11 of the Bankruptcy Code seeking protection, or file Chapter 7 and liquidate.
RISKS RELATED TO THE MARKET FOR OUR COMMON STOCK
A DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK AFTER THE 1:30 REVERSE STOCK SPLIT MAY RESULT IN A GREATER PERCENTAGE DECLINE THAN WOULD HAVE OCCURED IN THE ABSENCE OF A REVERSE STOCK SPLIT, AND THE LIQUIDITY OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED FOLLOWING THE REVERSE STOCK SPLIT.
We have experienced a decline in the market price of our common stock following the effective date of the 1:30 reverse split. If the market price of our common stock continues to decline following the split, the percentage decline may be greater than would have occured in the absence of a reverse stock split. The market price of our common stock will, however, also be based on our performance and other factors, which are unrelated to the number of shares outstanding. Furthermore, although it does not appear to have done so at this time, the reduced number of shares outstanding after the reverse stock split could adversely affect the future liquidity of our common stock.
WE ARE UNCERTAIN HOW TRADING ON THE OVER THE COUNTER BULLETIN BOARD WILL AFFECT
THE LIQUIDITY AND SHARE VALUE OF OUR STOCK.
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Since July 13, 2001, our stock has traded on the Over-the-Counter Bulletin Board. Although the per share price of our common stock has declined since it was delisted from the Nasdaq SmallCap Market, trading volume in our stock, adjusted for the effect of the May 2003 1:30 reverse stock split, has increased. We are uncertain, however, about the long-term impact, if any, on share value as a result of trading on the Over-the-Counter Bulletin Board.
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 $0.36 per share and as high as $12.90 per share in the twelve months ended March 31, 2003. 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, including the Recent Financings, which may
require the issuance of a significant number of shares in relation to
the number of shares currently outstanding;
o announcements of technological innovations or new products which we or
our competitors make;
o FDA 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; and
o certain world conditions, such as SARS or conflict in the Middle East.
OUR ISSUANCE OF WARRANTS, OPTIONS AND STOCK GRANTS TO CONSULTANTS FOR SERVICES
MAY HAVE A NEGATIVE EFFECT ON THE TRADING PRICE OF OUR COMMON STOCK.
During 2002, we issued approximately 1.7 million shares of our common stock pursuant to warrants, options, and stock bonus grants as compensation to consultants, and, through March 31, 2003, we have subsequently issued warrants and stock bonuses for approximately 3.2 million additional shares. As we continue to look for ways to minimize our use of cash while obtaining required services, we plan to issue additional warrants and options at or below the current market price and make additional stock bonus grants. In addition to the potential dilutive effect of a large number of shares and a low exercise price for the warrants and options, there is the potential that a large number of the underlying shares may be sold on the open market at any given time, which could place downward pressure on the trading price of our common stock.
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.
Shares of our common stock are "penny stocks" as defined in the Exchange Act, which are traded in the Over-The-Counter Market on the OTC Bulletin Board. As a result, investors may find it more difficult to dispose of or obtain accurate quotations as to the price of the shares of the common stock being registered hereby. In addition, the
9
"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 document are the following:
o the bid 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 transactions in our stock more difficult and may reduce the value of the investment. Various state securities laws pose 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
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 SEVERE ACUTE RESPIRATORY SYNDROME ("SARS").
Our expected first quarter 2003 shipment of urine HIV screening tests to our distributor in the People`s Republic Of China was delayed, in part, as a result of the impact of SARS in that country. Our distributor has reported that both potential patients and medical personnel are reluctant to visit or report for work at hospitals, clinics and other sites for fear of contracting or spreading SARS and, consequently, both diagnostic and therapeutic procedures are being postponed. Additionally, governmentally-imposed facility closures and quarantine restrictions are disrupting the ability of the distributor to receive and distribute our HIV tests. This situation may continue for some time in both China and elsewhere as emphasis is temporarily directed at containing and/or preventing the spread of SARS. Although SARS prevented us from completing the anticipated shipment to our distributor during the second quarter of 2003 as well, our distributor has requested that we proceed with the shipment now that it appears that the SARS problem has dissipated.
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Our business model and current revenue forecasts call for a significant expansion of sales to our distributor in the Peoples` Republic of China, in accordance with the requirements of the distribution contract. Additionally, we project a significant level of sales of our product in Africa upon successful completion of the product evaluation. Should conditions beyond our control, such as SARS, redirect attention more than temporarily from the worldwide HIV/AIDS epidemic, our customers` ability to meet their contractual purchase obligations or our ability to supply product 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, or we may have to curtail our operations, or both.
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 our
products;
o the extent to which our products and our HIV and STD testing service
gain market acceptance;
o the timing and size of distributor purchases;
o introductions of alternative means for testing for HIV by competitors;
and
o customer concerns about the stability of our business which could
cause them to seek alternatives to our product.
WE HAVE LIMITED EXPERIENCE SELLING AND MARKETING OUR HIV-1 URINE-BASED SCREENING
TEST.
Our urine-based products incorporate a unique method of determining the presence of HIV antibodies and we have limited experience marketing and selling them either directly or through our distributors. Calypte`s success depends upon the ability of domestic marketing efforts to penetrate expanded markets and upon alliances with third-party international distributors. There can be no assurance that:
o our direct selling efforts will be effective;
o we will obtain any expanded degree of market acceptance among
physicians, patients or health care payors; or others in the medical
or public health community which are essential for expanded market
acceptance of the products;
o our international distributors will successfully market 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.
We have had FDA approval to market our urine HIV-1 screening and supplemental tests in the United States and have been marketing these products since 1998. We have achieved market penetration within the domestic life insurance industry. Based upon our internal estimates, we believe that as of the end of 2002, out of approximately 7.1 million HIV-1 tests given by the domestic life insurance industry in 2002, approximately 0.6 million were administered with our urine based tests. However, we have not achieved significant market penetration in domestic public health agency or international markets. A disruption in our distribution, sales or marketing network could reduce our sales revenues and cause us to either cease operations or expend more resources on market penetration.
OUR DISTRIBUTION AND SALES NETWORK FOR U.S. HOSPITALS, AND PUBLIC AND PRIVATE
HEALTH MARKETS HAS THUS FAR FAILED TO YIELD SIGNIFICANT SALES AND REVENUES.
Domestic health agencies are a fragmented marketplace with many small outlets which makes achieving market acceptance difficult. Because we lack sufficient working capital, we have experienced difficulty in penetrating independent public and private health markets as they require direct selling efforts. Initially, we entered into a distribution agreement with a distributor of medical products to domestic healthcare markets, who encountered significant obstacles due to the fragmented nature of the domestic
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health care market place. We terminated the distribution agreement and have expanded our own direct sales force in an effort to better penetrate the domestic healthcare markets and, in conjunction with other business partners, have re-launched Sentinel. If our efforts to market our products to domestic hospitals and public and private health organizations fail to yield significant amounts of revenue, we may have to cease operations.
WE DEPEND UPON THE VIABILITY OF THREE PRIMARY PRODUCTS -- OUR HIV-1 URINE-BASED
SCREENING TEST AND OUR URINE AND BLOOD BASED SUPPLEMENTAL TESTS.
Our HIV-1 urine-based screening test and urine and blood-based supplemental tests are our current products. Accordingly, we may have to cease operations if our screening and supplemental tests fail to achieve market acceptance or generate significant revenues.
WE HAVE EXPERIENCED A DECREASE IN THE SALE OF OUR CAMBRIDGE BIOTECH SERUM
WESTERN BLOT TEST
Our Cambridge Biotech HIV-1 Serum Western Blot kit is the first of four supplemental blot tests for blood HIV-1 antibodies licensed by the FDA. The Western Blot test has been in commercial distribution for more than nine years. We sell the serum-based Western Blot test for HIV-1 as a supplemental test to HIV-1 screening test products made by other manufacturers. In the fiscal year ended December 31, 2002 and the three month period ended March 31, 2003, Western Blot sales accounted for 43% and 37% of our revenues, respectively. Western blot test sales to bioMerieux Inc. accounted for a total 17.5% of our sales revenues for 2002. Subsequent to our restart of operations in May 2002, we have not sold any of our Western Blot test to bioMerieux although we have signed several new customers, including Adaltis, Inc., which is a new distributor, and other smaller customers who previously purchased from bioMerieux and who now purchase directly from us. Although there is limited competition in the supplemental testing market and the cost and time attributed to the only known production process makes it unlikely that additional companies will seek to qualify and engage in the production of these supplemental tests, we have yet to regain our market share. Until this occurs, the loss in sales to bioMerieux will have a detrimental impact on our cash flow and may (1) delay or disrupt our plans to expand the Company`s business and (2) require us to raise additional equity capital, thereby further increasing dilution, which could place further downward pressure on the price of our common stock. A more complete discussion of our revenues and customers can be found in the "Customer Trends" section of Management`s Discussion and Analysis in our quarterly report on Form 10-QSB for the quarter ended March 31, 2003, which is incorporated by reference.
WE MAY EXPERIENCE A DECREASE IN THE SALES OF OUR HIV VIRAL LYSATE WHICH
PREVIOUSLY ACCOUNTED FOR A MATERIAL AMOUNT OF OUR REVENUE.
Our HIV viral lysate is a component of the production of our Western Blot Supplemental tests. There is a limited demand for our HIV viral lysate, which we have in the past been able to sell to certain customers. The sale of viral lysate accounted for approximately 6% of our revenue in the fiscal year ended December 31, 2002, primarily all in the first quarter. We sold no lysaste in the first quarter of 2003. We believe that the revenue attributed to the sale of our HIV viral lysate in early 2002 resulted from our principal lysate customer stockpiling larger than normal quantities in light of our tenuous financial condition in an effort to avoid a potential interruption of supply. As a result of such stockpiling, we may continue to experience little or no sales of HIV viral lysate. However, as we view our HIV viral lysate as a manufacturing component, its sale is not considered to be a major contributor to our anticipated future revenue, but rather a supplemental revenue source.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND MARKET NEW PRODUCTS THAT WE PLAN
TO INTRODUCE.
We plan to develop other urine-based diagnostic products including a rapid HIV screening test and tests for other infectious diseases or health conditions. 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 or meet regulatory 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 milestones related to revenue increases and achievement of profitability.
OUR PRODUCTS DEPEND UPON RIGHTS TO TECHNOLOGY THAT WE HAVE LICENSED FROM THIRD PARTY PATENT HOLDERS AND THERE CAN BE NO ASSURANCE THAT THE RIGHTS WE HAVE UNDER THESE LICENSING AGREEMENTS ARE SUFFICIENT OR THAT WE CAN ADEQUATELY PROTECT THOSE RIGHTS.
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We currently have the right to use patent and proprietary rights which are material to the manufacture and sale of our HIV-1 urine-based screening test under licensing agreements with New York University, Cambridge Biotech Corporation, Repligen Corporation, and the Texas A&M University System. We also have the right to use patent and proprietary rights material to the manufacture and sale of our HIV-1 serum-based supplemental test under a licensing agreement with National Institutes of Health. Although we have arranged payment plans with certain of the licensors in an effort to resolve past due balances owed under the license agreements, we have not been able to remain current on all of them. As of March 31, 2003 we had accrued an aggregate of approximately $242,000 in past due royalty obligations to our patent licensors. In the event our financial condition inhibits our ability to pay royalty payments due under our license agreements, our rights to use those licenses could be jeopardized. Specifically, during the 2002 calendar year and in the first quarter of 2002, revenues subject to the New York University, Cambridge Biotech, Repligen and Texas A&M license agreements were $1.5 million and $0.4 million, respectively, and revenues subject to the National Institutes of Health agreement were $2.0 million in calendar 2002 and $0.4 million in the first quarter of 2003. The loss of any of the foregoing licenses could have a materially adverse effect on our ability to continue to produce our products since the license agreements provide necessary proprietary processes or components for the manufacture of our products.
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 supp
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