SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 ---------------

                                   FORM 10-KSB

(MARK ONE)

|X|   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE
      ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
                                       OR

|_|   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(D)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

           FOR THE TRANSITION PERIOD FROM ____________ TO ____________

                        COMMISSION FILE NUMBER: 000-20985

                                 ---------------

                         CALYPTE BIOMEDICAL CORPORATION
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


             DELAWARE                                            06-1226727
  (STATE OR OTHER JURISDICTION OF                            (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                         IDENTIFICATION NUMBER)


     5000 HOPYARD ROAD, SUITE 480, PLEASANTON, CA                  94588
       (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)


                    ISSUER'S TELEPHONE NUMBER: (925) 730-7200

         SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:

                                      NONE

         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:

                     COMMON STOCK, $.03 PAR VALUE PER SHARE

      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements  for the past 90 days.
Yes |X| No |_|

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

      Issuer's revenues for its most recent fiscal year: $3,297,000

      As of March 29, 2005, 171,207,589 shares of the registrant's common stock,
$.03 par value, were outstanding. The aggregate market value of the common stock
held  by  non-affiliates  of the  registrant  (i.e.,  excluding  shares  held by
executive  officers,  directors,  and control persons as defined in Rule 405) on
that date was  approximately  $33,649,000  based on the $0.27 per share  closing
price of the common stock on that date reported on the American Stock Exchange.
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the issuer's  definitive proxy statement on Schedule 14A to be
filed with the Securities and Exchange  Commission relative to the issuer's 2005
Annual Meeting of  Shareholders  are  incorporated by reference into Part III of
this Form 10-KSB.

Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
<PAGE>

================================================================================

                         CALYPTE BIOMEDICAL CORPORATION
                                   FORM 10-KSB
                                      INDEX

                                                                            PAGE
                                                                             NO.
                                                                            ----
PART I.
Item 1.         Business                                                       1
Item 2.         Properties                                                    19
Item 3.         Legal Proceedings                                             19
Item 4.         Submission of Matters to a Vote of Security Holders           19

PART II.
Item 5.         Market for the Registrant's Common Equity and Related
                  Stockholder Matters                                         20
Item 6.         Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                         32
Item 7.         Financial Statements and Supplementary Data                   67
Item 8.         Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure                      68
Item 8A.        Controls and Procedures                                       69

PART III.
Item 9.         Executive Officers and Directors of the Registrant            70
Item 10.        Executive Compensation                                        72
Item 11.        Security Ownership of Certain Beneficial Owners
                  and Management and Related Stockholder Matters              78
Item 12.        Certain Relationships and Related Transactions                79
Item 13.        Exhibits and Reports on Form 8-K                              80
Item 14.        Principal Accountant Fees and Services                        88
                Signatures                                                   S-1
                Certifications                                              IV-1

Except for the  historical  information  contained in this annual report on Form
10-KSB, the matters discussed herein contain forward-looking statements that are
subject to certain risks and  uncertainties  that could cause actual  results to
differ materially from those projected.  These risks and uncertainties  include,
but are not limited to, our ability to obtain  additional  financing if and when
needed,  uncertain market acceptance of current and prospective new products for
determining  the presence of HIV antibodies and our limited  experience  selling
and marketing HIV diagnostic test, as well as the other risks and  uncertainties
described  under "Risk  Factors"  and  elsewhere  in this Annual  Report on Form
10-KSB.  The  Company  assumes  no  obligation  to  update  any  forward-looking
statements contained herein.
<PAGE>

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

This Annual Report on Form 10-KSB contains  forward-looking  statements,  within
the meaning of the Federal  securities  laws,  about our business and prospects,
including  without  limitation  statements  regarding our expected  revenues and
revenue growth rate in 2005. The  forward-looking  statements do not include the
potential  impact  of  any  mergers,  acquisitions,   divestitures  or  business
combinations  that may be  completed  after  the  date  hereof.  Any  statements
contained  herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words "believe,"
"plan,"  "intend,"  "expect,"  "goals" and similar  expressions  are intended to
identify forward-looking statements, although not all forward-looking statements
contain  these words.  Our future  results may differ  materially  from our past
results  and from  those  projected  in the  forward-looking  statements  due to
various  uncertainties  and risks,  including  those described in the section of
this report titled "Management's  Discussion and Analysis of Financial Condition
and Results of  Operations-Factors  That May Affect Future Results." We disclaim
any obligation to update any forward-looking  statements  contained herein after
the date of this Annual Report.

                                     PART I

ITEM 1. BUSINESS

GENERAL

Calypte Biomedical Corporation develops,  manufactures, and distributes in vitro
diagnostic tests,  primarily for the diagnosis of Human  Immunodeficiency  Virus
("HIV")  infection.  Since  1998  we  have  been  the  leading  manufacturer  of
urine-based  HIV  diagnostic  tests.  Over  the  last two  years,  we have  been
broadening our historical focus on urine-based laboratory tests to include other
HIV tests,  such as a blood-based  incidence  test and various rapid tests using
other specimens.

We were  incorporated  in California in 1989 and  reincorporated  in Delaware in
1996 at the time of our initial public offering.  We trade on the American Stock
Exchange  under the symbol  "HIV." Our  corporate  headquarters  are  located in
Pleasanton,  California.  We  have  FDA-approved  and  ISO  13485:1996-certified
manufacturing  operations and research facilities in Rockville,  Maryland,  just
outside of  Washington  DC, and  additional  research  operations  in Vancouver,
Washington.

In November  2003, we became the 51% owner of a joint venture,  Beijing  Calypte
Biomedical  Technology Ltd. (the "Beijing  Calypte Joint  Venture"),  created to
market our current and  upcoming  products in China.  The  remaining  49% of the
joint  venture  is owned by Marr  Technologies  Limited,  an  affiliate  of Marr
Technologies BV ("Marr"), our largest stockholder, which holds approximately 27%
of our outstanding stock as of March 28, 2005.

FINANCIAL CONSIDERATIONS

To  successfully  implement  our  business  plans,  we must  obtain  sustainable
positive  cash  flow  and  profitability.   Our  future  liquidity  and  capital
requirements   will   depend   on   numerous   factors,   including   successful
commercialization  of our new rapid tests,  protection of intellectual  property
rights,   costs  of  developing  our  new  products,   including  the  necessary
intellectual property rights,  ability to transfer technology,  set up and scale
up manufacturing and obtain regulatory  approvals of our new rapid tests, market
acceptance of all our products,  existence of competing  products in our current
and anticipated markets,  actions by the FDA and other international  regulatory
bodies,  and the ability to raise  additional  capital,  if and as needed,  in a
timely manner.

Based upon our  tenuous  financial  condition  as  demonstrated  by our  working
capital  deficit at December 31, 2004, our recurring  losses and our accumulated
deficit,  our  independent  accountants  have issued an opinion on our financial
Statements at December 31, 2004 that cites  substantial  doubt about our ability
to continue our business  operations  as a going  concern.  Although we issued a
$2,000,000  Promissory Note (the "Promissory  Note") to Marr in January 2005, it
was due on  March  31,  2005 and the  proceeds  have  not  provided  us with the
liquidity to fully attain our business milestones and to achieve  profitability.
We have  negotiated  an extension of the maturity  date of the  Promissory  Note
until April 30, 2005.  Our current cash  resources are not sufficient to sustain
our  operations  and achieve our  milestones  through the second quarter of 2005
without obtaining additional financing.  We believe that we will need to arrange
additional  financing  of  approximately  $15 million to sustain our  operations
throughout  2005,  including the funds required to repay the Promissory Note. We
are actively engaged in seeking additional financing,  however, if we are unable
to repay the  Promissory  Note on its  extended  due date of April  30,  2005 or
further  modify its due date,  we will be in default.  There can be no assurance
that we will be  able to  repay  or  further  amend  the  payment  terms  of the
Promissory  Note.  In addition,  there is no  assurance  that we will achieve or
sustain profitability or positive cash flows in the future.


                                       1
<PAGE>

Our  longer-term  liquidity  and capital  requirements  are dependent on factors
similar to those which constrain our current liquidity and capital resources and
which may prevent us from  validating  our business  model  during 2005.  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 one or
more existing financing  agreements that would result in substantial dilution to
our existing  stockholders.  There can be no  assurance  that we will enter into
such strategic  agreements or secure such  financing,  or that our  stockholders
will approve the terms of such agreements or 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.

BACKGROUND ON HIV

HIV, the virus that causes Acquired  Immunodeficiency  Syndrome  ("AIDS"),  is a
leading  cause of death for persons ages 25 to 44 in the U.S. and for persons of
all ages in many international locales. Those infected with HIV generally do not
show  symptoms  of AIDS until  several  years  after HIV  infection,  if at all.
Because most persons  infected  with HIV are unaware of their HIV status and are
asymptomatic for AIDS, they do not avail themselves of medical treatment and may
unknowingly  expose  others  to the risk of HIV  infection.  HIV is  spread by a
transfer of bodily fluids, primarily through sexual contact, blood transfusions,
sharing  intravenous  needles,  accidental  needle sticks or  transmission  from
infected mothers to newborns.

Prior exposure to HIV can be detected in laboratory and point-of-care tests even
though the infected individual is asymptomatic. Although the human immune system
typically  requires  a number of weeks or months to begin  producing  antibodies
following exposure to HIV, there is no consensus in the scientific  community as
to whether antibodies can first be detected in blood, urine or oral fluid.

According to the December 2004 AIDS  Epidemic  Update  published  jointly by the
Joint United  Nations  Programme  on HIV/AIDS and the World Health  Organization
(the "WHO"),  at the end of 2004 an estimated 39.4 million people  globally were
living with HIV,  including 2.2 million  children under age 15, and an estimated
4.9 million  people that were newly  infected  with HIV during 2004. In spite of
increased  emphasis on the epidemic in the worldwide press and increased funding
by both  governmental and humanitarian  organizations for diagnosis and therapy,
the Update reported that about 3.1 million people died of AIDS during 2004.

The Update further reported that the number of people living with HIV at the end
of 2004 has risen in every geographic  region worldwide  compared with 2002. The
steepest increases are occurring in East Asia, where the number of people living
with HIV  increased by 50% between 2002 and 2004 to 1.1 million,  primarily as a
result of China's  growing  epidemic,  and in Eastern  Europe and Central  Asia,
which  increased by 40% to 1.4 million  between 2002 and 2004,  primarily due to
the  epidemic  in the Ukraine and the  Russian  Federation.  Sub-Saharan  Africa
remains most impacted by the crisis, with over 25 million people living with HIV
in 2004,  compared with 24 million in 2002. 64% of the people living with HIV in
2004  worldwide are in sub-Saharan  Africa,  as are 76% of all women living with
HIV,  even  though  sub-Saharan  Africa is home to only about 11% of the world's
population.


                                       2
<PAGE>

In its February  2004  presentation,  Global  Health,  The Bill & Melinda  Gates
Foundation (the "Gates  Foundation")  cited a mid-2002 UNAIDS report  indicating
that in the absence of dramatically  expanded  prevention and treatment efforts,
68 million  people will die of AIDS in the 45 most  affected  countries  between
2000 and 2020, a mortality outlook that is five times the number of AIDS-related
deaths in the  previous  two  decades  in these  countries.  Further,  the Gates
Foundation report projects  approximately 45 million new HIV/AIDS  infections by
the year 2010, with 28 million of these infections considered to be preventable.
Whereas the epidemic is currently  centered  primarily  in  sub-Saharan  Africa,
where  projections of current and future  infection  range from 30 to 35 million
adults by 2010,  the Gates  Foundation  study  identifies  countries in northern
Africa as well as Russia,  India and China as the "next  wave"  countries  which
will experience the HIV/AIDS pandemic, as demonstrated in the following chart:

--------------------------------------------------------------------------------

    HIGH AND LOW ESTIMATES OF CURRENT AND FUTURE HIV/AIDS-INFECTED ADULTS IN
                       NEXT-WAVE COUNTRIES, 2002 AND 2010

                                           (in millions)

                                           High      Low
                                           ----      ---
Nigeria                           2002        4        2
                                  2010       10        5
Ethiopia                          2002        3        2
                                  2010        7        3
Russia                            2002        1        1
                                  2010        5        3
India                             2002        5        3
                                  2010       20        5
China                             2002        1        1
                                  2010     10.5      4.5

SOURCE: Bill and Melinda Gates Foundation Global Health report 2/2004

--------------------------------------------------------------------------------

In recent years,  the global  HIV/AIDS  epidemic has provided an opportunity for
the spread of other  infectious  and  sexually  transmitted  diseases  ("STDs").
Tuberculosis  ("TB"),  for example,  is airborne and can be readily and silently
spread  by an act as  simple  as  breathing.  The  Global  Alliance  for TB Drug
Development (the "Global Alliance") reports that 12 million people worldwide, or
approximately one in three HIV-positive  persons,  are co-infected with HIV/AIDS
and TB. The two  diseases  represent a deadly  combination,  since both are more
destructive  together than either is alone. HIV infection appears to be the most
potent  risk  factor for  converting  latent TB into  active  transmissible  TB,
accelerating the progression of that disease,  while TB bacteria help accelerate
the progress of the AIDS infection in the patient.  The Global Alliance  reports
that in sub-Saharan  Africa, two thirds of TB patients are co-infected with AIDS
and that when a  patient  with  latent TB  becomes  co-infected  with HIV,  that
patient  is 30% to 50% more  likely to develop  active TB. The Gates  Foundation
reports  that TB is now the  leading  cause  of death  for  people  living  with
HIV/AIDS.

While TB  co-infection  with HIV may be more prevalent in the developing  world,
STD co-infection with HIV/AIDS is a developed-world consideration.  STDs include
syphilis,  gonorrhea,  chlamydia,  and  similar  bacterial  infections  acquired
primarily  through  sexual  contact.  A report issued by the Centers for Disease
Control,  Tracking  the Hidden  Epidemics:  Trends in STDs in the United  States
2000, states,  "In the United States,  more than 65 million people are currently
living with an incurable  sexually  transmitted  disease  (STD)." Persons living
with HIV account for approximately 10% of this population. The report continues,
"An  additional  15 million  people  become  infected with one or more STDs each
year,  roughly half of whom contract lifelong  infections.  Yet, STDs are one of
the most under-recognized health problems in the country today. Despite the fact
that  STDs  are  extremely   widespread,   have  severe  and  sometimes   deadly
consequences,  and add billions of dollars to the nation's healthcare costs each
year,  most  people  in the  United  States  remain  unaware  of the  risks  and
consequences of all but the most prominent  sexually  transmitted  disease - the
human  immunodeficiency  virus or  HIV."  The CDC  Fact  Sheet,  The Role of STD
Detection and Treatment in HIV Prevention,  states "Individuals who are infected
with STDs are at least two to five times more likely than uninfected individuals
to acquire HIV if they are exposed to the virus through sexual  contact."  There
is substantial biological evidence that the presence of other STDs increases the
likelihood of both  transmitting  and  acquiring  HIV. The Fact Sheet also notes
that STD trends can offer  important  insights  into where the HIV  epidemic may
grow, since the high-risk  sexual behaviors  responsible for the transmission of
STDs are similar to those  generally  responsible  for the  transmission of HIV.
STDs  constitute  significant  health  problems  not just in the US, but in many
international locales as well.


                                       3
<PAGE>

Under the terms of the License Agreement with Ani Biotech ("Ani"),  we have been
granted an exclusive  license to develop,  manufacture and sell rapid diagnostic
tests  for a number  of  sexually  transmitted  diseases,  including  HIV,  HPV,
Hepatitis B, Hepatitis C, Syphilis,  Gonorrhea, and Chlamydia when urine or oral
fluid are the sample media. We have also been granted a non-exclusive license to
develop,  manufacture and sell the same sexually  transmitted disease tests when
blood, serum, plasma, or urogenital swabs are the sample media. While we have no
plans to bring out products for the detection of TB or STDs in 2005,  because of
their   significant   prevalence  in  co-infection   with  HIV,  we  have  begun
investigating  the  possibility of tests that would include one or more of these
diseases in conjunction  with HIV. We believe the Ani lateral flow platform (see
HIV-1/2 Rapid Tests using the Ani Platform in RESEARCH AND DEVELOPMENT  SPENDING
later in this section) may offer the most attractive opportunity for such tests.

HIV TESTING - THE FIRST STEP IN A TREATMENT PROTOCOL

HIV was  first  diagnosed  in the early  1980's.  The  discovery  in 1984 of HIV
antibodies circulating in the blood led to the development and widespread use of
blood  screening  tests for the detection of HIV  antibodies.  Blood banks began
testing  their  supplies  of blood in an  effort to  maintain  and  protect  the
integrity of the blood.  Most current HIV  antibody  screening  tests are enzyme
immunoassay  ("EIA") tests which operate on the principle that antibodies  react
with  antigens.  Antibodies  are  produced  by the human body in response to the
presence of an infectious  disease,  such as HIV.  Antigens are substances  that
stimulate production of antibodies.  EIA tests provide an antigen base that will
react with HIV antibodies,  if such antibodies are present.  Enzymes are used to
detect the reaction between the antigens and antibodies.

Since 1984, the blood  screening  test has been  considered the gold standard of
HIV testing. In the United States, in addition to blood banks, physicians,  life
insurance  companies,  the  military,  the  criminal  justice  system,  the U.S.
Citizenship and Immigration  Services and community-based  organizations all use
blood-based testing. Unfortunately, HIV blood testing can be expensive and poses
risk of  infection  to  health  care  personnel.  Blood  is  typically  drawn at
physician  offices,  clinics,  hospitals or blood draw  stations,  where trained
personnel are available.  The blood is then sent to a laboratory where a trained
health care worker or  phlebotomist  must first  centrifuge the blood sample and
then test it for the  presence  of HIV  antibodies.  Blood  samples  and related
blood-sampling  equipment require careful handling to avoid accidental  exposure
to any blood-borne pathogens,  including HIV. Additionally,  blood-based testing
has become  increasingly  more costly as the costs of disposing  of  potentially
infected specimens, syringes, needles and transfer tubes has increased. The cost
of  blood-based  testing is  prohibitive  to many large public health  screening
programs,  particularly  in  lesser-developed  countries,  many  of  which  have
significantly higher rates of HIV infection.  Even in the United States, certain
populations  are not  routinely  screened  due to the high  cost of  blood-based
testing.

In the United States,  laboratory  testing protocols for HIV antibody follow the
same general  testing  protocol  regardless  of the sample type being used.  The
protocol  is to first  test a sample for the  presence  of HIV  antibodies.  Any
sample  found to be reactive is then  retested  in  duplicate.  If either of the
retests is  reactive,  the same sample is tested  again using a more precise and
expensive  supplemental  test.  The  presence  of HIV  antibodies,  based on the
results of the  supplemental  test,  is  considered a positive  diagnosis of HIV
infection.  This protocol  minimizes the risk of  incorrectly  reporting a false
positive result that an individual is infected with HIV.


                                       4
<PAGE>

Testing in the United States

In its HIV/AIDS Surveillance Report, 2003 issued in March 2005, the CDC reported
the  prevalence  rate of adults and  adolescents  living with HIV infection (not
AIDS) in the United States as approximately 128 out of 100,000 (a rate of 0.13%)
at the end of 2003.  Studies  indicate that the number of HIV tests performed in
the United States, whether for the purpose of diagnosing HIV infection, ensuring
the safety of the blood supply, underwriting life insurance policy applications,
health  screening  or  otherwise,  is  equivalent  to  approximately  28% of the
population.  Comparatively,  the AIDS Epidemic  Update  estimates the prevalence
rate of  adults  (ages  15 to 49 years of age)  living  with HIV in  sub-Saharan
Africa and in Eastern  Europe and Central Asia at 7.4 % and 0.8%,  respectively,
at the end of 2004.  Studies  estimate that the number of HIV tests performed in
sub-Saharan  Africa and in Russia and Eastern  Europe is equal to  approximately
1.3% and 3%, respectively, of the corresponding population.

The strength of the market for HIV diagnostic  tests in the United States is not
related to the prevalence of HIV infection, but to the significant percentage of
the population that is tested for one or more purposes. Although relatively high
testing  rates  already  occur in the  United  States,  in a study  reported  in
February 2005 in the New England Journal of Medicine,  the researchers concluded
that in all but the  lowest-risk  populations,  routine,  voluntary  HIV testing
every three to five years is "justified on both clinical and  cost-effectiveness
grounds."  The  researchers  proposed  that  one-time  testing  for the  general
population  might be  cost-effective.  In a second  study  reported  in the same
publication,  the researchers  concluded that routine,  voluntary testing - even
among relatively low-prevalence  populations - is as cost effective as "commonly
accepted interventions, and such programs should be expanded." These researchers
observed  further that one-time  testing of the general  population could reduce
the  annual  U.S.  HIV  transmission  rate by 20% and that  HIV-positive  people
diagnosed  through such testing could gain an average of 1.5 years of life.  The
CDC   responded   by  saying  that  it  would   consider   these   findings  and
recommendations  for  expanded  testing as its  updates  its  suggested  testing
protocols and especially in light of the  availability of rapid tests.  While we
first plan to market rapid tests using the Ani  technology  internationally,  we
plan to seek FDA approval for them and introduce them into the U.S. professional
market.

Additionally,  while there are currently no  FDA-approved  over-the-counter  HIV
tests,  we believe that such a test would be  advantageous in the battle against
HIV  transmission  and is  approvable.  Further,  we  believe  that a rapid test
platform  such as the one acquired from Ani could be  appropriate  for use in an
over-the-counter application,  potentially coupled with tests for other STD's or
conditions.  At the  appropriate  time we will commence the regulatory  approval
process in the United States. It is possible that  over-the-counter  sales might
occur sooner outside the United States.

The International Testing Gap

As noted  above,  the  countries  in which  the  prevalence  of HIV is  greatest
currently have the lowest  testing rates.  China,  sub-Saharan  Africa,  Russia,
Southeast Asia,  India and Brazil are all facing  explosive and deadly growth in
HIV  infections.  Most of these  countries do not have the  economic  ability or
medical  infrastructure  to adequately  diagnose and provide  therapy to persons
already  infected or to prevent  the spread of the  epidemic.  The Global  Fund,
UNAIDS,  WHO, the World Bank, the United Nations,  the Gates Foundation and many
other humanitarian and governmental  organizations,  including the Unites States
and its $15  billion  President's  Emergency  Plan  for  AIDS  Relief,  have all
recognized the importance of mitigating the advance of the HIV/AIDS epidemic and
have made  significant  contributions  to combat  the  crisis  through  funding,
science and testing and treatment  implementation.  As a result, Global Industry
Analysts have  projected in their  February  2004 report,  HIV/AIDS  Testing,  A
Global  Strategic  Report that the worldwide  HIV testing  market is expected to
more than  double  from $698  million  in 2000 to $1.7  million  by 2010  driven
largely by the expansion of testing programs in developing countries.


                                       5
<PAGE>

The following  table  describes  the primary  purchasers  and  recipients of HIV
diagnostics acquired to meet the challenges of the worldwide HIV/AIDS epidemic.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
          ORGANIZATION                                  DESCRIPTION                                  EXAMPLES
------------------------------------------------------------------------------------------------------------------------
PROVIDERS
------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                                                            <C>
       International             Agencies with the dual role of providing funds and             o     WHO
       Coordinating              technical/operational advice to African nations. Their         o     UNAIDS
       Agencies                  roles include:                                                 o     World Bank
                                 o     Technical guidance on available AIDS testing
                                       products
                                 o     Operational guidance (procurement guidelines,
                                       advice on setting up testing programs)
                                 o     Funding (e.g. World Bank loans) and test donations
------------------------------------------------------------------------------------------------------------------------
       Developed                 First World government organizations that provide bilateral    o     US: USAID, CDC
       World                     support to African Governments and Non-Governmental            o     Norway: NORAD
       Countries                 Organization ("NGO") programs. Support may include:            o     Japan: JICA
                                 o     Funding
                                 o     Advice
                                 o     Involvement in setting up and running HIV test
                                       programs
------------------------------------------------------------------------------------------------------------------------
       Pure Funds                o     Organizations whose primary purpose is to grant          o     The Global Fund
                                       large funds to governments of developing nations         o     Gates Foundation
                                       and local and international NGOs
                                 o     Pure funds do not typically run HIV testing
                                       programs in recipient countries or provide
                                       technical/operations advise on running HIV testing
                                       programs.
------------------------------------------------------------------------------------------------------------------------
RECIPIENTS
------------------------------------------------------------------------------------------------------------------------
       Governments of            Various departments (Ministry of Health, President's Office,   o     Governments of
       Developing                National Lab) within the local government that supervise,            all countries
       Nations                   coordinate and regulate lab and field-based HIV testing
                                 programs.
------------------------------------------------------------------------------------------------------------------------
       Local NGOs                o     Private or community organizations which operate         o     AIDS Information
                                       locally and run local testing program, including               Centre
                                       voluntary counseling and testing                         o     Family Planning
                                 o     Raise some funds on their own, but are typically               Association Uganda
                                       given funding and advice by out-of-country organizations
------------------------------------------------------------------------------------------------------------------------
       International NGOs        o     Internationally-based organizations that operate         o     Multi-Country
                                       HIV testing programs in needy countries                        AIDS Project
                                 o     These organizations are partially self-funded and        o     Family Health
                                       partially funded by larger fund organizations                  International
                                       (e.g. Global Fund, Gates Foundation, World Bank, etc.)   o     AIDS Campaign
                                                                                                      Team
                                                                                                o     Catholic
                                                                                                      Mission Board
------------------------------------------------------------------------------------------------------------------------
</TABLE>

PRODUCTS

      ELISA TESTS

We manufacture one of only two U.S. FDA-approved  supplemental or "confirmatory"
blood  tests for HIV Type 1  ("HIV-1")  diagnosis,  as well as the only two U.S.
FDA-approved  tests for the screening and  confirmation  of HIV infection  using
urine  samples.  These  three  tests  are  for  use in  professional  laboratory
settings.  Most of our revenues are currently  generated from the sales of these
three tests, which we refer to collectively as our "ELISA tests."

      HIV-1 BED INCIDENCE EIA

In September 2004, we began manufacturing and selling a unique surveillance test
called  the  HIV-1 BED  incidence  EIA test (the  "Incidence  Test").  We have a
license  from the US Centers  for  Disease  Control  and  Prevention  ("CDC") to
manufacture  and  commercialize  the  test  worldwide.  The  capability  of this
technology  is   significant   because  a  critical   element  of  reducing  HIV
transmission rates is by identifying where the increased rates are occurring and
instituting  prevention programs accordingly.  The Incidence Test is designed to
estimate the rate of new HIV-1  infections in populations  by  determining  what
proportion  of a  population  of HIV-1  infected  people  were  infected  within
approximately the prior 6 months. It is useful as an epidemiological measurement
to track the expansion of HIV infection into susceptible populations, which will
allow public health agencies to more efficiently use their resources by focusing
their  prevention  efforts on those groups having the greatest  need.  Incidence
surveillance can identify patterns of infection in high risk populations and can
carry out a time sensitive evaluation. Information on the estimate of recent HIV
infection can pinpoint an emerging epidemic,  monitor trends in transmission and
target  prevention  resources to populations  where the rate of HIV infection is
increasing.


                                       6
<PAGE>

We  believe  that the BED  Incidence  test can also  provide  policy  makers and
program  managers  with  valuable  insights   regarding  the  success  of  their
prevention  programs  and a  scientific  approach  to both  human and  financial
resource  allocation.   Incidence  estimates  help  determine  the  efficacy  of
prevention   programs  from  both  a  disease  spread  and  financial   resource
perspective and evaluate areas  appropriate for alternative  therapeutic  media,
such as vaccine trials. We expect the demand for this product to grow throughout
2005  as  the  CDC   continues   to  conduct   worldwide   workshops   to  train
representatives   from  various  governmental  public  health  and  humanitarian
organizations to use the test.

   STATUS OF NEW PRODUCTS

      HIV-1/2 RAPID TESTS

Our primary focus is developing  and  commercializing  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"). We are currently  conducting clinical trials
of these products in the People's Republic of China ("China"),  Uganda and South
Africa and expect to conduct other trials during 2005.  Pending local regulatory
approval,  we expect to have the blood test commercially  available early in the
second quarter of 2005 and the non-blood tests  available  before the seond half
of this year.

The largest numbers of cases of HIV are found in sub-Saharan Africa and Asia. It
is predicted that the next wave of the epidemic may occur in China,  India,  and
in the countries of Northern Africa and Eastern Europe.  The  characteristics of
these  markets  make  adoption of our  laboratory-based  ELISA tests a difficult
challenge. In vast areas of Africa and Asia in particular,  the lack of properly
equipped  laboratories,   properly  trained  technologists,   or  even  reliable
electricity   and  water  make  the  logistics   associated   with   traditional
laboratory-based   testing   algorithms   slow,   impractical   and  unreliable.
Self-contained  rapid  tests that are easy to perform  even in remote  locations
seem to offer tremendous promise in these high-risk settings.

Furthermore,  one of the challenges faced by clinicians around the world is that
of getting  patients to return to the testing  clinic for their HIV test results
several days or weeks after their initial  counseling and testing  session.  The
CDC has  reported  that up to 30% of the people  who  attend HIV  clinics in the
United  States do not return for their  results,  and whether  this is caused by
fear or by the inconvenience of revisiting the clinic,  the result is the same -
lost opportunities to further counsel,  and if necessary,  treat the public. The
problem is no better in the developing world.

Unfortunately,  HIV  testing  in the  developing  world  often  requires  a more
comprehensive  solution than a reliable  point-of-care test,  however.  Cultural
taboos about  giving  blood,  the fear of painful  blood  collection,  the risks
associated with the re-use or accidents  involving needles and lancets,  and the
stigma of being seen at an HIV clinic are all factors that can limit the utility
and effectiveness of rapid HIV tests.

The ability to perform HIV testing  without the need for a blood sample has been
shown in the past to significantly  increase voluntary testing rates.  Moreover,
the elimination of needles and lancets from the testing  process  simultaneously
eliminates   the  risk  of  accidental   infection   through  needle  re-use  or
needle-stick accident.  This apparent need for rapid HIV antibody tests that can
be performed safely and painlessly on non-blood samples in virtually any setting
drove our  development of rapid HIV tests for urine and oral fluid  samples,  in
addition to the traditional blood/serum/plasma format.


                                       7
<PAGE>

To address  the  markets in China,  sub-Saharan  Africa and  elsewhere,  we have
designed three rapid tests in a simple format. These immunochromatographic tests
employ  a  lateral  flow  "dipstick"  design,  free  of  plastic  housings  that
contribute to cost and waste.  After dropping a dipstick into a disposable  test
tube that contains sample,  the sample will migrate up the strip. Along the way,
the sample will wet a Protein A: gold conjugate pad. The reconstituted conjugate
is reddish in color,  and will complex with IgG in the sample.  Thus bound,  the
sample and conjugate  will continue to migrate up the dipstick.  As this complex
of sample and gold conjugate migrates,  it will encounter a line of HIV proteins
(recombinant or synthetic  peptide,  depending on the assay). At this point, the
anti-HIV   IgG  in  an   antibody-positive   sample   will   form  a   classical
antigen:antibody:conjugate  complex which is visually discernable as a red line.
Further up the dipstick,  the sample and conjugate complex will encounter a line
of anti-human IgG antibody.  Human IgG that is present in the sample will form a
visible  antibody:antibody:conjugate  line.  This  second line acts as a control
line that  indicates not only that the reagents  imbedded in the test device are
functional, but that a valid, adequate sample was introduced to the test.

For all three tests,  positive  results are generally  visible within 5 minutes,
but users should allow 20 minutes before interpreting a result as negative.  The
blood/serum/plasma  test requires just 5 uL of sample in a dropper-full (200 uL)
of diluent,  and the urine test simply uses 200 uL of untreated,  unconcentrated
urine without diluent.  Oral fluid samples are collected by wiping a swab across
upper and lower gums, and then releasing the material collected by the swab into
a dropper-full (1mL) of diluent.

We completed a prospective  and random study at the Thai Red Cross Anonymous HIV
Clinic in Bangkok,  Thailand in June 2004 and  provided the results to delegates
of the XV International AIDS Conference held in July 2004 in Bangkok. This study
tested  a total  of 1023  subjects,  392  seropositive  subjects,  including  37
seropositive  subjects receiving  anti-retroviral  therapy, and 631 seronegative
subjects.  The true antibody  status of these subjects was determined by testing
of a blood  sample  using the  standard  testing  method  routinely  used by the
Anonymous  Clinic  for  diagnostic  testing.  Our  blood  rapid  test  was  100%
concordant  with the results of the standard  blood  tests.  Our oral fluid test
demonstrated  99.5%  sensitivity  (390 of 392 subjects).  The specificity of the
oral fluid test was 100%. Our rapid urine assay was found to be 99.0%  sensitive
(388 of 392  subjects)  and  100%  specific.  "Specificity"  is the  ability  to
identify  all  non-HIV  infected  individuals  correctly.  "Sensitivity"  is the
ability to detect HIV infected  individuals.  Our rapid blood,  oral fluid,  and
urine tests correctly  identified 1023 of 1023 subjects,  1021 of 1023 subjects,
and 1019 of 1023  subjects for an overall  accuracy of 100%,  99.8%,  and 99.6%,
respectively.

We believe these results validate the technology for all of our  dipstick-format
rapid  tests.  We are moving all three of the rapid  assays  into  manufacturing
sequentially.  We plan to initially  manufacture our rapid tests in Thailand. In
preparation  for  our  first  foreign  manufacturing   technology  transfer,  we
announced  on May  11,  2004  that we had  finalized  a  non-exclusive  contract
manufacturing  agreement with Thailand-based Pacific Biotech Co., Ltd. to act as
our initial international  manufacturer for our rapid tests.  Manufacturing will
be located at the Pacific Biotech facility in Phetchaboon, Thailand. We have now
completed the technology  transfer of our dipstick format blood,  oral fluid and
urine HIV-1/2 rapid tests to our Thailand  manufacturer  and have produced three
pilot lots of each,  which will be used for  internal  validation  studies.  The
validation  of the  blood  test  has  been  completed  and we now  have  product
available for  commercial  sale. We plan to complete the  validation of our oral
fluid and urine tests and have those  products  available  for  commercial  sale
during the second quarter of 2005.

We commenced  clinical trials of all three of our dipstick format rapid tests in
China in the  fourth  quarter  of 2004 The  Chinese  clinical  trial  program is
testing  approximately  1,500 patients  comprised of known HIV antibody positive
subjects, high risk subjects,  special situation subjects and low risk subjects.
Based on information  we have received from the field  to-date,  we believe that
the collection  and testing of all HIV positive  subjects has been completed and
the collection and testing of the other subjects commenced immediately after the
Chinese New Year in February  2005. We expect to complete  sample  collection at
all trial  locations  during  the first  half of 2005,  with a full  statistical
analysis  available  approximately  two weeks  after the last  patient  has been
enrolled.  While we expect that all three of our rapid  HIV-1/2  tests will meet
the accuracy standards that have been employed by the Chinese SFDA in past rapid
HIV test approvals, we cannot reach firm conclusions until the final statistical
report is available.  The results of this clinical  trial,  if acceptable,  will
form the basis to file the required regulatory applications with the Chinese FDA
(SFDA).  It is possible  that the SFDA will not approve our blood rapid test due
to a recently  announced  policy of not accepting new products where  comparable
approved products already exist in the Chinese market in sufficient  quantities.
We commenced  clinical  trials of our dipstick  format rapid tests in Uganda and
South  Africa in the first  quarter of 2005,  and we plan to  initiate  clinical
trials of these  tests in  Botswana,  Cameroon  and Kenya,  and  possibly  other
countries, during the first half of 2005.


                                       8
<PAGE>

DISTRIBUTION

In general,  our strategy is to manufacture  and distribute  products  worldwide
through agreements with third party distributors and joint venture partners.  We
market and  distribute our ELISA tests through direct sales and through a number
of distributors in the United States ("U.S.") and, internationally, primarily in
China and Brazil. We market and distribute the Incidence Test through the CDC in
the U.S. and, internationally, through distributors and direct sales.

To meet the  challenges  of testing  for HIV in the  developing  world,  we have
adopted a  manufacturing  strategy for our rapid tests that  capitalizes  on the
reduced labor and overhead  rates typical of the regions in which the tests will
be sold. Thus, we intend to manufacture, market and distribute our HIV 1/2 Rapid
Tests for  distribution  in China using the  Beijing  Calypte  Joint  Venture to
facilitate the manufacturing  and to manage the sales and marketing.  We plan to
serve the developing  world  initially  with product  produced in Thailand by an
ISO-certified contract manufacturer, and potentially, elsewhere.

We intend to expand our manufacturing and distribution capabilities through both
new and enhanced partner and channel relationships.

The following  table  summarizes the markets and geographic  regions that we and
our current marketing  partners cover with respect to our current ELISA products
and our HIV-1/2  Rapid Tests.  The table  includes  marketing  and  distribution
arrangements  that  were in  effect at March  21,  2005.  Material  terms of the
respective distribution arrangements are described in more detail below.

<TABLE>
<CAPTION>
                                                                                                  Products Distributed (1)
                      Effective                                                                   ------------------------
Marketing Partner/    Date of      Term of                                               Rapid        BED         Serum       Urine
Company               Arrangement  Arrangement            Geographic Region              Tests     Incidence        WB        EIA/WB
--------------------  -----------  -----------            -----------------              -----     ---------      -----       ------
<S>                   <C>          <C>                    <C>                             <C>        <C>           <C>         <C>
Beijing Calypte       11/03        51%-owned joint        China                            X          X             X           X
  Biomedical                       venture
  Technology Ltd.

PCN Healthcare        6/01         3 years (commencing    Thailand                         X          X             X           X
                                   after Urine EIA
                                   product
                                   registration), with 2
                                   year renewal option

Sumit Exports and     6/02         3 years, with 2 year   India                            X          X             X           X
  Trades Pvt. Ltd.                 renewal option

Mistaire LLC          3/03         3 years with 2 year    Gulf Cooperative Council,        X          X             X           X
                                   renewal option         Botswana

Enfield Medical Co.   6/03         3 years with 2 year    Taiwan, R.O.C.                   X          X             X           X
  Ltd.                             renewal option

Daison Development    10/04        3 years with 2-year    Vietnam                          X          X             X           X
  and Investment                   renewal option
  Corporation
</TABLE>

                                       9

<PAGE>

<TABLE>
<CAPTION>
                                                                                                  Products Distributed (1)
                      Effective                                                                   ------------------------
Marketing Partner/    Date of      Term of                                               Rapid        BED         Serum       Urine
Company               Arrangement  Arrangement            Geographic Region              Tests     Incidence        WB        EIA/WB
--------------------  -----------  -----------            -----------------              -----     ---------      -----       ------
<S>                   <C>          <C>                    <C>                             <C>        <C>           <C>         <C>
Belantra Sains        12/04        Earlier of 2 years     Malaysia                         X          X             X           X
  Teknologie Sdn Bhd               from first date
                                   product can be
                                   legally marketed in
                                   territory or through
                                   6/07, with 2-year
                                   renewal option

National Diagnostics  01/05        3 years with 2-year    Zimbabwe                         X          X             X           X
                                   renewal option

Impex Speedways       03/05        2 years with 2-year    Nepal                            X          X             X           X
                                   renewal option

Dialab Diagnosticos   5/00         3 years (commencing    Brazil                                                    X           X
  S.A. (formerly                   after Urine EIA
  BioBras S. A.)                   product
                                   registration), with 2
                                   year renewal option

bioMerieux Mexico     12/01;       3 years with 2 year    Mexico                                                    X
  S.A. de C.V.        renewed      renewal option
                      through
                      12/06

REM Industria         12/01;       3 years with 2 year    Brazil                                                    X
  E. Comerica LTDA    renewed      renewal option
                      through
                      11/06

bioCiencia            7/02         3 years with 2 year    Brazil                                                    X
  Tecnologia e                     renewal option
  Comercio Ltda.

Biomedica             6/03         3 years with 2 year    Uganda,Kenya, Nigeria, Ghana,                             X
  Diagnostics.                     renewal option         Mauritius, Tanzania

Dow Biomedica         10/04        3 years with 2- year   South Korea                                               X
                                   renewal option

Teva Medical Ltd.     12/94        Evergreen              Israel                                                                X
</TABLE>


------------
(1)   All rapid tests and related supplemental tests and the urine-EIA screening
      and  supplemental  Western  Blot  tests  are  distributed  on the basis of
      country  or  territory  exclusivity.  All serum  Western  Blot and the BED
      Incidence test products are sold on a non-exclusive basis.

COMPETITION

Competition in the market for HIV testing is intense.  Our  competitors  include
specialized  biotechnology  firms  as  well  as  pharmaceutical  companies  with
biotechnology  divisions  and medical  diagnostic  companies,  many of which are
substantially larger and have greater financial,  research,  manufacturing,  and
marketing resources.

Important  competitive factors for our products include product quality,  price,
ease of use, customer service, and reputation.  Industry competition is based on
the following:


                                       10
<PAGE>

o     Scientific and technological capability;
o     Proprietary know-how;
o     The ability to develop and market products and processes;
o     The ability to obtain FDA or other regulatory approvals;
o     The ability to manufacture  products that meet applicable FDA requirements
      (i.e., good manufacturing practices);
o     Access to adequate capital;
o     The  ability  to  attract  and  retain  qualified  personnel;  and  o  The
      availability of patent protection.

We believe that we have a number of competitive advantages. First, we believe we
are well-positioned to meet the demands of testing in international markets with
our  complete  menu of  HIV-1/2  Rapid  Tests  designed  for use  with  blood or
alternative fluid samples of oral fluid or urine. Second, we believe our menu of
alternative fluid tests have unique advantages to blood based testing.

--------------------------------------------------------------------------------
                   ADVANTAGES OF ALTERNATIVE FLUIDS OVER BLOOD
--------------------------------------------------------------------------------
NON-INVASIVE     o  Numerous studies show greater acceptance of HIV testing when
                    blood is not required
                 o  Studies show that patients prefer a painless approach
                 o  Could result in higher testing rates
--------------------------------------------------------------------------------
EASIER TO USE    o  Little training is required; the test can be administered by
                    an unskilled worker (no phlebotomist or lab technician
                    required)
                 o  No needles or lancets required
                 o  Samples facilitate anonymous and/or home-based testing
--------------------------------------------------------------------------------
SAFER            o  No infectious HIV in the sample, increasing peace of mind
                    among those administering the test.
                 o  Eliminates possibility of needle/lancet sticks among
                    healthcare workers
                 o  Eliminates possibility of needle/lancet re-use during
                    testing
--------------------------------------------------------------------------------

RESEARCH AND DEVELOPMENT SPENDING

      HIV-1/2 Rapid Tests

We continue  to invest  funds in research  and  development  that we believe are
necessary  and  appropriate  to bring our HIV-1/2  Rapid  Tests to market.  To a
lesser extent, we are also exploring the potential for other new diagnostic test
products.  Our ELISA test focus has been  primarily on the Incidence  test.  Our
product research and development spending increased from $1.5 million in 2003 to
$2.1  million in 2004 with the  addition  of new R&D staff and the cost of field
and clinical trials. We expect our R&D costs to remain steady,  or, depending on
the timing of certain  clinical  trials,  to increase in 2005 as we continue the
commercialization of our dipstick-format  HIV-1/2 Rapid Tests and develop new or
improved products.

      HIV-1/2 Rapid Tests using the Ani Platform

In September  2004,  we announced  that we planned to develop a new lateral flow
test platform  utilizing a new sample  applicator  employing a two-step  process
(the "Ani Platform") as an alternative to the currently  available  lateral flow
platforms.  Our  current  lateral  flow tests,  including  our new HIV 1/2 Rapid
Tests, utilize a dipstick and employ a one-step platform.


                                       11
<PAGE>

To  conduct  the test,  the sample  applicator  is first  placed in the  analyte
specimen  - the  blood,  oral  fluid  or  urine  sample.  The end of the  sample
applicator  stick is then  placed in the sample  inlet of the test  device.  The
sample and the mobilized conjugate thereafter move through the porous carrier in
the test device by capillary  action, to the detection and control zones. In all
instances,  the labeled  conjugate is retained in the control zone,  producing a
color  indicating  that the test is valid;  any  HIV-1/2 in the  sample  forms a
complex  with the  labeled  conjugate  and is retained  in the  detection  zone,
producing a visible  color there if HIV-1/2 is present in the sample.  This type
of lateral flow test is typically  referred to as a  "mix-and-run"  or "pre-mix"
embodiment.  This  technology is  differentiated  from most current lateral flow
test devices,  which are "one-step" or "dried-on"  embodiment  where the labeled
conjugate  is  impregnated  in the test  strip  during  manufacture  of the test
device.

We believe  that  significant  demand for rapid  tests  exists in the markets of
North America,  Western Europe, Japan, and Australia /New Zealand. The affluence
of these  markets,  combined  with HIV  awareness  and a high degree of personal
involvement in one's own healthcare all contribute to create a potential  market
for our tests in traditional medical settings.  In addition, we believe that new
markets may emerge in HIV self-testing,  as regulatory agencies reconsider their
policies in this  regard.  We believe  that the  technology  licensed  from Ani,
coupled with the rights to other intellectual  property we acquired during 2004,
will give us the ability to compete on a global  basis in both the  professional
and Over-the-Counter ("OTC") markets,  including markets in the U.S., Europe and
Japan, for HIV as well as for other STD diagnostic tests.

We have begun a collaborative effort with Ani scientists to train our scientists
to use the Ani platform.  We expect to convert all three of our HIV-1/2 dipstick
format rapid tests to the Ani platform. In parallel, Ani has begun production of
the manufacturing equipment that we purchased in conjunction with the technology
license that has been well validated and that Ani uses in its Helsinki,  Finland
plant.  We  plan  to  install  and  validate  the  equipment  in  our  Rockville
manufacturing  facility later this year.  Once this phase is completed,  we will
produce  several lots of each device for the  clinical  studies of our HIV rapid
tests.  We expect the initial  clinical  trials and sales of these HIV-1/2 Rapid
Tests will occur in the international markets.

      OVER THE COUNTER HIV-1/2 RAPID TEST

We believe that an OTC rapid test would be  advantageous  in the battle  against
HIV  transmission  and that a rapid test platform such as the Ani Platform could
be appropriate for OTC  applications,  potentially  coupled with tests for other
STD's or conditions. We believe such a product is approvable in the U.S. and, at
the appropriate  time, we will commence this  regulatory  approval  process.  To
introduce  such a  product,  we  would  first  file  an  Investigational  Device
Exemption  ("IDE") with the FDA.  Upon  acceptance  of our IDE, we would conduct
clinical trials in the U.S.  leading to a Pre-Market  Approval  submission,  and
contingent upon positive results from these trials,  approval to sell our assays
into the  professional  market and  subsequently,  in the OTC market as well. We
might  pursue a  strategic  relationship  with a partner who has  experience  in
consumer  diagnostics or healthcare products to assist us in our clinical trials
or in the  introduction  of an OTC product.  We may pursue an OTC rapid test for
international  distribution  prior to a U.S.  version as such sales  might occur
sooner outside the U. S.

      OTHER DIAGNOSTICS

While we are  initially  focused on  introducing  rapid HIV tests  using the Ani
platform,  we believe  that the  technology  has  additional  applications.  Our
agreement  with Ani  grants  us an  exclusive  license  to the Ani  Platform  to
develop,  manufacture,  and sell diagnostic tests for other major STDs including
hepatitis B,  hepatitis C, HPV,  syphilis,  gonorrhea,  and Chlamydia  when oral
fluid or urine are the sample media. We also acquired a non-exclusive license to
develop,  manufacture, and sell the same STD diagnostic tests when blood, serum,
plasma,  or  urogenital  swabs are the sample  media.  While we do not expect to
incur  significant  development  costs in this area nor expect revenue from such
products  in 2005,  we do plan to  introduce  diagnostics  for other STDs in the
future.


                                       12
<PAGE>

      CRADA FOR HIV-1 RAPID INCIDENCE TEST

In April 2004, we announced that we had executed a CRADA (a Cooperative Research
and Development Agreement) with the CDC for the development of a new HIV-1 rapid
incidence blood test. This proposed device will be part of a diagnostic protocol
used to detect  HIV-1  antibodies  and also to  determine  the rate of new HIV-1
infections in populations by determining  what proportion of a population  HIV-1
infected  people were infected  within  approximately  the prior six months.  We
believe this feature will  strongly  distinguish  our rapid blood  products in a
"me-too  marketplace"  by  providing  a test having a more  complete  diagnostic
protocol.  The purpose of the test is to provide a  simplified  and rapid format
that can be performed in resource  poor settings and remote  outreach  locations
for  diagnostic  and  surveillance  purposes.  We plan to introduce this product
using  the  Ani  Platform.   Although  we  believe  that  we  have  demonstrated
feasibility  for this  product,  there  remains  significant  effort,  including
obtaining regulatory approvals, before it will be ready for market.

COMPONENT SUPPLY

Our manufacturing  operations employ a number of components,  including antigens
and recombinants  that we purchase from various suppliers for our various tests.
We also use some single-source  components.  Any delay or interruption in supply
of these components,  especially with respect to single-source components, could
significantly   impair  our  ability  to  manufacture   products  in  sufficient
quantities to meet demand because additional or replacement  suppliers cannot be
quickly established. Certain antigens and recombinants used in our HIV 1/2 Rapid
Tests are provided by single contract  suppliers  pursuant to supply agreements.
If for any reason these  suppliers  were no longer able to supply our antigen or
recombinant  needs,  we believe that  alternative  supplies could be obtained at
competitive costs. However, a change in any antigen or recombinant would require
FDA approval and possibly some additional  changes to our products.  Any changes
would  require  significant  time to complete  and could  disrupt our ability to
manufacture and sell our HIV 1/2 Rapid Tests.

INTELLECTUAL PROPERTY

We have acquired  patent and other  intellectual  property rights to protect and
preserve our  proprietary  technology and our right to capitalize on the results
of our  research  and  development  activities.  We also rely on trade  secrets,
know-how,  continuing  technological  innovations and licensing opportunities to
provide  competitive  advantages  for our products in our markets and to develop
new products.

RAPID TESTS

We believe we have  secured  the rights to  intellectual  property  and  related
materials  necessary for the manufacture and worldwide sale of our HIV 1/2 Rapid
Tests.  In April  2004,  we entered  into a license  and supply  agreement  with
Adaltis,  Inc. under which Adaltis will supply us with key HIV-1/2  peptides for
use in our HIV 1/2 Rapid  Tests.  In June  2004,  we entered  into a  sublicense
agreement with Abbott Laboratories, Inc. for certain worldwide rights to patents
relating to the design,  manufacture and sale of lateral-flow  rapid  diagnostic
tests.  Under the terms of the  agreement,  we were  granted  certain  worldwide
rights to use a family of patents known as the  "Guire/Swanson"  patents in both
the  professional  and OTC markets.  The technology  underlying these patents is
fundamental to nearly all  lateral-flow  rapid  diagnostic  tests.  In September
2004,  we entered into a worldwide,  non-exclusive  sub-license  agreement  with
Bio-Rad  Laboratories  for  HIV-2  rights.  This  agreement  will  permit  us to
commercialize  and  market  our HIV 1/2  Rapid  Tests  in areas  where  HIV-2 is
increasing in prevalence or where it is required to achieve regulatory  approval
for our tests.  Additionally,  we believe that the Ani Platform provides us with
an  alternative  product  format  with  potential   applicability  in  both  the
professional and OTC markets worldwide.


                                       13
<PAGE>

The table below  identifies  the primary patent suites that we have acquired for
the manufacture of our rapid tests.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                                       EXPIRATION - UPON
                                                                                                       EXPIRATION OF
ISSUER OF LICENSE       OWNER               DESCRIPTION                  ADDITIONAL PROVISIONS         PATENT IN:
------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                 <C>                          <C>                           <C>
Adaltis, Inc.           Adaltis, Inc.       Non-exclusive license for    Right to make, have made,     2010 - 2012
                                            use of HIV-1 and HIV-2       use and sell Calypte
                                            peptide sequences            products throughout the
                                                                         world, except in Canada,
                                                                         utilizing the technology
                                                                         described in the patent
------------------------------------------------------------------------------------------------------------------------------
Bio-Rad Laboratories    Institute Pasteur   Non-exclusive license for    Right to make, have made,     2006 - 2015
and Bio-Rad Pasteur                         use of HIV-2 virus           use and sell products
                                                                         utilizing the technology
                                                                         described in the patent
------------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories     Surmodics           Non-exclusive sublicense     Right to make, have made,     2008 - 2017
                        Corporation         of the Swanson, et al and    use and sell products
                                            Guire et al lateral flow     utilizing the technology
                                            patent suite                 described in the patent
------------------------------------------------------------------------------------------------------------------------------
Ani Biotech Oy          Ani Biotech Oy      Exclusive license for use    Right to make, have made,     Pending
                                            of rapid test diagnostic     use and sell products
                                            platform and sample          utilizing the technology
                                            applicator for certain       described in the patent
                                            STDs when urine or oral
                                            fluid are sample media;
                                            non-exclusive license when
                                            blood, serum, plasma or
                                            urogenital swabs are
                                            sample media
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

UNIQUELY URINE

All of our urine tests  including  our  HIV-1/2  Rapid Tests and our ELISA urine
screening and supplemental  tests),  are based on the discovery by scientists at
the New York  University  Medical Center ("NYU") in 1988 that  antibodies to HIV
could be found in urine.  Building on this  discovery,  we developed  our enzyme
immunoassay  ("EIA")  to  detect  antibodies  to HIV-1 in  urine.  There are two
proprietary features of our EIA test that result in a format sensitive enough to
detect the low levels of HIV  antibodies  in urine,  the antigen  target and the
sample buffer in the assay.

Recognizing the prominence of envelope  antibodies in urine,  the antigen target
in the assay is a full length,  recombinant glycosylated HIV-1 envelope protein,
rgp160. Although this antigen is a recombinant glycoprotein,  it is identical to
the viral  envelope  protein gp160 in amino acid sequence and in the presence of
carbohydrate at glycosylation sites. This kind of antigen target can efficiently
capture the full range of HIV-1  envelope  specific  antibodies  produced in the
human  polyclonal  response to the virus. The microwell assay format permits the
high  availability  of epitopes of the  recombinant  envelope  glycoprotein  for
antibody  binding.  This  availability  of epitopes  results in the  sensitivity
verified in clinical trials.

Our  products   incorporate   established   immunoassay   technology   based  on
antibody-antigen reactions.  Antibodies are immune system proteins produced as a
result of an organism's immune response to substances  (antigens) foreign to the
body and specifically bind to antigens and signal the immune system to assist in
eliminating them.  Immunoassays are used for diagnostic  applications  where the
presence  or  absence of a specific  analyte  is being  evaluated  and allow the
detection of some  analytes at levels as low as one part per  billion.  Antigens
include  viruses,  bacteria,   parasites,  chemical  toxins  and  other  foreign
substances and hormones.


                                       14
<PAGE>

The following table  summarizes the license  acquired from NYU necessary for the
manufacture  and sale of our urine rapid test and our urine EIA  screening  test
(1).

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                                                                       EXPIRATION - UPON
                                                                                                       EXPIRATION OF
ISSUER OF LICENSE       OWNER               DESCRIPTION                  ADDITIONAL PROVISIONS         PATENT IN:
------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                 <C>                          <C>                           <C>
NYU                     NYU                 Exclusive license, with a    Right to make, use,           2009
                                            non-exclusive pricing        sell and sublicense
                                            option, for using urine in   products utilizing the
                                            place of blood as a          technology described
                                            specimen sample for          in the patent
                                            detecting HIV
------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   We have also acquired other  non-exclusive  rights to various  proprietary
      processes and antigens used in the  manufacture  of our EIA tests,  all of
      which require payment of royalty on sales.

INCIDENCE TESTS

We initiated a technology  transfer of the incidence test in April 2004 from the
laboratories at the National  Center for HIV, STD and TB Prevention,  a division
of the  Public  Health  Service  (PHS).  By October  2004,  the first lot of the
Calypte(R)HIV-1  BED Incidence EIA was ready for sale. We  accomplished  this by
transferring  materials  developed at the CDC such as the BED peptide,  a unique
synthetic peptide incorporating the specific HIV-1 envelope amino acid sequences
for the B, E and D HIV-1  subtypes  found in Asia and Africa.  Validation of the
accuracy and ease of use in the  performance of this test for the  determination
of recent infections has included studies in Thailand, Cambodia, China, Ethiopia
and South Africa.

The CDC has announced that the HIV-1 BED Incidence EIA is the exclusive National
Surveillance  test in the United States and that  processing of essentially  all
HIV-1 positive  specimens will be carried out in a central  testing  laboratory,
the NY State Wadsworth Laboratory.

We are also  participating in a Cooperative  Research and Development  Agreement
(CRADA) with the Public Health  Service in which we are  collaborating  with the
CDC in the  development  of a rapid HIV diagnostic  device for the  simultaneous
diagnosis and  identification  of recent  infection  and long term  infection (a
rapid diagnostic and incidence test).

The following  table  summarizes  the licenses  granted in  connection  with the
manufacture and sale of our BED incidence test.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
ISSUER OF LICENSE          OWNER              DESCRIPTION                   ADDITIONAL PROVISIONS     EXPIRATION
----------------------------------------------------------------------------------------------------------------------
HIV-1 BED INCIDENCE EIA
----------------------------------------------------------------------------------------------------------------------
<S>                        <C>                <C>                           <C>                       <C>
Public Health Service      Public Health      Non-exclusive license for     Right to make, use and    2014
National Center for        Service            using the BED-biotin          sell products
HIV, STD and TB                               peptide, Controls and         utilizing the
Prevention                                    Calibrator and                technology described
                                              instructions for their use    in the License Agreement
----------------------------------------------------------------------------------------------------------------------
</TABLE>

WESTERN BLOT

The  manufacture of our Urine Western Blot and Serum Western Blot tests involves
the  production of an  inactivated,  partially  purified HIV-1 lysate from HIV-1
propagated  in  an  H9/HTLV-IIIb  T-lymphcyte  cell  line.  HIV-1  proteins  are
separated  by  molecular  size  using gel  electrophoresis  of the lysate in the
presence of detergent (sodium dodecylsulfate).  The separated HIV-1 proteins are
electrotransferred from gel to a nitrocellulose membrane that is washed, blocked
to  minimize  non-specific  immunoglobulin  binding  and  packaged.  These tests
provide controls and components which enable the detection and  visualization of
HIV-1   antibodies   present  in  the   specimen   incubated   with   individual
nitrocellulose  membrane strips.  Bands  corresponding  to specific  location of
HIV-1  proteins  are used to  interpret  a positive,  negative or  indeterminate
result.


                                       15
<PAGE>

Our Urine Western Blot  supplemental  test combines the Cambridge  Biotech HIV-1
Western Blot test with a procedure we developed for testing urine specimens. Our
Urine  Western  Blot  test  is  based  on  the  combination  of  electrophoretic
separation  of  complex   mixtures  of  proteins   with  the  highly   sensitive
immunoblotting  technique.  This method has been highly useful in characterizing
the antigenic  profile of HIV-1 and describing  the immune  response to HIV-1 in
the serum/plasma of exposed or infected persons.

The  following  table  summarizes  the  primary   licenses   necessary  for  the
manufacture of our supplemental tests.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                                  EXPIRATION - UPON
                                                                                                  EXPIRATION OF
ISSUER OF LICENSE       OWNER               DESCRIPTION                  ADDITIONAL PROVISIONS    PATENT IN:
-------------------------------------------------------------------------------------------------------------------
<S>                     <C>                 <C>                          <C>                           <C>
URINE WESTERN BLOT
-------------------------------------------------------------------------------------------------------------------
NYU                     NYU                 Exclusive license for        Right to make, use,      2009
                                            using urine in place of      sell and sublicense
                                            blood as a specimen sample   products utilizing the
                                            for detecting HIV            technology described
                                                                         in the patent
-------------------------------------------------------------------------------------------------------------------
NIH                     Institute Pasteur   HIV 1 virus                                           2112
-------------------------------------------------------------------------------------------------------------------
SERUM WESTERN BLOT
-------------------------------------------------------------------------------------------------------------------
NIH                     Institute Pasteur   HIV 1 virus                                           2112
-------------------------------------------------------------------------------------------------------------------
</TABLE>

We have filed patent  applications in the United States,  China and Russia for a
"Rapid Test For Antibodies  Against HIV In Urine." These applications are in the
early stages of prosecution but establish a priority date for our invention.

Although important,  the issuance of a patent or existence of trademark or trade
secret  protection  does not in  itself  ensure  the  success  of our  business.
Competitors may be able to produce products competing with our patented products
without  infringing  our  patent  rights.  Issuance  of a patent in one  country
generally does not prevent  manufacture or sale of the patented product in other
countries.  The issuance of a patent is not  conclusive  as to validity or as to
the enforceable scope of the patent.  The validity or enforceability of a patent
can be  challenged  by  litigation  after its  issuance.  If the outcome of such
litigation  is adverse to the owner of the patent,  the owner's  rights could be
diminished or withdrawn.  Trade secret  protection does not prevent  independent
discovery and exploitation of the secret product or technique.

We are not aware of any pending claims of  infringement  or other  challenges to
our patents or our rights to use our  trademarks  or trade secrets in the United
States or in other countries.

We require our employees, consultants, outside collaborators, and other advisors
to execute  confidentiality  agreements  upon the  commencement of employment or
consulting relationships with us. These agreements provide that all confidential
information  developed by or made known to the  individual  during the course of
the  individual's  relationship  with  us is to be  kept  confidential  and  not
disclosed  to third  parties  except in specific  circumstances.  In the case of
employees,   the  agreements  provide  that  all  inventions  conceived  by  the
individual during his or her tenure with us will be our exclusive property.

GOVERNMENT REGULATION

PRODUCTS

      Domestic

All of our  products  are  subject to  extensive  regulation  by the FDA and, to
varying  degrees,  by state and foreign  regulatory  agencies.  Our products are
regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (the "Act"),
as amended by the Medical Device  Amendments of 1976,  the Safe Medical  Devices
Act of 1990, the FDA Modernization Act of 1997, and the Medical Devices User Fee
and  Modernization  Act  ("MDUFMA")  among  other laws.  Under the Act,  the FDA
regulates  the  pre-clinical  and  clinical  testing,  manufacturing,  labeling,
distribution,  sale and promotion of medical  devices in the United States.  The
FDA  prohibits  a  device,  whether  or not  cleared  under a 510(k)  pre-market
notification,  or approved  under a pre-market  approval  ("PMA") or a biologics
license application, from being marketed for unapproved uses.


                                       16
<PAGE>

Our Incidence  Test is regulated by the FDA Center for Biologics  Evaluation and
Research.  The FDA has classified the HIV-1 blood  incidence test licensed to us
by the CDC as being for surveillance  use and not for clinical  diagnosis within
in the United  States and for  research  use  internationally,  simplifying  its
availability for use by both domestic and foreign public health organizations.

Our ELISA tests are  regulated by the FDA Center for  Biologics  Evaluation  and
Research.  The  FDA  requires  a  product  license  application  ("PLA")  and an
establishment  licensing  application  ("ELA")  for any  manufacturing  facility
making  such  class of  products.  As a result of the  closure  of our  Alameda,
California  facility last June and the transfer of EIA test manufacturing to our
Rockville  manufacturing  facility, we have applied for a PMA to manufacture and
sell our EIA  tests at our  Rockville  facility  and  expect  to  receive  it in
mid-2005.

      International

Distribution  of  our  products  outside  the  U.S.  is  subject  to  regulatory
requirements  that vary from  country  to  country.  We plan to seek  regulatory
approval in countries where we believe we have a significant market opportunity.
Our export from the U.S. of certain of products  that have not yet been approved
for domestic commercial distribution is subject to FDA export restrictions.  The
European Union ("EU")  requires a CE mark as well as ISO 9001  certification  to
qualify for sale in the EU. FDA  approval is required  prior to approval in that
country to avoid additional  in-country  regulatory  processes.  Other countries
require  approval  in  the  country  of  manufacture  to  avoid  the  in-country
regulatory  processes.  Still  other  countries  look  to  the  results  of  WHO
evaluations for guidance.

The WHO serves as both a  quasi-regulatory  body and a potential  funding source
for many  developing  countries that might not otherwise  possess the regulatory
infrastructure  or financial  resources to avail  themselves of products for the
diagnosis  and  treatment  of HIV and AIDS.  We plan,  as part of our rapid test
commercialization  process, to request that WHO evaluate the technology employed
by our HIV-1/2 Rapid Tests.

Additionally,  the U.S.  government  has made the fight against  HIV/AIDS a high
priority,  not only for  humanitarian  reasons,  but because the HIV/AIDS crisis
threatens the  prosperity,  stability,  and  development  of nations  around the
world.  The United  States  Agency for  International  Development  (USAID) is a
significant  participant  in  the  government's  fight  against  HIV/AIDS,  with
programs  in nearly  100  countries.  Among its  other  initiatives,  USAID is a
participant  in the $15  billion  President's  Emergency  Plan for AIDS  Relief,
announced  by  President  Bush  in  2003.  In  procuring  diagnostic  tests  and
therapeutic  drugs to conduct its  initiatives,  USAID is  obligated to purchase
U.S. FDA-approved products manufactured by domestic companies,  if such products
are  available.  If  appropriate  products are not available  from such sources,
USAID maintains a waiver list for products determined to be safe and efficacious
from other reputable manufacturers.  Because we do not, at least initially, plan
to seek FDA approval for our rapid tests, we will, as part of our  international
commercialization  process,  seek to have USAID  evaluate our products and place
them on its waiver list.

In China,  regulatory  approval  for a product  is  generally  granted  only for
products  manufactured  in China and only to the  Chinese  manufacturer  of such
product.  As a result,  we plan to manufacture  products in China,  coordinating
through the Beijing Calypte Joint Venture.

We believe that the regulatory  processes in certain foreign  countries having a
greater  prevalence  of HIV will be faster than those in the U.S.,  which should
result in a quicker  timeframe for product  approval.  Occasionally,  regulatory
approvals  obtained in countries  that are  recognized  as regional  experts may
expedite  approvals in other  countries  within the region.  In addition,  South
Africa  is  recognized  by the U.S.  FDA as a Tier One  country.  South  African
clearance  to  market  constitutes  a Tier One  approval,  and  having  Tier One
approval  makes it  possible  for us to apply to the FDA for the right to freely
export products that have been manufactured in the United States,  but which are
not yet FDA-approved.


                                       17
<PAGE>

We anticipate that in most countries there will be distinct  approval  processes
for the professional market (hospitals,  clinics, testing centers and government
testing  applications)  versus the OTC  market.  The OTC  approval  process  may
include additional requirements relating to self-testing with the rapid test. We
also plan to develop  diagnostic  tests for other  STDs,  which will have varied
approval processes, many less extensive than those for HIV.

We  have   obtained   regulatory   approval  for  our  ELISA  tests  in  certain
international  markets including  Malaysia,  China,  Indonesia,  the Republic of
South Africa,  Kenya and Uganda.  We have begun the  regulatory  process for our
dipstick-format  HIV-1/2  Rapid  Tests in  China,  South  Africa  and  Uganda by
initiating clinical trials in these countries.

MANUFACTURING FACILITIES

The FDA requires our products to be  manufactured in compliance with its Quality
System/Good  Manufacturing  Practices ("GMP") regulations.  In addition,  we are
subject to certain additional manufacturing  regulations imposed by the State of
Maryland  for  our  Rockville  facility.   These  regulations  require  that  we
manufacture  our  products and maintain  related  documentation  for testing and
control  activities.  Our  facilities  and  manufacturing  processes  have  been
periodically inspected by the FDA and other agencies and remain subject to audit
from time to time.  We believe that we are in  substantial  compliance  with all
applicable federal and state regulations.

We are also  subject  to  regulation  by  other  federal  entities,  such as the
Occupational Safety and Health Agency, the Environmental  Protection Agency, and
by various state agencies, including the Maryland Department of the Environment.

Our Rockville manufacturing facility underwent an International Organization for
Standardization  ("ISO") assessment in December 2003 for ISO certification.  The
site was  awarded ISO  13485:1996  certification  effective  May 14,  2004.  The
certification is effective until March 15, 2006.

OTHER REGULATIONS

We are subject to stringent  federal,  state and local laws, rules,  regulations
and policies governing the use, generation,  manufacture, storage, air emission,
discharge, handling and disposal of certain materials and wastes.

Our Rockville facility includes a specialized facility  incorporating  Biosafety
Level 3 controls  for the  manipulation  of  potentially  infectious  biological
agents (HIV viruses).  It also uses hazardous chemical materials.  As such, this
facility and the products  manufactured  there are subject to rigorous  federal,
state  and local  regulatory  controls  including  registration,  licensing  and
specific material use permits.

PRODUCT LIABILITY AND RECALL RISK; LIMITED INSURANCE COVERAGE.

The manufacture and sale of medical diagnostic  products 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  products
liability insurance policy.  However,  our insurance coverage may not adequately
protect us from  liability that we incur in connection  with clinical  trials or
sales of our products.


                                       18
<PAGE>

EMPLOYEES

As of March  25,  2005,  we had an  aggregate  of 63 full  time,  part  time and
temporary  employees,  14 of whom were  engaged  in or  directly  supported  our
research  and  development  activities,   38  of  whom  were  in  manufacturing,
manufacturing support and quality assurance, three of whom were in marketing and
sales  and  eight  of  whom  were  in  administration.  Our  employees  are  not
represented by a union or collective bargaining entity. We believe our relations
with our employees are good.

WHERE TO GET MORE INFORMATION

We file  annual,  quarterly  and special  reports,  proxy  statements  and other
information with the Securities and Exchange Commission  ("SEC").  These reports
are  available on our website free of charge as soon as  reasonably  practicable
after such material is electronically  filed with, or furnished to, the SEC. Our
website address is http://www.calypte.com.  Our SEC filings are available to the
public over the  Internet at the SEC's web site at  http://www.sec.gov.  You may
also read and copy any document we file at the SEC's public  reference  rooms in
Washington,  D.C. Please call the SEC at 1-800-SEC-0330 for further  information
on the public reference room.

ITEM 2. PROPERTIES

We lease two manufacturing  sites in Rockville,  Maryland,  a 26,000 square foot
manufacturing,  research  and  office  site and a 3,000  square  foot site which
houses our BSL-3 virus  laboratory.  Our lease on the virus lab site  expires in
October 2006 and our lease on the larger site expires in February 2009.

We also lease  approximately  3,000  square  feet of  research  and  development
laboratory  space in Vancouver,  Washington under a sublease that expires in May
2007.

We  lease  approximately  4,400  square  feet of  office  space  in  Pleasanton,
California,  that houses our corporate  headquarters.  Our lease expires in June
2007.

We believe our  existing  facilities  are  suitable and adequate for our present
purposes. We believe that our property is adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS

We are a party to a lawsuit which has arisen in the ordinary course of business.
We believe  that the outcome of this  lawsuit  will not have a material  adverse
effect on our business,  financial  condition or results of operations.  We have
product  liability and general liability  insurance  policies in amounts that we
believe  to  be  reasonable  given  our  current  level  of  business.  Although
historically  we  have  not  had to pay  any  product  liability  claims,  it is
conceivable that we could incur claims for which we are not insured.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not  submit  any  matters to a vote of our  security  holders  during the
fourth quarter of 2004.


                                       19
<PAGE>

                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS

TRADING MARKET AND STOCK SPLIT

Since August 17, 2004,  our common stock,  par value $0.03 per share,  trades on
the American  Stock  Exchange  under the symbol "HIV." Prior to August 17, 2004,
our stock  traded on the NASD OTC Bulletin  Board under the symbol  "CYPT." High
and low quotations reported by the NASD OTC Bulletin Board or the American Stock
Exchange,  as applicable,  during the periods  indicated are shown below.  These
quotations reflect inter-dealer prices,  without retail mark-ups,  mark-downs or
commissions  and  may  not  represent  actual  transactions.  All  share  prices
presented in this Annual Report on Form 10-KSB have been restated to reflect the
reverse stock split declared on May 28, 2003.

FISCAL YEAR (REFLECTS STOCK SPLIT)                    QUARTER    HIGH      LOW
----------------------------------                    -------  --------   ------

2004                                                    4th    $   0.44   $ 0.18
2004                                                    3rd        0.74     0.36
2004                                                    2nd        0.67     0.38
2004                                                    1st        0.90     0.35

2003                                                    4th        1.74     0.44
2003                                                    3rd        1.80     0.11
2003                                                    2nd        1.05     0.25
2003                                                    1st        3.45     0.75

2002                                                    4th        4.80     1.50
2002                                                    3rd       12.90     2.40
2002                                                    2nd        8.70     0.30
2002                                                    1st        8.10     5.10

On March 29, 2005, there were  approximately 200 holders of record of our common
stock.  The  closing  price of our common  stock on March 29, 2005 was $0.27 per
share.  We have never paid any cash  dividends,  and our Board of Directors does
not anticipate  paying cash dividends in the  foreseeable  future.  We intend to
retain any future  earnings to provide  funds for the operation and expansion of
our business.


          SUMMARY OF RECENT EQUITY FINANCINGS - JANUARY 2002 TO DECEMBER 2004

                                                                       TOTAL
                                         GROSS           NET           SHARES
FINANCING SOURCE                        PROCEEDS       PROCEEDS        ISSUED
----------------                        --------       --------      ---------
Bristol 12% Convertible
   Debentures and Warrants                $  562         $  505        1,476.1
8% Convertible Notes                       3,232          2,594       46,084.3
Other 2002 Financings                        750            730        2,720.3
Mercator 12% and 10% Debentures(1)         4,550          3,650       37,529.5
Marr 2003 Private Placements              12,500         11,900       28,333.3
May 2004 PIPE                              9,300          8,769       23,250.0
July 2004 PIPE                             1,488          1,384        3,720.0
                                        --------       --------      ---------
  Total                                 $ 32,382       $ 29,532      143,113.5
                                        ========       ========      =========


                                       20
<PAGE>

(1)   At March 29, 2005, the holders have converted all but $60,000 of principal
      of the  convertible  debentures  issued  since  September  2002.  Based on
      current  market  prices,  we  estimate  that we would be required to issue
      approximately  0.3 million  additional  shares of our common  stock if the
      holders elected to convert the remaining principal and accrued interest of
      their  debentures  at this  time.  The  holders  of these 12%  convertible
      debentures  claim a transaction  date which we dispute.  These  debentures
      have not yet been converted  pending  resolution of the  transaction  date
      dispute,  which may  impact the number of shares of our stock to which the
      holder is entitled upon conversion. See Note 12 to Detail of Financings.


                                       21
<PAGE>

       DETAIL OF RECENT EQUITY FINANCINGS - JANUARY 2002 TO DECEMBER 2004

<TABLE>
<CAPTION>
                                                                                                   CALYPTE           SHARES
FINANCING TYPE AND                        CONVERSION       GROSS         NET       TRANSACTION     CLOSING         ISSUED/ $
INVESTOR (1)                               FEATURE       PROCEEDS      PROCEEDS       DATE          PRICE         REDEEMED (3)
------------                               -------       --------      --------       ----          -----         ------------

<S>                                         <C>                <C>         <C>         <C>               <C>      <C>
12% CONVERTIBLE DEBENTURES AND
WARRANTS
Bristol Investment Fund, Ltd.            Lesser of (i)       $425                     2/11/02          $7.50       1,019.4/ $525
                                            60% of the        100                     5/10/02          $0.90
                                                              ---
                                          average of 3       $525         $468
                                                lowest
                                           closing bid
                                         prices for 22
                                                  days
                                             preceding
                                         conversion or
                                             (ii)$1.50

Class A Warrant                          Lesser of (i)        $ 4          $ 4        2/11/02          $7.50            56.7/ N/A
                                            70% of the
                                            average of
                                              lowest 3
                                               trading
                                         prices for 20
                                                  days
                                             preceding
                                         conversion or
                                             (ii)$3.45

Class B Warrant                          Lesser of (i)        $33         $ 33        2/11/02         $ 7.50             400/ N/A
                                                              ---         ----                                           --------
                                            70% of the
                                            average of
                                              lowest 3
                                               trading
                                           pricing for
                                               20 days
                                             preceding
                                         conversion or
                                           (ii) $6.45.
     Total Bristol                                           $562         $505                                      1,476.1/ $525
                                                             ====         ====                                      =============
</TABLE>


                                       22
<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>                <C>         <C>         <C>               <C>      <C>
8% CONVERTIBLE NOTES

Alpha Capital Aktiengesellshaft              Lesser of       $500                     5/24/02        $ 3.60         7,260.7/ $500
Stonestreet Limited Partnership           (i) $3.00 or       $500                     5/24/02        $ 3.60         7,075.7/ $500
Filter International Ltd.                  (ii) 70% of       $150                     5/24/02        $ 3.60         2,452.4/ $150
Camden International Ltd.               the average of       $350                     5/24/02        $ 3.60         5,279.1/ $350
Domino International Ltd.                 the 3 lowest       $150                     5/24/02        $ 3.60         1,767.4/ $150
Thunderbird Global Corporation           trades for 30       $ 75                     5/24/02        $ 3.60          1,083.1/ $75
BNC Bach International Ltd.                       days       $200                     5/24/02        $ 3.60         2,463.8/ $200
Excalibur Limited Partnership                preceding       $200                     5/24/02        $ 3.60         1,678.9/ $200
Standard Resources Ltd.                     conversion       $100                     5/24/02        $ 3.60         1,542.5/ $100
SDS Capital International Ltd.                               $300                     7/10/02       $ 10.20         4,189.8/ $300
Camden International Ltd.                                    $100                     7/10/02       $ 10.20         1,707.9/ $100
Excalibur Limited Partnership                                $250                     7/24/02        $ 6.60         4,238.3/ $250
Stonestreet Limited Partnership                              $250                     8/21/02        $ 3.90         4,042.2/ $250
Alpha Capital Aktiengesellshaft                              $107                      5/9/03        $ 0.63         1,302.5/ $107
                                                             ----                                                   -------------

   Total 8% Convertible Notes                              $3,232       $2,594                                   46,084.3/ $3,232
                                                           ======       ======                                   ================


OTHER 2002 FINANCINGS:

10% CONVERTIBLE NOTE
BNC Bach International Ltd. (Note:          50% of the      $ 150      $ 150        5/14/02             $4.20       2,217.8/ $150
   on 7/14/02 the maturity date was       average of 3                                              $10.80 on
   extended until 12/31/02; on                  lowest                                               7/14/02;
   December 27, 2002, the maturity         closing bid                                               $1.92 on
   date was extended until January       prices for 22                                              12/27/02;
   15, 2003; on January 15, 2003 the              days                                               $1.80 on
   maturity date was extended until          preceding                                               1/15/03;
   March 17, 2003, on March 17, 2003        conversion                                               $1.50 on
   the maturity date was extended                                                                    3/17/03;
   until April 4, 2003; on April 2,                                                                  $0.99 on
   2003, the maturity date was                                                                         4/2/03
   extended until May 5, 2003; on                                                                    $0.75 on
   April 30, 2003, the maturity date                                                                  4/30/03
   was subsequently extended until
   May 10, 2004)(5)

8% CONVERTIBLE DEBENTURES
Su So                                       80% of the      $ 100         $ 90        6/17/02         $4.20        36.7 (4)/ $100
                                          lower of the
                                               average
                                           closing bid
                                              or trade
                                         price for the
                                                5 days
                                             preceding
                                           conversion,
                                          but not less
                                            than $3.00
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>                <C>         <C>         <C>               <C>      <C>
Jason Arasheben                             70% of the      $ 100         $ 90        7/03/02         $8.10        15.8 (4)/ $100
                                          lower of the
                                               average
                                           closing bid
                                              or trade
                                         price for the
                                                5 days
                                             preceding
                                           conversion,
                                          but not less
                                            than $3.00

PIPE AT $1.50 PER SHARE
Careen Ltd.                                  $1.50 per      $ 200        $ 200      8/28/02          $ 4.80          225.0/ N/A
Caledonia Corporate Group Limited                share      $ 200        $ 200      8/28/02          $ 4.80          225.0/ N/A
                                                            -----        -----                                       ----------

    Total Other 2002 Financings
                                                            $ 750        $ 730                                      2,720.3/ $350
                                                            =====        =====                                      =============


MERCATOR 12% AND 10% DEBENTURES (2)(3)

12% CONVERTIBLE DEBENTURES
Mercator Momentum Fund, L.P. ($2,000        85% of the      $ 550     $345 (6)        9/12/02         $3.00       4,866.4(4)/$550
total commitment)                           average of
                                          the 3 lowest
Mercator assigned its rights to:               trading
   Alpha Capital AG                         prices for        250          250        7/24/03        $0.115         2,673.8/ $250
   Gamma Opportunity Capital                    the 20        250          250        7/24/03        $0.115         2,685.6/ $250
     Partners, LP                         trading days
   Goldplate Investment Partners             preceding        250          250        7/24/03        $0.115         2,673.8/ $250
   Marr Technologies, B.V. (11)             conversion        570          570         9/1/03        $0.498         5,181.8/ $570
                                                           ------       ------
                                                   (8)      1,870        1,665
   Dr. Khalid Ahmed                                            50           50        10/2/03        $1.310             84.6/ $50
   Roger Suyama                                                20           20        10/2/03        $1.310             33.8/ $20
   Logisticorp, Inc.                                           20           20        10/2/03        $1.310                     -
   Southwest Resource Preservation                                                       (12)        $1.310
     Inc.                                                      40           40        10/2/03                                   -
                                                           ------       ------           (12)                    ----------------
                                                           $2,000       $1,795                                   18,199.8/ $1,940
                                                           ------       ------                                   ================


Mercator Momentum Fund, L.P.                80% of the       $300         $260       10/22/02         $3.90         0/ $300 (7)
                                            average of
                                          the 3 lowest
                                               trading
                                            prices for
                                                the 20
                                          trading days
                                             preceding
                                           conversion,
                                          but not less
                                            than $1.50
</TABLE>


                                       24
<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>                <C>         <C>         <C>               <C>      <C>
Mercator Momentum Fund L.P.  (10)           70% of the       $300         $245        4/29/03        $0.825       3,475.7/ $300
                                            average of
                                          the 3 lowest
                                               trading
                                            prices for
                                                the 20
                                          trading days
                                             preceding
                                           conversion,
                                          but not more
                                            than $1.20

Mercator warrant                             $3.00 per         $0           $0       10/22/02         $3.90                   0
                                                 share

10% CONVERTIBLE DEBENTURES

Mercator Focus Fund, L.P. (10)              80% of the     $1,000     $510 (6)        1/14/03         $1.92     7,941.1/ $1,000
                                            average of
                                          the 3 lowest
                                               trading
                                            prices for
                                                the 20
                                          trading days
                                             preceding
                                           conversion,
                                          but not more
                                            than $3.00

Mercator Momentum Fund, L.P. (10)           80% of the       $450         $440        1/30/03         $1.86       2,857.7/ $450
                                            average of
                                          the 3 lowest
                                               trading
                                            prices for
                                                the 20
                                          trading days
                                             preceding
                                           conversion,
                                          but not more
                                            than $3.00
Mercator Focus Fund, L.P. (10)                               $400                     3/13/03         $1.47       3,428.9/ $400
 Mercator Momentum Fund III, L.P.           65% of the        100                                                 1,626.3/ $100
                                                              ---                                                 -------------
                                            average of       $500         $400                                    5,055.2/ $500
                                                             ----         ----                                    -------------
                                          the 3 lowest
                                               trading
                                            prices for
                                                the 20
                                          trading days
                                             preceding
                                           conversion,
                                          but not more
                                            than $2.10
   Total Mercator Debentures                               $4,550       $3,650                                   37,529.5/ $4,490
                                                           ======       ======                                   ================
</TABLE>


                                       25
<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>              <C>       <C>         <C>          <C>             <C>
MARR PRIVATE PLACEMENTS

PIPE AT $0.30 PER SHARE
Marr Technologies B.V. (9)(11)              $0.30 per       $2,500     $2,300      8/1/03       $0.152           8,333.3
                                                share
PIPE AT $0.50 PER SHARE
Marr Technologies B.V. (9)(11)              $0.50 per      $10,000     $9,600      9/1/03       $0.498          20,000.0
                                                           -------    -------                                   --------
                                                share
 Total Marr Private Placements                             $12,500    $11,900                                   28,333.3
                                                           =======    =======                                   ========

MAY 2004 PRIVATE PLACEMENT

 PIPE AT $0.40 PER SHARE (13)                   Units
    SF Capital Partners LP                  issued at       $4,000    $ 3,720      5/28/04      $0.50           10,000.0
    Marr Technologies BV                       $0.40,        3,000      2,910      5/28/04      $0.50            7,500.0
    Proximity Fund LP                       including          500        465      5/28/04      $0.50            1,250.0
    Proximity Partners LP                      shares          500        465      5/28/04      $0.50            1,250.0
    MTB Small Cap Growth Fund              and 5 year          500        465      5/28/04      $0.50            1,250.0
    MTB Multi Cap Growth Fund                 warrant          500        465      5/28/04      $0.50            1,250.0
    Bridges & PIPES LLC                   exercisable          300        279      5/28/04      $0.50              750.0
                                                           -------    -------                                   --------
                                         at $0.50 per
       Total May 2004 PIPE                      share       $9,300    $ 8,769                                   23,250.0
                                                           =======    =======                                   ========

JULY 2004 PRIVATE PLACEMENT

 PIPE AT $0.40 PER SHARE (13)                   Units
    Sunrise Equity Partners, L.P.           issued at        $ 750       $698      7/9/04       $0.615           1,875.0
    Amnon Mandelbaum                           $0.40,           80         74      7/9/04       $0.615             200.0
    David I. Goodfriend                     including            8          7      7/9/04       $0.615              20.0
    TCMP3 Partners                             shares          150        140      7/9/04       $0.615             375.0
    United Capital Partners, LLC           and 5 year          500        465      7/9/04       $0.615           1,250.0
                                              warrant      -------    -------                                    -------
                                          exercisable
       Total July 2004 PIPE              at $0.50 per      $ 1,488    $ 1,384                                    3,720.0
                                                share      =======    =======                                    =======
</TABLE>

------------
      (1) The Bristol  Debentures and Warrants,  the 8% Convertible  Notes,  the
Other 2002 Financings, the Mercator 12% and 10% Debentures and warrants, and the
Common Stock underlying  the 2003 PIPEs with Marr, and the May 2004 and the July
2004 PIPEs were issued under  exemptions  provided by Regulation S or Regulation
D. With the exception of Marr  Technologies  B.V.,  which is an affiliate of the
Company  based  on  its  August  and  September   2003  PIPE   investments   and
participation  in the May 2004 PIPE, none of the entities listed above is or has
been an affiliate of the Company.  Other than Marr Technologies  B.V.,  ("MTBV")
all of the listed  investors were subject to ownership  limitations  restricting
their  ownership  of our stock to a maximum  of 4.9% or 9.9%,  depending  on the
specific agreement.


                                       26
<PAGE>

      (2) At March 29,  2005,  the  holders  have  converted  all but $60,000 of
principal of the convertible  debentures  issued since September 2002.  Based on
current  market  prices,  we  estimate  that  we  would  be  required  to  issue
approximately  0.3 million  additional shares of our common stock if the holders
elected to  convert  the  remaining  principal  and  accrued  interest  of their
debentures at this time. See also Note 12.

      (3) On July 18, 2003, the  registration  statement for  52,500,000  shares
underlying the 8% Convertible Notes, the Other Restart Financings and $1,300,000
of the Mercator 12% and 10% Convertible  Debentures  became  effective (File No.
333-106862).  As a  result  of a  decline  in the  market  price  of  our  stock
subsequent to the effective date of the July 2003  registration  statement,  the
number of shares  registered was insufficient to permit the complete  conversion
of the notes and  debentures  into  registered  shares.  The  shares  underlying
certain of the convertible securities have become eligible for resale under Rule
144,  and certain  investors  have availed  themselves  of that  eligibility  to
convert  restricted  shares issued  pursuant to  conversions  into  free-trading
shares.  On July 8, 2004,  the  registration  statement  for  83,056,050  shares
underlying Marr Private  Placements,  the May 2004 PIPE, certain of the Mercator
12%  Convertible  Debentures,   approximately  12.2  million  additional  shares
attributable to financings included in the July 2003 registration  statement and
approximately  3.3 million shares issued or issuable to vendors  consultants and
other  parties who agreed to accept  shares of our Common  Stock in lieu of cash
became  effective  (File No.  333-116491).  On July 28, 2004,  the  registration
statement for 6,472,800 shares of our Common Stock underlying the July 2004 PIPE
and related warrants became effective (File No. 333-117439).

      (4) Includes fee shares.

      (5) On April 30,  2003,  when the  market  price of the  common  stock was
$0.75,  we and BNC Bach amended the  conversion  price to eliminate a conversion
price ceiling of $1.50 per share and to increase the discount  applicable to the
conversion  price  from  40% to 50%.  In  return  for this  modification  of the
conversion  price,  BNC Bach agreed to extend the maturity of the note until May
10, 2004. BNC Bach subsequently  converted the outstanding principal and accrued
interest into shares of our common stock.

      (6) Reflects a 10% cash commitment fee on the entire $2 million commitment
paid to The Mercator  Group less  additional  fees and  expenses.  We registered
shares underlying $1,300,000 of the total $2,000,000 commitment in July 2003 and
the shares underlying the final $700,000 of this commitment were included in our
June 2004 registration statement.

      (7) In  conjunction  with the  issuance of the $1 million 10%  convertible
debenture to Mercator  Focus Fund,  L.P., we used the proceeds to repay the $0.3
million  outstanding   principal  balance  of  the  12%  convertible   debenture
previously  issued to Mercator  Momentum Fund, L.P. plus accrued  interest.  The
balance of costs incurred represents transactional and legal fees.

      (8) On March 31,  2003,  when the  market  price of our  Common  Stock was
$0.885, we amended the conversion price to eliminate a conversion price floor of
$1.50 per share in return  for an  extension  of time in which to  register  the
shares of common stock underlying the various Mercator financings.

      (9) The Securities Purchase  Agreements for both transactions  between the
Company  and  Marr   Technologies   B.V.  required  that  we  provide  cost-free
registration  rights to Marr;  however,  Marr was subject to a one-year  lock-up
provision following the transaction date with respect to the shares purchased.

      (10) On January 14,  2004,  when the market  price of our common stock was
$0.60, we extended the maturity date of the following  debentures until July 14,
2004:

      o     10% Convertible  Debenture dated January 14, 2003 issued to Mercator
            Focus Fund, LP
      o     10% Convertible  Debenture dated January 30, 2003 issued to Mercator
            Momentum Fund, LP
      o     10% Convertible  Debentures  dated March 13, 2003 issued to Mercator
            Focus Fund, and
      o     12%  Convertible  Debenture  dated April 29, 2003 issued to Mercator
            Momentum Fund, LP.

In return for the extension of the maturity dates, we agreed to pay an extension
fee equal to 2% of the outstanding principal balance per month until the earlier
of the extended maturity date or conversion.  The extension fee is payable 1% in
cash and 1% in shares of our  common  stock.  Additionally,  we agreed to file a
registration  statement  including  the  shares  potentially  applicable  to the
conversion  of the  outstanding  debenture  balances  by no later than April 29,
2004.  On April 23, 2004,  when the market price of our Common Stock was $0.625,
we and the various Mercator Funds agreed to extend until May 14, 2004 the period
for filing the registration statement including the shares issued or potentially
issuable upon  conversion.  On May 7, 2004,  when the market price of our common
stock was $0.48 per share,  we and the various  Mercator Funds agreed to further
extend  from May 14,  2004  until 21 days  following  the  closing  of a private
placement  of equity  financing  of at least  $5,000,000,  but in any case to no
later  than  June 30,  2004,  the  period  in which  we are  required  to file a
registration   statement   including  shares  of  our  common  stock  issued  or
potentially issuable upon conversion.  Such shares were included in our June 15,
2004 registration  statement,  which was declared effective on July 8, 2004. All
of the subject  convertible  debentures  were  converted  prior to the  extended
maturity date.


                                       27
<PAGE>

      (11) On January 23,  2004,  when the market  price of our common stock was
$0.695, we and Marr agreed to extend the registration rights period attributable
to  5,181,818  shares of our common  stock  issued in  conjunction  with  Marr's
conversion  of  $570,000  principal  amount  of the  Company's  12%  Convertible
Debentures  from  February  27,  2004 to  April  29,  2004.  In  return  for the
extension,  we agreed to include in our next registration statement an aggregate
of 28,333,333  shares of our common stock purchased by Marr in PIPE transactions
in the third  quarter of 2003.  On April 23 2004,  when the market  price of the
Common  Stock was $0.625,  we and MTBV  agreed to extend  until May 14, 2004 the
period for filing the registration statement including the shares issued to MTBV
upon  conversion  of  the  12%  convertible  debenture  and  in  the  2003  PIPE
transactions. On May 7 2004, when the market price of our common stock was $0.48
per  share,  MTBV  agreed to  further  extend  from May 14,  2004  until 21 days
following  the closing of a private  placement  of equity  financing of at least
$5,000,000,  but in any case to no later than June 30, 2004, the period in which
we are required to file a registration  statement including shares of our common
stock issued to MTBV upon conversion of the 12% convertible debenture and in the
2003  PIPE  transactions.  Such  shares  were  included  in our  June  15,  2004
registration statement, which was declared effective on July 8, 2004.

      (12) The  holders  claim an  earlier  transaction  date with  respect to a
conversion of the debentures,  which we dispute.  These  debentures have not yet
been  converted.   Assuming  immediate  conversion  at  the  earlier,   disputed
transaction  date,  the number of shares of common stock issuable to Logisticorp
and Southwest Resource Preservation would be 213,903 and 427,807,  respectively.
While  reserving  our rights with respect to the number of shares  calculated as
issuable based on the disputed  transaction  date, we registered  that number of
shares of  Common  Stock in our June 15,  2004  registration  statement  pending
resolution  of the dispute.  The ultimate  resolution  of the  transaction  date
dispute may  determine  the number of shares of our stock to which the holder is
entitled upon conversion.

      (13) In  conjunction  with the May 2004 PIPE,  we issued to each  investor
5-year  warrants at $0.50 per share to purchase shares of our common stock in an
amount  equal to 35% of the  number  of shares  purchased  by the  investor.  In
conjunction  with the July 2004 PIPE, we issued to each investor 5-year warrants
at $0.50 per share to purchase  shares of our common stock in an amount equal to
70% of the  number  of shares  purchased  by the  investor.  The  shares  issued
pursuant  to the May 2004 PIPE and the July 2004 PIPE and the  related  warrants
for each have an anti-dilution  feature that will require us to issue additional
shares to the PIPE investors and modify their warrants if we subsequently  issue
additional  equity at a per share  price of less than  $0.40 for a period of one
year  from  the  respective  closing  dates,  except  under  the  provisions  of
previously  outstanding  convertible  debt,  option plans,  or option or warrant
agreements.


                                       28
<PAGE>

Marr Credit Facility

      On November 13, 2003,  when the market price of our common stock was $0.88
per share,  we and Marr, our largest  stockholder,  entered into an agreement in
which Marr agreed to provide us up to an  aggregate  of  $10,000,000  (the "Marr
Credit  Facility")  pursuant  to  promissory  notes  we may  issue to Marr on an
as-needed  basis (the "Notes").  Each Note would bear interest at the rate of 5%
per annum and have a 12-month  term.  The Marr  Credit  Facility  was  available
during the period beginning on February 28, 2004 and ending on May 31, 2004. The
aggregate  amount  available  under the Marr Credit  Facility is  proportionally
reduced by the amount of any equity  financing we obtain  during the term of the
Marr Credit Facility. Marr has participation rights in any such equity financing
on the same terms as the other investors.  The Marr Credit Facility provided for
earlier  termination as of March 31, 2004, if we failed to have our common stock
listed on an established stock exchange by that date. Moreover, upon the failure
to obtain such stock exchange  listing,  any outstanding  Notes would be due and
payable on April 30, 2004. As  consideration  for the Marr Credit  Facility,  we
issued to a party designated by Marr a warrant to purchase 375,000 shares of its
common stock at an exercise price of $0.80 per share. The warrant is immediately
exercisable and expires two years after issuance on November 12, 2005.

      On March 19,  2004,  when the market  price of our common stock was $0.575
per  share,  we and Marr  amended  the Marr  Credit  Facility  to  increase  the
aggregate  amount available under the Marr Credit Facility to $15,000,000 and to
eliminate the termination provision upon failure to have our common stock listed
on an established stock exchange by March 31, 2004. As additional  consideration
for the amendment of the Marr Credit  Facility,  we issued to a party designated
by Marr an additional  warrant to purchase 400,000 shares of our common stock at
an exercise price of $0.46 per share.  This warrant is  immediately  exercisable
and expires two years from its date of issuance on March 18, 2006.

On May 26, 2004,  when the market price of our Common Stock was $0.46 per share,
we and Marr again amended the Marr Credit Facility whereby Marr has committed to
subscribe for up to  $5,000,000  of  Promissory  Notes that we may issue through
December  31,  2004,  should  our Board of  Directors  unanimously  approve  the
issuance of one or more such notes before the commitment  period  expires.  Marr
currently has two designated  representatives serving on our Board of Directors.
Any Notes issued pursuant to this second  amendment will bear interest at 9% per
annum and will have a  maturity  date of May 31,  2005.  The  $5,000,000  amount
available under the amended Marr Credit Facility is reduced by the amount of any
equity  financing we obtain after the May 26, 2004  effective date of the second
amendment and through the December 31, 2004 commitment period,  exclusive of the
proceeds from the May 2004 Private  Placement.  Accordingly,  the commitment has
been  reduced to  approximately  $3.6  million as a result of the closing of the
July 2004 PIPE.  Facility.  As consideration for the extension of the commitment
period reflected in the second amendment of the Marr Credit Facility,  we issued
to Marr a warrant to purchase  500,000 shares of our Common Stock at an exercise
price of $0.40 per share.  This warrant is immediately  exercisable  and expires
two years from its date of issuance on May 26, 2006. The shares underlying these
three  warrants were included in our June 15, 2004  registration  statement.  We
issued no Notes under the Marr Credit Facility prior to its expiration.


                                       29
<PAGE>

Warrants, Options and Stock Grants

Since January 2002, we have entered into various  contracts and agreements  with
consultants  who have agreed to accept payment for their services in the form of
warrants,  options and/or stock grants.  We have obtained various services under
these arrangements,  including legal,  financial,  business advisory,  and other
services  including  business  introductions  and  arrangements  with respect to
potential  domestic and  international  product placement and the development of
potentially  synergistic  relationships with appropriate public service or other
governmental and  non-governmental  organizations.  We have generally issued the
warrants at a discount  to the  then-current  market  price and  registered  the
shares   underlying  the  warrants,   options  and  stock  grants  on  Form  S-8
Registration  Statements for resale by the  consultants.  We have, since January
2002, issued  approximately  10.5 million shares of our common stock as a result
of warrant or option  exercises  and stock  grants  related to these  consulting
agreements, of which approximately 7.9 million shares were issued during 2003.

In May 2002, we issued  warrants and options to purchase  633,333  shares of our
common stock under  agreements  with  consultants to perform  legal,  financial,
business  advisory  and  other  services  associated  with  the  restart  of our
operations.  The warrants were issued at $0.45 per share on May 9, 2002 when the
market price of our common stock was $0.90 per share.  The option was granted at
$0.90 per share on May 10,  2002,  when the market price of our common stock was
$0.90 per share. All of the warrant and option grants were  non-forfeitable  and
fully-vested  at the date of  issuance  and were  registered  for  resale by the
consultants  under Form S-8.  The  consultants  exercised  all the  warrants and
options and we issued 633,333 shares and received proceeds of $292,500.  All but
one of the consulting  agreements  discussed above expired in August 2002 and we
entered  into  new  agreements  with  certain  of  the  consultants  for  legal,
financial,  business advisory,  and other services  including  introductions and
arrangements  with  respect to  potential  domestic  and  international  product
development  of  synergistic   relationships  with  appropriate  public  service
organizations.  In November 2002, we issued warrants to purchase  950,000 shares
of our  common  stock  and  stock  grants  for  70,000  shares  of our  stock to
consultants under the terms of these new agreements.  We issued 350,000 warrants
at an exercise  price of $1.50 per share on  November  1, 2002,  when the market
price of our stock was $4.20 per share. We issued an additional 600,000 warrants
at an exercise price of $1.50 on November 20, 2002, when the market price of our
common  stock was $2.70.  All of the  warrant  grants were  non-forfeitable  and
fully-vested  at the date of  issuance  and were  registered  for  resale by the
consultants  under Form S-8. By February 2003, the consultants had exercised all
the warrants and we had received aggregate proceeds of $1.425 million. We issued
986,667  shares of our common  stock  pursuant to the  exercises of the November
2002 warrant and stock grants. In January and February 2003, we entered into new
contracts and extended  certain other  contracts  with existing  consultants  to
perform services as described above. On February 14, 2003, when the market price
of our stock was $2.01,  we issued  warrants  exercisable at $1.50 per share and
stock  grants  for an  aggregate  of  975,216  shares  of our  common  stock  as
compensation  for  these  services.   The  warrants  were   non-cancelable   and
fully-vested  at the date of issuance.  By May 31,  2003,  the  consultants  had
exercised  warrants  to  purchase  all of the shares  granted to them and we had
received proceeds of $0.8 million.


                                       30
<PAGE>

During March 2003, when the market price of our stock ranged from $1.32 to $1.50
per share,  we issued  warrants  exercisable at $0.75 per share and stock grants
for an aggregate of 1,350,400 as compensation for services under new or extended
contracts.  The warrants were  non-cancelable  and  fully-vested  at the date of
issuance.  By May 31, 2003, the consultants  had exercised  warrants to purchase
all of the shares granted to them and we had received  proceeds of approximately
$0.9 million.

In April  2003,  when the price of our stock  ranged  from  $0.81 to $0.885  per
share, we entered into additional  contracts,  extended certain  contracts,  and
modified certain other contracts with existing  consultants who agreed to settle
a portion of the  outstanding  balance due for services under their contracts in
stock.  We issued  warrants at $0.75 per share and stock grants for an aggregate
of 1,490,600  shares of our common stock as compensation or settlement for these
services.  The warrants  were  non-cancelable  and  fully-vested  at the date of
issuance.  By May 31, 2003, the consultants  had exercised  warrants to purchase
all of the shares granted to them and we had received  proceeds of approximately
$0.1 million.

In May 2003, when the price of our stock ranged from $0.552 to $0.576 per share,
we again entered into new contracts,  extended certain  contracts,  and modified
certain other contracts with existing consultants who agreed to settle a portion
of the  outstanding  balance due for services under their contracts in shares of
stock.  We issued  warrants at $0.30 per share and stock grants for an aggregate
of 2,080,305  shares of our common stock as compensation or settlement for these
services.  The warrants  were  non-cancelable  and  fully-vested  at the date of
issuance.  By September 30, 2003,  the  consultants  had  exercised  warrants to
purchase  all of the shares  granted  to them and we had  received  proceeds  of
approximately $0.5 million.

In July 2003,  when the price of our stock ranged from $0.11 to $0.30 per share,
we  extended a contract  for  consulting  and other  services  and  granted  the
consultant  a warrant to purchase  722,500  shares of our common stock at 50% of
the closing market price on the date of any exercise as  compensation  under the
contract.  The warrant was granted as fully-vested  and expired on September 30,
2003. By September 30, 2003,  the consultant had exercised the entire warrant at
prices  ranging  from $0.08 to $0.61 per share and we had  received  proceeds of
approximately  $0.4  million.  Also during July 2003,  we issued stock grants to
consultants  for  an  aggregate  of  356,344  shares  of  our  common  stock  as
compensation under their contracts.

On August 20, 2003,  when the price of our stock was $0.18 per share,  we issued
consulting contracts to two new consultants pursuant to which we issued warrants
for 100,000  shares each,  exercisable  at $0.18 per share.  The  warrants  were
non-cancelable  and fully-vested at the date of issuance.  In December 2004, one
of the  consultants  exercised  warrants to purchase  100,000  shares our common
stock.  At March 29, 2005,  the other  consultant  has not  exercised any of the
warrants granted to him.

In  September  2003,  when the price of our stock ranged from $0.50 to $1.80 per
share,  we  issued  an  aggregate  of  800,000  shares  of our  common  stock to
consultants  and other  service  providers who agreed to take shares of stock in
lieu of cash as compensation under their contracts.

In October and November  2003,  when the price of our stock ranged from $0.53 to
$1.65 per share, we issued an aggregate of 125,000 shares of our common stock to
consultants  and other  service  providers who agreed to take shares of stock in
lieu of cash as compensation under their contracts.


                                       31
<PAGE>

In  February  2004,  when the price of our stock was $0.67 per share,  we issued
500,000  shares of our  common  stock to a  consultant  who had agreed to accept
shares of stock as a portion of its compensation  under a consulting  agreement.
We issued  approximately 67,000 additional shares of our common stock during the
first  quarter  of 2004 to  another  consultant  under the terms of a  long-term
consulting agreement.

In May  2004,  when the  price of our  stock was  $0.465  per  share,  we issued
warrants to purchase  150,000 shares of our common stock at an exercise price of
$0.50 as a portion of the compensation under a consulting contract. The warrants
were  immediately  exercisable,  have a five year term,  and, at March 29, 2005,
have not been exercised.

In June 2004, when the price of our stock was $0.52 per share, we issued 250,000
shares of our common  stock to a consultant  who had agreed to accept  shares of
stock as compensation under a consulting agreement.

Between  January and October 2004,  we issued an aggregate of 127,984  shares of
our common  stock as a portion of the monthly  compensation  under a  consulting
contract  at  prices  ranging  from  $0.38 to  $0.695  per  share,  based on the
then-current market price of our stock.

To conserve  cash and to obtain  goods and  services,  we may  continue to issue
options and warrants at discounts to market or issue direct stock grants. In the
event that we issue additional options and warrants,  it is anticipated that the
securities will contain cost-free  registration  rights which will be granted to
holders of the  options  and  warrants,  and that there may be  dilution  to our
existing stockholders.

Capital Lease

In September  2004,  when the price of our stock was $0.38 per share, we entered
into  a  lease  for  $500,000  of  equipment  used  in our  Rockville,  Maryland
manufacturing  facility.  The  lease  has a  minimum  term  of 3  years  with an
extension  option of 3 months,  and requires  monthly payments of $17,250 during
the initial term and extension periods. In conjunction with the lease, we issued
to the lessor a three-year warrant to purchase 55,000 shares of our common stock
at a price of $0.4060 per share.

Intellectual Property and Equipment Purchase Using Stock

On September  30, 2004,  when the market price of our common stock was $0.39 per
share and  pursuant to  Regulation  S, we entered into a License  Agreement  and
Technology Transfer Agreement (the "License Agreement") pursuant to which we are
required to pay an aggregate of 1,232,840 Euros (approximately US $1,500,000) in
either our common stock or cash to acquire  certain  licenses and  manufacturing
equipment. On September 30, 2004, we issued to the licensor 1,172,205 restricted
shares  of  our  common  stock  having  a  value  of   approximately   $469,000,
representing  approximately  $373,000 attributable to the technology license and
approximately  $96,000 attributable to the equipment purchase. We included these
shares in a registration  statement that became  effective on December 29, 2004.
We have paid the next  installments  of 100,000 Euros  (approximately  $134,000)
each in cash in December  2004 and in February  and March 2005 and expect to pay
the remaining amounts due in cash.

Restructure of Trade Debt

In February 2002, the Company  completed a restructuring of  approximately  $1.7
million of its past due accounts  payable and certain other  obligations with 27
of  its  trade   creditors.   Under  the   restructuring,   the  Company  issued
approximately 47,000 shares of its common stock at various negotiated prices per
share with the trade  creditors  in  satisfaction  of the  specified  debt.  The
issuance of shares was exempt from registration  pursuant to Regulation D of the
Securities  Act.  The  shares  issued  are now  eligible  for  resale  under the
provisions of Rule 144.


                                       32
<PAGE>

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following  information  should be read in conjunction  with the consolidated
financial  statements  and related notes that are provided under Part II, Item 7
of this  Annual  Report  on  Form  10-KSB.  The  information  contained  in this
management's  discussion  and  analysis of  financial  condition  and results of
operations  ("MD&A"),  other  than  historical  information,  contains  "forward
looking  statements"  within the  meaning of The Private  Securities  Litigation
Reform  Act of 1995  that are based on  management's  current  expectations  and
assumptions.  Actual future  results could differ  materially.  This MD&A should
also be read in conjunction with the sections entitled  "Additional Factors That
May Affect Future Results" and "Forward-Looking Statements."

OVERVIEW AND OUTLOOK

Our financial  objective is to achieve  profitable growth.  Management  believes
that by providing a combination  of test  products,  we will be able to increase
revenues. Our efforts in 2003 and 2004 have been primarily focused on developing
new test  products and  acquiring the  intellectual  property  needed to develop
those products. Our efforts in 2004 have included reducing operating expenses by
closing our Alameda,  California  manufacturing  facility and  consolidating the
production of our ELISA tests in our Rockville  manufacturing  facility. We have
increased our overall investment in research and development. These research and
development  expenditures  have  enabled us to introduce  new and enhanced  test
products. Subject obtaining adequate financing, we plan to continue to focus our
efforts in 2005 on improving our operating  and gross  margins,  commercializing
our products and expanding our product offerings.

Sales of our ELISA tests  totaled  approximately  $2.8  million in 2004 and $3.5
million in 2003. Sales to international  customers  accounted for  approximately
16% and 15% of our product sale revenues in 2004 and 2003, respectively.

      Guidance  Our focus for 2005 is on the  commercialization  of our  HIV-1/2
rapid test,  initially in a  dipstick-format  and produced in Thailand.  We have
begun clinical trials in Uganda and South Africa and expect to begin  additional
trials during 2005 in several other African  countries,  including South Africa.
While there are different  regulations and customs in each foreign  country,  we
have distribution  relationships in place in several countries that will be part
of these next trials and we believe that the regulatory process can generally be
completed  in a few months.  Therefore,  we expect to begin  African and perhaps
southeast  Asian sales in mid-2005.  We are unable to predict with any certainty
the magnitude of such sales in 2005.

We have also begun clinical trials in China and have received  initial  feedback
from the field  that  leads us to believe  that all three of our  HIV-1/2  rapid
tests,  blood,  oral  fluid and  urine,  plus our serum and urine  Western  Blot
supplemental  tests will meet the accuracy  standards that have been employed by
the Chinese  regulatory  authorities  in approving  other HIV rapid  tests.  The
statistical  report  assessing  firm  conclusions  from the  clinical  trials is
expected  to be issued in the  second  quarter  of 2005.  In  parallel  with the
regulatory  approval  process,  we have  continued to advance our  manufacturing
strategy. We expect to have production available to support a commercial product
launch in China  subsequent  to  regulatory  approval  during the second half of
2005. There are several large markets in China,  including a recently  announced
commitment  by the  Chinese  government  to offer  voluntary  HIV testing to its
entire 1.36  billion  population.  With  trained  non-professionals  and a safe,
non-invasive alternative fluid - oral fluid or urine - testing program employing
the products  currently  involved in the clinical trial, we expect strong demand
for our products.  Beijing Calypte, our joint venture with Marr, will manage the
Chinese rapid test product  launch.  We are unable to predict with any certainty
the magnitude of rapid test sales in China, if any, in 2005.

Additionally,  we believe that the Ani Platform  provides us with an alternative
product format with potential  applicability  in both the  professional  and OTC
markets  worldwide.  We do not,  however,  expect to generate any revenues  from
products utilizing the Ani Biotech technology in 2005.

In  addition  to  the  rapid  test,  we  believe  the  Incidence  Test  to  be a
complementary  product that can provide policy makers and program  managers with
valuable  insights  regarding  the success of their  prevention  programs  and a
scientific  approach  to  resource  allocation.  We expect  the  demand for this
product  to grow  throughout  2005 as the CDC  continues  to  conduct  worldwide
workshops to train  representatives  from various governmental public health and
humanitarian  organizations  to use the test.  At this  time,  we are  unable to
predict with any certainty the level of incidence test sales in 2005, but expect
them to begin modestly early in the year and expand at an increasing rate in the
second half of 2005.  Additionally,  we have begun the research on a blood-based
rapid HIV incidence  test for  diagnostic  and  surveillance  purposes under the
terms of a Cooperative Research and Development Agreement with the CDC. Based on
the developmental and regulatory  timetables we project for this product,  we do
not expect to realize any revenue from its sale in 2005.


                                       33
<PAGE>

While our  primary  focus is no longer on our ELISA  products,  there  remains a
modest market for our urine EIA screening and supplemental tests in the domestic
life insurance  market.  While the Western Blot  supplemental test is key in the
FDA-regulated HIV testing algorithm today,  other  technologies  exist and it is
unclear if, or when,  rapid testing or other testing  formats may  substantially
replace ELISA-based  testing.  Additionally,  it is not certain that the Western
Blot  supplemental  test will be a part of the rapid test algorithm  required by
the WHO or in other international venues.  Barring any short-term changes in the
testing protocol that requires Western Blot supplemental tests, we expect to see
continued  demand for these  products,  especially the serum Western Blot,  both
domestically and internationally. Given current demand and our other priorities,
we expect sales of these products in 2005 to range between $2.0 million and $3.0
million,  spread  relatively  evenly over the four quarters.  The life insurance
laboratories to which we sell our urine EIA products  stockpiled  those tests in
anticipation  of our  manufacturing  transfer from Alameda to Rockville.  To the
extent that they continue to have excess  inventory  levels in the first quarter
of 2005, sales of that product may be skewed to later quarters of the year.

FINANCIAL CONSIDERATIONS

Our operating cash burn rate for the years ended December 31, 2004 and 2003 both
averaged approximately $1.1 million per month.

To successfully implement our business plan, we must obtain sustainable positive
cash flow and profitability.  Our future liquidity and capital requirements will
depend on numerous factors,  including  successful  commercialization of our new
rapid tests, protection of intellectual property rights, costs of developing our
new products,  including the necessary  intellectual property rights, ability to
transfer  technology,  set up and  scale  up  manufacturing,  obtain  regulatory
approvals  of our new  rapid  tests,  market  acceptance  of all  our  products,
existence of competing products in our current and anticipated markets,  actions
by the FDA and other  international  regulatory bodies, and our ability to raise
additional capital, if and as needed, in a timely manner.

Based upon our  tenuous  financial  condition  as  demonstrated  by our  working
capital  deficit at December 31, 2004, our recurring  losses and our accumulated
deficit,  our  independent  accountants  have issued an opinion on our financial
Statements at December 31, 2004 that cites  substantial  doubt about our ability
to continue our business  operations  as a going  concern.  Although we issued a
$2,000,000  Promissory Note (the "Promissory  Note") to Marr in January 2005, it
was due on  March  31,  2005 and the  proceeds  have  not  provided  us with the
liquidity to fully attain our business milestones and to achieve  profitability.
We have  negotiated  an extension of the maturity  date of the  Promissory  Note
until April 30, 2005.  Our current cash  resources are not sufficient to sustain
our  operations  and achieve our  milestones  through the second quarter of 2005
without obtaining additional financing.  We believe that we will need to arrange
additional  financing  of  approximately  $15 million to sustain our  operations
throughout  2005,  including the funds required to repay the Promissory Note. We
are actively engaged in seeking additional financing,  however, if we are unable
to repay the  Promissory  Note on its  extended  due date of April  30,  2005 or
further  modify its due date,  we will be in default.  There can be no assurance
that we will be  able to  repay  or  further  amend  the  payment  terms  of the
Promissory  Note.  In addition,  there is no  assurance  that we will achieve or
sustain profitability or positive cash flows in the future.

Our  longer-term  liquidity  and capital  requirements  are dependent on factors
similar to those which constrain our current liquidity and capital resources and
which  may  prevent  us  from   validating   our  business  model  during  2005.
Consequently,  we cannot  predict the  adequacy of our  capital  resources  on a
long-term  basis.  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 one or more  existing  financing  agreements  that would result in
substantial  dilution to our  existing  stockholders.  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.


                                       34
<PAGE>

Off-Balance  Sheet  Arrangements The Company does not have any off-balance sheet
arrangements, as defined in Item 303(a)(4)(ii).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations is based upon Calypte's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments  that affect the reported  amounts of assets,
liabilities,  revenues and expenses, and related disclosure of contingent assets
and liabilities.  On an on-going basis, we evaluate our estimates and judgments,
including those related to bad debts,  inventories,  intangible  assets,  income
taxes,  restructuring  costs,  and  contingencies  and  litigation.  We base our
estimates on historical  experience and on various other factors that we believe
to be reasonable  under the  circumstances,  the results of which form the basis
for making  judgments about the carrying  values of assets and liabilities  that
are not readily  apparent  from other  sources.  Actual  results may differ from
these estimates under different assumptions or conditions.

We believe the  following  critical  accounting  policies and  estimates,  among
others,  reflect our more  significant  judgments used in the preparation of our
consolidated financial statements.

o     Revenue  Recognition We recognize revenue from product sales upon shipment
      to  customers  and when all  requirements  related to the  shipments  have
      occurred. Should changes in terms cause us to determine these criteria are
      not  met for  certain  future  transactions,  revenue  recognized  for any
      reporting period could be adversely affected.

o     Allowance  for  Doubtful  Accounts We maintain an  allowance  for doubtful
      accounts on a specific account  identification  basis for estimated losses
      resulting  from the inability of our customers to make required  payments.
      If the financial condition of our customers were to deteriorate, resulting
      in an impairment of their ability to make payments,  or regulatory  issues
      with our products were raised, additional allowances may be required.

o     Inventory  Valuation We adjust the value of our  inventory  for  estimated
      obsolescence or unmarketable inventory equal to the difference between the
      cost of inventory  and the estimated  market value based upon  assumptions
      about future demand and market  conditions and development of new products
      by our  competitors.  Further,  since we have  continued to incur negative
      gross profit on an annual basis, and have high fixed manufacturing  costs,
      we also review our inventories for lower of cost or market  valuation.  If
      actual  market  conditions  are less  favorable  than those  projected  by
      management,   additional  inventory   write-downs  may  be  required.   In
      connection  with the build-up of inventory of our screening  test prior to
      the transfer of its  manufacturing to our Rockville,  MD facility,  demand
      for this product could fall  significantly  below the historical levels on
      which the  production  was based,  in which case we may have built  excess
      inventory that we may have to dispose of at additional cost, or at a loss.

o     Deferred Tax Asset  Realization  We record a full  valuation  allowance to
      reduce our  deferred tax assets to the amount that is more likely than not
      to be realized. While we have considered future taxable income and ongoing
      prudent and feasible tax planning strategies in assessing the need for the
      valuation  allowance,  in the event we were to determine  that we would be
      able to realize our deferred tax assets in the future in excess of its net
      recorded  amount,  an adjustment to the deferred tax asset would  increase
      income in the period such determination was made.


                                       35
<PAGE>

o     Classification  of  Financial  Instruments  with  Characteristics  of both
      Liability and Equity The Company  accounts for financial  instruments that
      it has issued and that have  characteristics  of both liability and equity
      in  accordance  with  SFAS  No.  150,  Accounting  for  Certain  Financial
      Instruments with  Characteristics of Both Liabilities and Equity. SFAS No.
      150 specifies that mandatorily  redeemable financial instruments are to be
      recorded as  liabilities  unless the  redemption is required to occur upon
      the liquidation or termination of the issuer.  SFAS No. 150 also specifies
      that a financial instrument that embodies a conditional obligation that an
      issuer may settle by issuing a variable  number of its equity shares is to
      be classified as a liability if, at inception, the value of the obligation
      is based  solely or  predominantly  on  variations  inversely  related  to
      changes  in the  fair  value  of the  issuer's  equity  shares.  Should  a
      financial instrument not be classified as a liability under the provisions
      of SFAS No. 150,  the  Company  further  applies the  criteria in Emerging
      Issues  Task Force  (EITF)  Issue No.  00-19,  Accounting  for  Derivitave
      Financial  Instruments Indexed to, and Potentially Settled in, a Company's
      Own  Stock,  which  enumerates   additional   criteria  to  determine  the
      appropriate  classification as liability or equity.  The Company evaluates
      each  financial  instrument  on its  own  merits  at  inception  or  other
      prescribed  measurement or valuation  dates and may engage the services of
      valuation experts and other professionals to assist in its detemination of
      the appropriate classification.

CUSTOMER TRENDS

ELISA Test Sales  Sales of our urine  ELISA  Screening  and  Supplemental  Tests
accounted  for  55% and 67% of our  total  product  sales  for the  years  ended
December 31, 2004, and 2003, respectively.  We do not expect significant changes
in the level of sales or the  purchasers  of our current urine EIA screening and
supplemental tests in the near future. We are exploring  opportunities for sales
of our EIA  tests in China  and  Russia  and we have an  adequate  supply of the
Chinese version of our urine EIA test kits to launch that business  quickly upon
receipt of orders,  however, we have no firm orders at this time. We expect that
our rapid urine HIV tests, once completely  developed and  commercialized,  will
constitute the most  significant  proportion of our future sales, as we commence
our  distribution  of those  products  internationally,  and  that  our  current
lab-based  ELISA tests will  display  minimal  revenue  growth.  We  continually
evaluate the future prospects for this portion of our business.

      Domestic  Sales Sales of our urine EIA  Screening  Test to  domestic  life
      insurance  reference  laboratories  accounted for 96% and 89% of screening
      test revenue for years 2004 and 2003, respectively.  We sold our screening
      tests to three life insurance reference laboratories in 2004 and four labs
      in 2003. In October 2003,  LabOne,  our largest  screening  test customer,
      acquired a smaller lab that had been a customer.  This acquisition has not
      had to  date,  nor do we  expect  it to have,  a  material  effect  on our
      aggregate sales to reference laboratories.  Individual laboratory sales as
      a percentage of total reference laboratory sales ranged 23% to 50% in 2004
      and from 2% to 63% in 2003, with LabOne being the largest in both periods.
      We sell our product to the  reference  laboratories  who service  over 100
      life  insurance  companies  who have  committed  to urine  testing for HIV
      screening of at least some of their policy  applicants  and who employ the
      labs  to  conduct  their  applicant  testing.  Individual  life  insurance
      companies can and do move their  business  from one  laboratory to another
      based on a number of  considerations,  including the availability of urine
      testing.  As the only  supplier of an  FDA-approved  urine  based  testing
      algorithm for HIV-1,  reference laboratories must use our testing products
      to satisfy the demand of insurance companies desiring urine testing. Based
      on our recent  multi-year  agreement with LabOne, we do not expect to lose
      LabOne, or any of the other current reference laboratories, as a customer.
      However,   should  such  a  loss  occur,  the  insurance  companies  using
      urine-based  testing in their  policy  underwriting  determinations  could
      realign  themselves  with  another lab offering  our  urine-based  testing
      algorithm.  We could,  however,  potentially lose a significant  amount of
      business  because  insurance  companies that rely on this large laboratory
      could switch to another form of testing,  either blood or oral fluid,  and
      remain  with  LabOne.  Further,  any  disruption  in the  supply  of  this
      sole-source  product would force our customers to find alternative testing
      solutions  -  either  blood  or oral  fluid.  In such a  situation,  it is
      unlikely  that we could  subsequently  regain a  material  amount  of this
      business.  Each of the three insurance lab customers increased their urine
      test purchases  during the second quarter of 2004 in  anticipation  of the
      closure of our  California  facility and  consolidation  of  manufacturing
      operations  in  our  Rockville,   Maryland   facility.   Following   those
      larger-than-normal  second quarter  purchases,  we believe that these labs
      had  substantial  inventories  of our tests  and,  accordingly,  purchases
      during the third and fourth quarters were  significantly  below normal. We
      do not believe that our  revenues  from the sale of urine tests during the
      third and fourth  quarters of 2004 reflect a long term material  change in
      this  business,  but only a period  of  inventory  rebalancing.  Direct or
      distributor  sales of our screening test to domestic  diagnostic  clinics,
      public health agencies and community-based organizations were not material
      in either 2004 or 2003. We do not expect  significant  future sales of our
      current screening test in this market segment and during the third quarter
      of 2003 we eliminated the sales force that had focused on this diverse and
      disaggregated  market.  Sales of our Urine Western Blot  supplemental test
      are  generally  made to the same  customers who purchase the EIA Screening
      Test.


                                       36
<PAGE>

      International  Sales  To date,  international  sales  of our  current  EIA
      Screening Test have been an immaterial component of our revenue.  Although
      we  have  obtained   approval  of  our  EIA  Screening   Test  in  several
      international  markets and we believe that such approvals validate the use
      of urine as a testing medium, we see little interest in our current format
      urine  screening test in most  international  markets and project  minimal
      revenues from their sale internationally in 2005.

      We believe  there is  significant  interest  in our rapid HIV  tests.  The
      timing and magnitude of revenues  from their sale will be contingent  upon
      completing  our  clinical  trials and related  matters  associated  with a
      commercial  scale-up,  including  establishing  manufacturing  operations,
      initially  in  Thailand  and China,  obtaining  the  necessary  regulatory
      approvals and developing or expanding distribution relationships,  as more
      fully discussed in the earlier comments on Guidance.

Serum  Western  Blot Sales Sales of our Serum  Western  Blot  supplemental  test
accounted for 41% and 32% of our product sales for the years ended  December 31,
2004 and 2003,  respectively.  We sell this product primarily to blood banks and
similar  entities.   There  is  only  one  other  domestic  manufacturer  of  an
FDA-approved  serum Western Blot supplemental HIV-1 test. In mid-April 2004, the
primary domestic  distributor for our serum Western Blot was acquired by another
entity and  informed us that it would no longer serve as a U.S.  distributor  of
our product. We have not appointed a successor distributor and, while several of
the former  distributor's  customers are now  purchasing  the serum Western Blot
directly from us, we do not know how many of these customers will continue using
our test. Furthermore,  as noted previously,  there is uncertainty regarding the
long-term status of Western Blot testing in both FDA-regulated and international
HIV  testing  algorithms.  Based on  these  variables,  we  cannot  predict  the
long-term  need  for  Western  Blot  supplemental  tests,  but  there  can be no
assurance that their usage will not be significantly reduced or eliminated.

Incidence  Tests In April  2004,  we  announced  that the CDC had  granted  us a
worldwide,  non-exclusive  license  enabling  us  to  use  technologies  it  had
developed to  manufacture  and  commercialize  a serum enzyme  immunoassay  (HIV
1-EIA) that can be used to estimate the  proportion of HIV  infections  that are
recently  acquired in a population  (infections  occurring in approximately  the
last 6 months).  This  laboratory  assay can be used by public  health and other
agencies to identify  those  regions and the  populations  within those  regions
where HIV  transmission  is occurring most  recently.  The US FDA has classified
this product as being for  surveillance  use within in the United States and for
research  use  internationally,  simplifying  its  availability  for use by both
domestic and foreign public health organizations. The CDC is conducting training
seminars for both domestic and international  public health officials  regarding
the use of this product as a tool in monitoring  the  effectiveness  of HIV/AIDS
testing and treatment  campaigns.  Sales of our BED incidence  test began in the
fourth  quarter of 2004 and were not  material  to our total  revenues  for that
period. We expect that sales of this test will constitute an increasing  portion
of our revenues in 2005 and beyond.

RESULTS OF OPERATIONS

Years Ended December 31, 2004 and 2003

Calypte's  revenues for 2004 totaled $3.3 million compared with $3.5 million for
2003,  a decrease  of $0.2  million or 5%.  Urine EIA  screening  test  revenues
decreased by $686,000 or 32% to $1,481,000  in 2004 compared with  $2,167,000 in
2003.  Urine Western Blot sales generally  follow a trend similar to that of the
screening test and decreased $85,000 or 55%, from $154,000 in 2003 to $69,000 in
2004. Additionally, urine Western Blot sales during 2003 were higher than normal
as a result of the increased  sensitivity of certain EIA screening tests sold in
early  2003,  which  required  a  greater  number  of  supplemental   tests  for
confirmation  of the test  results.  Sales of the  screening  tests to insurance
company  reference labs decreased by $528,000 or 27%. Prior to the third quarter
of 2003,  our largest  reference lab customer  held  inventory of our tests on a
consignment basis and we recognized revenue upon its usage of the inventory.  In
the fourth quarter of 2003, that lab purchased the consignment inventory on hand
and  switched  to a standard  sales  relationship.  The impact of this  one-time
purchase  increased our fourth quarter 2003 revenue by  approximately  $167,000.
Additionally, in anticipation of the closure of our Alameda, California EIA test
manufacturing  facility  and  transfer of EIA  manufacturing  to our  Rockville,
Maryland  facility,  all of our laboratory  customers  increased their purchases
during late 2003 and early 2004 to ensure an adequate supply of the tests during
the  transition  period.  Sales to the labs  during  the last  half of 2004 were
significantly  lower than  historical  levels as they  consumed  their stores of
previously  purchased  products.  We expect sales to the labs to return to their
normal purchasing patterns during 2005.


                                       37
<PAGE>

International  sales of our EIA  screening  tests  accounted  for  approximately
$16,000 and $173,000 in 2004 and 2003,  respectively.  Our primary international
sales in 2003 were to our Chinese  distributor.  Domestic  diagnostic and direct
screening test sales to clinics and other  laboratories  were  insignificant  in
both 2004 and 2003.

Under the terms of a 1994 Distribution Agreement with a Japanese distributor, we
agreed to offset an advance  payment of $500,000 from the  distributor  by a 50%
discount on EIA  products  that we would supply to the  distributor,  until such
time as the distributor had received  cumulative  discounts  totaling  $500,000.
Accordingly,  we  recorded  the  $500,000  payment as deferred  revenue  that we
planned to to recognize as the distributor  purchased  product at the stipulated
50%  discount.  We sold no  product  to the  distributor  under the terms of the
Distribution Agreement, which expired in August 2004. We recognized the deferred
revenue as other revenue in the fourth quarter of 2004.

Revenue from the sale of our supplemental tests increased slightly compared with
2003. Serum Western Blot sales increased by 3% or approximately $29,000 compared
with 2003 levels,  from  $1,105,000 in 2003 to $1,134,000 in 2004.  Although the
distributor of our screening tests during 2003 left the distribution business in
early 2004,  we have been able to retain  directly most of the sales it formerly
handled. Sales of our new BED incidence test began in the fourth quarter of 2004
and were not significant to total revenue.

Of  customers  accounting  individually  for more than 10% of our  product  sale
revenues,  three customers accounted for an aggregate of 53% of our product sale
revenues in 2004 and two  customers  accounted  for an  aggregate  of 50% of our
product sale revenues in 2003.

Gross margin decreased from a loss of $2,654,000 (-77% of sales in 2003) to a
loss of $3,981,000 (-142% of sales in 2004) as a result of three primary
factors:

      o     In  anticipation  of the  closure  of our  Alameda,  California  EIA
            manufacturing  facility  and  transfer of EIA  manufacturing  to our
            Rockville,  Maryland  facility,  we produced  inventory in excess of
            historical  requirements  to ensure  adequate  supplies for domestic
            reference laboratory customers and for potential international sales
            opportunities.  Domestic EIA sales during 2004 were  somewhat  below
            historical  levels  and we have  not yet  received  any  significant
            international  orders.  At  December  31,  2004,  we  have  reserved
            approximately  $1.7 million of EIA-related  inventory in recognition
            of the  absence  of  firm  international  orders  and  the  standard
            product-dating associated with our products.

      o     As an  FDA-regulated  manufacturing  entity,  we incur a significant
            level of relatively fixed costs, including  personnel-related costs,
            to operate and maintain our  manufacturing  facilities in compliance
            with Good  Manufacturing  Practices.  Once  those  relatively  fixed
            manufacturing costs are covered, we enjoy a significant contribution
            margin  on  additional  sales.  When we incur  those  costs  without
            sufficient revenues from the sale of our products to offset them, we
            report  negative  margins.  Although  the  closure  of  our  Alameda
            facility  resulted in the  elimination  of  personnel,  facility and
            other overhead costs  following its second quarter 2004 closure,  we
            incurred on-going operational costs at our Rockville facility during
            a period of reduced production and sales, particularly in the fourth
            quarter of 2004.

      o     These factors were offset by the fourth quarter 2004  recognition of
            $500,000 of deferred  revenue upon the  expiration of a distribution
            agreement, as noted earlier.


                                       38
<PAGE>

Included in cost of sales,  a component  of gross  margin,  is royalty  expense,
which we pay on the sale of all of our  products.  As a result of the decline in
sales revenue,  royalty  expense  decreased from $670,000 in 2003 to $587,000 in
2004. Our effective  royalty rate varies based on our product mix, with the rate
being higher on our EIA screening tests than on our urine or serum  supplemental
tests.  Additionally,  certain of our license agreements contain minimum royalty
provisions  which,  in both  2004 and  2003,  exceed  amounts  due  based on the
contractual  percentage  rates.  In 2003,  one licensor  accepted  shares of our
common  stock in  satisfaction  of  discounted  amounts due for 2003 and 2004 in
excess of the  percentage  royalty rate. The value of the common stock issued in
2003 was amortized as royalty expense in both 2004 and 2003.

Research and development  costs increased by $596,000 or 39%, from $1,544,000 in
2003 to $2,140,000 in 2004. The increase is due to increased activity associated
with  the  development  and  commercialization  of our  rapid  tests,  including
personnel-related  costs,  travel to  support  field  and  clinical  trials  and
technology  transfer,  consultant  expense,  and costs to acquire  specimens and
provide product prototypes for clinical trials.

Selling,  general and administrative  costs decreased by $6,538,000 or 42%, from
$15,517,000  in 2003 to  $8,979,000  in  2004.  The  primary  components  of the
decrease include the following:

      o     $6,600,000 in primarily non-cash expense recorded in connection with
            the  issuance of warrants,  options and stock grants to  consultants
            and third  party  firms for  various  investor  relations  and other
            projects;
      o     $300,000 in legal and auditor fees incurred in  connection  with the
            informal SEC inquiry that  commenced in the fourth  quarter of 2003,
            including  fees  associated  with our new auditor's  re-audit of our
            financial statements for the year ended December 31, 2002;
      o     $300,000  of accrued  severance-related  costs  attributable  to the
            shutdown of our Alameda, California facility in mid-2004;
      o     $371,000 in marketing consulting contracts; and
      o     $476,000 for  salaries and benefits due to the mid-2003  elimination
            of our direct sales and marketing force.

These decreases were partially offset by:

      o     $842,000 in  compensation  expense  primarily  related to  severance
            costs for our former Executive Chairman;
      o     $600,000 in expenses associated with our joint venture operations in
            China; and
      o     $77,000  in  international  and  domestic  travel  expense  incurred
            primarily by senior executives.

Our loss from  operations  for 2004,  at  $15,100,000,  reflects a 23%  decrease
compared with the $19,715,000 loss reported for 2003.

Net interest expense for 2004 decreased by $4,843,000 or 69%, from $6,969,000 in
2003 to $2,126,000 in 2004.  The table below  summarizes  the  components of the
change (in thousands):


                                       39
<PAGE>

<TABLE>
<CAPTION>
                                                                      2004      2003       Change
                                                                    -------    -------    -------
<S>                                                                 <C>        <C>        <C>
Interest on debt instruments paid or payable in cash                $    88    $   425    $  (337)
                                                                    -------    -------    -------

Non-cash expense composed of:
   Amortization and proportional write-off upon conversion of
     note and debenture discounts and deferred offering costs            81      5,832     (5,751)
   Liquidated damages due to delayed registration of shares
     underlying convertible securities                                 (205)       620       (825)
   Expense attributable to warrants issued in conjunction with
     the Marr Credit Facility                                           402        322         80
   Warrant liability mark-to-market adjustment attributable to
     Bristol Class A and Class B warrants                                --       (275)       275
   Expense attributable to warrants issued in conjunction with
     the $0.5 million capital lease agreement                            20         --         20
   Maturity extension fee payable in stock on convertible
     debentures issued to Mercator group                                 20         --         20
   Anti-dilution obligation arising from May and July 2004 equity
     financing                                                        1,638         --      1,638
   Expense attributable to dividends on mandatorily redeemable
     Series A preferred stock                                           120         60         60
                                                                    -------    -------    -------
Total non-cash items                                                  2,076      6,559     (4,483)

Interest income                                                         (38)       (15)       (23)
                                                                    -------    -------    -------

Net interest expense                                                $ 2,126    $ 6,969    $(4,843)
                                                                    =======    =======    =======
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Financing Activities

We have financed our operations from our inception primarily through the private
placements of preferred  stock and common  stock,  our Initial  Public  Offering
(IPO) and the issuance of convertible notes and debentures. On May 20, 2003, our
stockholders  approved a 1:30 reverse  split of our common  stock,  which became
effective on May 28, 2003.  All references to the number of shares issued or the
issue, exercise or conversion price of any transaction described in this section
reflect the $0.03 par value post-split basis of our common stock.

The following table  summarizes these financings for the most recent three years
by major  category  and the  subsequent  table  provides  the  details  of these
financings.

      SUMMARY OF RECENT EQUITY FINANCINGS - JANUARY 2002 TO DECEMBER 2004

                                                                       TOTAL
                                         GROSS           NET           SHARES
FINANCING SOURCE                        PROCEEDS       PROCEEDS        ISSUED
----------------                        --------       --------        ------
Bristol 12% Convertible
   Debentures and Warrants              $    562       $    505        1,476.1
8% Convertible Notes                       3,232          2,594       46,084.3
Other 2002 Financings                        750            730        2,720.3
Mercator 12% and 10% Debentures(1)         4,550          3,650       37,529.5
Marr 2003 Private Placements              12,500         11,900       28,333.3
May 2004 PIPE                              9,300          8,769       23,250.0
July 2004 PIPE                             1,488          1,384        3,720.0
                                        --------       --------      ---------

  Total                                 $ 32,382       $ 29,532      143,113.5
                                        ========       ========      =========


                                       40
<PAGE>

(1)   At March 29, 2005, the holders have converted all but $60,000 of principal
      of the  convertible  debentures  issued  since  September  2002.  Based on
      current  market  prices,  we  estimate  that we would be required to issue
      approximately  0.3 million  additional  shares of our common  stock if the
      holders elected to convert the remaining principal and accrued interest of
      their  debentures  at this  time.  The  holders  of these 12%  convertible
      debentures  claim a transaction  date which we dispute.  These  debentures
      have not yet been converted  pending  resolution of the  transaction  date
      dispute,  which may  impact the number of shares of our stock to which the
      holder is entitled upon conversion. See Note 12 to Detail of Financings.


                                       41
<PAGE>

       DETAIL OF RECENT EQUITY FINANCINGS - JANUARY 2002 TO DECEMBER 2004

<TABLE>
<CAPTION>
                                                                                                  CALYPTE           SHARES
FINANCING TYPE AND                       CONVERSION       GROSS         NET       TRANSACTION     CLOSING         ISSUED/ $
INVESTOR (1)                               FEATURE      PROCEEDS      PROCEEDS       DATE          PRICE         REDEEMED (3)
------------                               -------      --------      --------       ----          -----         ------------
<S>                                         <C>                <C>         <C>         <C>               <C>      <C>
12% CONVERTIBLE DEBENTURES AND
WARRANTS
Bristol Investment Fund, Ltd.               Lesser of       $425                     2/11/02          $7.50       1,019.4/ $525
                                           (i) 60% of        100                     5/10/02          $0.90
                                                             ---
                                          the average       $525         $468
                                          of 3 lowest
                                          closing bid
                                           prices for
                                              22 days
                                            preceding
                                           conversion
                                         or (ii)$1.50

Class A Warrant                             Lesser of        $ 4          $ 4        2/11/02          $7.50            56.7/ N/A
                                           (i) 70% of
                                          the average
                                          of lowest 3
                                              trading
                                           prices for
                                              20 days
                                            preceding
                                           conversion
                                         or (ii)$3.45

Class B Warrant                             Lesser of        $33         $ 33        2/11/02         $ 7.50             400/ N/A
                                                             ---         ----                                           --------
                                           (i) 70% of
                                          the average
                                          of lowest 3
                                              trading
                                          pricing for
                                              20 days
                                            preceding
                                           conversion
                                              or (ii)
                                               $6.45.
     Total Bristol                                          $562         $505                                      1,476.1/ $525
                                                            ====         ====                                      =============
</TABLE>


                                       42
<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>                <C>         <C>         <C>               <C>      <C>
8% CONVERTIBLE NOTES

Alpha Capital Aktiengesellshaft             Lesser of       $500                     5/24/02        $ 3.60         7,260.7/ $500
Stonestreet Limited Partnership          (i) $3.00 or       $500                     5/24/02        $ 3.60         7,075.7/ $500
Filter International Ltd.                 (ii) 70% of       $150                     5/24/02        $ 3.60         2,452.4/ $150
Camden International Ltd.                 the average       $350                     5/24/02        $ 3.60         5,279.1/ $350
                                                   of
Domino International Ltd.                the 3 lowest       $150                     5/24/02        $ 3.60         1,767.4/ $150
Thunderbird Global Corporation          trades for 30       $ 75                     5/24/02        $ 3.60          1,083.1/ $75
BNC Bach International Ltd.                      days       $200                     5/24/02        $ 3.60         2,463.8/ $200
Excalibur Limited Partnership               preceding       $200                     5/24/02        $ 3.60         1,678.9/ $200
Standard Resources Ltd.                    conversion       $100                     5/24/02        $ 3.60         1,542.5/ $100
SDS Capital International Ltd.                              $300                     7/10/02       $ 10.20         4,189.8/ $300
Camden International Ltd.                                   $100                     7/10/02       $ 10.20         1,707.9/ $100
Excalibur Limited Partnership                               $250                     7/24/02        $ 6.60         4,238.3/ $250
Stonestreet Limited Partnership                             $250                     8/21/02        $ 3.90         4,042.2/ $250
Alpha Capital Aktiengesellshaft                             $107                      5/9/03        $ 0.63         1,302.5/ $107
                                                            ----                                                   -------------

   Total 8% Convertible Notes                             $3,232       $2,594                                   46,084.3/ $3,232
                                                          ======       ======                                   ================


OTHER 2002 FINANCINGS:

10% CONVERTIBLE NOTE
BNC Bach International Ltd. (Note:         50% of the      $ 150      $ 150        5/14/02             $4.20       2,217.8/ $150
   on 7/14/02 the maturity date was      average of 3                                              $10.80 on
   extended until 12/31/02; on                 lowest                                               7/14/02;
   December 27, 2002, the maturity        closing bid                                               $1.92 on
   date was extended until January         prices for                                              12/27/02;
   15, 2003; on January 15, 2003 the          22 days                                               $1.80 on
   maturity date was extended until         preceding                                               1/15/03;
   March 17, 2003, on March 17, 2003       conversion                                               $1.50 on
   the maturity date was extended                                                                   3/17/03;
   until April 4, 2003; on April 2,                                                                 $0.99 on
   2003, the maturity date was                                                                        4/2/03
   extended until May 5, 2003; on                                                                   $0.75 on
   April 30, 2003, the maturity date                                                                 4/30/03
   was subsequently extended until
   May 10, 2004)(5)

8% CONVERTIBLE DEBENTURES
Su So                                      80% of the      $ 100         $ 90        6/17/02         $4.20        36.7 (4)/ $100
                                         lower of the
                                              average
                                          closing bid
                                             or trade
                                            price for
                                           the 5 days
                                            preceding
                                          conversion,
                                         but not less
                                           than $3.00
</TABLE>


                                       43
<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>            <C>         <C>           <C>            <C>           <C>
Jason Arasheben                            70% of the      $ 100         $ 90        7/03/02         $8.10        15.8 (4)/ $100
                                         lower of the
                                              average
                                          closing bid
                                             or trade
                                            price for
                                           the 5 days
                                            preceding
                                          conversion,
                                         but not less
                                           than $3.00

PIPE AT $1.50 PER SHARE
Careen Ltd.                                 $1.50 per      $ 200        $ 200        8/28/02        $ 4.80            225.0/ N/A
Caledonia Corporate Group Limited               share      $ 200        $ 200        8/28/02        $ 4.80            225.0/ N/A
                                                          ------       ------                                     --------------

    Total Other Restart Financings
                                                           $ 750        $ 730                                      2,720.3/ $350
                                                          ======       ======                                     ==============


MERCATOR 12% AND 10% DEBENTURES (2)(3)

12% CONVERTIBLE DEBENTURES
Mercator Momentum Fund, L.P. ($2,000       85% of the      $ 550         $345 (6)    9/12/02         $3.00       4,866.4(4)/$550
total commitment)                          average of
                                         the 3 lowest
Mercator assigned its rights to:              trading
   Alpha Capital AG                        prices for        250          250        7/24/03        $0.115         2,673.8/ $250
   Gamma Opportunity Capital                   the 20        250          250        7/24/03        $0.115         2,685.6/ $250
     Partners, LP                        trading days
   Goldplate Investment Partners            preceding        250          250        7/24/03        $0.115         2,673.8/ $250
   Marr Technologies, B.V. (11)            conversion        570          570         9/1/03        $0.498         5,181.8/ $570
                                                          ------       ------
                                                  (8)      1,870        1,665
   Dr. Khalid Ahmed                                           50           50        10/2/03        $1.310             84.6/ $50
   Roger Suyama                                               20           20        10/2/03        $1.310             33.8/ $20
   Logisticorp, Inc.                                          20           20        10/2/03        $1.310                     -
   Southwest Resource Preservation                                                      (12)        $1.310
     Inc.                                                     40           40        10/2/03
                                                          ------       ------           (12)                    ----------------
                                                          $2,000       $1,795                                   18,199.8/ $1,940
                                                          ------       ------                                   ================


Mercator Momentum Fund, L.P.               80% of the       $300         $260       10/22/02         $3.90           0/ $300 (7)
                                           average of
                                         the 3 lowest
                                              trading
                                           prices for
                                               the 20
                                         trading days
                                            preceding
                                          conversion,
                                         but not less
                                           than $1.50
</TABLE>


                                       44
<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>                <C>         <C>         <C>               <C>      <C>
Mercator Momentum Fund L.P.  (10)          70% of the       $300         $245        4/29/03        $0.825       3,475.7/ $300
                                           average of
                                         the 3 lowest
                                              trading
                                           prices for
                                               the 20
                                         trading days
                                            preceding
                                          conversion,
                                         but not more
                                           than $1.20

Mercator warrant                            $3.00 per         $0           $0       10/22/02         $3.90                   0
                                                share

10% CONVERTIBLE DEBENTURES

Mercator Focus Fund, L.P. (10)             80% of the     $1,000     $510 (6)        1/14/03         $1.92     7,941.1/ $1,000
                                           average of
                                         the 3 lowest
                                              trading
                                           prices for
                                               the 20
                                         trading days
                                            preceding
                                          conversion,
                                         but not more
                                           than $3.00

Mercator Momentum Fund, L.P. (10)          80% of the       $450         $440        1/30/03         $1.86       2,857.7/ $450
                                           average of
                                         the 3 lowest
                                              trading
                                           prices for
                                               the 20
                                         trading days
                                            preceding
                                          conversion,
                                         but not more
                                           than $3.00
Mercator Focus Fund, L.P. (10)                              $400                     3/13/03         $1.47       3,428.9/ $400
 Mercator Momentum Fund III, L.P.          65% of the        100                                                 1,626.3/ $100
                                                            ----                                                 -------------
                                           average of       $500         $400                                    5,055.2/ $500
                                                            ----         ----                                    -------------
                                         the 3 lowest
                                              trading
                                           prices for
                                               the 20
                                         trading days
                                            preceding
                                          conversion,
                                         but not more
                                           than $2.10
   Total Mercator Debentures                              $4,550       $3,650                                   37,529.5/ $4,490
                                                          ======       ======                                   ================
</TABLE>


                                       45
<PAGE>


<TABLE>
<CAPTION>
<S>                                         <C>             <C>        <C>          <C>           <C>             <C>
MARR PRIVATE PLACEMENTS

PIPE AT $0.30 PER SHARE
Marr Technologies B.V. (9)(11)             $0.30 per       $2,500     $2,300        8/1/03          $0.152             8,333.3
                                               share
PIPE AT $0.50 PER SHARE
Marr Technologies B.V. (9)(11)             $0.50 per      $10,000     $9,600        9/1/03          $0.498            20,000.0
                                                          -------    -------                                          --------
                                               share
 Total Marr Private Placements                            $12,500    $11,900                                          28,333.3
                                                          =======    =======                                          ========

MAY 2004 PRIVATE PLACEMENT (15)

 PIPE AT $0.40 PER SHARE (13)                  Units
    SF Capital Partners LP                 issued at       $4,000        $3,720       5/28/04        $0.50           10,000.0
    Marr Technologies BV                      $0.40,        3,000         2,910       5/28/04        $0.50            7,500.0
    Proximity Fund LP                      including          500           465       5/28/04        $0.50            1,250.0
    Proximity Partners LP                     shares          500           465       5/28/04        $0.50            1,250.0
    MTB Small Cap Growth Fund             and 5 year          500           465       5/28/04        $0.50            1,250.0
    MTB Multi Cap Growth Fund                warrant          500           465       5/28/04        $0.50            1,250.0
    Bridges & PIPES LLC                  exercisable          300           279       5/28/04        $0.50              750.0
                                                          -------       -------                                      --------
                                        at $0.50 per
       Total May 2004 PIPE                     share       $9,300       $ 8,769                                      23,250.0
                                                           ======       =======                                      ========

JULY 2004 PRIVATE PLACEMENT (15)

 PIPE AT $0.40 PER SHARE (13)                  Units
    Sunrise Equity Partners, L.P.          issued at        $ 750          $698        7/9/04       $0.615            1,875.0
    Amnon Mandelbaum                          $0.40,           80            74        7/9/04       $0.615              200.0
    David I. Goodfriend                    including            8             7        7/9/04       $0.615               20.0
    TCMP3 Partners                            shares          150           140        7/9/04       $0.615              375.0
    United Capital Partners, LLC          and 5 year          500           465        7/9/04       $0.615            1,250.0
                                              warrant     -------       -------                                       -------
                                          exercisable
       Total July 2004 PIPE                 at $0.50      $ 1,488       $ 1,384                                       3,720.0
                                           per share      =======       =======                                       =======

</TABLE>

------------
      (1) The Bristol  Debentures and Warrants,  the 8% Convertible  Notes,  the
Other 2002 Financings, the Mercator 12% and 10% Debentures and warrants, and the
Common Stock  underlying  the 2003 PIPE with Marr, and the May 2004 and the July
2004 PIPEs were issued under  exemptions  provided by Regulation S or Regulation
D. With the exception of Marr  Technologies  B.V.,  which is an affiliate of the
Company  based  on  its  August  and  September   2003  PIPE   investments   and
participation  in the May 2004 PIPE, none of the entities listed above is or has
been an affiliate of the Company.  Other than Marr Technologies  B.V.  ("MTBV"),
all of the listed  investors were subject to ownership  limitations  restricting
their  ownership  of our stock to a maximum  of 4.9% or 9.9%,  depending  on the
specific agreement.


                                       46
<PAGE>

      (2) At March 29,  2005,  the  holders  have  converted  all but $60,000 of
principal of the convertible  debentures  issued since September 2002.  Based on
current  market  prices,  we  estimate  that  we  would  be  required  to  issue
approximately  0.3 million  additional shares of our common stock if the holders
elected to  convert  the  remaining  principal  and  accrued  interest  of their
debentures at this time. See also Note 12.

      (3) On July 18, 2003, the  registration  statement for  52,500,000  shares
underlying the 8% Convertible Notes, the Other Restart Financings and $1,300,000
of the Mercator 12% and 10% Convertible  Debentures  became  effective (File No.
333-106862).  As a  result  of a  decline  in the  market  price  of  our  stock
subsequent to the effective date of the July 2003  registration  statement,  the
number of shares  registered was insufficient to permit the complete  conversion
of the notes and  debentures  into  registered  shares.  The  shares  underlying
certain of the convertible securities have become eligible for resale under Rule
144,  and certain  investors  have availed  themselves  of that  eligibility  to
convert  restricted  shares issued  pursuant to  conversions  into  free-trading
shares.  On July 8, 2004,  the  registration  statement  for  83,056,050  shares
underlying Marr Private  Placements,  the May 2004 PIPE, certain of the Mercator
12%  Convertible  Debentures,   approximately  12.2  million  additional  shares
attributable to financings included in the July 2003 registration  statement and
approximately  3.3 million shares issued or issuable to vendors  consultants and
other  parties who agreed to accept  shares of our Common  Stock in lieu of cash
became  effective  (File No.  333-116491).  On July 28, 2004,  the  registration
statement for 6,472,800 shares of our Common Stock underlying the July 2004 PIPE
and related warrants became effective (File No. 333-117439).

      (4) Includes fee shares.

      (5) On April 30,  2003,  when the  market  price of the  common  stock was
$0.75,  we and BNC Bach amended the  conversion  price to eliminate a conversion
price ceiling of $1.50 per share and to increase the discount  applicable to the
conversion  price  from  40% to 50%.  In  return  for this  modification  of the
conversion  price,  BNC Bach agreed to extend the maturity of the note until May
10, 2004. BNC Bach subsequently  converted the outstanding principal and accrued
interest into shares of our common stock.

      (6) Reflects a 10% cash commitment fee on the entire $2 million commitment
paid to The Mercator  Group less  additional  fees and  expenses.  We registered
shares underlying $1,300,000 of the total $2,000,000 commitment in July 2003 and
the shares underlying the final $700,000 of this commitment were included in our
June 2004 registration statement.

      (7) In  conjunction  with the  issuance of the $1 million 10%  convertible
debenture to Mercator  Focus Fund,  L.P., we used the proceeds to repay the $0.3
million  outstanding   principal  balance  of  the  12%  convertible   debenture
previously  issued to Mercator  Momentum Fund, L.P. plus accrued  interest.  The
balance of costs incurred represents transactional and legal fees.

      (8) On March 31,  2003,  when the  market  price of our  Common  Stock was
$0.885, we amended the conversion price to eliminate a conversion price floor of
$1.50 per share in return  for an  extension  of time in which to  register  the
shares of common stock underlying the various Mercator financings.

      (9) The Securities Purchase  Agreements for both transactions  between the
Company  and  Marr   Technologies   B.V.  required  that  we  provide  cost-free
registration  rights to Marr;  however,  Marr was subject to a one-year  lock-up
provision following the transaction date with respect to the shares purchased.

      (10) On January 14,  2004,  when the market  price of our common stock was
$0.60, we extended the maturity date of the following  debentures until July 14,
2004:

      o     10% Convertible  Debenture dated January 14, 2003 issued to Mercator
            Focus Fund, LP
      o     10% Convertible  Debenture dated January 30, 2003 issued to Mercator
            Momentum Fund, LP
      o     10% Convertible  Debentures  dated March 13, 2003 issued to Mercator
            Focus Fund, and
      o     12%  Convertible  Debenture  dated April 29, 2003 issued to Mercator
            Momentum Fund, LP.

In return for the extension of the maturity dates, we agreed to pay an extension
fee equal to 2% of the outstanding principal balance per month until the earlier
of the extended maturity date or conversion.  The extension fee is payable 1% in
cash and 1% in shares of our  common  stock.  Additionally,  we agreed to file a
registration  statement  including  the  shares  potentially  applicable  to the
conversion  of the  outstanding  debenture  balances  by no later than April 29,
2004.  On April 23, 2004,  when the market price of our Common Stock was $0.625,
we and the various Mercator Funds agreed to extend until May 14, 2004 the period
for filing the registration statement including the shares issued or potentially
issuable upon  conversion.  On May 7, 2004,  when the market price of our common
stock was $0.48 per share,  we and the various  Mercator Funds agreed to further
extend  from May 14,  2004  until 21 days  following  the  closing  of a private
placement  of equity  financing  of at least  $5,000,000,  but in any case to no
later  than  June 30,  2004,  the  period  in which  we are  required  to file a
registration   statement   including  shares  of  our  common  stock  issued  or
potentially issuable upon conversion.  Such shares were included in our June 15,
2004 registration  statement,  which was declared effective on July 8, 2004. All
of the subject  convertible  debentures  were  converted  prior to the  extended
maturity date.


                                       47
<PAGE>

      (11) On January 23,  2004,  when the market  price of our common stock was
$0.695, we and Marr agreed to extend the registration rights period attributable
to  5,181,818  shares of our common  stock  issued in  conjunction  with  Marr's
conversion  of  $570,000  principal  amount  of the  Company's  12%  Convertible
Debentures  from  February  27,  2004 to  April  29,  2004.  In  return  for the
extension,  we agreed to include in our next registration statement an aggregate
of 28,333,333  shares of our common stock purchased by Marr in PIPE transactions
in the third  quarter of 2003.  On April 23 2004,  when the market  price of the
Common  Stock was $0.625,  we and MTBV  agreed to extend  until May 14, 2004 the
period for filing the registration statement including the shares issued to MTBV
upon  conversion  of  the  12%  convertible  debenture  and  in  the  2003  PIPE
transactions. On May 7 2004, when the market price of our common stock was $0.48
per  share,  MTBV  agreed to  further  extend  from May 14,  2004  until 21 days
following  the closing of a private  placement  of equity  financing of at least
$5,000,000,  but in any case to no later than June 30, 2004, the period in which
we are required to file a registration  statement including shares of our common
stock issued to MTBV upon conversion of the 12% convertible debenture and in the
2003  PIPE  transactions.  Such  shares  were  included  in our  June  15,  2004
registration statement, which was declared effective on July 8, 2004.

      (12) The  holders  claim an  earlier  transaction  date with  respect to a
conversion of the debentures,  which we dispute.  These  debentures have not yet
been  converted.   Assuming  immediate  conversion  at  the  earlier,   disputed
transaction  date,  the number of shares of common stock issuable to Logisticorp
and Southwest Resource Preservation would be 213,903 and 427,807,  respectively.
While  reserving  our rights with respect to the number of shares  calculated as
issuable based on the disputed  transaction  date, we registered  that number of
shares of  Common  Stock in our June 15,  2004  registration  statement  pending
resolution  of the dispute.  The ultimate  resolution  of the  transaction  date
dispute may  determine  the number of shares of our stock to which the holder is
entitled upon conversion.

      (13) In  conjunction  with the May 2004 PIPE,  we issued to each  investor
5-year  warrants at $0.50 per share to purchase shares of our common stock in an
amount  equal to 35% of the  number  of shares  purchased  by the  investor.  In
conjunction  with the July 2004 PIPE, we issued to each investor 5-year warrants
at $0.50 per share to purchase  shares of our common stock in an amount equal to
70% of the  number  of shares  purchased  by the  investor.  The  shares  issued
pursuant  to the May 2004 PIPE and the July 2004 PIPE and the  related  warrants
for each have an anti-dilution  feature that will require us to issue additional
shares to the PIPE investors and modify their warrants if we subsequently  issue
additional  equity at a per share  price of less than  $0.40 for a period of one
year  from  the  respective  closing  dates,  except  under  the  provisions  of
previously  outstanding  convertible  debt,  option plans,  or option or warrant
agreements.


                                       48
<PAGE>

Marr Credit Facility

      On November 13, 2003,  when the market price of our common stock was $0.88
per share,  we and Marr, our largest  stockholder,  entered into an agreement in
which Marr agreed to provide us up to an  aggregate  of  $10,000,000  (the "Marr
Credit  Facility")  pursuant  to  promissory  notes  we may  issue to Marr on an
as-needed  basis (the "Notes").  Each Note would bear interest at the rate of 5%
per annum and have a 12-month  term.  The Marr  Credit  Facility  was  available
during the period beginning on February 28, 2004 and ending on May 31, 2004. The
aggregate  amount  available  under the Marr Credit  Facility is  proportionally
reduced by the amount of any equity  financing we obtain  during the term of the
Marr Credit Facility. Marr has participation rights in any such equity financing
on the same terms as the other investors.  The Marr Credit Facility provided for
earlier  termination as of March 31, 2004, if we failed to have our common stock
listed on an established stock exchange by that date. Moreover, upon the failure
to obtain such stock exchange  listing,  any outstanding  Notes would be due and
payable on April 30, 2004. As  consideration  for the Marr Credit  Facility,  we
issued to a party designated by Marr a warrant to purchase 375,000 shares of its
common stock at an exercise price of $0.80 per share. The warrant is immediately
exercisable and expires two years after issuance on November 12, 2005.

      On March 19,  2004,  when the market  price of our common stock was $0.575
per  share,  we and Marr  amended  the Marr  Credit  Facility  to  increase  the
aggregate  amount available under the Marr Credit Facility to $15,000,000 and to
eliminate the termination provision upon failure to have our common stock listed
on an established stock exchange by March 31, 2004. As additional  consideration
for the amendment of the Marr Credit  Facility,  we issued to a party designated
by Marr an additional  warrant to purchase 400,000 shares of our common stock at
an exercise price of $0.46 per share.  This warrant is  immediately  exercisable
and expires two years from its date of issuance on March 18, 2006.

On May 26, 2004,  when the market price of our Common Stock was $0.46 per share,
we and Marr again amended the Marr Credit Facility whereby Marr has committed to
subscribe for up to  $5,000,000  of  Promissory  Notes that we may issue through
December  31,  2004,  should  our Board of  Directors  unanimously  approve  the
issuance of one or more such notes before the commitment  period  expires.  Marr
currently has two designated  representatives serving on our Board of Directors.
Any Notes issued pursuant to this second  amendment will bear interest at 9% per
annum and will have a  maturity  date of May 31,  2005.  The  $5,000,000  amount
available under the amended Marr Credit Facility is reduced by the amount of any
equity  financing we obtain after the May 26, 2004  effective date of the second
amendment and through the December 31, 2004 commitment period,  exclusive of the
proceeds from the May 2004 Private  Placement.  Accordingly,  the commitment has
been  reduced to  approximately  $3.6  million as a result of the closing of the
July 2004 PIPE.  As  consideration  for the extension of the  commitment  period
reflected in the second amendment of the Marr Credit Facility, we issued to Marr
a warrant to purchase 500,000 shares of our Common Stock at an exercise price of
$0.40 per share.  This warrant is immediately  exercisable and expires two years
from its date of issuance on May 26,  2006.  The shares  underlying  these three
warrants were included in our June 15, 2004 registration statement. We issued no
Notes under the Marr Credit Facility prior to its expiration.


                                       49
<PAGE>

Warrants, Options and Stock Grants

Since January 2002, we have entered into various  contracts and agreements  with
consultants  who have agreed to accept payment for their services in the form of
warrants,  options and/or stock grants.  We have obtained various services under
these arrangements,  including legal,  financial,  business advisory,  and other
services  including  business  introductions  and  arrangements  with respect to
potential  domestic and  international  product placement and the development of
potentially  synergistic  relationships with appropriate public service or other
governmental and  non-governmental  organizations.  We have generally issued the
warrants at a discount  to the  then-current  market  price and  registered  the
shares   underlying  the  warrants,   options  and  stock  grants  on  Form  S-8
Registration  Statements for resale by the  consultants.  We have, since January
2002, issued  approximately  10.5 million shares of our common stock as a result
of warrant or option  exercises  and stock  grants  related to these  consulting
agreements, of which approximately 7.9 million shares were issued during 2003.

In May 2002, we issued  warrants and options to purchase  633,333  shares of our
common stock under  agreements  with  consultants to perform  legal,  financial,
business  advisory  and  other  services  associated  with  the  restart  of our
operations.  The warrants were issued at $0.45 per share on May 9, 2002 when the
market price of our common stock was $0.90 per share.  The option was granted at
$0.90 per share on May 10,  2002,  when the market price of our common stock was
$0.90 per share. All of the warrant and option grants were  non-forfeitable  and
fully-vested  at the date of  issuance  and were  registered  for  resale by the
consultants  under Form S-8.  The  consultants  exercised  all the  warrants and
options and we issued 633,333 shares and received proceeds of $292,500.  All but
one of the consulting  agreements  discussed above expired in August 2002 and we
entered  into  new  agreements  with  certain  of  the  consultants  for  legal,
financial,  business advisory,  and other services  including  introductions and
arrangements  with  respect to  potential  domestic  and  international  product
development  of  synergistic   relationships  with  appropriate  public  service
organizations.  In November 2002, we issued warrants to purchase  950,000 shares
of our  common  stock  and  stock  grants  for  70,000  shares  of our  stock to
consultants under the terms of these new agreements.  We issued 350,000 warrants
at an exercise  price of $1.50 per share on  November  1, 2002,  when the market
price of our stock was $4.20 per share. We issued an additional 600,000 warrants
at an exercise price of $1.50 on November 20, 2002, when the market price of our
common  stock was $2.70.  All of the  warrant  grants were  non-forfeitable  and
fully-vested  at the date of  issuance  and were  registered  for  resale by the
consultants  under Form S-8. By February 2003, the consultants had exercised all
the warrants and we had received aggregate proceeds of $1.425 million. We issued
986,667  shares of our common  stock  pursuant to the  exercises of the November
2002 warrant and stock grants. In January and February 2003, we entered into new
contracts and extended  certain other  contracts  with existing  consultants  to
perform services as described above. On February 14, 2003, when the market price
of our stock was $2.01,  we issued  warrants  exercisable at $1.50 per share and
stock  grants  for an  aggregate  of  975,216  shares  of our  common  stock  as
compensation  for  these  services.   The  warrants  were   non-cancelable   and
fully-vested  at the date of issuance.  By May 31,  2003,  the  consultants  had
exercised  warrants  to  purchase  all of the shares  granted to them and we had
received proceeds of $0.8 million.


                                       50
<PAGE>

During March 2003, when the market price of our stock ranged from $1.32 to $1.50
per share,  we issued  warrants  exercisable at $0.75 per share and stock grants
for an aggregate of 1,350,400 as compensation for services under new or extended
contracts.  The warrants were  non-cancelable  and  fully-vested  at the date of
issuance.  By May 31, 2003, the consultants  had exercised  warrants to purchase
all of the shares granted to them and we had received  proceeds of approximately
$0.9 million.

In April  2003,  when the price of our stock  ranged  from  $0.81 to $0.885  per
share, we entered into additional  contracts,  extended certain  contracts,  and
modified certain other contracts with existing  consultants who agreed to settle
a portion of the  outstanding  balance due for services under their contracts in
stock.  We issued  warrants at $0.75 per share and stock grants for an aggregate
of 1,490,600  shares of our common stock as compensation or settlement for these
services.  The warrants  were  non-cancelable  and  fully-vested  at the date of
issuance.  By May 31, 2003, the consultants  had exercised  warrants to purchase
all of the shares granted to them and we had received  proceeds of approximately
$0.1 million.

In May 2003, when the price of our stock ranged from $0.552 to $0.576 per share,
we again entered into new contracts,  extended certain  contracts,  and modified
certain other contracts with existing consultants who agreed to settle a portion
of the  outstanding  balance due for services under their contracts in shares of
stock.  We issued  warrants at $0.30 per share and stock grants for an aggregate
of 2,080,305  shares of our common stock as compensation or settlement for these
services.  The warrants  were  non-cancelable  and  fully-vested  at the date of
issuance.  By September 30, 2003,  the  consultants  had  exercised  warrants to
purchase  all of the shares  granted  to them and we had  received  proceeds  of
approximately $0.5 million.

In July 2003,  when the price of our stock ranged from $0.11 to $0.30 per share,
we  extended a contract  for  consulting  and other  services  and  granted  the
consultant  a warrant to purchase  722,500  shares of our common stock at 50% of
the closing market price on the date of any exercise as  compensation  under the
contract.  The warrant was granted as fully-vested  and expired on September 30,
2003. By September 30, 2003,  the consultant had exercised the entire warrant at
prices  ranging  from $0.08 to $0.61 per share and we had  received  proceeds of
approximately  $0.4  million.  Also during July 2003,  we issued stock grants to
consultants  for  an  aggregate  of  356,344  shares  of  our  common  stock  as
compensation under their contracts.

On August 20, 2003,  when the price of our stock was $0.18 per share,  we issued
consulting contracts to two new consultants pursuant to which we issued warrants
for 100,000  shares each,  exercisable  at $0.18 per share.  The  warrants  were
non-cancelable  and fully-vested at the date of issuance.  In December 2004, one
of the  consultants  exercised  warrants to purchase  100,000  shares our common
stock.  At March 29, 2005,  the other  consultant  has not  exercised any of the
warrants granted to him.

In  September  2003,  when the price of our stock ranged from $0.50 to $1.80 per
share,  we  issued  an  aggregate  of  800,000  shares  of our  common  stock to
consultants  and other  service  providers who agreed to take shares of stock in
lieu of cash as compensation under their contracts.

In October and November  2003,  when the price of our stock ranged from $0.53 to
$1.65 per share, we issued an aggregate of 125,000 shares of our common stock to
consultants  and other  service  providers who agreed to take shares of stock in
lieu of cash as compensation under their contracts.


                                       51
<PAGE>

In  February  2004,  when the price of our stock was $0.67 per share,  we issued
500,000  shares of our  common  stock to a  consultant  who had agreed to accept
shares of stock as a portion of its compensation  under a consulting  agreement.
We issued  approximately 67,000 additional shares of our common stock during the
first  quarter  of 2004 to  another  consultant  under the terms of a  long-term
consulting agreement.

In May  2004,  when the  price of our  stock was  $0.465  per  share,  we issued
warrants to purchase  150,000 shares of our common stock at an exercise price of
$0.50 as a portion of the compensation under a consulting contract. The warrants
were  immediately  exercisable,  have a five year term,  and, at March 29, 2005,
have not been exercised.

In June 2004, when the price of our stock was $0.52 per share, we issued 250,000
shares of our common  stock to a consultant  who had agreed to accept  shares of
stock as compensation under a consulting agreement.

Between  January and October 2004,  we issued an aggregate of 127,984  shares of
our common  stock as a portion of the monthly  compensation  under a  consulting
contract  at  prices  ranging  from  $0.38 to  $0.695  per  share,  based on the
then-current market price of our stock.

To conserve  cash and to obtain  goods and  services,  we may  continue to issue
options and warrants at discounts to market or issue direct stock grants. In the
event that we issue additional options and warrants,  it is anticipated that the
securities will contain cost-free  registration  rights which will be granted to
holders of the  options  and  warrants,  and that there may be  dilution  to our
existing stockholders.

Capital Lease

In September  2004,  when the price of our stock was $0.38 per share, we entered
into  a  lease  for  $500,000  of  equipment  used  in our  Rockville,  Maryland
manufacturing  facility.  The  lease  has a  minimum  term  of 3  years  with an
extension  option of 3 months,  and requires  monthly payments of $17,250 during
the initial term and extension periods. In conjunction with the lease, we issued
to the lessor a three-year warrant to purchase 55,000 shares of our common stock
at a price of $0.4060 per share.

Intellectual Property and Equipment Purchase Using Stock

On September  30, 2004,  when the market price of our common stock was $0.39 per
share and  pursuant to  Regulation  S, we entered into a License  Agreement  and
Technology Transfer Agreement (the "License Agreement") pursuant to which we are
required to pay an aggregate of 1,232,840 Euros (approximately US $1,500,000) in
either our common stock or cash to acquire  certain  licenses and  manufacturing
equipment. On September 30, 2004, we issued to the licensor 1,172,205 restricted
shares  of  our  common  stock  having  a  value  of   approximately   $469,000,
representing  approximately  $373,000 attributable to the technology license and
approximately  $96,000 attributable to the equipment purchase. We included these
shares in a registration  statement that became  effective on December 29, 2004.
We have paid the next  installments  of 100,000 Euros  (approximately  $134,000)
each in cash in December  2004 and in February  and March 2005 and expect to pay
the remaining amounts due in cash.

Restructure of Trade Debt

In February 2002, the Company  completed a restructuring of  approximately  $1.7
million of its past due accounts  payable and certain other  obligations with 27
of  its  trade   creditors.   Under  the   restructuring,   the  Company  issued
approximately 47,000 shares of its common stock at various negotiated prices per
share with the trade  creditors  in  satisfaction  of the  specified  debt.  The
issuance of shares was exempt from registration  pursuant to Regulation D of the
Securities  Act.  The  shares  issued  are now  eligible  for  resale  under the
provisions of Rule 144.

Operating Activities

During,  2004  and  2003,  we used  cash of $12.8  million  and  $13.4  million,
respectively,  in our operations.  In both periods,  the cash used in operations
was primarily for  manufacturing  ourcurrent  urine-based HIV-1 ELISA tests, and
for research, development and, in 2004, commercialization of our rapid tests, as
well as for our selling, general and administrative expenses.


                                       52
<PAGE>

Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, An Amendment Of
ARB No.  43,  Chapter 4 ("SFAS  151").  SFAS 151  amends  ARB 43,  Chapter 4, to
clarify that abnormal amounts of idle facility expense,  freight, handling costs
and wasted materials (spoilage) be recognized as current period charges. It also
requires  that  allocation  of  fixed  production  overheads  to  the  costs  of
conversion be based on the normal  capacity of the production  facilities.  SFAS
151 is effective  for inventory  costs  incurred  during fiscal years  beginning
after June 15, 2005. We do not believe that the adoption of SFAS 151 will have a
material impact on our results of operations or financial position.

In  December  2004,  the FASB issued SFAS No. 123  (revised  2004),  Share-Based
Payment  ("SFAS  123R").  SFAS 123R  addresses the  accounting  for  share-based
payments to employees, including grants of employee stock options. Under the new
standard,   companies  will  no  longer  be  able  to  account  for  share-based
compensation  transactions  using the intrinsic  method in  accordance  with APB
Opinion No. 25,  Accounting  For Stock Issued To Employees.  Instead,  companies
will be required to account for such transactions  using a fair-value method and
recognize  the  expense in the  consolidated  statement  of  income.  As a small
business issuer,  SFAS 123R will become  effective for us for periods  beginning
after December 15, 2005. We have not yet determined which fair-value  method and
transitional  provision we will follow;  however, we expect that the adoption of
SFAS 123R will have a significant impact on our results of operations. We do not
expect the  adoption of SFAS 123R to  materially  impact its  overall  financial
position.  See  Stock-Based  Compensation  in  Note 2 to the  audited  financial
Statements which are provided in Part II, Item 7 of this Form 10-KSB for the pro
forma impact on net income and net income per share from calculating stock-based
compensation   costs  under  the  fair  value   alternative  of  SFAS  123.  The
determination of compensation cost for share-based  payment  transactions  after
the  effective  date of SFAS 123R may be  different  from the  determination  of
compensation  cost  under SFAS 123;  however,  we have not yet  quantified  such
differences.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,
An Amendment Of APB Opinion No. 29 ("SFAS 153"). The guidance in APB Opinion No.
29,  Accounting  for  Nonmonetary  Transactions,  is based on the principle that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
the assets  exchanged.  The  guidance in APB Opinion No. 29,  however,  included
certain  exceptions  to that  principle.  SFAS 153 amends APB  Opinion No. 29 to
eliminate the exception for nonmonetary  exchanges of similar  productive assets
and replaces it with a general  exception  for exchanges of  nonmonetary  assets
that do not have  commercial  substance.  A nonmonetary  exchange has commercial
substance  if the  future  cash  flows of the  entity  are  expected  to  change
significantly as a result of the exchange. SFAS 153 is effective for nonmonetary
asset  exchanges in fiscal  periods  beginning  after June 15,  2005.  We do not
believe that the adoption of SFAS 153 will have a material impact on our results
of operations or financial position.


                                       53
<PAGE>

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

The following risk factors and other information  included in this Annual Report
on Form  10-KSB  should be  carefully  considered.  The risks and  uncertainties
described  below  are  not  the  only  ones  we  face.   Additional   risks  and
uncertainties  not presently  known to us or which we currently deem  immaterial
also may impair our business  operations.  If any of the following  risks occur,
our business,  financial  condition,  operating results, and cash flows could be
materially  adversely  affected.  We  disclaim  any  obligation  to  update  any
forward-looking  statements  contained  herein  after  the  date of this  Annual
Report.

                    RISKS RELATED TO OUR FINANCIAL CONDITION

If We are Unable to Obtain Additional  Financing,  We Will Have to Significantly
Curtail the Scope of Our Operations and Alter Our Business Model.

Based upon our  tenuous  financial  condition  as  demonstrated  by our  working
capital  deficit at December 31, 2004, our recurring  losses and our accumulated
deficit,  our  independent  accountants  have issued an opinion on our financial
Statements at December 31, 2004 that cites  substantial  doubt about our ability
to continue our business  operations  as a going  concern.  Although we issued a
$2,000,000  Promissory Note (the "Promissory  Note") to Marr in January 2005, it
was due on  March  31,  2005 and the  proceeds  have  not  provided  us with the
liquidity to fully attain our business milestones and to achieve  profitability.
We have  negotiated  an extension of the maturity  date of the  Promissory  Note
until April 30, 2005.  Our current cash  resources are not sufficient to sustain
our  operations  or achieve our  milestones  through the second  quarter of 2005
without obtaining additional financing.  We believe that we will need to arrange
additional  financing  of  approximately  $15 million to sustain our  operations
throughout  2005,  including the funds required to repay the Promissory Note. We
are actively engaged in seeking additional financing,  however, if we are unable
to repay the  Promissory  Note on its  extended  due date of April  30,  2005 or
further  modify its due date,  we will be in default.  There can be no assurance
that we will be  able to  repay  or  further  amend  the  payment  terms  of the
Promissory  Note.  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,  we will be
required to raise additional capital to sustain our operations.  There can be no
assurance that additional financing will 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
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 one or more existing  financing  agreements  that would result in substantial
dilution to our existing  stockholders.  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.

If,  Under  the  Terms of a  Prospective  Financing,  We Are  Required  to Issue
Additional   Shares  to  Investors  in  Prior  Financings  Under  the  Terms  of
Anti-Dilution Protection Provisions and Do Not Obtain Stockholder Approval To Do
So As Required by the American Stock Exchange,  We May Be Forced to De-List from
the American Stock Exchange.

The  anti-dilution  protection  provisions  granted to investors in our May 2004
PIPE and July 2004 PIPE  require that we issue  additional  shares of our Common
Stock and reprice and grant additional  warrants to purchase our Common Stock to
those  investors if we issue  additional  shares of stock at less than $0.40 per
share  pursuant to  financing(s)  completed  within one year of the May and July
2004 transactions,  respectively.  As a condition of our listing on the American
Stock  Exchange,  we agreed,  as a precondition to listing with the Exchange and
issuing any shares of our Common Stock that may become  issuable under the terms
of  the  anti-dilution   protection  provisions  contained  in  these  financing
agreements,  to obtain stockholder approval prior to such issuance.  If we enter
into a subsequent  financing  transaction to issue shares of our Common Stock at
less than $0.40 per share that triggers the anti-dilution  protection provisions
in the previous agreements,  and if our stockholders do not approve the issuance
of  additional  shares and new and  re-priced  warrants  under the terms of such
provisions,  and  if one or  more  of the  PIPE  investors  do not  waive  their
anti-dilution  rights,  we will be delisted by the American Stock Exchange or be
forced to withdraw  our listing  from the  American  Stock  Exchange in order to
complete a  financing  transaction,  at which time our Common  Stock would again
trade on the Over-the Counter Bulletin Board.


                                       54
<PAGE>

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 December 31, 2004 our accounts payable totaled $1.7 million, of which $1.1
million was over sixty days old. We currently have many  cash-only  arrangements
with  suppliers  and  certain  arrangements  require  that we pay  down  certain
outstanding  amounts  due when we make a current  payment.  While we are current
according  to  contract  or current  under the terms of  payment  plans with our
primary patent  licensors,  as of December 31, 2004 we have accrued an aggregate
of approximately  $355,000 in royalty  obligations to our patent  licensors,  of
which  approximately  $235,000 were past due. 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 current products and could also
impact our ability to commercialize our rapid test products.  While at this time
we are current with our payment plans for past-due amounts,  if we are unable to
maintain  sufficient  working capital,  our ability to make payments 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 current products or introduce our new products.  Additionally,
certain vendors and service  providers with whom we have not currently  arranged
payment  plans have or may choose to bring  legal  action  against us to recover
amounts they deem due and owing.  While we may dispute  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  payment 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
years  ended  December  31, 2004 and 2003 was 17.3  million  and $26.5  million;
respectively,  and our  accumulated  deficit  at  December  31,  2004 was $145.1
million.  We expect operating losses to continue during 2005, as we complete the
commercialization  of our  rapid  tests,  complete  our  domestic  manufacturing
consolidation 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
the  Company  will not be  responsible  for  damages  including  legal  fees and
expenses in the event that the claim is pursued.


                                       55
<PAGE>

                RISKS RELATED TO THE MARKET FOR 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 $0.90 per
share in the twelve months ended  December 31, 2004. 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;

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 SARS, an economic downturn or terrorist
      attacks; and

o     anti-American  sentiment in certain  international markets where we market
      or anticipate marketing our products.

The  Availability  of a  Significant  Number of Authorized  Shares  Eligible for
Future Sale May Have a Negative Effect on the Trading Price of Our Stock.

From  inception  through  December 31, 2004, we had issued  approximately  169.5
million shares of our common stock and raised  approximately $142 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.  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.


                                       56
<PAGE>

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 have issued and may continue to issue warrants and options
at or below the current  market  price or make  additional  stock bonus  grants.
During  2003,  we issued  warrants,  options  and stock  bonuses for nearly 19.8
million  shares,  including  approximately  10.0  million  shares from  employee
benefit  plans and the 2003  Non-Qualified  Stock  Option  Plan,  in payment for
consulting services. During 2004, we issued approximately 2.1 million additional
shares  in  payment  for  consulting   services  and  for  the   acquisition  of
intellectual  property  and  equipment.  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  Stockholders  May Experience  Substantial  Dilution as a Result of Our 2004
PIPE  Financings  and the  Anti-Dilution  Provisions  Contained  Therein or as a
Result of Future Financings.

Our current cash  resources  are not  sufficient  to sustain our  operations  or
achieve  our  business  milestones  through the second  quarter of 2005  without
obtaining  additional  financing.  We believe we will need to arrange additional
financing of approxmately $15 million to sustain our operations throughout 2005,
including the funds required to repay the $2 million  Promissory  Note we issued
to Marr in January 2005.  There can be no assurance  that  additional  financing
will be available, or it if is available, be on acceptable terms.  Additionally,
the shares issued in  conjunction  with our May 2004 PIPE and our July 2004 PIPE
and the related  warrants for each  entitle  those  investors  to  anti-dilution
protection  rights that will require us to issue  additional  shares to the PIPE
investors  and modify  their  outstanding  warrants  and issue  them  additional
warrants if we subsequently  issue common stock or common stock equivalents at a
per  share  price  of less  than  $0.40  within a  period  of one year  from the
respective closing dates, except under the provisions of previously  outstanding
convertible  debt,  option  plans,  or option or warrant  agreements.  Should we
complete a transaction triggering these anti-dilution provisions,  the interests
of our  existing  stockholders  not  subject to such  anti-dilution  protections
rights willl be even further diluted.

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.
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.


                                       57
<PAGE>

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  Manufacturing   Consolidation,
Development and Marketing Plans as Anticipated.

We have consolidated our U.S.  manufacturing  facilities in a single facility at
our  Rockville,  Maryland  location.  In  addition to  internal  validation  and
comparability  studies  that we conduct in  conjunction  with our  manufacturing
consolidation,  the  FDA  must  approve  our  facility  changes  and  urine  EIA
manufacturing  operations in Rockville before we will be permitted to sell urine
EIA  tests   manufactured  at  that  facility  in  the  United  States.  If  the
consolidation  does not  continue to proceed as planned,  or if the FDA does not
approve the facility changes on the timeline  anticipated,  the anticipated cost
reductions as well as increased  efficiencies may not be realized.  There can be
no assurance that we will successfully complete the commercialization of our HIV
rapid  tests,  or that our  marketing  efforts  with respect to these tests will
result in significant additional sales. Additionally,  there can be no assurance
that we will be able to  successfully  negotiate  government  or  private-sector
contracts for mass-testing  applications.  Consequently,  our current  financial
resources  and available  financing  may be  inadequate  and 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.

In conjunction with our manufacturing  consolidation,  we expect that we will be
unable to produce  our HIV-1  Urine EIA  product  for sale in the United  States
until we complete  the  required  validation  and  comparability  studies at our
Rockville facility that will be necessary for FDA review and approval. We expect
FDA review and approval of our  Rockville  facility to be  completed  during the
first half of 2005. We believe that we  manufactured  sufficient  inventories of
our HIV-1  Urine  EIA test  prior to the  closing  of our FDA  approved  Alameda
facility to  continue  to satisfy  expected  customer  orders  during the period
required  to obtain  FDA  approval  of our  Rockville  facility.  We  considered
historical  sales  levels and our  estimate  of the length of time  required  to
complete the  consolidation and obtain FDA approval in determining the amount of
inventory  required to bridge the transition  period.  The FDA approval  process
could  take  longer  than  expected.  Our  transition  inventory  may  not  have
sufficient shelf life to supply customer orders and we may lose business that we
may find difficult, or impossible, to replace.  Additionally,  demand could fall
significantly below our transition inventory expectations, in which case we will
have built excess  inventory that we may have to dispose of at additional  cost,
or at a loss.  In the absence of  substantial  firm new  international  purchase
orders,  we reserved  approximately  $2.9 million,  or approximately  64% of the
value of our EIA inventory, at December 31, 2004, because the expected demand by
the insurance  business alone prior to expiration date of the tests is less than
the current inventory of these tests.


                                       58
<PAGE>

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
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 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
      existing  products or products we are  currently  developing 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 laboratory 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 domestic blood supply; and

o     customer  concerns  about the stability of our business  which could cause
      them to seek alternatives to our product.


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<PAGE>

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 years ended  December 31, 2004 and 2003, we incurred $2.1 million and
$1.5 million,  respectively,  in research and development expenses. We expect to
incur even more  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 expect to develop or that are in the  process of being
developed and/or commercialized. 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.  Additional  development efforts on these products will be
required   before  any  regulatory   authority  will  review  them.   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, 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  revenues  or  anticipated
future revenues and adversely  affect our results of operations,  cash flows and
business.

We Have Limited Experience Selling and Marketing Our HIV-1 Urine ELISA Tests and
No Experience Marketing a Rapid Test.

Our  urine-based  ELISA products  incorporate a unique method of determining the
presence of HIV antibodies and we have limited experience  marketing and selling
them either  domestically  or  internationally.  Further,  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 domestic 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, 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.

We have had FDA  approval  to market  our  current  urine  HIV-1  screening  and
supplemental  tests in the United States and have been marketing  these products
since  1998.  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.
Further,  we have not achieved  significant  market penetration with our current
ELISA tests  within  domestic 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  efforts than are available to us without  affecting  other parts of
our business.


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<PAGE>

We Currently Depend for Our Revenues Upon the Viability of Our ELISA Products --
Our HIV-1  Urine-Based  Screening  Test, Our Urine and Blood Based  Supplemental
Tests and Our BED Incidence Test.

Our HIV-1  urine-based  screening  test and urine and  blood-based  supplemental
tests are our current  products.  Our sales of these products for the year ended
December 31, 2004  decreased by  approximately  19% compared to product sales in
2003. Although we do not expect that such a trend will continue, there can be no
assurance that it will not. Further,  we have incurred a loss from operations in
both 2004 and 2003. We have now completed the technology  transfer for our HIV-1
incidence  test  and  have  that  product  available  for  sale,  but we have no
experience  marketing  that test or our rapid  tests  that are  currently  being
commercialized.  If we cannot profitably introduce significant new products on a
timely basis and if these  products and our current  ELISA tests 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.

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 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.

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  evidence on which to evaluate the
market reaction to products that may be developed, and 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.


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<PAGE>

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.

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.

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.

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 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.

We are Dependent Upon Patents,  Licenses and Other Proprietary Rights From Third
Parties.

To facilitate  development  and  commercialization  of a proprietary  technology
base,  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.


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<PAGE>

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 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 our HIV-1
serum- and  urine-based  supplemental  tests  under a licensing  agreement  with
National  Institutes of Health. We will require license  agreements from certain
of these  parties or other  patent  holders for  technologies  used in our rapid
tests and other  potential new products.  As of December 31, 2004 we had accrued
an aggregate of  approximately  $235,000 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 in the event of a default in payment of royalties.
Specifically, during 2004 and 2003, revenues subject to the New York University,
Cambridge  Biotech and Texas A&M license  agreements  were $1.5 million and $2.0
million, respectively, and revenues subject to the National Institutes of Health
agreement  were  $1.3  million  in both  2004 and  2003.  The loss of any of the
foregoing  licenses  could have a  materially  adverse  effect on our ability to
continue  to produce  our  current  products  or  introduce  new HIV  diagnostic
products since the license agreements provide necessary proprietary processes or
components for the manufacture of our products.

Additionally, we have recently acquired licenses to technologies that we believe
are critical to our ability to sell our rapid tests  currently  being  developed
and/or  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,  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 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 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  reduces 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  impair our  ability  to  manufacture.  We
typically do not have long-term supply agreements with these suppliers,  instead
using  purchase  orders to  arrange  for our  purchases  of  materials,  so that
suppliers  could delay or decline to ship  components  until  payment is made in
advance or on a COD basis.


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<PAGE>

We Have Limited  Experience in Manufacturing  Our Products and Little Experience
in Manufacturing Our Products In Commercial Quantities.

Turnover among our  manufacturing  personnel as a result of our consolidation of
the operations into our Rockville  facility has  necessitated  the hiring of new
manufacturing  personnel.  Such turnover has, in the past,  resulted in material
production difficulties including problems involving:

o     scaling up production of new products;

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.

The current consolidation of manufacturing operations to our Rockville facility,
technology transfer and manufacturing  transitions and scale-ups in which we may
engage in the future could affect our ability to meet increases in demand should
our  products  gain market  acceptance  and could impede the growth of our sales
revenues.

In an Effort  to Scale Up Our  Manufacturing  Capacity  Quickly,  We May  Engage
Contract  Manufacturers  to Produce Some of Our  Products,  Including  Our Rapid
Tests Currently Being Commercialized.

Outsourcing some of our  manufacturing  processes to contract  manufacturers may
permit us to expand our  manufacturing  capacity more  quickly,  but it may also
subject us to problems in such areas as:


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; and

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.

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.

Following  the  anticipated  commercialization  of our current or planned  rapid
tests, we believe that sales to international distributors and/or joint ventures
will generate a significant  portion of our revenues for the next several years.
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.  However,  sales to  international
customers  accounted for  approximately 16% and 15% of our revenue in our fiscal
years  ended  December  31,  2004 and  2003,  respectively.  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 our international sales:

o     the imposition of government controls (regulatory approval);


                                       64
<PAGE>

o     export license requirements;

o     domestic 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;

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  currently  planning to sell both our
existing  products  and  our  rapid  products  that  we are in  the  process  of
developing and/or commercializing. 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.


                                       65
<PAGE>

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. The marketplace where we sell our products is
divided into two  categories:  (i)  screening,  and (ii)  supplemental  testing.
Within the United States,  our  competitors for screening tests include a number
of  well-established  manufacturers  of HIV tests using blood  samples,  plus at
least one system for the detection of HIV  antibodies  using oral fluid samples.
In the  supplemental  testing  category  of the  market,  we offer  the only FDA
approved  urine-based  test as well as a  blood-based  test.  One other  company
offers an FDA  approved  supplemental  blood test.  In addition to our urine and
blood-based  confirmation  tests,  there  is  also an  oral  mucosal  transidate
(saliva) based  supplemental  test to complement the oral-fluid  screening test.
Our competitors may succeed in developing or marketing technologies and products
that are more effective than ours, including several recently-FDA approved rapid
blood tests.  In addition,  if  acceptance  for 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.

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.

We May Not Be Able to Retain Our Key  Executives  and Research  and  Development
Personnel.

As a small  company,  our success  depends on the  services of key  employees in
executive and research and  development  positions.  The loss of the services of
one or more of such  employees  could have a material  adverse  effect on us. We
have no insurance against such risks.

As a Small  Manufacturer  of  Medical  Diagnostic  Products,  We Are  Exposed to
Product  Liability and Recall Risks For Which  Insurance  Coverage is Expensive,
Limited and Potentially Inadequate.

We  manufacture  medical  diagnostic  products,  which  subjects  us to risks of
product liability claims or product recalls,  particularly in the event of false
positive or false negative  reports.  A product  recall or a successful  product
liability  claim or claims  that  exceed  our  insurance  coverage  could have a
material  adverse effect on us. We maintain a $10,000,000  claims made policy of
product liability insurance.  However, product liability insurance is expensive.
In the future we may not be able to obtain  coverage on acceptable  terms, if at
all.  Moreover,  our  insurance  coverage  may not  adequately  protect  us from
liability  that we incur in  connection  with  clinical  trials  or sales of our
products.

Our Charter Documents May Inhibit a Takeover.

Certain provisions of our Certificate of Incorporation and Bylaws could:

o     discourage potential acquisition  proposals (i.e.  shareholder rights plan
      also known as a "poison pill");

o     delay or prevent a change in control;

o     diminish  stockholders'  opportunities to participate in tender offers for
      our common stock, including tender offers at prices above the then-current
      market price;


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<PAGE>

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 shareholder  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,  following  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. Dilution resulting from such issuance could also adversely
affect the rights of our current common stockholders.

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.


                                       67
<PAGE>

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.

              RISKS RELATED TO REGULATORY APPROVALS AND CLEARANCES

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 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 foreign governments or regulatory bodies
before we can import and sell our products in foreign 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 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 them in the United
States or other countries.

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 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 the United States and abroad, only
if we comply with  regulations  of government  agencies such as the FDA. We have
implemented quality assurance and other systems that are intended to comply with
applicable regulations in the United States.


                                       68
<PAGE>

Although  we  believe  that  we have  adequate  processes  in  place  to  ensure
compliance with these requirements, the FDA could force us to stop manufacturing
our  products if it  concludes  that we are out of  compliance  with  applicable
regulations.  The FDA could  also  require us to recall  products  if we fail to
comply with applicable  regulations,  which could force us to stop manufacturing
such  products.  We will face similar  risks as we establish  our  international
manufacturing operations.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  Company's  Consolidated  Financial  Statements  are  included  on pages F-1
through F-36 of this Annual Report on Form 10-KSB.

The  following  table  presents  summarized   historical  quarterly  results  of
operations for each of the fiscal  quarters in the Company's  fiscal years ended
December 31, 2004 and 2003. These quarterly  results are unaudited,  but, in the
opinion of  management,  have been  prepared on the same basis as the  Company's
audited  financial  information and include all adjustments  (consisting only of
normal  recurring   adjustments)  necessary  for  a  fair  presentation  of  the
information set forth therein.  The data should be read in conjunction  with the
Financial  Statements  and related  notes  included on pages F-1 through F-36 of
this Annual Report on Form 10-KSB.

The Company  expects that its revenues and results of  operations  may fluctuate
significantly  from  quarter to quarter  and will depend on a number of factors,
many of which are outside  the  Company's  control.  These  factors  include the
timing and cost of new product introductions, actions by governmental regulatory
bodies, the extent to which the Company's  products gain market acceptance,  the
timing and size of distributor purchases,  introduction of alternative means for
testing for HIV, competition, and general economic conditions.


                                       69
<PAGE>

                                    HISTORICAL QUARTERLY RESULTS OF OPERATIONS
                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 FIRST     SECOND      THIRD     FOURTH
                                                                QUARTER    QUARTER    QUARTER    QUARTER
                                                                -------    -------    -------    -------
<S>                                                             <C>        <C>        <C>        <C>
YEAR ENDED DECEMBER 31, 2004
Total revenue                                                   $   971    $   910    $   361    $ 1,055
Products costs                                                    1,980      1,013      2,095      2,190
                                                                -------    -------    -------    -------
Gross profit (loss)                                              (1,009)      (103)    (1,734)    (1,135)
Operating expenses                                                2,737      3,112      2,309      2,961
Interest income (expense), minority interest and other income      (292)       (29)       241     (2,084)
Income taxes                                                         (2)        --         --         --
                                                                -------    -------    -------    -------
Net loss attributable to common stockholders                    $(4,040)   $(3,244)   $(3,802)   $(6,180)
                                                                -------    -------    -------    -------

Net loss per share attributable to common stockholders          $ (0.03)   $ (0.02)   $ (0.02)   $ (0.04)
                                                                -------    -------    -------    -------
</TABLE>

<TABLE>
<CAPTION>
                                                                 FIRST     SECOND      THIRD     FOURTH
                                                                QUARTER    QUARTER    QUARTER    QUARTER
                                                                -------    -------    -------    -------
<S>                                                             <C>        <C>        <C>        <C>
YEAR ENDED DECEMBER 31, 2003
Total revenue                                                   $   784    $   749    $   897    $ 1,037
Products costs                                                    1,415      1,550      1,750      1,406
                                                                -------    -------    -------    -------
Gross profit (loss)                                                (631)      (801)      (853)      (369)
Operating expenses                                                4,323      5,944)     3,058      3,736
Interest income (expense), minority interest and other income    (1,388)    (1,179)    (3,342)      (788)
Income taxes                                                         (2)        --         --         --
Dividend on mandatorily redeemable Series A preferred stock         (30)       (30)        --         --
                                                                -------    -------    -------    -------

Net loss attributable to common stockholders                    $(6,374)   $(7,954)   $(7,253)   $(4,893)
                                                                -------    -------    -------    -------

Net loss per share attributable to common stockholders*         $ (1.11)   $ (0.72)   $ (0.11)   $ (0.04)
                                                                -------    -------    -------    -------
</TABLE>

-------------
* The sum of earnings per share for the four quarters is different from the full
year amount as a result of computing  the quarterly and full year amounts on the
weighted average number of common shares outstanding in the respective periods.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

On December 23, 2003, we dismissed KPMG LLP ("KPMG") as our independent auditor.
During  2003,  KPMG's  report on our  financial  statements  did not  contain an
adverse  opinion or disclaimer  of opinion or  modification  as to  uncertainty,
audit  scope  or  accounting  principles.  The  decision  to  dismiss  KPMG  was
recommended by the Audit  Committee.  We had a disagreement  with KPMG regarding
whether  conditions  necessary  for KPMG to  complete  its review of our interim
financial  statements  contained in our Quarterly  Report on Form 10-QSB for the
period ended  September 30, 2003 and to audit our financial  statements  for our
fiscal year ended  December 31, 2003 had been  satisfied.  The subject matter of
the  disagreement  regarded  whether KPMG believed that the Audit  Committee had
adequately  conducted an  investigation  of the matters  reported in an informal
inquiry  initiated by the SEC and had taken appropriate  remedial  actions.  The
Audit Committee and its outside counsel  discussed with KPMG the findings of the
Audit Committee's  investigation into the informal inquiry matters and the Audit
Committee's  recommended  remedial  actions.  The  Audit  Committee,   with  the
assistance  of its  outside  counsel,  unsuccessfully  attempted  to resolve the
disagreement with KPMG.


                                       70
<PAGE>

Subsequently,  by letter  dated July 14, 2004,  the SEC Division of  Enforcement
notified us that the matter has been  terminated and that no enforcement  action
has been recommended by the Commission at this time.

On December 24, 2003, upon approval of the Audit Committee,  we engaged Odenberg
Ullakko  Muranishi  & Co.  LLP  ("OUM")  to  audit  our  consolidated  financial
statements  for each of the two years  ending  December 31, 2003 and 2002 and to
review our interim financial statements contained in the our Quarterly Report on
Form 10-QSB for the quarterly  period ended  September 30, 2003.  During our two
most recent fiscal years prior to 2003 and through December 24, 2003, we had not
consulted with OUM regarding either (i) the application of accounting principles
to a specified  transaction,  either completed or proposed; or the type of audit
opinion  that might be  rendered  on our  financial  statements,  and  neither a
written report nor oral advice was provided that was an important factor that we
considered  in reaching a decision as to the  accounting,  auditing or financial
reporting  issue;  or  (ii)  any  matter  that  was  either  the  subject  of  a
disagreement, as that term is defined in Item 304(a)(1)(iv)(A) of Regulation S-B
and the related instructions to Item 304 of Regulation S-B.

We provided OUM with a copy of the disclosures contained in our Form 8-K, Item 4
filings and provided OUM with an opportunity to furnish us a letter addressed to
the SEC containing any new  information,  clarification of our expression of our
views,  or the respects in which it does not agree with the  statements  we have
made herein.  OUM has advised us that it has reviewed  these  filings and has no
basis on which to  submit a  letter  addressed  to the SEC in  response  to Item
304(a) of Regulation S-B.

ITEM 8A. CONTROLS AND PROCEDURES

Our management,  with the  participation of our principal  executive officer and
principal  financial officer,  has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Exchange Act) as of the end of the period covered by this Annual  Report.  Based
on such  evaluation,  our principal  executive  officer and principal  financial
officer  have  concluded  that,  as of the end of such  period,  our  disclosure
controls and procedures were designed to ensure that information  required to be
disclosed  by us in reports  that we file or submit  under the  Exchange  Act is
recorded,  processed,  summarized and reported within the time periods specified
in applicable SEC rules and forms and were effective.


                                       71
<PAGE>

                                    PART III

ITEM 9. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

      Following is a list of our Directors  and  Executive  Officers as of March
28, 2005.

<TABLE>
<CAPTION>
NAME                        AGE     CALYPTE POSITION; PRINCIPAL OCCUPATION                           DIRECTOR SINCE
----                        ---     --------------------------------------                           --------------
<S>                         <C>     <C>                                                                  <C>
Roger I. Gale               52      Chairman; Chairman, Wavecrest Group Enterprises Limited               11/04

John J. DiPietro            46      Director; Chief Financial Officer, Chronix Biomedical, Inc.           10/99

Paul E. Freiman             70      Director; President and Chief Executive Officer,
                                      Neurobiological Technologies, Inc.                                 12/97

Julius R. Krevans, M.D.     80      Director; Retired Chancellor Emeritus, Director of                     3/95
                                      International Medical Services University of California,
                                      San Francisco

Maxim A. Soulimov           32      Director; Director of Legal Affairs, Global Corporate                  4/04
                                      Ventures, Limited

J. Richard George           63      President and Chief Executive Officer, Calypte Biomedical               N/A
                                      Corporation

Richard D. Brounstein       55      Executive Vice President and Chief Financial Officer, Calypte
                                      Biomedical Corporation                                               N/A

Richard R. VanMaanen        45      Vice President-Operations and International Business
                                      Development, Calypte Biomedical Corporation                          N/A
</TABLE>

      ROGER I.  GALE was  appointed  to the  Company's  Board of  Directors  and
elected  Chairman in November  2004.  Mr. Gale has served since  October 2001 as
Executive  Chairman of the Board of  Directors of  Wavecrest  Group  Enterprises
Limited, a United Kingdom-based  communications  service provider.  He is also a
founder  and  director  of  Starnorth   Limited,   a  communications  and  media
consultancy.  From 1999 to 2001,  he was  Chairman  and  co-founder  of  End2End
Wireless Limited, a UK wireless access services provider.  Mr. Gale has lectured
in economics at the University of New England  (Australia)  and Lincoln  College
(New  Zealand).  He  serves  as a  Director  of Mechel  Steel  Group,  a Russian
corporation  recently listed on the New York Stock Exchange (NYSE:  "MTL").  Mr.
Gale holds a Master of  Economics  degree from the  University  of New  England,
Australia and a Higher  National  Diploma from the Royal  Agricultural  College,
Cirencester,  Gloucestershire,  England.  Mr.  Gale  is  one  of  two  Directors
appointed to the Company's  Board pursuant to an August 2003  agreement  between
the Company and Marr  Technologies BV ("Marr").  Marr is currently the Company's
largest  stockholder,  holding  approximately  27% of the Company's  outstanding
common stock.

      JOHN J.  DIPIETRO  was  elected to the  Company's  Board of  Directors  in
October 1999. Since September 2002, he has served as the Chief Financial Officer
of Chronix Biomedical Inc, a private biotechnology company. Since February 2003,
Mr.  DiPietro  has also been a member of the Board of Chronix  Biomedical.  From
September  1999 to September  2002 he had been the Chief  Financial  Officer and
Vice  President-Finance  and  Administration  of  Tripath  Technology,  Inc.,  a
semi-conductor  manufacturing  company.  He served as Calypte's  Chief Operating
Officer,  Vice President of Finance,  Chief Financial Officer and Secretary from
December 1997 through  September 1999. From October 1995 until December 1997, he
served as Calypte's  Vice  President  of Finance,  Chief  Financial  Officer and
Secretary.  He is a Certified Public Accountant and received his M.B.A. from the
University of Chicago, Graduate School of Business and a B.S. in Accounting from
Lehigh University.

      PAUL E. FREIMAN has served as a member of the Company's Board of Directors
since December 1997. He has served as the President and Chief Executive  Officer
of  Neurobiological  Technologies,  Inc.  since May 1997. In 1995,  Mr.  Freiman
retired  from his  position as Chairman  and Chief  Executive  Officer of Syntex
Corporation,  a pharmaceutical  company. Mr. Freiman is currently serving on the
board of Penwest Pharmaceuticals Inc. and Neurobiological Technologies,  Inc and
several  private   biotechnology   companies.   He  has  been  chairman  of  the
Pharmaceutical  Manufacturers  Association  of  America  (PhARMA)  and has  also
chaired a number of key  PhARMA  committees.  Mr.  Freiman is also an advisor to
Burrill & Co., a San Francisco merchant bank.


                                       72
<PAGE>

      JULIUS R.  KREVANS,  M.D. has served on the  Company's  Board of Directors
since March 1995.  Dr.  Krevans  served as  Chancellor  Emeritus and Director of
International  Medical Care at University  of  California at San Francisco  from
1993 until his  retirement  in June 2002.  He is also  Chairman  of the Board of
Directors of Neoprobe  Corporation.  Dr. Krevans received his M.D. from New York
University,  College of Medicine and  completed a residency in Medicine at Johns
Hopkins University School of Medicine.

      MAXIM A.  SOULIMOV was  appointed to the  Company's  Board of Directors in
April 2004.  Since November  2002, Mr.  Soulimov has served as Director of Legal
Affairs of Global  Corporate  Ventures  Limited  ("GCVL")  of London,  a company
providing  consultancy services to a variety of private investors including Marr
and its affiliates. From April 2000 through October 2002, Mr. Soulimov served as
in-house  legal  counsel for Lukoil Europe  Limited and Lukoil  Europe  Holdings
Limited,  private companies  involved in the management of all Lukoil downstream
companies outside the Russian Federation. From September 1997 to April 2000, Mr.
Soulimov served as Trainee and then as Assistant Solicitor in the London firm of
Norton Rose  Solicitors.  Mr.  Soulimov holds a Degree in Modern  Languages from
Tver  State  University  in Russia  and an LLB Law  degree  from  University  of
Hertfordshire  in the  United  Kingdom.  Mr.  Soulimov  is one of two  Directors
appointed to the Company's  Board pursuant to an August 2003  agreement  between
the Company and Marr.

      J.  RICHARD  GEORGE,  PH.D.  has served as Calypte's  President  and Chief
Executive  Officer since January 2004.  Dr. George joined the Company in January
2003 as Vice President - Government Affairs.  From September 2000 to March 2002,
Dr. George served as Senior Vice President - Research & Development,  Infectious
Diseases at Orasure  Technologies,  Inc. (Nasdaq:  OSUR). Dr. George served from
April 1995  through  August 2000 as Chief  Science  Officer of Epitope,  Inc. (a
predecessor company to Orasure  Technologies,  Inc.). Dr. George was employed in
various roles at the Centers for Disease Control and Prevention  (CDC) from 1960
to  1995.  He left  the CDC in 1995 as  Chief  of the  Developmental  Technology
Section,  Laboratory  Investigations  Branch of the  Division of  HIV/AIDS.  Dr.
George  received his Ph.D. in  Microbiology  from the University of Georgia;  he
received his Master of Science and B.S.  degrees in Biology  from Georgia  State
University.

      RICHARD D.  BROUNSTEIN  has served as Executive  Vice  President and Chief
Financial  Officer since  joining  Calypte in December  2001,  following a short
period in which he served as a financial  consultant  and  interim  CFO. He also
served as member of the Board of Directors  from  December  2001 until May 2003,
when he did not stand for re-election.  Prior to joining Calypte, Mr. Brounstein
served  as Chief  Financial  Officer  for  Certicom  Corporation,  a mobile  and
wireless  software  security  company from 2000 to 2001.  From 1997 to 2000, Mr.
Brounstein served as Chief Financial  Officer for VidaMed,  Inc., a growth-stage
medical  device  company.  In March 2005 he was  appointed  to the SEC  Advisory
Committee on Smaller  Public  Companies,  where Mr.  Brounstein  will  represent
micro-cap companies and companies in the life sciences industry. The role of the
advisory  committee is to advise the SEC on how best to assure that the costs of
regulation for smaller  companies  under the Act and other  securities  laws are
commensurate  with the benefits.  Mr.  Brounstein is a CPA; he received both his
MBA in Finance and his BA in Accounting from Michigan State University.

      RICHARD   VAN  MAANEN  has   served  as  Vice   President-Operations   and
International  Business  Development  since January 2004.  Mr. Van Maanen joined
Calypte in March  1993 as  Director  of Sales and  Marketing.  He was  appointed
Director of International  Business  Development in January 2001. Mr. Van Maanen
received his B.S. with honors from the University of Guelph, Canada.

BOARD COMMITTEES

      Our Board of Directors  directs the management of our business and affairs
as provided by Delaware law and conducts  its business  through  meetings of the
full board of directors and three standing committees:  the Audit Committee, the
Compensation  Committee  and the  Nominating  Committee.  From time to time when
necessary,  the Board may  establish  other  committees  under its  direction to
address specific issues.


                                       73
<PAGE>

      The Audit Committee  currently includes three independent  Directors,  Mr.
Freiman as Chairman,  Mr. DiPietro and Dr. Krevans. As described in its Charter,
the duties and  responsibilities of the Audit Committee include  recommending to
the Board of Directors the  appointment  or termination of the engagement of our
independent public  accountants,  otherwise  overseeing the independent  auditor
relationship,   reviewing  our  significant  accounting  policies  and  internal
controls and  reporting  its  recommendations  and findings to the full Board of
Directors.  The Board has determined that Messrs. Freiman and DiPietro are Audit
Committee  financial  experts as defined by Item 401(e) of Regulation S-B of the
Securities  Exchange Act of 1934 (the "Exchange Act") and are independent within
the meeting of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.

      The Compensation  Committee currently includes Dr. Krevans as Chairman and
Mr. Freiman. As described in its Charter, the Compensation Committee reviews and
approves the  compensation  of our Chief  Executive  Officer and Chief Financial
Officer,  recommends to the Board the  compensation  of members of the Board and
administers our stock option and other benefit plans.

      The Nominating  Committee  currently  includes Mr. Freiman as Chairman and
Dr. Krevans. As described in its Charter,  the Nominating  Committee assists the
Board in  fulfilling  its oversight  responsibilities  relating to the Company's
corporate  governance  matters,  including the determination of the independence
status of current and  prospective  Board  members,  periodic  evaluation of the
Board  of  Directors,   its  committees  and  individual   directors,   and  the
identification and selection of director nominees.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
executive  officers,  directors,  and  persons  who  own  more  than  10% of the
Company's  common  stock  (collectively,  "Reporting  Persons")  to file initial
reports of ownership and reports on changes in ownership with the Securities and
Exchange Commission (the "Commission"). Such Reporting Persons are also required
by  Commission  rules to furnish  the Company  with copies of all Section  16(a)
forms that they file. To the Company's knowledge,  based solely on the review of
copies of such reports furnished to the Company and written representations that
no other reports were required  during the fiscal year ended  December 31, 2004,
all of the Company's  Reporting  Persons  complied with all  applicable  Section
16(a) filing requirements.

CODE OF BUSINESS CONDUCT

      We have  adopted a Code of  Business  Conduct  that  applies to all of our
employees,  including our Chief Executive  Officer and Chief Financial  Officer,
and to the members of our Board of  Directors.  The Code of Business  Conduct is
posted on our website at www.calypte.com.

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

      The following table sets forth certain compensation awarded or paid by the
Company to persons  who served as its Chief  Executive  Officer and as its other
most highly  compensated  executive officers in 2004  (collectively,  the "Named
Executive  Officers") for the years ended December 31, 2004,  2003 and 2002. The
compensation  table excludes other  compensation  in the form of perquisites and
other  personal  benefits  that  constitute  the lesser of $50,000 or 10% of the
total  salary and bonus earned by each of the named  Executive  Officers in each
fiscal year.


                                       74
<PAGE>

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                             LONG-TERM
                                                                           COMPENSATION
                                                                            SECURITIES
                                                                            UNDERLYING
                                                                              OPTIONS           ALL OTHER
NAME AND PRINCIPAL POSITION         YEAR     SALARY ($)    BONUS ($)        GRANTED (1)      COMPENSATION ($)
---------------------------         ----     ----------    ---------        -----------      ----------------
<S>                                 <C>      <C>              <C>           <C>                  <C>
Anthony J. Cataldo (2)              2004     385,846               0        5,000,000(3)         150,825(4)
   Former Executive Chairman        2003     445,667(5)            0        2,492,341(6)               0
      of the Board                  2002     185,726(5)            0           30,000(6)               0
J. Richard George (7)               2004     251,478               0        5,000,000(3)               0
   Chief Executive Officer and      2003     135,692               0          103,494(8)               0
      President
Jay Oyakawa (9)                     2004      28,269               0          750,000(9)         350,000(9)
   Former President and Chief       2003     209,941               0                0                  0
      Operating Officer and
      Member of the Board
Richard D. Brounstein (10)          2004     212,677               0        1,500,000(3)               0
   Executive Vice President and     2003     201,792               0          757,371(11)              0
      Chief Financial Officer;      2002     122,596          15,000                0                  0
      Former Member of the Board
Richard R. VanMaanen (12)           2004     203,630               0        2,000,000(3)               0
   Vice President-Operations and    2003     148,236               0          131,636(13)         98,248(14)
      International Business        2002     131,729               0           12,570(15)              0
      Development
</TABLE>

------------
(1)   All figures in this column  represent  options to purchase  the  Company's
      common stock.

(2)   Mr.  Cataldo  served as  Executive  Chairman  of the  Board  from May 2002
      through  November  2004.  Concurrent  with his  joining the Company in May
      2002, the Company entered into a five-year  Employment  Agreement with Mr.
      Cataldo that required an annual salary of $400,000.  Mr. Cataldo  resigned
      effective  November 15, 2004 as the Company's  Executive Chairman and as a
      member of its Board of  Directors.  Under  the terms of a  Separation  and
      Consulting  Agreement and Release of Claims  effective  November 15, 2004,
      the Company agreed to pay Mr. Cataldo  approximately $1 million,  of which
      approximately half was to be a non-cash payment, and to accelerate vesting
      of all his then-unvested options.

(3)   Represents  an option to  purchase  the number of shares  indicated  at an
      exercise  price of $0.585 per share,  the  market  price of the  Company's
      common stock on the February 18, 2004  conditional  grant date.  The grant
      was made on that date,  subject to  stockholder  approval of the Company's
      2004 Incentive Plan,  which was approved by the Company's  stockholders on
      June 22, 2004,  the effective  grant date.  The grant,  from the Company's
      2004  Incentive  Plan,  is  exercisable  for 50% of the  shares  upon  the
      effective grant date, with the remainder of the grant  exercisable on June
      22, 2005.

(4)   Represents  (i) $125,825 of  compensation  recognized  upon Mr.  Cataldo's
      exercise of 256,785  options at $0.01 per share on May 28, 2004,  when the
      market price was $0.50 per share;  and (ii) $25,000 paid in December  2004
      under the terms of the Separation and Consulting  Agreement and Release of
      Claims described in Note (2) above.

(5)   At the Company's  request,  Mr. Cataldo deferred  approximately 30% of his
      cash salary from May 2002  through  April 2003.  The figure  reported  for
      calendar  2002 is net of the deferral.  At December 31, 2002,  the Company
      had  recorded  salary  expense  totaling  approximately  $266,000  for Mr.
      Cataldo,  including an accrual of  approximately  $80,000 for his deferred
      salary. All deferred amounts due Mr. Cataldo were paid during 2003 and the
      figure  reported  for  calendar  2003  reflects  the  payment  of all such
      deferred amounts.


                                       75
<PAGE>

(6)   On May 10,  2002,  when the market price of the Common Stock was $0.90 per
      share and pursuant to his  employment  agreement,  Mr. Cataldo was granted
      fully-vested  options  to  purchase  65,556  shares at $0.45 per share and
      options to purchase 200,000 shares at $0.90 per share,  with the option to
      purchase 100,000 shares vested  immediately and the option to purchase the
      remainder  vested on the one-year  anniversary of the option grant. In the
      fourth quarter of 2002, the Company  renegotiated  the terms of the option
      grant in Mr. Cataldo's employment  agreement,  canceling all but 30,000 of
      the options granted at $0.90. Mr. Cataldo was subsequently granted 235,556
      fully-vested  options at an exercise price of $0.32 per share,  the market
      price  of the  Common  Stock on the May 29,  2003  grant  date,  following
      stockholder approval at the May 20, 2003 Annual  Stockholders'  Meeting of
      amendments to the Company's 2000 Equity Incentive Plan.  Additionally,  on
      May 29,  2003,  Mr.  Cataldo  was  granted  fully-exercisable  options  to
      purchase  256,785  shares  at  $0.01  per  share,  in  recognition  of  an
      additional  temporary salary deferral arrangement beyond that described in
      note (5) above,  and  options to  purchase  2,000,000  shares at $0.32 per
      share.  The latter options were  exercisable 50% upon grant and 50% on the
      one year anniversary of the grant.

(7)   Dr.  George has served as  President  and Chief  Executive  Officer  since
      January 2004.  He joined the Company in January 2003 as Vice  President of
      Government Affairs.

(8)   Represents a  fully-vested  option grant for 16,827  shares at an exercise
      price of $0.01 per share in  recognition  of a temporary  salary  deferral
      arrangement  and  grants of 6,667  shares and  80,000  shares,  both at an
      exercise  price of $0.32 per share,  which  vest over a three year  period
      from the grant date.

(9)   Mr. Oyakawa served as the Company's  President and Chief Operating Officer
      and member of the Board from June 2003 to January 2004. Under the terms of
      a January 19, 2004 Separation  Agreement and Release, Mr. Oyakawa resigned
      from his positions as an officer and director of the Company  effective on
      that date. Under the terms of the agreement,  the Company paid Mr. Oyakawa
      a severance  equal to one year's salary of $350,000.  On January 15, 2004,
      when the market price of the common stock was $0.62 per share, the Company
      granted Mr. Oyakawa options to purchase  750,000 shares of common stock at
      an exercise  price of $0.32 per share.  Under the terms of the  Separation
      Agreement and Release,  the options  became fully vested.  Mr. Oyakawa may
      exercise the options at any time through January 15, 2006.

(10)  Mr.  Brounstein has served as Executive Vice President and Chief Financial
      Officer  since  joining the Company in  December  2001.  He had served the
      Company as a financial consultant from July 2001 through December 2001. He
      served as a member of the Board from December 2001 until May 2003, when he
      did not stand for re-election.

(11)  Mr.  Brounstein  was granted  25,000  fully-vested  options at an exercise
      price of $0.32 per share,  the market price of the Common Stock on the May
      29, 2003 grant date,  following  stockholder  approval at the May 20, 2003
      Annual  Stockholders'  Meeting of amendments to the Company's  2000 Equity
      Incentive Plan.  Under the terms of a January 2003  employment  agreement,
      Mr.  Brounstein was granted fully vested options to purchase 83,333 shares
      at an exercise price of $0.32 per share on May 29, 2003. Additionally,  on
      May 29, 2003,  Mr.  Brounstein  was granted  fully-exercisable  options to
      purchase  24,038 shares at $0.01 per share,  in recognition of a temporary
      salary  deferral  arrangement,  and options to purchase  625,000 shares at
      $0.32 per share.  The latter options were  exercisable  50% upon grant and
      50% on the one year anniversary of the grant.

(12)  Mr. Van Maanen has served as Vice President - Operations and International
      Business  Development  since  January 2004. He joined the Company in March
      1993 and served in various sales and marketing  management positions prior
      to his January 2004 appointment.

(13)  Represents a  fully-vested  option grant for 14,423  shares at an exercise
      price of $0.01 per share in  recognition  of a temporary  salary  deferral
      arrangement  and grants of 37,213  shares and  80,000  shares,  both at an
      exercise  price of $0.32 per share,  which  vest over a three year  period
      from the grant date.

(14)  Represents  compensation  recognized  upon Mr. Van Maanen's sale, at $1.36
      per share,  of options  exercised for 14,423 shares at $0.01 per share and
      37,213 shares at $0.32 per share in September 2003.

(15)  Represents  option grants for an aggregate of 12,570 shares,  all of which
      were cancelled in the fourth quarter of 2002.


                                       76
<PAGE>

                     STOCK OPTION GRANTS IN LAST FISCAL YEAR
                                INDIVIDUAL GRANTS

      The  following  table  sets forth  information  concerning  stock  options
granted to the Named  Executive  Officers  during the fiscal year ended December
31, 2004:

<TABLE>
<CAPTION>
                                                             PERCENT OF TOTAL
                                                              OPTIONS GRANTED
                                   NUMBER OF SECURITIES        TO EMPLOYEES     EXERCISE
                                    UNDERLYING OPTIONS          IN FISCAL         PRICE        EXPIRATION
NAME                                     GRANTED                 YEAR(1)        ($/SH)(2)         DATE
----                               --------------------      ----------------   ---------      ----------
<S>                                     <C>                        <C>          <C>            <C>
Anthony J. Cataldo(3)                   5,000,000                  23.90 %        0.585        5/17/2007
J. Richard George                       5,000,000                  23.90 %        0.585        6/22/2014
Jay Oyakawa(4)                            750,000                   3.58 %        0.320(4)     1/15/2006
Richard D. Brounstein                   1,500,000                   7.17 %        0.585        6/22/2014
Richard R. Van Maanen                   2,000,000                   9.56%         0.585        6/22/2014
</TABLE>

------------
(1)   Based on the aggregate of options  granted to employees and consultants to
      the Company to purchase  18,846,000  shares under the 2004  Incentive Plan
      and 1,454,080  shares under the 2000 Equity  Incentive Plan and options to
      purchase  1,000,000  shares granted to  non-employee  Directors  under the
      Director Plan during the year ended December 31, 2004, including grants to
      the Named Executive Officers.

(2)   Except as otherwise noted, the exercise price for all option grants is the
      market price of the  Company's  common  stock on February  18,  2004,  the
      conditional  grant  date.  The  grants  were made on that date  subject to
      stockholder  approval of the  Company's  2004  Incentive  Plan,  which was
      approved by the  Company's  stockholders  on June 22, 2004,  the effective
      grant  date.  The  grant is  exercisable  for 50% of the  shares  upon the
      effective  grant  date and for the  remaining  50% of the grant on the one
      year anniversary thereof.

(3)   Under  the  terms of the  November  15,  2004  Separation  and  Consulting
      Agreement and Release of Claims between the Company and Mr.  Cataldo,  the
      Company agreed to accelerate the vesting of all his then-unvested options.
      The terms of the Separation Agreement and the option grant further provide
      that Mr.  Cataldo's  options remain  exercisable  for a period of 6 months
      following the  termination of the  consulting  arrangement on November 15,
      2006.

(4)   Pursuant to the Employment  Agreement between the Company and Mr. Oyakawa,
      on January 15, 2004,  when the market price of its common stock was $0.62,
      the Company  granted Mr.  Oyakawa  options to purchase  750,000  shares of
      common  stock at $0.32 per share.  Under the terms of the January 19, 2004
      Separation  Agreement and Release between the Company and Mr. Oyakawa, the
      options became  fully-vested.  Mr. Oyakawa may exercise the options at any
      time through January 14, 2006.


                                       77
<PAGE>

The following table sets forth  information  concerning option exercises for the
year ended  December  31,  2004,  with  respect  to each of the Named  Executive
Officers.

     AGGREGATED OPTION EXERCISES IN 2004 AND DECEMBER 31, 2004 OPTION VALUES

<TABLE>
<CAPTION>
                                                                                                            VALUE OF UNEXERCISED
                                                                     NUMBER OF SECURITIES UNDERLYING        IN-THE-MONEY OPTIONS
                                  SHARES                             UNEXERCISABLE OPTIONS AT FISCAL         AT FISCAL YEAR END
                                ACQUIRED ON           VALUE                   YEAR END (#)                    ($) (EXERCISABLE/
       NAME                     EXERCISE (#)     REALIZED ($)(2)      (EXERCISABLE/UNEXERCISABLE)(1)        UNEXERCISABLE)(1)(3)
       ----                     ------------     ---------------      ------------------------------        --------------------
<S>                                  <C>                 <C>                         <C>                           <C>
Anthony J. Cataldo (4)               256,785             128,393                       2,265,556 / 0                  60,684 / 0
J Richard George                           0                   0                     63,680 / 66,481               9,674 / 4,654
Jay Oyakawa (5)                            0                   0                         750,000 / 0                  52,500 / 0
Richard D. Brounstein                      0                   0                         757,371 / 0                  60,684 / 0
Richard R. Van Maanen                      0                   0                          80,000 / 0                   5,600 / 0
</TABLE>

------------
(1)   Reflects  in-the-money  options  granted under the  Company's  2000 Equity
      Incentive  Plan.  None of the options  granted in 2004 from the  Company's
      2004 Incentive Plan is in-the-money at December 31, 2004.

(2)   Value realized is based on the fair market value of the shares on the date
      of exercise as reported on the  Over-The-Counter  Bulletin Board minus the
      exercise price multiplied by the number of shares acquired on exercise.

(3)   Value of unexercised in-the-money options is based on a value of $0.39 per
      share for the Company's  common  stock,  the closing price on December 31,
      2004 as quoted on the American Stock Exchange. Amounts reflect such market
      value minus the exercise  price  multiplied  by the number of shares to be
      acquired on exercise and do not indicate  that the optionee  actually sold
      such stock.

(4)   Under the terms of a November 15, 2004 Separation and Consulting Agreement
      and Release of Claims  between the  Company and Mr.  Cataldo,  the Company
      agreed to accelerate  the vesting of all his  then-unvested  options.  The
      terms of the  Separation  Agreement and the option grant  further  provide
      that Mr.  Cataldo's  options remain  exercisable  for a period of 6 months
      following the  termination of the  consulting  arrangement on November 15,
      2006.

(5)   Pursuant to the Employment  Agreement between the Company and Mr. Oyakawa,
      on January 15,  2004,  when the fair market  value of the Common Stock was
      $0.62,  the Company granted Mr. Oyakawa options to purchase 750,000 shares
      of the Common Stock at $0.32 per share. Under the terms of the January 19,
      2004 Separation Agreement and Release between the Company and Mr. Oyakawa,
      the options became  fully-vested.  Mr. Oyakawa may exercise the options at
      any time through January 14, 2006.

                              EMPLOYMENT CONTRACTS

In January 2004, the Company entered into a three year employment agreement with
Dr,  Richard  George that includes an annual salary of $250,000 and,  subject to
the approval of the Company's stockholders of the 2004 Incentive Plan, the grant
of options to purchase  5,000,000 shares of the Company's common stock. Upon the
stockholders'  approval of the 2004  Incentive Plan on June 22, 2004, the option
was  granted  with an  exercise  price of $0.585  per  share.  The  options  are
exercisable 50% upon grant and 50% on the one year  anniversary of the grant and
have a ten year term. In the event the Company  should  terminate Dr. George for
other than cause prior to the  expiration  of the  employment  agreement,  he is
entitled to the remaining payments due for the full term of the agreement.

In January 2003, the Company entered into a twelve month  employment  agreement,
with automatic  renewal  options,  with Richard  Brounstein that included a base
salary of $200,000 plus options.  Following  stockholder approval at the May 20,
2003 Annual  Stockholders'  Meeting of amendments  to the Company's  2000 Equity
Incentive  Plan, on May 29, 2003, Mr.  Brounstein was granted  fully-exercisable
options to purchase  24,038 shares of the Company's stock at $0.01 per share, in
recognition  of a salary  deferral  arrangement,  fully-exercisable  options  to
purchase  108,333 shares of the Company's  common stock at $0.32 per share,  and
options to purchase  625,000  shares of the Company's  stock at $0.32 per share.
The  latter  options  were  exercisable  50% upon  grant and 50% on the one year
anniversary of the grant.  On June 22, 2004,  upon the approval by the Company's
stockholders of the 2004 Incentive  Plan, Mr.  Brounstein was granted options to
purchase 1,500,000 shares of the Company's common stock at $0.585 per share. The
options are  exercisable  50% upon grant and 50% on the one year  anniversary of
the grant and have a ten year term.  In the event the Company  should  terminate
Mr.  Brounstein for other than cause,  he is entitled to one year's salary under
the terms of the agreement.


                                       78
<PAGE>

DIRECTOR COMPENSATION

      The Company's  directors are reimbursed for out-of-pocket  travel expenses
associated  with  their  attendance  at Board  meetings.  None of the  Company's
non-employee  Directors  received cash compensation from the Company during 2004
or thereafter.  Under the terms of the 1995 Director  Option Plan (the "Director
Plan"),  non-employee directors of the Company are eligible to receive grants of
options to purchase  shares of the  Company's  common  stock.  The  Compensation
Committee  of the  Board  recommends  and  the  Board  approves  the  number  of
non-qualified  stock  options to  purchase  shares of common  stock that will be
granted each year to newly-elected and re-elected directors. Each option granted
under the Director Plan is  exercisable  at 100% of the fair market value of the
Company's  common  stock on the date such  option is  granted.  Each grant vests
monthly over the twelve  month period  commencing  with the  director's  date of
election  or  re-election;  however,  the option  will  become  vested and fully
exercisable  on the date of the next  annual  meeting  of  stockholders  if such
meeting occurs less than twelve months after the date of the grant. The Director
Plan expires in 2005 and the Company expects to seek stockholder  approval for a
new  plan for the  benefit  of its  non-employee  directors  at its 2005  Annual
Meeting of Stockholders.

      The  following  table shows the number of shares of common stock  issuable
upon exercise of options  granted to  non-employee  Directors under the Director
Plan during the fiscal year ended December 31, 2004 and through March 28, 2005.

                                                                      NUMBER OF
NAME AND POSITION                                                     OPTIONS(1)
-----------------                                                     ----------

Roger I. Gale, Director (2)                                             200,000
John J. DiPietro, Director                                              200,000
Paul E. Freiman, Director                                               200,000
Julius Krevans M.D., Director                                           200,000
Otsuka Pharmaceuticals Co Ltd. (Zafar Randawa, Director) (3)            200,000
Maxim A. Soulimov, Director (4)                                         200,000

-------------
(1)   All options were granted at fair market value on the date of grant. Unless
      otherwise  noted,  each  non-employee  Board member was granted options to
      purchase  200,000  shares at $0.585 per share in February 2004 for service
      on the Board in 2004.

(2)   Mr. Gale was granted options to purchase 200,000 shares at $0.31 per share
      in January 2005 pursuant to his  appointment  in November 2004 as a member
      of and Chairman of the Board.

(3)   Dr. Randawa served as a member of the Board as a representative  of Otsuka
      Pharmaceuticals  under the terms of a previous investment  agreement.  Dr.
      Randawa  resigned as a member of the Board  effective  June 30, 2004.  The
      options  granted to Otsuka  Pharmaceuticals  were not  cancelled  upon his
      resignation.

(4)   Mr. Soulimov was granted  options to purchase  200,000 shares at $0.56 per
      share in April 2004 pursuant to his appointment as a member of the Board.


                                       79
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      During 2004, the Compensation  Committee  consisted of Dr. Krevans and Mr.
Freiman,  each  of  whom  is a  non-employee  director.  Neither  member  of the
Compensation  Committee has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

      Except as set forth in the footnotes to this table,  the  following  table
sets forth  information  known to the  Company  with  respect to the  beneficial
ownership of its common stock as of March 28, 2005 for (i) all persons  known by
the Company to own  beneficially  more than 5% of its outstanding  Common Stock,
(ii) each of the Company's  directors,  (iii) each Named  Executive  Officer and
(iv) all directors and executive officers of the Company as a group.

                                                          SHARES
                                                       BENEFICIALLY     % OF
 5% STOCKHOLDERS, DIRECTORS AND OFFICERS(1)                OWNED       TOTAL(2)
 ------------------------------------------            ------------    --------

Marr Technologies BV (3)                                49,540,151      28.42
    Strawinskylaan 1431
    1077XX, Amsterdam
    The Netherlands
SF Capital Partners Ltd. (4)                            10,000,000       5.84
    3600 South Lake Drive
    St. Francis, WI 53235
Roger I. Gale (5)                                        1,081,664          *
J. Richard George (6)                                    2,575,717       1.48
Richard D. Brounstein (7)                                1,507,371          *
John J. DiPietro (8)                                       307,977          *
Paul E. Freiman (9)                                        309,901          *
Julius Krevans, M.D.(10)                                   308,468          *
Maxim A. Soulimov (11)                                     200,000          *
Richard R. Van Maanen (12)                               1,053,589          *

All current directors and executive officers
    as a group (8 persons)                               7,344,687       4.12

-------------
*   Represents beneficial ownership of less than 1%.

(1)   To the Company's  knowledge,  except as set forth in the footnotes to this
      table and subject to applicable community property laws, each person named
      in this table has sole  voting and  investment  power with  respect to the
      shares  set  forth  opposite  such  person's  name.  Except  as  otherwise
      indicated, the address of each of the persons in this table is as follows:
      c/o  Calypte  Biomedical  Corporation,   5000  Hopyard  Road,  Suite  480,
      Pleasanton, California 94588.

(2)   Based on 171,207,589 shares outstanding as of March 30, 2005.

(3)   As reported in Amendment  No. 4 to Schedule 13D dated August 9, 2004 filed
      with the Securities and Exchange  Commission.  Includes  3,125,000  shares
      subject to warrants exercisable within 60 days. Marat Safin has voting and
      investment control over shares held by Marr Technologies BV.

(4)   As reported in Amendment  No. 1 to Schedule 13G filed on February 14, 2005
      with the Securities and Exchange  Commission.  Excludes  3,500,000  shares
      subject to warrants  held by SF Capital  Partners  Ltd.  Such warrants are
      subject to  conversion  caps that  preclude SF Capital  Partners Ltd. From
      utilizing  its exercise  rights within 60 days to the extent that it would
      beneficially  own  (determined  in  accordance  with Section  13(d) of the
      Securities Act of 1934) in excess of 4.999% of the Company's common stock,
      giving effect to such exercise. Michael A. Roth and Brian J. Stark are the
      founding members and direct the management of Staro Asset Management, LLC,
      a Wisconsin limited liability company ("Staro"),  which acts as investment
      manager and has sole power to direct the management of SF Capital Partners
      Ltd.  Through  Staro,  Messrs.  Roth and Stark  possess  sole  voting  and
      dispositive power over all of the shares owned by SF Capital Partners Ltd.


                                       80
<PAGE>

(5)   Includes  916,664  shares subject to options  exercisable  within 60 days.
      Marr  Technologies BV ("Marr"),  the beneficial owner of 49,540,151 shares
      of Calypte  Common  stock (the "Marr  Holdings")  was granted the right to
      nominate two (2)  mutually-agreeable  candidates  for  appointment  to the
      Calypte Board of Directors pursuant to an August 2003 agreement.  Mr. Gale
      was nominated by Marr and subsequently appointed as a Director on November
      15,  2004 upon the  recommendation  of the  Nominating  Committee  and the
      approval of the Calypte Board of Directors.  Mr. Gale disclaims any direct
      or indirect  beneficial  ownership of Marr  Holdings and does not exercise
      any control nor does he take part in any investment  decisions  undertaken
      by Marr and does not have a direct or indirect  pecuniary interest in Marr
      Holdings.

(6)   Includes 2,575,717 shares subject to options exercisable within 60 days.

(7)   Includes 1,507,371 shares subject to options exercisable within 60 days.

(8)   Includes 307,734 shares subject to options exercisable within 60 days.

(9)   Includes 309,901 shares subject to options exercisable within 60 days.

(10)  Includes 308,001 shares subject to options exercisable within 60 days.

(11)  Includes  200,000  shares subject to options  exercisable  within 60 days.
      Marr  Technologies BV ("Marr"),  the beneficial owner of 49,540,151 shares
      of Calypte  Common  stock (the "Marr  Holdings")  was granted the right to
      nominate two (2) mutually  agreeable  candidates  for  appointment  to the
      Calypte  Board of  Directors  pursuant  to an August 2003  agreement.  Mr.
      Soulimov was nominated by Marr and subsequently appointed as a director on
      April 2, 2004 upon the recommendation of the Nominating  Committee and the
      approval  of the  Calypte  Board  of  Directors.  He was  re-elected  as a
      Director  at the annual  Meeting of  Stockholders  on June 22,  2004.  Mr.
      Soulimov  disclaims  any direct or indirect  beneficial  ownership of Marr
      Holdings  and does not  exercise  any control nor does he take part in any
      investment  decisions  undertaken  by Marr and  does not have a direct  or
      indirect pecuniary interest in Marr Holdings.

(12)  Includes 1,053,334 shares subject to options exercisable within 60 days.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In August  2001,  the  Company  issued a $400,000  8.5%  Promissory  Note to LHC
Corporation,  the parent company of its  then-largest  stockholder.  The Company
renegotiated  the note during 2001,  2002 and  subsequently in 2003. The Company
repaid the note in 2003.  In  November  2003,  the Company  entered  into a Note
Purchase Agreement with Marr Technologies, BV ("Marr"), its largest stockholder,
that it subsequently modifed during 2004. The Company issued no notes under this
facility prior to its December 31, 2004 expiration.

In  connection  with Marr's  purchase  of an  aggregate  of $2.5  million of the
Company's  common  stock  during  2003,  the  Company  signed  a  Memorandum  Of
Understanding  to  create a joint  venture  with  Marr in China  to  market  the
Company's current and future products. Additionally, the Nominating Committee of
the Company's Board of Directors  agreed to grant Marr the right to nominate two
mutually-agreeable  representatives to the Company's Board of Directors.  During
2004, Roger I. Gale and Maxim A. Soulimov,  who were both initially nominated by
Marr, were added to the Company's Board of Directors.

In November 2003, the Company formed a joint venture, Beijing Calypte Biomedical
Technology Ltd., with Marr Technologies  Limited, an affiliate of Marr, in which
the Company owns 51% of the stock.


                                       81
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Certain Documents Filed as Part of the Form 10-KSB

      1.    The  Company's  Consolidated  Financial  Statements  are included on
            pages F-1 through F-38 of this Annual Report on Form 10-KSB.

      2.    Exhibits

2.1      Asset  Purchase  Agreement,  dated as of  November  18,  1998,  between
         Calypte and Cambridge;  incorporated by reference from an exhibit filed
         with the Company's Report on Form 8-K dated December 16, 1998.

3.1      Bylaws of the Registrant, as amended on March 7, 2005.

3.2      Restated   Certificate   of   Incorporation   of   Calypte   Biomedical
         Corporation, a Delaware corporation,  filed July 31, 1996; incorporated
         by reference  from an exhibit filed with the  Company's  Report on Form
         10-K dated March 28, 1997.

3.3      Certificate  of Amendment of the Amended and  Restated  Certificate  of
         Incorporation  of  Calypte  Biomedical   Corporation  effective  as  of
         February 14, 2003  incorporated by reference from an exhibit filed with
         the Company's Report on Form 10-K dated March 26, 2003.

3.4      Certificate  of Amendment of the Amended and  Restated  Certificate  of
         Incorporation of Calypte  Biomedical  Corporation,  effective as of May
         27, 2003.

3.5      Certificate of Correction of Calypte Biomedical Corporation,  effective
         as of May 28, 2003.

4.1      Rights Agreement  between the Registrant and Chase Mellon  Shareholders
         L.L.C.  as Rights  Agents  dated  December 15,  1998;  incorporated  by
         reference  from an exhibit filed with the Company's  Report on Form 8-K
         dated December 16, 1998.

10.1     Form of  Indemnification  Agreement between the Company and each of its
         directors and officers, as amended January 19, 2004.

10.2     1991  Incentive  Stock Plan;  incorporated  by reference  from exhibits
         filed with the Company's  Registration  Statement on Form S-1 (File No.
         333-04105) filed on May 20, 1996, as amended to June 25, 1996, July 15,
         1996 and July 26, 1996.

10.3     1995  Director  Option  Plan,  as  amended   effective  May  20,  2003;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Registration Statement on Form S-8 (File No. 333-106389) dated June 23,
         2003.

10.4     1995  Employee  Stock  Purchase  Plan,  amended  as of  May  20,  2003;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Registration Statement on Form S-8 (File No. 333-106389) dated June 23,
         2003.

10.9     Standard Form Lease  1255-1275  Harbor Bay Parkway  Harbor Bay Business
         Park between  Commercial  Center Bank and the  Registrant,  dated as of
         August 22, 1992; incorporated by reference from exhibits filed with the
         Company's Registration Statement on Form S-1 (File No. 333-04105) filed
         on May 20, 1996,  as amended to June 25,  1996,  July 15, 1996 and July
         26, 1996.

10.15^   License Agreement between the Registrant and New York University, dated
         as of August 13, 1993;  incorporated  by reference  from exhibits filed
         with  the  Company's  Registration  Statement  on Form  S-1  (File  No.
         333-04105) filed on May 20, 1996, as amended to June 25, 1996, July 15,
         1996 and July 26, 1996.

10.16    First  Amendment to License  Agreement  between the  Registrant and New
         York  University,  dated  as  of  January  11,  1995;  incorporated  by
         reference from exhibits filed with the Company's Registration Statement
         on Form S-1 (File No.  333-04105)  filed on May 20, 1996, as amended to
         June 25, 1996, July 15, 1996 and July 26, 1996.


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10.17    Second  Amendment to License  Agreement  between the Registrant and New
         York  University,  dated  as  of  October  15,  1995;  incorporated  by
         reference from exhibits filed with the Company's Registration Statement
         on Form S-1 (File No.  333-04105)  filed on May 20, 1996, as amended to
         June 25, 1996, July 15, 1996 and July 26, 1996.

10.18^   Third  Amendment to License  Agreement  between the  Registrant and New
         York  University,  dated  as  of  January  31,  1996;  incorporated  by
         reference from exhibits filed with the Company's Registration Statement
         on Form S-1 (File No.  333-04105)  filed on May 20, 1996, as amended to
         June 25, 1996, July 15, 1996 and July 26, 1996.

10.21^   Sublicense  Agreement  between the  Registrant  and  Cambridge  Biotech
         Corporation, dated as of March 31, 1992; incorporated by reference from
         exhibits  filed with the Company's  Registration  Statement on Form S-1
         (File No.  333-04105)  filed on May 20,  1996,  as  amended to June 25,
         1996, July 15, 1996 and July 26, 1996.

10.22^   Master   Agreement   between  the  Registrant  and  Cambridge   Biotech
         Corporation, dated as of April 12, 1996; incorporated by reference from
         exhibits  filed with the Company's  Registration  Statement on Form S-1
         (File No.  333-04105)  filed on May 20,  1996,  as  amended to June 25,
         1996, July 15, 1996 and July 26, 1996.

10.23^   Sub-License  Agreement  between the  Registrant  and Cambridge  Biotech
         Corporation, dated as of April 12, 1996; incorporated by reference from
         exhibits  filed with the Company's  Registration  Statement on Form S-1
         (File No.  333-04105)  filed on May 20,  1996,  as  amended to June 25,
         1996, July 15, 1996 and July 26, 1996.

10.24^   Agreement between the Registrant and Repligen Corporation,  dated as of
         March 8, 1993;  incorporated  by reference from exhibits filed with the
         Company's Registration Statement on Form S-1 (File No. 333-04105) filed
         on May 20, 1996,  as amended to June 25,  1996,  July 15, 1996 and July
         26, 1996.

10.25^   Non-Exclusive  License  Agreement  between the Registrant and The Texas
         A&M University System, dated as of September 12, 1993;  incorporated by
         reference from exhibits filed with the Company's Registration Statement
         on Form S-1 (File No.  333-04105)  filed on May 20, 1996, as amended to
         June 25, 1996, July 15, 1996 and July 26, 1996.

10.33    Form of Option Agreement for Stockholders of Pepgen Corporation,  dated
         as of October 12, 1995;  incorporated  by reference from exhibits filed
         with  the  Company's  Registration  Statement  on Form  S-1  (File  No.
         333-04105) filed on May 20, 1996, as amended to June 25, 1996, July 15,
         1996 and July 26, 1996.

10.41    Second  Addendum to Lease between the Registrant and Commercial  Center
         Bank dated as of July 21, 1997; incorporated by reference from exhibits
         filed with the Company's Report on Form 10-K dated March 25, 1998.

10.51    Non-Exclusive  Patent and License  Agreement between the Registrant and
         Public Health Service,  dated June 30, 1999;  incorporated by reference
         from an  exhibit  filed  with the  Company's  Report on Form 10-Q dated
         November 15, 1999.

10.55    Master  Lease  Agreement  between  Aquila   Biopharmaceuticals,   Inc.,
         Landlord,  and Biomerieux Vitek, Inc., Tenant,  dated as of October 22,
         1996;  incorporated  by  reference  from  an  exhibit  filed  with  the
         Company's Report on Form 10-K dated March 30, 2000.

10.56    First  Amendment  to  Lease  between  Aquila  Biopharmaceuticals,  Inc.
         Landlord,  and Biomerieux Vitek, Inc.,  Tenant,  dated October 2, 1997;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Report on Form 10-K dated March 30, 2000.

10.57    Sublease   Agreement   between   Registrant   and   Cambridge   Biotech
         Corporation,  assignee of  Biomerieux,  Inc.  dated as of December  17,
         1998;  incorporated  by  reference  from  an  exhibit  filed  with  the
         Company's Report on Form 10-K dated March 30, 2000.


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<PAGE>

10.58    Sublease   Agreement   between   Registrant   and   Cambridge   Biotech
         Corporation,  sub-lessee  of DynCorp,  dated as of December  17,  1998;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Report on Form 10-K dated March 30, 2000.

10.62    Employment Agreement between the Registrant and Nancy E. Katz, dated as
         of October 18, 1999;  incorporated  by reference  from an exhibit filed
         with the Company's Report on Form 10-K dated March 30, 2000.

10.66    Restated  Technology Rights Agreement between  Registrant and Howard B.
         Urnovitz,  Ph.D.  dated as of March 1, 2000;  incorporated by reference
         from an exhibit filed with the Company's  Report on Form 10-Q dated May
         12, 2000.

10.67    Technology Rights Agreement between  Registrant and Chronix  Biomedical
         dated as of March 1, 2000;  incorporated  by reference  from an exhibit
         filed with the Company's Report on Form 10-Q dated May 12, 2000.

10.70^   Distribution  Agreement  between the Registrant and Biobras S.A., dated
         as of May 11, 2000;  incorporated  by reference  from an exhibit  filed
         with the Company's Report on Form 10-Q dated August 10, 2000.

10.73^   Fourth  Amendment to the License  Agreement  between the Registrant and
         New  York  University,  dated  as of  June  1,  2000;  incorporated  by
         reference from an exhibit filed with the Company's  Report on Form 10-Q
         dated August 10, 2000.

10.74    2000 Equity Incentive Plan, amended as of May 20, 2003; incorporated by
         reference  from  an  exhibit  filed  with  the  Company's  Registration
         Statement on Form S-8 (File No. 333-106389) dated June 23, 2003.

10.79    Convertible  Debentures  and Warrants  Purchase  Agreement  between the
         Registrant  and  AMRO  International,  S.A.  dated  January  22,  2001;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Registration  Statement on Form S-3 (File No. 333-58960) filed on April
         13, 2001.

10.84    Stock Purchase  Warrant to purchase common stock dated January 24, 2001
         issued to Townsbury Investments Limited; incorporated by reference from
         an exhibit filed with the Company's  Registration Statement on Form S-2
         (File No.  333-54316) filed on January 25, 2001, as amended on February
         9, 2001.

10.85    Common  Stock  Purchase   Agreement   between   Calypte  and  Townsbury
         Investments  Limited dated November 2, 2000;  incorporated by reference
         from an exhibit filed with the Company's Registration Statement on Form
         S-2 (File No.  333-54316)  filed on  January  25,  2001,  as amended on
         February 9, 2001.

10.86    Registration Rights Agreement between Calypte and Townsbury Investments
         Limited  dated  November 2, 2000;  incorporated  by  reference  from an
         exhibit  filed with the  Company's  Registration  Statement on Form S-2
         (File No.  333-54316) filed on January 25, 2001, as amended on February
         9, 2001.

10.87    Escrow  Agreement  among  Calypte,  Townsbury  Investments  Limited and
         Epstein,  Becker & Green, P.C. dated November 2, 2000;  incorporated by
         reference  from  an  exhibit  filed  with  the  Company's  Registration
         Statement on Form S-2 (File No.  333-54316)  filed on January 25, 2001,
         as amended on February 9, 2001.

10.88    Amendment  to Common  Stock  Purchase  Agreement  between  Calypte  and
         Townsbury  Investments Limited dated January 24, 2001;  incorporated by
         reference  from  an  exhibit  filed  with  the  Company's  Registration
         Statement on Form S-2 (File No.  333-54316)  filed on January 25, 2001,
         as amended on February 9, 2001.

10.91    Third Addendum to Lease between the Registrant and Gee-Aspora LLC dated
         as of October 31, 2001; incorporated by reference from an exhibit filed
         with the Company's Report on Form 10-K dated March 11, 2002.


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<PAGE>

10.92    Registration   Rights   Agreement   between  the  Registrant  and  AMRO
         International,  S.A. dated January 22, 2001;  incorporated by reference
         from an exhibit filed with the Company's Registration Statement on Form
         S-3 (File No. 333-58960) filed on April 13, 2001.

10.93    Escrow Agreement  between the Registrant and AMRO  International,  S.A.
         dated January 22, 2001; incorporated by reference from an exhibit filed
         with  the  Company's  Registration  Statement  on Form  S-3  (File  No.
         333-58960) filed on April 13, 2001.

10.94    Stock  Purchase  Warrant  to  purchase  common  stock  issued  to  AMRO
         International, S.A. on January 24, 2001; incorporated by reference from
         an exhibit filed with the Company's  Registration Statement on Form S-3
         (File No. 333-58960) filed on April 13, 2001.

10.95    6% Convertible Debenture in the principal amount of $550,000, due April
         26,  2001,  issued  to  AMRO  International,  S.A.  ;  incorporated  by
         reference  from  an  exhibit  filed  with  the  Company's  Registration
         Statement on Form S-3 (File No. 333-58960) filed on April 13, 2001

10.96    6% Convertible Debenture in the principal amount of $550,000,  due June
         11,  2001,  issued  to  AMRO  International,  S.A.  ;  incorporated  by
         reference  from  an  exhibit  filed  with  the  Company's  Registration
         Statement on Form S-3 (File No. 333-58960) filed on April 13, 2001

10.97    Common  Stock  Purchase   Agreement   between   Calypte  and  Townsbury
         Investments  Limited dated August 23, 2001;  incorporated  by reference
         from an exhibit filed with the Company's Registration Statement on Form
         S-2 (File No. 333-72268) filed on October 26, 2001.

10.98    Registration Rights Agreement between Calypte and Townsbury Investments
         Limited  dated  August 23,  2001;  incorporated  by  reference  from an
         exhibit  filed with the  Company's  Registration  Statement on Form S-2
         (File No. 333-72268) filed on October 26, 2001.

10.99    Escrow Agreement among Calypte,  Townsbury  Investments Limited and New
         York  Escrow  Services,  LLC dated  August 23,  2001;  incorporated  by
         reference  from  an  exhibit  filed  with  the  Company's  Registration
         Statement on Form S-2 (File No. 333-72268) filed on October 26, 2001.

10.100   Stock Purchase  Warrant to purchase Common Stock dated October 19, 2001
         issued to Townsbury Investments Limited; incorporated by reference from
         an exhibit filed with the Company's  Registration Statement on Form S-2
         (File No. 333-72268) filed on October 26, 2001.

10.101   Securities  Purchase  Agreement  between  the  Registrant  and  Bristol
         Investment  Fund,  Ltd. Dated as of February 11, 2002;  incorporated by
         reference  from an exhibit filed with the Company's  Report on Form 8-K
         dated February 15, 2002.

10.102   Registration  Rights  Agreement  between  the  Registrant  and  Bristol
         Investment  Fund,  Ltd. Dated as of February 11, 2002;  incorporated by
         reference  from an exhibit filed with the Company's  Report on Form 8-K
         dated February 15, 2002.

10.103   Security  Agreement between the Registrant and Bristol Investment Fund,
         Ltd. Dated as of February 11, 2002;  incorporated  by reference from an
         exhibit filed with the Company's  Report on Form 8-K dated February 15,
         2002.

10.104   Form of Secured  Convertible  Debenture  Securities  Purchase Agreement
         between the Registrant and Bristol  Investment  Fund,  Ltd. Dated as of
         February 11, 2002; incorporated by reference from an exhibit filed with
         the Company's Report on Form 8-K dated February 15, 2002.

10.105   Class A Stock Purchase Warrant for 56,667 shares of Common Stock issued
         to Bristol  Investment  Fund,  Ltd.;  incorporated by reference from an
         exhibit filed with the Company's  Report on Form 8-K dated February 15,
         2002.


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<PAGE>

10.106   Class B Stock  Purchase  Warrant  for  400,000  shares of Common  Stock
         issued to Bristol Investment Fund, Ltd.; incorporated by reference from
         an exhibit filed with the Company's  Report on Form 8-K dated  February
         15, 2002.

10.107   Stock  Purchase  Warrant  for 283  shares  of  Common  Stock  issued to
         Alexander Dunham Capital Group, Inc.; incorporated by reference from an
         exhibit filed with the Company's  Report on Form 8-K dated February 15,
         2002.

10.108   Stock  Purchase  Warrant  for 2,550  shares of Common  Stock  issued to
         Bristol Capital, LLC. ; incorporated by reference from an exhibit filed
         with the Company's Report on Form 8-K dated February 15, 2002.

10.109   Form of Common Stock  Purchase  Agreement  between the  Registrant  and
         certain  Purchasers dated November 13, 2001;  incorporated by reference
         from an  exhibit  filed  with the  Company's  Report on Form 10-K dated
         March 11, 2002.

10.110   Form of Common Stock Purchase  Agreement  with certain trade  creditors
         issued pursuant to a private placement  completed on February 12, 2002;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Report on Form 10-K dated March 11, 2002.

10.111   Form of Subscription Agreement and 8% Convertible Note; incorporated by
         reference  from an exhibit filed with the Company's  Report on Form 8-K
         dated June 3, 2002.

10.112   Form of Subscription  Agreement and 8% Convertible Note Issued July 17,
         2002 by  Registrant;  incorporated  by reference  from an exhibit filed
         with the Company's Report on Form 10-Q dated August 14, 2002.

10.113   Employment  Agreement  between the  Registrant  and Anthony J.  Cataldo
         dated May 10, 2002;  incorporated  by reference  from an exhibit  filed
         with the Company's Report on Form 10-Q dated August 14, 2002.

10.114   Amendment  to  Non-Exclusive   Patent  and  License  Agreement  between
         Registrant and Public Health Service, dated April 5, 2002; incorporated
         by reference  from an exhibit filed with the  Company's  Report on Form
         10-Q dated August 14, 2002.

10.115   Investment  Commitment   Arrangement  with  Cataldo  Investment  Group;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Report on Form 8-K dated November 12, 2002.

10.116   Term  Sheet  for  Mercator  Momentum  Fund LP and Form of  Registration
         Rights Agreement;  incorporated by reference from an exhibit filed with
         the Company's Report on Form 8-K dated November 12, 2002.

10.117   Form  of  Subscription  Agreement  under  Regulation  S  for  Caledonia
         Corporate Group Ltd. And Careen Ltd.; incorporated by reference from an
         exhibit filed with the Company's  Report on Form 8-K dated November 12,
         2002

10.118   Bi-Coastal Consulting, Inc. Agreements;  incorporated by reference from
         an exhibit filed with the Company's  Report on Form 8-K dated  November
         12, 2002.

10.119   Employment  Agreement  between the Registrant and Nancy E. Katz,  dated
         October 31, 2002;  incorporated by reference from an exhibit filed with
         the Company's Report on Form 10-Q dated November 14, 2002.

10.120   12%   Convertible   Debenture   Agreement   and  related   Warrant  and
         Registration  Rights  Agreement  dated as of October 22,  2002  between
         Registrant and Mercator Momentum Fund, L.P.;  incorporated by reference
         from an  exhibit  filed  with the  Company's  Report  on Form 8-K dated
         December 10, 2002.

10.121   Distribution  Agreement  between the Registrant and Zhong Yang Pute Co.
         dated as of October 10, 2002; incorporated by reference from an exhibit
         filed with the Company's Report on Form 10-Q/A (No.3) dated February 4,
         2003.


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10.122   Amendment to Agreement with Mercator Momentum Fund dated as of December
         23,  2002;  incorporated  by reference  from an exhibit  filed with the
         Company's Report on Form 8-K/A dated January 21, 2003.

10.123   10% convertible  Debenture and related  Registration  Rights  Agreement
         dated as of January 14, 2003  between  Registrant  and  Mercator  Focus
         Fund,  L.P.;  incorporated  by reference from an exhibit filed with the
         Company's Report on Form 8-K dated January 21, 2003.

10.124   Distribution and Usage Memorandum of Understanding  between  Registrant
         and Safe Blood for Africa  Foundation,  dated as of December  10, 2002;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Registration Statement on Form S-2/A (No. 5) (File No. 333-84660) dated
         February 4, 2003.

10.125   Employment Agreement between Registrant and Richard D. Brounstein dated
         as of January 1, 2003;  incorporated by reference from an exhibit filed
         with the Company's Annual Report on Form 10-K dated March 26, 2003.

10.126   Letter  Agreement  between  Registrant and Nancy E. Katz dated February
         14,  2003;  incorporated  by reference  from an exhibit  filed with the
         Company's Annual Report on Form 10-K dated March 26, 2003.

10.127   Letter Agreement between  Registrant and Bristol  Investment Fund, Ltd.
         Dated  February 28,  2003;  incorporated  by reference  from an exhibit
         filed with the  Company's  Annual  Report on Form 10-K dated  March 26,
         2003.

10.128   2003 Non-Qualified Stock Option Plan; incorporated by reference from an
         exhibit  filed with the  Company's  Registration  Statement on Form S-8
         (File No. 333-106387) dated June 23, 2003.

10.129   Consulting   Agreement  between  Registrant  and  Junebug   Enterprises
         effective  as of April 23,  2003;  incorporated  by  reference  from an
         exhibit filed with the Company's Report on Form 10-QSB dated August 14,
         2003.

10.130   Employment  Agreement between  Registrant and Jay Oyakawa,  dated as of
         August 12, 2003;  incorporated  by reference from an exhibit filed with
         the Company's Report on Form 10-QSB dated August 14, 2003.

10.131   Separation  Agreement,  Mutual  Release  and  Waiver of Claims  between
         Registrant  and  Nancy  E.  Katz,   effective  as  of  June  27,  2003;
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Report on Form 10-QSB dated August 14, 2003.

10.132   Subscription  Agreement  between  Registrant and Marr Technologies B.V.
         dated as of August 1, 2003  incorporated  by reference  from an exhibit
         filed with the Company's Report on Form 10-QSB dated August 14, 2003.

10.133   Subscription  Agreement  between the Company and Marr Technologies B.V.
         for  20,000,000  shares of  Registrant's  Common Stock dated August 28,
         2003;  incorporated  by  reference  from  an  exhibit  filed  with  the
         Company's Report on Form 8-K dated September 12, 2003.

10.134   Agreement for  Commitment to Purchase  Aggregate of  $10,000,000  of 5%
         Promissory Notes between the Company and Marr  Technologies  B.V. dated
         November 13, 2003; incorporated by reference from an exhibit filed with
         the Company's Report on Form 10-QSB dated November 14, 2003.

10.135   Separation  Agreement  and Release  between the Company and Jay Oyakawa
         dated January 19, 2004; incorporated by reference from an exhibit filed
         with the  Company's  Report on Form  10-QSB/A (No. 1) dated January 29,
         2004.

10.136   Employment   Agreement  between  the  Company  and  J.  Richard  George
         effective as of January 20,  2004;  incorporated  by reference  from an
         exhibit  filed with the  Company's  Annual  Report on Form 10-KSB dated
         March 29, 2004.


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<PAGE>

10.137   Lease Agreement between the Company and ARE-1500 East Gude LLC dated as
         of March 1, 2004;  incorporated by reference from an exhibit filed with
         the Company's Annual Report on Form 10-KSB dated March 29, 2004.

10.138   Amendment  No. 1 to Agreement for  Commitment to Purchase  Aggregate of
         $10,000,000  of 5%  Promissory  Notes  between  the  Company  and  Marr
         Technologies  B.V. dated March 19, 2004  incorporated by reference from
         an exhibit filed with the Company's  Report on Form 8-K dated March 19,
         2004.

10.139   Common  Stock  Purchase  Warrant to Purchase  400,000  Shares of Common
         Stock  between  the Company  and Boodle  Hatfield  dated March 19, 2004
         incorporated  by  reference  from an exhibit  filed with the  Company's
         Report on Form 8-K dated March 19, 2004

10.140   Amendment No. 1 to Separation Agreement and Release between the Company
         and Jay Oyakawa dated February 25, 2004  incorporated by reference from
         an exhibit  filed with the  Company's  Quarterly  Report on Form 10-QSB
         dated May 13, 2004.

10.141   Form of  Securities  Purchase  Agreement  between  the  Company and the
         investors in the May 2004 PIPE financing incorporated by reference from
         an exhibit filed with the Company's Report on Form 8-K on June 1, 2004.

10.142   Form of  Registration  Rights  Agreement  between  the  Company and the
         investors in the May 2004 PIPE financing incorporated by reference from
         an exhibit filed with the Company's Report on Form 8-K on June 1, 2004.

10.143   Form of Warrant  between the Company and the  investors in the May 2004
         PIPE financing incorporated by reference from an exhibit filed with the
         Company's Report on Form 8-K on June 1, 2004.

10.144   Amendment  No. 2 to Agreement for  Commitment to Purchase  Aggregate of
         $10,000,000  of 5%  Promissory  Notes  between  the  Company  and  Marr
         Technologies  B.V.  effective May 26, 2004,  incorporated  by reference
         from an exhibit filed with the Company's  report on Form 8-K on June 3,
         2004.

10.145   Common  Stock  Purchase  Warrant to Purchase  500,000  Shares of Common
         Stock  issued by the Company to Marr  Technologies  B.V.  dated May 26,
         2004,  incorporated  by  reference  from  an  exhibit  filed  with  the
         Company's report on Form 8-K on June 3, 2004.

10.146   2004 Incentive  Plan,  incorporated  by reference from an exhibit filed
         with the Company's Registration Statement on Form S-8 on June 25, 2004.

10.147   Form of  Securities  Purchase  Agreement  between  the  Company and the
         investors  in the July 2004 PIPE  financing  incorporated  by reference
         from an exhibit filed with the Company's Report on Form 8-K on July 13,
         2004.

10.148   Form of  Registration  Rights  Agreement  between  the  Company and the
         investors  in the July 2004 PIPE  financing  incorporated  by reference
         from an exhibit filed with the Company's Report on Form 8-K on July 13,
         2004.

10.149   Form of Warrant  between the Company and the investors in the July 2004
         PIPE financing incorporated by reference from an exhibit filed with the
         Company's Report on Form 8-K on July 13, 2004.

10.150   Sublicense  Agreement between the Company and Abbott Laboratories dated
         June 28, 2004  incorporated by reference from an exhibit filed with the
         Company's  Quarterly Report on Form 10-QSB/A (No. 1) dated December 20,
         2004.

10.151   License Agreement and Technology Transfer Agreement between the Company
         and Ani  Biotech Oy dated as of  September  30,  2004  incorporated  by
         referenced  from an  exhibit  filed with the  Company's  Report on Form
         8-K/A (No.1) on December 20, 2004.


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10.152   License  Agreement between the Company and Bio-Rad  Laboratories,  Inc.
         and Bio-Rad Pasteur dated September 28, 2004, incorporated by reference
         from an exhibit filed with the Company's Report on Form 8-K/A (No.1) on
         December 20, 2004.

10.153   Consulting  Contract between the Company and Roger Gale effective as of
         February 9, 2005,  incorporated by reference from an exhibit filed with
         the Company's Current Report on Form 8-K/A (No.1) on February 10, 2005.

10.154   Separation and  Consulting  Agreement and Release of Claims between the
         Company and Anthony J. Cataldo effective as of November 15, 2004.

10.155   Form of  $2,000,000  7%  Promissory  Note issued by the Company to Marr
         Technologies  BV dated  January 14, 2005 and Form of Amendment  thereto
         dated March 30, 2005.

16.1     Letter  from  KPMG  LLP  to  SEC  regarding   Registrant's   change  in
         accountants;  incorporated  by reference  from an exhibit  filed on the
         Company's  Report on Form 8-K dated January 2, 2004 and amended January
         9, 2004.

21.1     Subsidiaries of the Registrant; incorporated by reference from exhibits
         filed with the Company's  Registration  Statement on Form S-1 (File No.
         333-04105) filed on May 20, 1996, as amended to June 25, 1996, July 15,
         1996 and July 26, 1996.

23.1     Consent of Odenberg Ullakko Muranishi & Co. LLP, Independent Registered
         Public Accounting Firm.

24.1     Power of Attorney (see page S-1).

31.1     Certification of Chief Executive Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002


                                       89
<PAGE>

31.2     Certification of Chief Financial Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002

32.1     Certification  pursuant to 18 U.S.C.  Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002

------------

^     Confidential  treatment  has been  granted as to certain  portions of this
      exhibit.

(b)   Reports on Form 8-K filed during the fourth quarter of 2004.

      Form 8-K regarding  Item 1.01 Entry into a Material  Definitive  Contract,
      filed October 4, 2004 - Announcing the License  Agreement  dated September
      28, 2004  between the Company and Bio-Rad  Laboratories,  Inc, and Bio-Rad
      Pasteur, including the Company's press release dated October 4, 2004.

      Form 8-K regarding  Item 1.01 Entry into a Material  Definitive  Contract,
      filed October 5, 2004 - Announcing  the License  Agreement and  Technology
      Transfer  Agreement  dated  September 30, 2004 between the Company and Ani
      Biotech Oy, including the Company's press release dated October 4, 2004.

      Form  8-K  regarding   Item  2.02  Results  of  Operations  and  Financial
      Condition,  filed October 28, 2004 - Announcing  the Company's  results of
      operations  for the  quarter  ended  September  30,  2004,  including  the
      Company's press release dated October 28, 2004.

      Form 8-K regarding  Item 1.01 Entry into a Material  Definitive  Contract;
      Item 1.02  Termination of a Material  Definitive  Contract;  and Item 5.02
      Departure  of  Directors or  Principal  Officers;  Election of  Directors;
      Appointment  of Principal  Officers,  filed November 19, 2004 - Announcing
      the  resignation  of Anthony J. Cataldo as Chairman of the Company and the
      related  termination  of the  Employment  Contract  and  entrance  in to a
      Separation  and  Consulting  Contract  and  Release of Claims  between the
      Company  and Mr.  Cataldo  effective  as of  November  15,  2004;  and the
      appointment  of  Roger I Gale as  Chairman  and  member  of the  Board  of
      Directors, including the Company's press release dated November 16, 2004.

      Form 8-K/A  (No.1)  regarding  Item 1.01 Entry into a Material  Definitive
      Contract,  filed  December 20, 2004 - Modifying  the document  filed as an
      exhibit to the  announcement of the License  Agreement dated September 28,
      2004  between  the  Company and  Bio-Rad  Laboratories,  Inc,  and Bio-Rad
      Pasteur, originally filed with the Company's Form 8-K on October 4, 2004.

      Form 8-K/A  (No.1)  regarding  Item 1.01 Entry into a Material  Definitive
      Contract,  filed  December 20, 2004 - Modifying  the document  filed as an
      exhibit  to the  announcement  of the  License  Agreement  and  Technology
      Transfer  Agreement  dated  September 30, 2004 between the Company and Ani
      Biotech Oy,  originally  filed with the  Company's  Form 8-K on October 5,
      2004.


                                       90
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Odenberg Ullakko Muranishi & Co. LLP ("OUM") is the independent accounting
firm that  audited  the  Company's  financial  statements  for the  years  ended
December 31, 2004 and 2003.  The Audit  Committee  first engaged OUM in December
2003.  OUM  performed  no services for the Company  during  calendar  2003,  but
performed audit and review services for 2003 during calendar 2004. The aggregate
fees billed during 2004 for each of the following categories of services are set
forth below:

                                                      2004         2003 and 2002
                                                    ---------      -------------
      Audit fees                                    $ 191,280         $  135,000
      Audit-related fees                            $  29,447                 --
      Tax fees                                             --                 --
      All other fees                                       --                 --

      "Audit fees" include fees invoiced in 2004 for the audits of the Company's
annual financial  statements for 2004, 2003 and 2002 and the quarterly review of
the statements for the quarters ended March 31, June 30, and September 30, 2004,
and September  30, 2003 as well as fees for  consultation  regarding  accounting
issues  and  their  impact  on  or  presentation  in  the  Company's   financial
statements.  "Audit-related  services"  consists  primarily  of  the  review  of
registration statements and the issuance of related consents. "Tax fees" include
tax planning and the  preparation  of the  Company's  tax returns.  OUM does not
provide  any tax or  financial  information  systems  design  or  implementation
services to the Company.

      The following  table  summarizes  fees billed for services  during 2003 by
KPMG LLP, the Company's former auditors, for each of the following categories of
service:

                                                      2003
                                                    ---------
      Audit fees                                    $ 108,450
      Audit-related fees                            $  62,075
      Tax fees                                             --
      All other fees                                $  53,365

      "Audit fees"  include fees invoiced in 2003 for the audit of the Company's
annual financial statements for 2002 and the quarterly reviews of the statements
for calendar 2003 through  September 30, 2003, as well as fees for  consultation
regarding accounting issues and their impact on or presentation in the Company's
financial statements. "Audit-related services" consisted primarily of the review
of  registration  statements  and the issuance of related  consents.  "Tax fees"
include tax planning and the preparation of the Company's tax returns.  KPMG did
not provide any tax or financial  information  systems design or  implementation
services to the  Company.  "All other fees"  represents  fees billed  during the
fourth  quarter  of 2003 in  connection  with  KPMG's  review  of  documentation
supplied by the Company to the Audit Committee's  outside counsel related to the
SEC's informal inquiry described in Part I, Item 8 of this Form 10-KSB.


                                       91
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm                      F-2

Consolidated Balance Sheets                                                  F-3

Consolidated Statements of Operations                                        F-4

Consolidated Statements of Stockholders' Equity (Deficit)                    F-5

Consolidated Statements of Cash Flows                                        F-7

Notes to Consolidated Financial Statements                                   F-9


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
  Calypte Biomedical Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Calypte
Biomedical  Corporation  as of  December  31,  2004 and  2003,  and the  related
consolidated statements of operations,  stockholders' equity (deficit), and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audits include  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  audited by us present fairly, in all
material  respects,  the consolidated  financial  position of Calypte Biomedical
Corporation at December 31, 2004 and 2003, and the  consolidated  results of its
operations  and its cash  flows for the years then  ended,  in  conformity  with
accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will  continue as a going  concern.  As discussed in Note 1, the Company
has suffered recurring operating losses and negative cash flows from operations,
and management believes that the Company's cash resources will not be sufficient
to sustain its operations  through the second quarter of 2005 without additional
financing. This raises substantial doubt about the Company's ability to continue
as a going  concern.  Management's  plans in  regard to these  matters  are also
described in Note 1. The  financial  statements  do not include any  adjustments
that might result from the outcome of this uncertainty.

/s/ ODENBERG, ULLAKKO, MURANISHI & CO. LLP

San Francisco, California
February 17, 2005, except Note 18,
which is as of March 30, 2005


                                      F-2
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31,
                                                                                           ------------------------------
                                                                                                 2004           2003
                                                                                           -------------    -------------
<S>                                                                                        <C>              <C>
                                         ASSETS
Current assets:
      Cash and cash equivalents                                                            $       1,075    $       5,084
      Accounts receivable, net of allowance of $36 at December 31, 2004 and 2003                     262              369
      Inventory                                                                                    1,524            2,153
      Prepaid expenses                                                                               385              872
      Deferred offering costs, net of accumulated amortization
         of $333 at December 31, 2003                                                                 --               14
      Other current assets                                                                            32               63
                                                                                           -------------    -------------

            Total current assets                                                                   3,278            8,555

Property and equipment, net                                                                        1,225              727
Intangible assets                                                                                  2,886              150
Other assets                                                                                         541               85
                                                                                           -------------    -------------

                                                                                           $       7,930    $       9,517
                                                                                           =============    =============
                     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
      Accounts payable and accrued expenses                                                $       6,218    $       4,313
      Notes and debentures payable, net of $23 and $90 discount at December 31, 2004 and
         2003, respectively                                                                           37              868
      Capital lease obligations - current portion                                                    157                9
      Anti-dilution obligation                                                                     1,638               --
      Deferred revenue                                                                                --              500
                                                                                           -------------    -------------
            Total current liabilities                                                              8,050            5,690

Deferred rent                                                                                         18               26
Capital lease obligations - non-current portion                                                      304                8
Other long term liabilities                                                                           35              180

Mandatorily redeemable Series A preferred stock, $0.001 par value; no shares
   authorized at December 31, 2004 and 2003; 100,000 shares issued and
   outstanding at December 31,
   2004 and 2003; aggregate redemption and liquidation value of $1,000 plus
   cumulative  dividends                                                                           2,816            2,696
                                                                                           -------------    -------------
            Total liabilities                                                                     11,223            8,600
                                                                                           -------------    -------------
Commitments and contingencies

Stockholders' equity (deficit):
      Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued                --               --
         or outstanding
      Common stock, $0.03 par value; 800,000,000 and 200,000,000 shares
         authorized at December 31, 2004 and 2003; 169,456,112 and 136,300,885
         shares issued and
         outstanding as of December 31, 2004 and 2003, respectively                                5,084            4,089
      Additional paid-in capital                                                                 136,757          124,699
      Deferred compensation                                                                           (4)              (7)
      Accumulated deficit                                                                       (145,130)        (127,864)
                                                                                           -------------    -------------
            Total stockholders' equity (deficit)                                                  (3,293)             917
                                                                                           -------------    -------------
                                                                                           $       7,930    $       9,517
                                                                                           =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                                       -----------------------------
                                                                                             2004           2003
                                                                                        ------------    ------------
<S>                                                                                     <C>             <C>
Revenues:
   Product sales                                                                        $      2,797    $      3,467
   Other revenue                                                                                 500              --
                                                                                        ------------    ------------
     Total revenues                                                                            3,297           3,467
                                                                                        ------------    ------------


Operating expenses:
   Product costs                                                                               7,278           6,121
   Research and development costs                                                              2,140           1,544
   Selling, general and administrative costs (non-cash of $733 and
     $6,800 in 2004 and 2003, respectively)                                                    8,979          15,517
                                                                                        ------------    ------------

     Total operating expenses                                                                 18,397          23,182
                                                                                        ------------    ------------

       Loss from operations                                                                  (15,100)        (19,715)
Interest expense, net (non-cash of $2,076 and $6,559 in 2004 and 2003, respectively)          (2,126)         (6,969)
Other income (expense), net                                                                      (38)            272
                                                                                        ------------    ------------

       Loss before income taxes                                                              (17,264)        (26,412)

Income taxes                                                                                       2               2
                                                                                        ------------    ------------

       Net loss                                                                              (17,266)        (26,414)

Less dividends on mandatorily redeemable Series A preferred stock                                 --             (60)
                                                                                        ------------    ------------

Net loss attributable to common stockholders                                            $    (17,266)   $    (26,474)
                                                                                        ============    ============

Net loss per share attributable to common stockholders (basic and diluted)              $      (0.11)   $      (0.47)
                                                                                        ============    ============


Weighted average shares used to compute net loss per share attributable to common
   stockholders (basic and diluted)                                                          155,575          55,903
                                                                                        ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                     YEARS ENDED DECEMBER 31, 2003 AND 2004

                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                          TOTAL
                                                                                                          STOCKHOLDERS'
                                    NUMBER OF     COMMON       ADDITIONAL      DEFERRED    ACCUMULATED    EQUITY
                                  COMMON SHARES    STOCK    PAID-IN CAPITAL COMPENSATION    DEFICIT       (DEFICIT)
                                -----------   -----------   -----------    -----------    -----------    -----------
<S>                               <C>         <C>           <C>            <C>            <C>            <C>
Balances at December 31, 2002     5,058,484   $       152   $    93,804    $        --    $  (101,450)   $    (7,494)

Shares issued under the
  Employee Stock Purchase            18,192            --             4             --             --              4
  Plan
Stock issued in lieu of
  cash to employees,
  vendors and consultants         6,374,523           183         3,716             --             --          3,899
Shares issued through
  private placement, net of
  expenses of $677               28,333,333           850        10,973             --             --         11,823
Shares issued upon
  conversion of debentures,
  accrued interest and           83,067,064         2,492         5,902             --             --          8,394
  delayed registration
  penalties
Shares issued upon exercise
  of warrants and options        13,418,728           411         4,029             --             --          4,440
Fair value of warrants and
  beneficial conversion
  feature granted in
  conjunction with issuance
  of convertible debentures              --            --         2,287             --             --          2,287
Repurchase of beneficial
  conversion feature                     --            --          (128)            --             --           (128)
Dividend requirements of
  mandatorily redeemable
  Series A preferred stock               --            --           (60)            --             --            (60)
Compensation related to
  stock option grants                    --            --         4,136            (10)            --          4,126
Amortization of deferred
  compensation                           --            --            --              3             --              3
Shares issued to acquire
  intellectual property              30,561             1            36             --             --             37
Net loss                                 --            --            --             --        (26,414)       (26,414)
                                -----------   -----------   -----------    -----------    -----------    -----------

Balances at December 31, 2003   136,300,885   $     4,089   $   124,699    $        (7)   $  (127,864)   $       917
                                ===========   ===========   ===========    ===========    ===========    ===========
</TABLE>

                                                                     (Continued)

                                       F-5
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2004

                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                        TOTAL
                                                                                                        STOCKHOLDERS'
                                NUMBER OF        COMMON       ADDITIONAL     DEFERRED    ACCUMULATED    EQUITY
                               COMMON SHARES     STOCK    PAID-IN CAPITAL  COMPENSATION    DEFICIT      (DEFICIT)
                               -----------   -----------   -----------     -----------   -----------    -----------
<S>                             <C>           <C>           <C>           <C>            <C>            <C>
Balances at December 31, 2003   136,300,885   $     4,089   $   124,699   $        (7)   $  (127,864)   $       917

Shares issued under the
  Employee Stock Purchase
  Plan                               35,931             1            12            --             --             13
Stock issued in lieu of
  cash to vendors and
  consultants                     1,185,580            36           643            --             --            679
Fair market value of
  warrants and options
  issued for credit
  facility, intellectual
  property and other
  services                               --            --           606            --             --            606
Intrinsic value of options
  issued to employees                    --            --           251            --             --            251
Proceeds received from
  shares and warrants
  issued through private
  placement, net of
  expenses of $763               26,970,000           809         9,216            --             --         10,025
Shares issued upon
  conversion of debentures,
  accrued interest and
  delayed registration
  penalties                       3,513,819           105           942            --             --          1,047
Shares issued upon exercise
  of warrants and options           518,622            16            43            --             --             59
Compensation related to
  stock option grants                    --            --                           2            --              2
Amortization of deferred
  compensation                           --            --            --             1             --              1
Shares issued to acquire
  intellectual property             931,275            28           345            --             --            373
Net loss                                 --            --            --            --        (17,266)       (17,266)
                                -----------   -----------   -----------   -----------     -----------    -----------
Balances at December 31, 2004   169,456,112   $     5,084   $   136,757   $       ( 4)    $  (145,130)   $    (3,293)
                                ===========   ===========   ===========   ===========     ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                   Year Ended
                                                                                                 December 31,
                                                                                        ----------------------------
                                                                                              2004          2003
                                                                                        ------------    ------------
<S>                                                                                     <C>             <C>
Cash flows from operating activities:
Net loss                                                                                $    (17,266)   $    (26,414)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization                                                                 406             567
   Amortization of deferred compensation                                                           1               3
   Non-cash interest expense attributable to:
     Amortization of debenture discounts and charge for beneficial conversion feature             67           4,835
     Amortization of deferred offering costs                                                      14             997
     Liquidated damages due to delayed registration of stock underlying convertible             (205)            540
     debentures
     Dividends on mandatorily redeemable Series A preferred stock                                120              60
     Anti-dilution obligation                                                                  1,638              --
   Non-cash loss (gain) on settlement of trade debt                                               --              54
   Fair market value of common stock, warrants, options and bonuses granted                    1,461           7,082
   Gain on repurchase of beneficial conversion feature                                            --            (128)
   Warrant liability adjustment                                                                   --            (275)
   Loss on sale of equipment                                                                       2              55
   Changes in operating assets and liabilities:
     Accounts receivable                                                                         107             (41)
     Inventory                                                                                   629          (1,190)
     Prepaid expenses and other current assets                                                    78            (299)
     Deferred offering costs and other assets                                                   (120)             19
     Accounts payable, accrued expenses and deferred revenue                                     396             502
     Other long-term liabilities                                                                (152)            186
                                                                                        ------------    ------------
       Net cash used in operating activities                                                 (12,824)        (13,447)
                                                                                        ------------    ------------
Cash flows from investing activities:
   Proceeds from the sale of equipment                                                            16              --
   Investment in joint venture                                                                  (244)             --
   Investment in intangibles                                                                    (576)           (113)
   Purchase of equipment                                                                        (922)           (433)
                                                                                        ------------    ------------
       Net cash used in investing activities                                                  (1,726)           (546)
                                                                                        ------------    ------------
Cash flows from financing activities:
   Proceeds from sale of stock                                                                10,861          16,994
   Expenses related to sale of stock                                                            (764)           (678)
   Net proceeds from issuance of notes and debentures                                             --           3,353
   Repayment of notes and debentures                                                              --            (735)
   Proceeds from capital lease financing                                                         500              --
   Principal payments on capital leases                                                          (56)             (4)
                                                                                        ------------    ------------
       Net cash provided by financing activities                                              10,541          18,930
                                                                                        ------------    ------------
Net increase (decrease) in cash and cash equivalents                                          (4,009)          4,937

Cash and cash equivalents at beginning of period                                               5,084             147
                                                                                        ------------    ------------
Cash and cash equivalents at end of period                                              $      1,075    $      5,084
                                                                                        ============    ============
</TABLE>

                                                                     (continued)

                                      F-7
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            Year Ended
                                                                                            December 31,
                                                                                     -----------------------
                                                                                        2004         2003
                                                                                     ----------   ----------
<S>                                                                                  <C>          <C>
Supplemental disclosure of cash flow activities:
   Cash paid for interest                                                            $       82   $       37
   Cash paid for income taxes                                                                 2            2

Supplemental disclosure of non-cash activities:
   Dividend on mandatorily redeemable Series A preferred stock                               --           60
   Common stock grants                                                                       --          435
   Conversion of notes and debentures payable and accrued interest to common stock        1,047        8,488
   Fair market value of warrants issued in conjunction with debenture                        --           81
   Beneficial conversion feature, net of write off upon conversion                           --        2,287
   Common stock issued for intellectual property and equipment                              469           --
   Accrued interest converted to note payable                                                --          148
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


(1)   THE COMPANY

Calypte  Biomedical  Corporation  (the  "Company")  develops,  manufactures  and
markets in vitro  diagnostic  tests primarily for the detection of antibodies to
the Human  Immunodeficiency  Virus ("HIV") and other  sexually  transmitted  and
infectious  diseases.  The Company  has  historically  focused  our  business on
urine-based  screening  and  supplemental  tests  for  use in  laboratories.  By
integrating  several proprietary  technologies,  the Company developed urine HIV
antibody tests, the Calypte  urine-based enzyme  immunoassay  ("EIA") HIV Type 1
("HIV-1")  screening test and the Cambridge  Biotech  urine-based  HIV-1 western
blot ("Urine Western Blot") supplemental test. The Company also manufactures and
markets the Cambridge  Biotech  serum-based  western blot ("Serum Western Blot")
supplemental  test for detecting HIV-1  antibodies in serum.  The Company is the
only  company  with  Food  and  Drug  Administration  ("FDA")  approval  for the
marketing and sale of urine-based  HIV-1 antibody tests. The Company's EIA HIV-1
screening test received FDA approval for use in  laboratories in August 1996 and
its Urine Western Blot  supplemental test received FDA approval in May 1998. The
Company's urine-based ELISA tests, with their screening and confirmatory testing
components,  are the only complete FDA approved  urine-based HIV testing method.
In the last quarter of 2004, the Company introduced its HIV-1 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.  The Company's  revenues are currently  generated from
sales of these  products,  which are  referred  to  collectively  as the  "ELISA
tests." The ELISA tests are manufactured in formats that make them most suitable
for high-volume laboratory settings.

The primary  focus of the  Company's  business  in 2004 and for the  foreseeable
future,  however, is in developing and commercializing new test products for the
rapid  detection  of HIV-1 and HIV Type 2, a second type of HIV  ("HIV-2"),  and
other infectious diseases using blood, oral fluid or urine samples.  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.  The Company has
completed field trials of its serum, oral fluid and urine rapid HIV-1/2 antibody
assays that it believes has  validated its  prototype  products.  The Company is
engaged in  clinical  trials in China,  and is  commencing  them  elsewhere,  in
pursuit of regulatory approvals for these tests. Subject to obtaining additional
financing,  the Company  expects to complete the  technology  transfer and begin
international  manufacturing  of one or more of these products  during the first
half of 2005.  The Company  anticipates  that its primary focus for the near and
longer-term future will be completing the development of and commercializing its
rapid test products,  including a rapid incidence test, both internationally and
domestically.

The Company  commenced its operations in 1989 and was incorporated as a Delaware
corporation in June 1996,  concurrent  with the initial  public  offering of its
stock. The Company is headquartered in Pleasanton, California. Its manufacturing
operations  are based in  Rockville,  Maryland and its research and  development
operations are conducted in Rockville and in Vancouver,  Washington. At December
31, 2004, the Company's Rockville manufacturing facilities were FDA approved and
ISO 13485:1996 certified.

The Company  incurred net losses  attributable  to common  stockholders of $17.3
million  and $26.5  million  in 2004 and  2003,  respectively.  The  accumulated
deficit at December 31, 2004 was $145 million.  Based upon its tenuous financial
condition  as  demonstrated  by its $4.8  million  working  capital  deficit  at
December  31,  2004,  its  recurring  losses and its  accumulated  deficit,  the
Company's  independent  accountants  have  issued an opinion on these  financial
statements that cites  substantial doubt about the Company's ability to continue
its  business  operations  as a going  concern.  Although  the Company  issued a
$2,000,000  Promissory Note (the "Note") to Marr  Technologies BV ("Marr"),  its
largest stockholder,  in January 2005 (refer to Note 18, Subsequent Events), the
Note was due on March 31, 2005 and its proceeds were insufficient to provide the
Company the liquidity  required to fully attain its business  milestones  and to
achieve  profitability.  The Company has negotiated an extension of the maturity
date of the Note until April 30,  2005.  The Company  does not believe  that its
cash  resources  are  sufficient  to sustain  its  operations  and  achieve  its
milestones  through  the second  quarter of 2005  without  obtaining  additional
financing.  The  Company  believes  that it  will  need  to  arrange  additional
financing  of  approximately  $15 million to sustain its  operations  throughout
2005,  including the funds  required to repay the Note.  The Company is actively
engaged in seeking additional financing, however, there can be no assurance that
additional financing will be available,  or if it is available, be on acceptable
terms.  The  Company  would,  or  might  be  required  to,  consider   strategic
opportunities,   including  merger,  consolidation,  sale  or  other  comparable
transaction,  to sustain its operations. The Company does 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 it on acceptable  terms, or at all. If additional  financing is not
available or is not available on acceptable  terms,  or the Company is unable to
arrange a suitable strategic  opportunity,  it will be in significant  financial
jeopardy and may be unable to continue its 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 one or more  existing  financing  agreements  that would result in
substantial dilution to the Company's existing stockholders. Although management
expects to be able to raise additional  capital,  there can be no assurance that
the Company will secure such financing or enter into such strategic  agreements,
or  that  its  stockholders  would  approve  the  terms  of such  agreements  or
financing,  if so required.  If such additional financing is not available or is
not  available  on  acceptable  terms,  or if the Company is unable to arrange a
suitable strategic opportunity, it will be in significant financial jeopardy and
may be unable to continue its operations at current levels, or at all.


                                      F-9
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003

STOCK SPLIT

On May 20, 2003, the Company's shareholders approved a 1:30 reverse stock split,
which  became  effective  on May 28,  2003.  The  stated par value of the common
shares  was  changed to $0.03 from  $0.001 per share.  The number of  authorized
shares of common stock remained at 800 million.  All share and per share amounts
presented reflect the stock split.


(2)   SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The  accompanying  consolidated  financial  statements  include  the  results of
operations of the Company, and its wholly-owned subsidiaries,  Calypte, Inc. and
Calypte  Biomedical  India Pty. Ltd. All significant  intercompany  accounts and
transactions have been eliminated in consolidation. The Company accounts for its
51% ownersip interest in Beijing Calypte  Biomedical  Technology Ltd.  ("Beijing
Calypte") using the equity method.  The results of operations of Beijing Calypte
were not material in either 2004 or 2003.

Cash and Cash Equivalents

Cash equivalents consist of investments in money market accounts.

Allowance for Doubtful Accounts

The  Company  provides  an  allowance  for  doubtful   accounts  on  a  specific
identification  basis  when,  due to passage of time or receipt of  information,
there is  appropriate  evidence of a  customer's  inability to make the required
payments.

Inventories

Inventories are stated at the lower of cost or market with cost determined using
the first-in, first-out method.

Property and Equipment

Property and equipment are stated at cost.  Machinery and  equipment,  furniture
and fixtures,  and computer  equipment are  depreciated  using the straight line
method over the estimated useful lives of the assets, generally as follows:

Computer equipment                                            3 years
Machinery and equipment                                       5 years
Furniture and fixtures                                        5 years
Leasehold improvements                                        3-7 years

Leasehold  improvements  and  equipment  under  capital  leases are amortized or
depreciated  over the shorter of the remaining  lease term or the useful life of
the equipment or improvement.

Long-Lived Assets

Long-lived assets are comprised of property and equipment and intangible assets.
Long-lived  assets are reviewed  for  impairment  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of the  asset  may  not be
recoverable.  An estimate  of  undiscounted  future  cash flows  produced by the
asset,  or by the  appropriate  grouping of assets,  is compared to the carrying
value to determine  whether  impairment  exists. If an asset is determined to be
impaired,  the loss is measured based on quoted market prices in active markets,
if available.  If quoted market prices are not  available,  the estimate of fair
value is based on various valuation techniques,  including a discounted value of
estimated  future cash flow and  fundamental  analysis.  The Company  reports an
asset to be disposed of at the lower of its carrying  value or its estimated net
realizable value.

Fair Value of Financial Instruments

Financial  assets  and  short-term  liabilities,   with  the  exception  of  the
convertible  notes and debentures,  have carrying values which approximate their
fair values for all periods presented.  The carrying amounts of cash equivalents
approximate  fair value  because of their  short-term  nature and  because  such
amounts are invested in accounts  earning  market  rates of  interest.  The face
amount of the convertible  notes and debentures  approximate  fair value and are
offset by the calculated  value of the beneficial  conversion  feature,  if any,
embedded in the respective notes or debentures.

                                      F-10
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003

Revenue Recognition

The Company  records  revenues only upon the  occurrence of all of the following
conditions:

      o     The  Company  has  received  a  binding  purchase  order or  similar
            commitment  from  the  customer  or  distributor   authorized  by  a
            representative  empowered  to commit the  purchaser  (evidence  of a
            sale).

      o     The  purchase  price  has  been  fixed,  based  on the  terms of the
            purchase order.

      o     The Company has delivered the product from one of its  manufacturing
            plants  to  a  common  carrier  acceptable  to  the  purchaser.  The
            Company's  customary shipping terms are FOB shipping point.  Because
            of the need for controlled  conditions during shipment,  the Company
            suggests,  but  leaves  to  the  purchaser's  discretion,  acquiring
            insurance for the value of the shipment.  If the purchaser elects to
            insure the shipment, the insurance is at the purchaser's expense.

      o     The Company deems the collection of the amount invoiced probable. To
            eliminate the credit risk associated with international distributors
            with whom the Company has had little or no  experience,  the Company
            requires  prepayment  of the  order or a  letter  of  credit  before
            shipment.

The Company does not permit  product  returns.  The  Company's  products must be
maintained under rigidly controlled  conditions that it cannot control after the
product has been shipped to the customer.

The Company  provides no price  protection.  With the  exception of sales to one
distributor  through October 2003, the Company  recognizes revenue upon shipment
of product. In the case of that distributor,  the distributor held the Company's
inventory on  consignment  and reported  monthly its usage of the products.  The
Company recorded revenue on sales to this distributor based on the distributor's
reported usage. In October 2003, this distributor purchased from the Company the
inventory  on  hand  and  switched  to  a  standard  contractual   relationship;
thereafter, the Company recognized revenue upon shipment.

Deferred Revenue

The Company's  current  sales  practices do not require the deferral of revenues
and, except as described in Note 6, no entries to record  deferred  revenue have
been made during the period included in the accompanying  consolidated financial
statements.

Income Taxes

The Company  accounts for income taxes under  Statement of Financial  Accounting
Standards (SFAS) No. 109,  Accounting for Income Taxes. SFAS No. 109 requires an
asset and liability approach for the financial  reporting of income taxes. Under
SFAS No. 109,  deferred tax assets and liabilities are recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered or settled.  Under SFAS No. 109, the effect on deferred tax assets and
liabilities  of a change in tax rates is recognized in income in the period that
includes the enactment date.

Classification of Financial  Instruments with  Characteristics of both Liability
and Equity

The Company accounts for financial  instruments that it has issued and that have
characteristics  of both  liability and equity in accordance  with SFAS No. 150,
Accounting  for  Certain  Financial  Instruments  with  Characteristics  of Both
Liabilities  and Equity.  SFAS No. 150  specifies  that  mandatorily  redeemable
financial instruments are to be recorded as liabilities unless the redemption is
required to occur upon the  liquidation or  termination of the issuer.  SFAS No.
150 also  specifies  that a financial  instrument  that  embodies a  conditional
obligation  that an issuer may settle by issuing a variable number of its equity
shares is to be classified  as a liability  if, at  inception,  the value of the
obligation is based solely or predominantly on variations  inversely  related to
changes in the fair value of the  issuer's  equity  shares.  Should a  financial
instrument  not be  classified as a liability  under the  provisions of SFAS No.
150,  the Company  further  applies the  criteria in Emerging  Issues Task Force
(EITF) Issue No. 00-19,  Accounting for Derivitave Financial Instruments Indexed
to,  and  Potentially  Settled  in, a  Company's  Own  Stock,  which  enumerates
additional criteria to determine the appropriate  classification as liability or
equity.  The Company  evaluates each  financial  instrument on its own merits at
inception or other  prescribed  measurement or valuation date and may engage the
services  of  valuation  experts  and  other  professionals  to  assist  in  its
detemination of the appropriate classification.

                                      F-11
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003

Stock-Based Compensation

Statement of  Financial  Accounting  Standards  (SFAS) No. 123,  Accounting  for
Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation - Transition  and  Disclosure,  establishes a fair-value  method of
accounting  for stock options and similar  equity  instruments.  The  fair-value
method requires that  compensation cost be measured on the value of the award at
the grant date, and recognized over the service period.  SFAS No. 123 as amended
allows  companies to either account for  stock-based  compensation  to employees
under the  provisions  of SFAS No.  123 as amended  or under the  provisions  of
Accounting   Principles   Board   (APB)   Opinion   No.   25  and  its   related
interpretations.  The  Company  accounts  for its  stock-based  compensation  to
employees and  non-employee  directors in accordance  with the provisions of APB
Opinion No. 25 and Financial Accounting Standards Board ("FASB")  Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation.

The Company has  recorded  deferred  compensation  for the  difference,  if any,
between the exercise  price and the deemed fair market value of the common stock
for  financial  reporting  purposes of stock  options  granted to employees  and
non-employee  directors.  The  compensation  expense  related to such  grants is
amortized   over  the  vesting   period  of  the  related  stock  options  on  a
straight-line basis.

The  Company  accounts  for  equity   instruments  issued  to  non-employees  in
accordance with the provisions of SFAS No. 123, as amended,  and Emerging Issues
Task Force (EITF) Issue No. 96-18  Accounting  for Equity  Instruments  that Are
Issued to Other than  Employees for Acquiring,  or in Conjunction  with Selling,
Goods or Services.

Had the  Company  determined  compensation  cost  based on the fair value at the
grant date for its employee  stock  options and  purchase  rights under SFAS No.
123, the Company's  net loss would have been  increased to the pro forma amounts
indicated below for the years ended December 31:

<TABLE>
<CAPTION>
                                                                       2004           2003
                                                                   -----------    -----------
                                                                  (IN THOUSANDS) (IN THOUSANDS)
<S>                                                                <C>            <C>
Net loss attributable to common stockholders, as reported          $   (17,266)   $   (26,474)
Add: Stock-based employee compensation expense included in
   reported net loss, net of related tax effects                           267          1,082
Less: Stock-based employee compensation expense determined under        (9,709)        (2,794)
                                                                   -----------    -----------
   fair value based method for all awards, net of related tax
   effects

Pro forma net loss attributable to common stockholders             $   (26,708)   $   (28,186)
                                                                   ===========    ===========
Net loss per share attributable to common stockholders:
    As reported                                                    $     (0.11)   $     (0.47)
    Pro forma                                                      $     (0.17)   $     (0.50)
</TABLE>

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share is computed by dividing net loss attributable to common
stockholders  by  the  weighted   average  number  of  shares  of  common  stock
outstanding  during the year.  The  computation  of diluted  earnings per common
share is similar to the computation of basic net loss per share  attributable to
common  stockholders,  except that the  denominator is increased for the assumed
conversion of convertible securities and the exercise of options and warrants to
the extent they are  dilutive  using the  treasury  stock  method.  The weighted
average  shares  used  in  computing  basic  and  diluted  net  loss  per  share
attributable  to  common  stockholders  were the same  for the two  years  ended
December  31, 2004 and 2003.  Options and  warrants  for  40,607,429  shares and
707,783 shares were excluded from the  computation of loss per share at December
31,  2004  and  2003,  respectively,  as  their  effect  is  anti-dilutive.  The
difference  between net loss and net loss  attributable  to common  stockholders
reported in the Consolidated Statement of Operations for 2003 relates to accrued
dividends  on the  Company's  mandatorily  redeemable  Series A preferred  stock
discussed in Note 9.

Concentrations of Credit Risk

Financial  instruments,  which potentially subject the Company to concentrations
of credit  risk,  consist  principally  of cash and cash  equivalents  and trade
accounts receivable.  The Company has investment policies that limit investments
to short-term,  low-risk investments.  Concentration of credit risk with respect
to trade accounts  receivable are limited due to the fact that the Company sells
its products primarily to established distributors and laboratories and requires
prepayment for certain orders where the relationship  between the parties is not
well-established.

                                      F-12
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities,  the  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Risks and Uncertainties

Calypte purchases certain raw materials and components used in manufacturing its
products  from a number of suppliers,  but relies on single  sources for certain
other components. Establishment of additional or replacement suppliers for these
components  cannot be  accomplished  quickly.  Any delay or  interruption in the
supply of these  components  could have a material adverse effect on the Company
by  significantly  impairing its ability to  manufacture  products in sufficient
quantities  to meet  commercial  sales  demand.  Additionally,  if the Company's
financial  condition  impairs its ability to pay for  critical  components  on a
timely  basis  or to  make  royalty  payments  as  required  under  its  license
agreements,  suppliers may delay or cease selling  critical  components to it or
its rights to use license  agreements could be jeopardized,  both of which could
also impair its ability to manufacture and/or market its products.

Comprehensive Loss

The Company has no  components  of other  comprehensive  loss other than its net
loss, and, accordingly, its comprehensive loss is equivalent to its net loss for
the periods presented.

Segment and Geographic Information

SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information
requires an enterprise to report  segment  information  based on how  management
internally evaluates the operating performance of its business units (segments).
The Company's  operations are currently  confined to a single business  segment:
the development and sale of HIV diagnostics.

Most of the  Company's  sales  through 2004 have been to customers in the United
States.  Sales  to  international  customers  accounted  for  16% and 15% of the
Company's revenues in 2004 and 2003, respectively.

Sales to three major domestic customers  accounted for approximately 53% and 58%
of total net sales for the years ended December 31, 2004 and 2003, respectively.
Sales to those  customers  accounted for  approximately  25%, 15% and 13% of the
Company's 2004 net sales and 36%, 14% and 8%, respectively, of the Company's net
sales in 2003.

Reclassifications

Certain  amounts  previously  reported  in the  financial  statements  have been
reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, An Amendment Of
ARB No.  43,  Chapter 4 ("SFAS  151").  SFAS 151  amends  ARB 43,  Chapter 4, to
clarify that abnormal amounts of idle facility expense,  freight, handling costs
and wasted materials (spoilage) be recognized as current period charges. It also
requires  that  allocation  of  fixed  production  overheads  to  the  costs  of
conversion be based on the normal  capacity of the production  facilities.  SFAS
151 is effective  for inventory  costs  incurred  during fiscal years  beginning
after June 15, 2005.  The Company does not believe that the adoption of SFAS 151
will have a material impact on its results of operations or financial position.

In  December  2004,  the FASB issued SFAS No. 123  (revised  2004),  Share-Based
Payment  ("SFAS  123R").  SFAS 123R  addresses the  accounting  for  share-based
payments to employees, including grants of employee stock options. Under the new
standard,   companies  will  no  longer  be  able  to  account  for  share-based
compensation  transactions  using the intrinsic  method in  accordance  with APB
Opinion No. 25,  Accounting  For Stock Issued To Employees.  Instead,  companies
will be required to account for such transactions  using a fair-value method and
recognize  the  expense in the  consolidated  statement  of  income.  As a small
business  issuer,  SFAS 123R will become  effective  for the Company for periods
beginning  after  December 15, 2005.  The Company has not yet  determined  which
fair-value method and transitional provision it will follow; however, it expects
that the adoption of SFAS 123R will have a significant  impact on its results of
operations.  The Company does not expect the adoption of SFAS 123R to materially
impact its overall financial position.  See Stock-Based  Compensation earlier in
this Note 2 for the pro forma impact on net income and net income per share from
calculating  stock-based  compensation costs under the fair value alternative of
SFAS  123.  The  determination  of  compensation  cost for  share-based  payment
transactions  after the  effective  date of SFAS 123R may be different  from the
determination of compensation cost under SFAS 123; however,  the Company has not
yet quantified such differences.

                                      F-13
<PAGE>


                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,
An Amendment Of APB Opinion No. 29 ("SFAS 153"). The guidance in APB Opinion No.
29,  Accounting  for  Nonmonetary  Transactions,  is based on the principle that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
the assets  exchanged.  The  guidance in APB Opinion No. 29,  however,  included
certain  exceptions  to that  principle.  SFAS 153 amends APB  Opinion No. 29 to
eliminate the exception for nonmonetary  exchanges of similar  productive assets
and replaces it with a general  exception  for exchanges of  nonmonetary  assets
that do not have  commercial  substance.  A nonmonetary  exchange has commercial
substance  if the  future  cash  flows of the  entity  are  expected  to  change
significantly as a result of the exchange. SFAS 153 is effective for nonmonetary
asset  exchanges in fiscal  periods  beginning  after June 15, 2005. The Company
does not believe  that the  adoption of SFAS 153 will have a material  impact on
its results of operations or financial position.


(3)   INVENTORY

Inventory  as of  December  31, 2004 and 2003  consisted  of the  following  (in
thousands):

                                                        2004               2003
                                                       ------             ------
Raw materials                                          $  253             $  708
Work-in-process                                           942                962
Finished goods                                            329                483
                                                       ------             ------
Total Inventory                                        $1,524             $2,153
                                                       ======             ======


(4)   PROPERTY AND EQUIPMENT

Property  and  equipment  as of  December  31,  2004 and 2003  consisted  of the
following (in thousands):

                                                           2004           2003
                                                          -------       -------
Computer equipment                                        $   433       $   424
Machinery and equipment                                     2,387         3,582
Furniture and fixtures                                        140           289
Leasehold improvements                                        608         1,227
                                                          -------       -------
                                                            3,568         5,522
Accumulated depreciation and amortization                  (2,343)       (4,795)
                                                          -------       -------
Property and equipment, net                               $ 1,225       $   727
                                                          =======       =======

The Company  recognized  depreciation  expense of $406,000  and $527,000 for the
years ended December 31, 2004 and 2003,  respectively.  During 2004, the Company
closed its Alameda,  California  manufacturing facility. In conjunction with the
closure, the Company transferred all usable machinery and equipment to its other
facilities  and  disposed  of any  remaining  unusable or  redundant  equipment,
furniture and leasehold improvements, nearly all of which was fully depreciated.


(5)   INTANGIBLE ASSETS

During 2004,  the Company  entered into various  license  agreements and similar
arrangements under which it has committed to invest approximately  $2,700,000 to
acquire the technology and materials necessary for the  commercialization of its
rapid  tests.  These  licenses  provide  the  Company  with  access to the HIV-2
antigen, to certain lateral flow technologies and to certain HIV-1/2 peptides to
be used in its rapid tests. The Company has recorded the license amount for each
license  agreement as an intangible asset and, at December 31, 2004, has accrued
amounts  not yet paid in cash or  settled in stock as a current  liability.  The
Company will begin amortizing  these intangible  assets when commercial sales of
the products employing the licensed  technology or materials  commence.  Each of
the license  agreements  also contains a royalty on sales  component  that takes
into consideration the different pricing realities of markets around the world.

                                      F-14
<PAGE>


                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


(6)   ACCOUNTS PAYABLE, ACCRUED EXPENSES AND DEFERRED REVENUE

Accounts payable and accrued expenses as of December 31, 2004 and 2003 consisted
of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                2004    2003
                                                                              ------   ------
<S>                                                                           <C>      <C>
Trade accounts payable                                                        $1,652   $2,189
Accrued royalties                                                                355      582
Accrued salary, severance and vacation pay                                     1,192      125
Accrued interest (including non-cash liquidated damages related to delayed
  registration of stock underlying convertible and other securities of $271        9      308
  in 2003)
Accrued restructuring expense                                                     --      109
Accrued consulting contract expenses                                             803      573
Accrued liabilities under intellectual property license agreements             1,686       --
Other                                                                            521      427
                                                                              ------   ------

Total accounts payable and accrued expenses                                   $6,218   $4,313
                                                                              ======   ======

Deferred revenue                                                              $   --   $  500
                                                                              ======   ======
</TABLE>


In a 1994 Distribution Agreement between the Company and a Japanese distributor,
the  parties  agreed  to offset  an  advance  payment  of  $500,000  made by the
distributor  by a 50%  discount  on  products  supplied  by the  Company  to the
distributor,  until  such  time  as  the  distributor  had  received  cumulative
discounts  totaling  $500,000.  Accordingly,  the Company  recorded the $500,000
payment as deferred revenue that was to be recognized as product was sold at the
stipulated 50% discount.  The Distribution  Agreement expired in August 2004 and
the Company had sold no product to the distributor  under its terms. The Company
recognized the deferred revenue as other revenue in the  Consolidated  Statement
of Operations in 2004.

(7)   NOTES AND DEBENTURES PAYABLE

During  2002 and  through  the first  half of 2003,  the  Company  financed  its
operations primarily through the issuance of notes and debentures, nearly all of
which were  convertible  into shares of its common stock.  By December 31, 2004,
essentially all of the notes and debentures had been converted into common stock
or repaid.  The following tables  summarize the note and debenture  activity for
the years ended December 31, 2003 and 2004 (in thousands).

<TABLE>
<CAPTION>
                                                                                                   Discount      Net
                                   Balance                                             Balance        at      Balance at
                                  12/31/02    Additions     Payments    Conversions   12/31/03     12/31/03    12/31/03
                                  --------    ---------     --------    -----------   --------     --------    --------
<C>                                 <C>         <C>         <C>          <C>          <C>         <C>          <C>
8% Convertible Notes                $ 2,985     $   107     $    --      $(3,092)     $    --     $    --      $    --

8.5% Note - LHC Corporation             393          42        (435)          --           --          --           --
10% Convertible Note - BNC Bach
                                        126          --          --         (126)          --          --           --
10% Convertible Debentures -
   Mercator                              --       1,950          --       (1,058)         892         (36)         856
12% Convertible Debenture -
   Bristol Investment Fund,             465          --          --         (465)          --          --           --
   Ltd
12% Convertible Debenture -
   Mercator                             850       1,750        (300)      (2,234)          66         (54)          12
                                    -------     -------     -------      -------      -------     -------      -------

Total                               $ 4,819     $ 3,849     $  (735)     $(6,975)     $   958     $   (90)     $   868
                                    =======     =======     =======      =======      =======     =======      =======
</TABLE>

                                      F-15
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


<TABLE>
<CAPTION>
                                                                                                        Discount        Net
                                   Balance                                                Balance         at         Balance at
                                  12/31/03    Additions       Payments    Conversions    12/31/04        12/31/04     12/31/04
                                 ---------     ---------     ---------     ---------      ---------     ---------      ---------
<S>                              <C>           <C>           <C>           <C>            <C>           <C>            <C>
10% Convertible Debentures -
   Mercator                            892            --            --          (892)            --            --             --
12% Convertible Debenture -
   Mercator                             66            --            --            (6)            60           (23)            37
                                 ---------     ---------     ---------     ---------      ---------     ---------      ---------
Total                            $     958     $      --     $      --     $    (898)     $      60     $     (23)     $      37
                                 =========     =========     =========     =========      =========     =========      =========
</TABLE>

8% Convertible Notes

Pursuant to Regulation S, the Company issued to accredited investors thirteen 8%
convertible  notes in the aggregate  principal amount of $3,125,000  between May
and  August of 2002 and one  additional  note in the amount of  $107,000  in May
2003, which  represented  accrued interest due on one of the earlier notes. Each
of these  notes had a 24 month  term and was  convertible  at any time  prior to
maturity into shares of the Company's common stock at the lesser of $3.00 or 70%
of the average of the three  lowest  trades  during the 30 day period  preceding
conversion.  The Company received  approximately  $2.6 million in proceeds after
deducting fees and costs associated with issuing these notes.

During 2003,  various holders of the 8% convertible  notes converted  $3,092,000
face value plus accrued interest and liquidated  damages  resulting from delayed
registration  of the  underlying  common stock into  approximately  45.7 million
shares of the Company's common stock at conversion prices ranging from $0.077 to
$1.014 per share.  During  2002,  various  holders of the 8%  convertible  notes
converted  $140,000  face value plus accrued  interest  into  approximately  0.3
million shares of the Company's  common stock at a conversion price of $0.49 per
share.

Under the terms of the notes,  the Company was  required to file a  registration
statement for the shares  underlying the convertible notes within 30 days of the
respective closing dates. The Company did not file a registration  statement for
those shares until July 8, 2003,  which became  effective on July 18, 2003. As a
result of the delay in registration, the Company was required to pay, in cash or
stock, at the subscribers'  option,  liquidated damages in an amount equal to 2%
of the note  principal  for each month of delay.  Between July 2002 and December
31, 2003,  the Company  recognized  an aggregate  of  approximately  $768,000 as
liquidated damages  attributable to these notes,  substantially all of which was
recorded as non-cash  interest  expense and settled by the issuance of shares of
common stock.

At  December  31,  2003,  the Company had  estimated  and accrued  approximately
$205,000 more in  liquidated  damages than  ultimately  required upon the actual
conversion of the  debentures.  The Company  adjusted its estimate  during 2004,
crediting interest expense.


8.5% Note

In August 2001, the Company executed a promissory note in the amount of $400,000
to the  parent  company  of its  then-largest  stockholder.  The  note  required
interest at 8.5% per annum and principal plus accrued  interest was due no later
than  September  14,  2001.  The  Company  did not repay  the note when due.  In
December  2001,  the  parties  agreed  to  execute  a new note in the  amount of
$411,000,  representing  the unpaid principal and accrued but unpaid interest on
the previous  note.  The December 2001 note required  interest at 8.5% per annum
and monthly principal payments beginning in February 2002. In February 2002, the
Company  renegotiated the payment terms to require monthly principal payments of
$17,500 in February and March 2002,  increasing to $35,000 thereafter unless and
until the Company secured at least $2 million in additional financing, excluding
the $850,000 of 12%  convertible  debentures and warrants  discussed  below,  at
which time a $200,000 principal payment would be required.  The Company made the
payment   required  in  February  2002.  In  March  2002,  the  Company  further
renegotiated the repayment terms of this note, suspending any required principal
or interest  payments  until 30 days after the  effectiveness  of the  Company's
registration  statement for the shares underlying the 12% convertible debentures
described  below, at which time the Company would be required to make a $200,000
payment and to resume making monthly payments of $35,000 until the principal and
accrued  interest  were repaid in full.  On February 28, 2003,  due to a lack of
available funds and to avoid a default under the December 2001 note, the Company
and the investor executed a new note in the amount of $435,000, representing the
unpaid  principal and accrued but unpaid interest on the December 2001 note. The
terms of the February 2003 note required monthly  principal  payments of $17,500
plus interest from March 2003 through May 2003,  increasing to $35,000  monthly,
plus  interest,  thereafter,  until the Company  secured at least  $5,000,000 in
additional  financing,  at  which  time the  remaining  balance  became  due and
payable.  The Company repaid the remaining  balance of the note plus interest in
September 2003.


                                      F-16
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


10% Convertible Note

On May 14,  2002,  when the closing  price for its common  stock was $4.20,  the
Company issued,  pursuant to Regulation S, a $150,000 10% convertible promissory
note to BNC Bach  International  Ltd. ("BNC Bach"),  a private  investment  fund
affiliated with Townsbury  Investments Ltd.  ("Townsbury"),  an investor who was
providing  financing to the Company  pursuant to an equity  line.  This note was
originally  convertible  into shares of the Company's  common stock at $1.50 per
share and was due on the earlier of July 14, 2002 or the settlement  date of the
Company's  next  drawdown  under the equity  line.  On July 14,  2002,  when the
closing  price for its common  stock was $10.80 per share,  the  Company and BNC
Bach  agreed  to extend  the  maturity  date of the note  from July 14,  2002 to
December 31, 2002.  In return for the  extension of the maturity  date,  Calypte
agreed to amend  the  conversion  price of the note from  $1.50 per share to the
lesser of (a) $1.50 per share or (b) 60% of the lowest three  closing bid prices
of the Company's  common stock during the 22 business days prior to the date BNC
Bach  notified  the Company of its election to convert the note.  No  accounting
adjustments were required as a result of the extension of the note's maturity or
the amendment of the  conversion  price.  In December  2002,  the Company repaid
approximately  $24,000 of the outstanding  principal plus accrued  interest from
the proceeds of a draw down under its equity line with Townsbury.

On January 15, 2003, the Company and BNC Bach agreed to extend the maturity date
of the Note to March 17,  2003.  On March 17,  2003,  the  Company  and BNC Bach
agreed to further  extend the maturity  date to April 4, 2003. On April 2, 2003,
the Company and BNC Bach agreed to extend the  maturity  date of the Note to May
5, 2003.  On April 30,  2003,  the Company and BNC Bach  amended the  conversion
price to  eliminate  the  conversion  price  ceiling  of $1.50  per share and to
increase the discount  applicable  to the  conversion  price from 40% to 50%. In
return for this  modification of the conversion price, BNC Bach agreed to extend
the  maturity of the note until May 10, 2004.  No  accounting  adjustments  were
required  as a  result  of any of the  extensions  of the  note's  maturity.  In
September  2003,  BNC Bach  converted  the  remaining  $126,000  face value plus
accrued interest into  approximately  2.2 million shares of the Company's common
stock at a conversion price of $0.0612 per share.

10%  Convertible  Debentures-Mercator  Focus Fund,  Mercator  Momentum  Fund and
Mercator  Momentum  Fund III On January 14,  2003,  when the market price of the
Company's  stock was $1.92,  the Company  issued a  $1,000,000  10%  convertible
debenture to Mercator Focus Fund,  L.P.  ("Focus Fund") pursuant to Regulation S
and received net proceeds of $818,000, net of fees and expenses. $308,000 of the
proceeds was used to repay the $300,000  October 2002 12% convertible  debenture
and  accrued  interest  issued  to  Mercator  Momentum  Fund L.P.  ("MMF").  The
debenture  had a one year term and was  convertible  into the  Company's  common
stock at 80% of the average of the three lowest trades for the 20 days preceding
conversion, but not more than $3.00. Under the terms of the debenture agreement,
the Company  agreed to file a  registration  statement  for the shares of common
stock  underlying  the debenture  within 30 days of the closing date and use its
reasonable best  commercial  efforts to cause the  registration  statement to be
declared  effective  within 120 days of the closing  date. On February 14, 2003,
when the price of the  Company's  common stock was $2.01,  the Company and Focus
Fund agreed to extend the registration  period until April 4, 2003. On March 31,
2003, when the market price of the Company's common stock was $0.885, Focus Fund
granted the Company an additional 30-day extension,  until May 5, 2003, in which
to register  the shares of common stock  underlying  this  financing.  On May 1,
2003,  when the market  price of the  Company's  common  stock was  $0.711,  the
Company  received a further  registration  extension until July 1, 2003. On June
26, 2003,  when the trading price for the  Company's  stock was $0.36 per share,
Focus Fund  agreed to extend the  period for filing the  registration  statement
through July 15, 2003. A portion of the shares  underlying  this  debenture  was
included in the Company's S-2 registration statement that was filed with the SEC
on July 8, 2003 and which became effective on July 18, 2003. The market price of
the Company's common stock declined significantly following the effectiveness of
the registration statement and, as a result, the Company did not have sufficient
registered shares to effect the conversion of the entire outstanding  balance of
the debenture.  During the third quarter of 2003, Focus Fund converted  $422,000
face value plus  accrued  interest  and  $43,000 of  liquidated  damages  due to
delayed  registration into  approximately  5.8 million  registered shares of the
Company's  common  stock at  conversion  prices  ranging from $0.07 to $0.09 per
share.  On January  14,  2004,  the  Company and Focus Fund agreed to extend the
maturity  date of this  and  other  debentures  until  July  14,  2004.  See the
subsection entitled "Extension of Maturity Dates" at the end of this section for
a description of agreements made with regard to the extension of the maturity of
these  debentures.  On April 22, 2004,  when the market  price of the  Company's
common stock was $0.625 per share,  Focus Fund converted the remaining  $578,000
face value plus  accrued  interest and  extension  fees into  approximately  2.1
million  shares of restricted  common  stock.  Those shares were included in the
Company's June 15, 2004 registration statement,  which was declared effective on
July 8, 2004.

On January 30, 2003,  when the market price of its stock was $1.86,  the Company
issued a $450,000 10% convertible  debenture to MMF pursuant to Regulation S and
received net proceeds of $440,000, net of fees and expenses. The debenture had a
one year term and was convertible  into the Company's common stock at 80% of the
average of the three lowest trades for the 20 days preceding conversion, but not
more than $3.00. Under the terms of the debenture agreement,  the Company agreed
to file a registration  statement for the shares of common stock  underlying the
debenture within 30 days of the closing date and use its reasonable best

                                      F-17
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


commercial efforts to cause the registration  statement to be declared effective
within 120 days of the closing date. On February 14, 2003, when the price of the
Company's  common  stock was  $2.01,  the  Company  and MMF agreed to extend the
registration   period  of  the  underlying  common  stock  as  required  in  the
Registration  Rights  Agreement until April 4, 2003. On March 31, 2003, when the
market  price of its  common  stock was  $0.885,  MMF  granted  the  Company  an
additional  extension,  until May 5, 2003,  in which to  register  the shares of
common stock underlying this financing. On May 1, 2003, when the market price of
its common stock was $0.711, the Company received a further extension until July
1, 2003. On June 26, 2003, when the market for the Company's stock was $0.36 per
share,  MMF agreed to extend the  period for filing the  registration  statement
through July 15, 2003. A portion of the shares  underlying  this  debenture  was
included in the Company's S-2 registration statement that was filed with the SEC
on July 8, 2003 and which became effective on July 18, 2003. The market price of
the Company's common stock declined significantly following the effectiveness of
the registration statement and, as a result, the Company did not have sufficient
registered shares to effect the conversion of the entire outstanding  balance of
the  debenture.  During the third and fourth  quarters  of 2003,  MMF  converted
$358,000 face value plus accrued interest and $29,000 of liquidated  damages due
to delayed  registration into approximately 2.6 million registered shares of the
Company's  common  stock at  conversion  prices  ranging from $0.11 to $0.14 per
share.  On January 14,  2004,  the Company and MMF agreed to extend the maturity
date of this and  other  debentures  until  July 14,  2004.  See the  subsection
entitled  "Extension  of  Maturity  Dates"  at the  end of  this  section  for a
description  of agreements  made with regard to the extension of the maturity of
these  debentures.  On July 12,  2004,  when the market  price of the  Company's
common stock was $0.58 per share, MMF converted the remaining $92,000 face value
plus accrued interest and extension fees into  approximately  0.3 million shares
of common  stock.  Those  shares were  included in the  Company's  June 15, 2004
registration statement, which was declared effective on July 8, 2004.

On March 13,  2003,  when the market  price of its stock was $1.50,  the Company
issued a $400,000  10%  convertible  debenture  to Focus Fund and a $100,000 10%
convertible debenture to Mercator Momentum Fund III, L.P. ("Momentum Fund III"),
each pursuant to Regulation S, and received aggregate proceeds of $400,000,  net
of fees and expenses.  Each  debenture  had a one-year term and was  convertible
into the Company's common stock at 65% of the average of the three lowest trades
for the 20 days preceding  conversion,  but not more than $2.10. Under the terms
of the debenture agreements, the Company agreed to file a registration statement
for the shares of common stock  underlying the debentures  within 30 days of the
closing  date and use its  reasonable  best  commercial  efforts  to  cause  the
registration  statement to be declared  effective within 120 days of the closing
date.  On April 11, 2003,  when the market price of its common stock was $0.735,
the Company  received an  extension  until May 5, 2003 in which to register  the
shares of common  stock  underlying  this  financing.  On May 1, 2003,  when the
market price of its common stock was $0.711,  the Company received an additional
registration  extension  until July 1, 2003. On June 26, 2003,  when the trading
price for the Company's stock was $0.36 per share,  Focus Fund and Momentum Fund
III agreed to extend the period for filing the  registration  statement  through
July 15, 2003. A portion of the shares underlying the debentures was included in
the Company's S-2 registration  statement that was filed with the SEC on July 8,
2003 and which  became  effective  on July 18,  2003.  The  market  price of the
Company's common stock declined significantly following the effectiveness of the
registration  statement  and, as a result,  the Company did not have  sufficient
registered shares to effect the conversion of the entire outstanding  balance of
the Focus  Fund  debenture.  During the third  quarter  of 2003,  Focus Fund and
Momentum  Fund III  converted an  aggregate of $278,000  face value plus accrued
interest  and $50,000 of  liquidated  damages due to delayed  registration  into
approximately  4.1 million  registered  shares of the Company's  common stock at
conversion  prices  ranging from $0.07 to $0.10 per share.  On January 14, 2004,
the  Company  and MMF  agreed  to  extend  the  maturity  date of this and other
debentures  until July 14,  2004.  See the  subsection  entitled  "Extension  of
Maturity  Dates" at the end of this section for a description of agreements made
with regard to the extension of the maturity of these  debentures.  On April 22,
2004, when the market price of the Company's  common stock was $0.625 per share,
Mercator  Focus Fund  converted the  remaining  $222,000 face value plus accrued
interest and extension fees into  approximately 1 million shares of unregistered
common  stock.  Those  shares  were  included  in the  Company's  June 15,  2004
registration statement, which was declared effective on July 8, 2004.

The Company  determined that each of the 10%  convertible  debentures was issued
with a beneficial  conversion feature. The intrinsic value was calculated at the
date of issue as the difference  between the  conversion  price of the debenture
and the fair value of the  Company's  common stock into which the  debenture was
convertible,  multiplied by the number of common shares into which the debenture
was  convertible,  limited by the face amount of the debenture.  The Company has
treated the beneficial  conversion  features as a discount to the face amount of
the  debentures  and  is  amortizing  them  over  the  term  of  the  respective
debentures.  Upon  conversion  of  all  or  a  portion  of  the  debenture,  the
proportionate share of unamortized discount was charged to interest expense.

Extension of Maturity Dates

On January 14, 2004,  the Company  extended the maturity  date of the  following
debentures until July 14, 2004:

      o     10% Convertible  Debenture dated January 14, 2003 issued to Mercator
            Focus Fund, LP

      o     10% Convertible  Debenture dated January 30, 2003 issued to Mercator
            Momentum Fund, LP

      o     10% Convertible  Debentures  dated March 13, 2003 issued to Mercator
            Momentum Fund III, LP and Mercator Focus Fund, LP

      o     12%  Convertible  Debenture  dated April 29, 2003 issued to Mercator
            Momentum Fund, LP

                                      F-18
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


In return for the extension of the maturity dates,  the Company agreed to pay an
additional  extension fee equal to 2% of the outstanding  principal  balance per
month  until the  earlier  of the  extended  maturity  date or  conversion.  The
extension fee was payable 1% in cash and 1% in stock. Additionally,  the Company
agreed  to  file a  registration  statement  including  the  shares  potentially
issuable upon the conversion of the remaining  outstanding debenture balances by
no later than April 29, 2004. The shares  issuable as a portion of the extension
fee were to be included in the registration  statement.  On April 23, 2004, when
the market price of the  Company's  common stock was $0.625 per share,  Mercator
Focus Fund and Mercator  Momentum Fund each agreed to extend from April 29, 2004
until May 14,  2004 the  period  in which the  Company  was  required  to file a
registration statement including shares of its common stock previously issued to
them or, in the case of Mercator  Momentum Fund,  issuable to it upon conversion
of remaining  outstanding  debentures.  On May 7, 2004, when the market price of
the  Company's  common  stock was $0.48 per  share,  the  Company  and  Mercator
Momentum Fund and Mercator Focus Fund agreed to further extend from May 14, 2004
until 21 days following the closing of a private  placement of equity  financing
of at least  $5,000,000,  but in any case to no later  than June 30,  2004,  the
period  in which the  Company  was  required  to file a  registration  statement
including  shares of its  common  stock  issued  or  potentially  issuable  upon
conversion.   Such  shares  were  included  in  the  Company's   June  15,  2004
registration statement, which was declared effective on July 8, 2004.

12% Convertible Debentures - Bristol Investment Fund

On February  11,  2002,  when the closing  market  price of its common stock was
$7.50 per share,  the Company  signed a  securities  purchase  agreement  with a
private investment fund, Bristol Investment Fund, Ltd.  ("Bristol")  pursuant to
which Bristol agreed to purchase two 12% secured  convertible  debentures for an
aggregate of $850,000,  each of which matures two years after its issuance.  The
first debenture,  in the amount of $425,000,  was purchased by Bristol, under an
exemption  provided  by  Regulation  S, on  February  11,  2002 and the  Company
received net proceeds of $368,000.  On May 10, 2002,  when the closing price for
its stock was  $0.90,  the  company  issued a second  $100,000  12%  convertible
debenture to Bristol,  also under an  exemption  provided by  Regulation  S, and
received net proceeds of $90,000.  This debenture had the same terms as those of
the initial  debenture and reduced the remaining  commitment under the agreement
to $325,000.  The outstanding  debentures accrued interest at the annual rate of
12%, payable  quarterly in common stock or cash at Bristol's  option.  Under the
terms of the  debentures,  Bristol  could elect at any time prior to maturity to
convert the balance  outstanding on the debentures  into shares of the Company's
common stock.  The  conversion  price,  as modified,  for any  debenture  issued
pursuant  to this  agreement  was equal to the lesser of (i) the  average of the
lowest three closing bid prices during the 20 trading days immediately  prior to
the  conversion  date  discounted  by 40% and (ii)  $1.50,  subject  to  certain
anti-dilution provisions.

During May 2002,  Bristol converted a principal amount of approximately  $60,000
plus accrued interest into 148,747 shares of the Company's common stock at $0.42
per  share.   Subsequent  to  the  February  14,  2003  effective  date  of  the
registration  statement on Form S-2/A (No. 6) which registered  shares of common
stock  underlying the 12% Convertible  Debentures in the amount of $525,000 that
we issued to Bristol Investment Fund, Ltd. ("Bristol") in February 2002, Bristol
converted  its  remaining  balance due under the  debentures,  an  aggregate  of
$465,000 face value,  plus accrued  interest and $122,000 of liquidated  damages
due to  delayed  registration,  into  approximately  0.9  million  shares of the
Company's  common stock at conversion  prices  ranging from $0.525 to $0.966 per
share during the first half of 2003.  The debenture  discounts  were  eliminated
concurrent with the conversions.

In conjunction  with this  transaction,  the Company issued a Class A warrant to
purchase  up to  56,667  shares of its  common  stock.  The Class A warrant  was
exercisable  for a period of seven  years  after  issuance  at a price per share
equal to the lesser of (i) the average of the lowest three trading prices during
the 20 trading days immediately prior to the exercise date discounted by 30% and
(ii) $3.45. Bristol exercised the warrant in September 2003 at a price of $0.077
per share.  The warrant was valued on the date of issue at $6.30 per share using
the Black-Scholes option-pricing model with the following assumptions:  expected
dividend yield of 0.0%; risk free interest rate of 4.7%, the contractual life of
7 years,  and volatility of 80%. As additional  fees for this  transaction,  the
Company also issued a warrant to purchase 2,833 shares of its common stock.  The
warrant to purchase the 2,833 shares has the same terms and the same fair market
value as the Class A warrant and was  exercised  for 2,550  shares in  September
2003.

The  Company  also issued  Bristol a Class B warrant to  purchase an  additional
400,000  shares of its  common  stock.  Upon the  effectiveness  of the  related
registration  statement for the shares  underlying the Class B warrant,  Bristol
was required to exercise the Class B warrant in  conjunction  with the mandatory
monthly  conversion of its debentures so that each month the Company would issue
to Bristol, pursuant to the Class B warrant, a number of shares equal to 150% of
the  shares  issued  to the  fund  pursuant  to the  monthly  conversion  of the
debentures.  The Class B warrant was  exercisable  at a price per share equal to
the lesser of (i) the average of the lowest three  trading  prices during the 20
trading days  immediately  prior to the exercise date discounted by 30% and (ii)
$6.45. The Company was not permitted to include the shares underlying the

                                      F-19
<PAGE>


                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


400,000 share Class B warrant in its registration statement, and Bristol was not
obligated  to begin  exercising  the warrant  until such time as the  underlying
shares  were  registered,  however  Bristol  exercised  it in  its  entirety  in
September  2003 at a price of $0.0825  per share.  The warrant was valued on the
date of issue at $4.20 per share using the  Black-Scholes  option-pricing  model
with the  following  assumptions:  expected  dividend  yield of 0.0%;  risk free
interest rate of 2.2%, the contractual life of 1 year, and volatility of 80%.

In accordance  with EITF Issue No. 00-19,  Accounting for  Derivative  Financial
Instruments  Indexed To, and Potentially  Settled In, a Company's Own Stock, and
the terms of the Class A and Class B warrants  issued to Bristol in  conjunction
with the 12%  debentures  in February  2002,  the fair value of the warrants was
accounted for as a liability,  with an offsetting discount to the carrying value
of the first $425,000  debenture,  which was to be amortized as interest expense
over the 24 month term of the debenture. The combined fair values of the Class A
and Class B  warrants  treated  as a  discount  to the  debenture  exceeded  the
$425,000  amount of the  debenture.  Accordingly,  the  aggregate  amount of the
warrant liability and the offsetting debenture discount recorded attributable to
the  Class A and  Class B  warrants  was  limited  to  $425,000  at the  time of
issuance.  In September  2003,  Bristol  exercised  both the Class A and Class B
warrants.  The Company  issued  456,667  shares of its common stock and received
proceeds  of  approximately   $38,000.  The  Company  reclassified  the  warrant
liability  to  equity at the time of the  exercise  of the  warrants.  Until the
warrants were  exercised,  the liability was marked to market through  earnings.
The Company recorded a net non-cash  interest expense reduction of approximately
$275,000  attributable to the  re-measurement  of the warrant  liability for the
year ended December 31, 2003.

The  Company did not receive  any  additional  consideration  over and above the
negotiated price for the debentures in connection with the issuance of the Class
A and B warrants.  The Class A and B warrants were contemplated and considered a
part of the negotiated  transaction  for the debentures  issued to Bristol.  The
Class A and Class B  warrants  were  intended  to act as  consideration  for the
investment  by Bristol and also  provided the Company with  immediate  cash upon
their  exercise.  The Class B warrants were intended to provide the Company with
cash over a one year period  following  the effective  date of the  registration
statement for the shares  underlying  the  debentures  and warrants.  Management
believed  that  the  terms of the  financing  were on the  best  possible  terms
available as a result of the Company's tenuous  financial  condition at the time
of the arrangement.

The Company determined that both of the debentures issued to Bristol were issued
with a  beneficial  conversion  feature.  Upon  conversion  of a portion  of the
debenture,  the Company charged the proportionate share of unamortized  discount
to interest expense.  The intrinsic value was calculated at the date of issue as
the difference  between the conversion price of the debenture and the fair value
of the  Company's  common  stock  into  which  the  debenture  was  convertible,
multiplied  by the  number  of  common  shares  into  which  the  debenture  was
convertible.  Because the Company also issued  warrants in conjunction  with the
first  $425,000  debenture,  as  described  above,  the value of the  beneficial
conversion  feature was not accorded  treatment as a discount to the  debenture,
since the valuation of the accompanying  warrants had reduced the carrying value
of the  debenture to zero at the time of  issuance.  The  beneficial  conversion
feature attributable to the second $100,000 debenture was limited to $100,000 by
the face amount of the  debenture and recorded as a discount to the debenture to
be amortized to interest expense over the life of the debenture.


12% Convertible Debentures- Mercator Momentum Fund

On September  12, 2002,  when the market price of its common stock was $3.00 per
share,  the Company  issued a $550,000  12%  convertible  debenture  to MMF. The
debenture was convertible  into the Company's common stock at 85% of the average
of the three lowest trades for the 20 days preceding conversion.  This debenture
was the first tranche of a $2.0 million  commitment that was to become available
upon the filing and effectiveness of a registration  statement.  Under the terms
of the debenture agreement,  the Company agreed to file a registration statement
for the shares of common stock  underlying  the debenture  within 45 days of the
closing  date and use its best  commercial  efforts  to cause  the  registration
statement  to be  declared  effective  within 135 days of the closing  date.  At
December  31, 2002,  the Company had  obtained an extension of the  registration
period  through  February 18, 2003. On February 14, 2003,  when the price of the
Company's  common  stock was  $2.01,  the  Company  and MMF agreed to extend the
registration  period  until April 4, 2003.  On March 31,  2003,  when the market
price of the  Company's  common  stock  was  $0.885,  the  Company  amended  the
conversion  price to eliminate the conversion  price floor of $1.50 per share in
return for an  extension  until May 5, 2003 in which to  register  the shares of
common stock underlying this and certain other Mercator-group debentures. On May
1, 2003,  when the market  price of its common  stock was  $0.711,  the  Company
received a further registration  extension until July 1, 2003. On June 26, 2003,
when the trading price for the Company's stock was $0.36 per share, MMF agreed

                                      F-20
<PAGE>


                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


to further extend the period for filing the registration  statement through July
15, 2003. A portion of the shares  underlying this agreement was included in the
Company's S-2 registration statement that was filed with the SEC on July 8, 2003
and that became  effective on July 18, 2003.  The market price of the  Company's
common  stock  declined   significantly   following  the  effectiveness  of  the
registration  statement  and, as a result,  the Company did not have  sufficient
registered shares to effect the conversion of the entire outstanding  balance of
the debenture.  During the third quarter 2003, MMF converted the entire $550,000
face value plus accrued  interest into  approximately  4.8 million shares of the
Company's common stock, of which approximately 0.6 million were unregistered, at
conversion prices ranging from $0.09 to $0.22 per share. The unregistered shares
were included in the Company's June 15, 2004 registration  statement,  which was
declared effective on July 8, 2004.

On October 22, 2002, the Company issued a $300,000 12% convertible  debenture to
MMF. The debenture and related  accrued  interest was repaid on January 13, 2003
in conjunction  with the issuance of a $1,000,000 10%  convertible  debenture to
Focus Fund. Upon the repayment,  the Company  charged the remaining  unamortized
amount  of the  beneficial  conversion  feature  of  approximately  $271,000  to
non-cash interest expense.  Additionally, the repayment of this note resulted in
the Company  effectively  repurchasing  a portion of the  beneficial  conversion
feature.  In  situations  in  which a debt  instrument  containing  an  embedded
beneficial conversion feature is extinguished prior to conversion,  a portion of
the debt payment is allocated to the  beneficial  conversion  feature  using the
intrinsic  value of that  conversion  feature at the  extinguishment  date.  Any
residual amount is then allocated to the  convertible  security with the Company
recognizing a gain or loss to remove the remaining liability.  The repurchase of
the beneficial  conversion feature upon repayment of the debenture resulted in a
non-cash gain of $128,000, recorded as other income, during the first quarter of
2003.

On April 29,  2003,  when the price of its common  stock was $0.82,  the Company
issued a $300,000 12% convertible  debenture to MMF and received net proceeds of
$245,000.  The debenture  was  convertible  into shares of the Company's  common
stock at 70% of the average of the three lowest trades for the 20 days preceding
conversion, but not more than $1.20. Under the terms of the debenture agreement,
the Company  agreed to file a  registration  statement  for the shares of common
stock  underlying  the debenture  within 30 days of the closing date and use its
reasonable best  commercial  efforts to cause the  registration  statement to be
declared effective within 120 days of the closing date. On May 1, 2003, when the
market price of its common stock was $0.711,  the Company  received an extension
until  July 1,  2003  in  which  to  file  the  registration  statement  for the
underlying  shares.  On June 26, 2003,  when the trading price for the Company's
stock was $0.36 per  share,  MMF  agreed to extend  the  period  for  filing the
registration statement through July 15, 2003. A portion of the shares underlying
this  debenture  were included in the  registration  statement  that the Company
filed with the SEC on July 8, 2003 and which became  effective on July 18, 2003.
The market price of the Company's common stock declined significantly  following
the  effectiveness of the registration  statement and, as a result,  the Company
did not have sufficient registered shares to effect the conversion of the entire
outstanding  balance  of the  debenture.  During  the third  quarter  2003,  MMF
converted  $294,000  face value plus  accrued  interest  and $11,000  liquidated
damages due to delayed  registration into  approximately 3.5 million  registered
shares of the Company's  common stock at prices ranging from $0.077 to $0.12 per
share.  On January 14, 2004,  the Company and MMF extended the maturity  date of
the  debenture  until  July  14,  2004.  See the  previous  subsection  entitled
"Extension of Maturity Dates" at the end of the section discussing  Mercator 10%
Convertible  Debentures for a description of agreements  made with regard to the
extension of the maturity of this and other  debentures.  On July 12, 2004, when
the  market  price of the  Company's  common  stock  was $0.58  per  share,  MMF
converted  the remaining  $6,000 face value plus accrued  interest and extension
fees into approximately 20,000 shares of common stock. The shares underlying the
final  debenture  conversion  were  included  in the  Company's  June  15,  2004
registration statement, which was declared effective on July 8, 2004.

The Company  included in its  Registration  Statement  filed on July 8, 2003 and
which was  declared  effective  on July 18,  2003 the  shares  underlying  a 12%
convertible debenture for $250,000 which was to be funded upon the filing of the
Registration  Statement and the shares another for $500,000 to be funded by July
25, 2003 as portions of the September 2002 $2 million commitment by MMF. On July
24, 2003, when the market price for the Company's  common stock was $0.115,  the
Company issued 12%  convertible  debentures in the principal  amount of $250,000
each to Alpha Capital AG, Gamma Opportunity  Capital Partners,  LP and Goldplate
Investment  Partners,  assignees  of MMF  under  the MMF $2  million  commitment
agreement  described  previously.  The Company  had prepaid  $75,000 in fees and
received aggregate gross proceeds of $750,000. The Company used a portion of the
proceeds to repay a $400,000  advance  made by MMF on June 6, 2003,  including a
fee of $12,000.  The debentures were convertible into the Company's common stock
at 85% of the  average  of the three  lowest  trades  for the 20 days  preceding
conversion. As noted previously,  the market price of the Company's common stock
declined significantly following the effectiveness of the July 2003 registration
statement  and,  as a result,  the Company  did not have  sufficient  registered
shares to effect  the  conversion  of the  entire  outstanding  balance of these
debentures.  During the third quarter 2003, the investors converted an aggregate
of $750,000  face value plus accrued  interest  into  approximately  8.0 million
shares  of  the  Company's  common  stock,  of  which   approximately  3.7  were
registered,  at  conversion  prices of  approximately  $0.09 per share.  The 4.3
million  unregistered  shares  into which the  debentures  were  converted  were
subsequently  included in the Company's  June 15, 2004  registration  statement,
which was declared effective on July 8, 2004.

On September 1, 2003,  when the market price for the Company's  common stock was
$0.498 per share,  the Company  issued a $570,000 12%  convertible  debenture to
Marr  Technologies  BV, an  additional  assignee  from MMF under the $2  million
September 2002 commitment,  and received net proceeds of $570,000. The debenture
was  convertible  into the  Company's  common stock at 85% of the average of the
three lowest trades for the 20 days preceding conversion but not less than $0.11
per share.  On September 1, 2003,  Marr  Technologies  converted  this note into
approximately  5.2 million shares of the Company's  common stock at a conversion
price of $0.11 per share.  These shares were included in the Company's  June 15,
2004 registration statement, which was declared effective on July 8, 2004.

                                      F-21
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


On October 2, 2003,  when the market price for the Company's stock was $1.31 per
share,  the Company  issued the final  $130,000 of two-year  debentures  to four
assignees of MMF under the $2 million  September 2002 12% convertible  debenture
commitment,  and received net proceeds of $130,000.  During October 2003, two of
these investors converted $70,000 of principal of these debentures at a price of
$0.59 per share  and the  Company  issued  approximately  118,400  shares of its
common  stock.  These  shares  were  included  in the  Company's  June 15,  2004
registration  statement,  which  was  declared  effective  on July 8,  2004.  At
December  31, 2004,  two  debentures  having an aggregate  face value of $60,000
remained outstanding.

The  Company  determined  that  each  of the  MMF  12%  convertible  debentures,
including  those  issued  to  MMF  assignees,  were  issued  with  a  beneficial
conversion  feature.  The Company  calculated the intrinsic value at the date of
the  debentures'  issuance as the  difference  between the debenture  conversion
price and the fair value of the Company's  common stock into which the debenture
was  convertible,  multiplied  by the  number of common  shares  into  which the
debenture  was  convertible,  limited by the face amount of the  debenture.  The
Company  treated  the  beneficial  conversion  feature as a discount to the face
amount  of the  debenture  and  amortized  it over the  respective  terms of the
debentures.  Upon  conversion of all or a portion of the debenture,  the Company
charged the proportionate share of unamortized discount to interest expense.


5% Note Purchase Agreement

On November 13, 2003,  when the market price of the  Company's  common stock was
$0.88 per share, the Company and Marr Technologies BV, its largest  stockholder,
entered  into an  agreement in which Marr agreed to provide the Company up to an
aggregate of  $10,000,000  (the "Marr Credit  Facility")  pursuant to promissory
notes issuable to Marr on an as-needed basis by the Company (the "Notes").  Each
Note issued was to bear interest at the rate of 5% per annum and have a 12-month
term.  The Marr Credit  Facility was  available  during the period  beginning on
February 28, 2004 and ending on May 31, 2004.  The  aggregate  amount  available
under the Marr Credit Facility was to be proportionally reduced by the amount of
any equity  financing  the Company  obtained  during the term of the Marr Credit
Facility.  Marr was granted participation rights in any such equity financing on
the same terms as the other  investors.  The Marr Credit  Facility  provided for
earlier  termination  as of March 31,  2004,  if the Company  failed to have its
common stock listed on an  established  stock  exchange by that date.  Moreover,
upon the failure to obtain such stock exchange  listing,  any outstanding  Notes
would be due and payable on April 30, 2004. As consideration for the Marr Credit
Facility, the Company issued to Marr a warrant to purchase 375,000 shares of its
common  stock  at an  exercise  price  of  $0.80  per  share.  The  warrant  was
immediately  exercisable  and expires on November 12, 2005,  two years after its
issuance.  The warrant was valued at $0.859 per share on the date of grant using
the Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 1.93%; expected dividend rate of 0.00%;  volatility of 316.42%;
and expected term of 2 years. The calculated value of the warrant was charged to
interest expense.

On March 19,  2004,  when the market  price of the  Company's  common  stock was
$0.575 per share,  the  Company and Marr  amended  the Marr  Credit  Facility to
increase  the  aggregate  amount  available  under the Marr  Credit  Facility to
$15,000,000 and to eliminate the termination  provision upon failure to have the
common  stock listed on an  established  stock  exchange by March 31,  2004.  As
consideration for the amendment of the Marr Credit Facility,  the Company issued
to a party designated by Marr a warrant to purchase 400,000 shares of its common
stock at an  exercise  price of $0.46 per share.  The  warrant  was  immediately
exercisable  and expires on March 18, 2006,  two years after its  issuance.  The
warrant  was  valued  at  $0.56  per  share  on the  date  of  grant  using  the
Black-Scholes  option  pricing model with the following  assumptions:  risk free
interest rate of 1.54%; expected dividend rate of 0.00%;  volatility of 316.37%;
and expected term of 2 years.  The calculated  value of the warrant was recorded
as interest expense.

On May 26, 2004,  when the market price of the Company's  common stock was $0.46
per share,  the Company and Marr again amended the Marr Credit Facility  whereby
Marr  committed to subscribe for up to  $5,000,000 of Promissory  Notes that the
Company might issue through December 31, 2004. Any Notes issued pursuant to this
second amendment would bear interest at 9% per annum and have a maturity date of
May 31, 2005.  The  $5,000,000  amount  available  under the amended Marr Credit
Facility  would be reduced by the amount of any  equity  financing  the  Company
obtained  after the May 26,  2004  effective  date of the second  amendment  and
through the December 31, 2004  commitment  period,  exclusive of the proceeds of
the May 2004 Private Placement. Refer to Note 10 for a description of subsequent
equity financing. In July 2004, the commitment was reduced to approximately $3.6
million  as a result of the  closing  of the July  2004  Private  Placement.  As
consideration for the extension of the commitment period, the Company issued to

                                      F-22
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


Marr a warrant to  purchase  500,000  shares of its common  stock at an exercise
price of $0.40 per share.  This warrant was immediately  exercisable and expires
on May 26, 2006,  two years after its issuance.  The warrant was valued at $0.35
per share on the date of grant using the Black-Scholes option pricing model with
the following  assumptions:  risk free interest rate of 2.53%; expected dividend
rate of  0.00%;  volatility  of  161.78%;  and  expected  term of 2  years.  The
calculated value of the warrant was recorded as interest expense.

The Company  included the shares of its Common Stock  underlying  the March 2004
and May 2004  warrants in its June 15, 2004  registration  statement,  which was
declared effective on July 8, 2004. At December 31, 2004, the Company had issued
no Notes under the Marr Credit Facility.

The table below  summarizes the components of net interest  expense  reported in
the consolidated statements of operations (in thousands).

<TABLE>
<CAPTION>
                                                                                 2004              2003
                                                                               ---------         ---------
<S>                                                                             <C>              <C>
Interest on debt instruments paid or payable in cash                           $      88         $     425
                                                                               ---------         ---------

Non-cash interest expense composed of:
   Amortization and proportional write-off upon conversion of note and
     debenture discounts and deferred offering costs                                  81             5,832
   Liquidated damages due to delayed registration of shares underlying
     convertible notes and debentures and other securities                          (205)              620
   Expense attributable to warrants issued in conjunction with the Marr
     Credit Facility                                                                 402               322
   Expense attributable to warrants issued in conjunction with the $0.5
   million capital lease agreement                                                    20                --
   Warrant liability mark-to-market adjustment attributable to Bristol
     Class A and Class B warrants                                                     --              (275)
   Anti-dilution obligation arising from May and July 2004 equity                  1,638                --
     financing (see Note 10)
   Maturity extension fee payable in stock on convertible debentures                  20                --
     issued to Mercator group
   Expense attributable to dividends on mandatorily redeemable Series A
     preferred stock                                                                 120                60
                                                                               ---------         ---------
Total non-cash interest expense                                                    2,076             6,559
                                                                               ---------         ---------

  Total interest expense                                                           2,164             6,984

  Interest income                                                                    (38)              (15)
                                                                               ---------         ---------

  Net interest expense                                                         $   2,126         $   6,969
                                                                               =========         =========
</TABLE>

(8)   LEASE COMMITMENTS

Capital Leases

The Company has acquired  equipment  under  capital  lease  agreements  that are
collateralized  by the related  equipment.  The lease agreements carry effective
interest rates of approximately  18% per annum.  During 1993, the Company issued
stock warrants for the purchase of 1,172 shares of the Company's common stock at
exercise   prices   ranging  from  $150.00  to  $225.00  per  share  as  partial
consideration for obtaining two of the lease agreements.  These warrants expired
in 2003.

As part of the 2004 closure of its  Alameda,  California  facility,  the Company
disposed of all remaining  assets  subject to capital  leases at that  location.
During  2004,  the Company  entered  into a 36 month  capital  lease  secured by
machinery and equipment  located at its Rockville,  Maryland location and having
an agreed fair value of $500,000.

Equipment acquired under capital leases included in property and equipment as of
December 31, 2004 and 2003 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                          2004             2003
                                                       -------          -------
<S>                                                    <C>              <C>
Machinery and equipment                                $   500          $ 1,729
Other                                                       --               92
                                                       -------          -------

                                                           500            1,821
Accumulated depreciation and amortization                  (25)          (1,802)
                                                       -------          -------

                                                       $   475          $    19
                                                       =======          =======
</TABLE>


                                      F-23
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


Future  minimum lease payments under capital leases as of December 31, 2004 were
(in thousands):

Year ended December 31,
2005                                                                        215
2006                                                                        207
2007                                                                        138
                                                                       --------

                                                                            560
Less amount representing interest                                           (99)
                                                                       --------

Present value of capital lease obligation                                   461
Capital lease obligations - current portion                                (157)
                                                                       --------

Capital lease obligations - long-term portion                          $    304
                                                                       ========


Operating Leases

The  Company  leases  manufacturing  space  in  Rockville,  Maryland  under  two
operating  subleases.  In March  2004,  the  Company  entered  into a new  lease
agreement with the primary landlord of its manufacturing  facility in Rockville,
Maryland.  The new agreement  extends the lease of the premises through February
28,  2009,  or 28  months  beyond  the  expiration  of  the  original  sublease.
Additionally,  the new lease  provides  for  tenant  improvements  to be made in
connection with the Company's  consolidation of its manufacturing  operations at
this  facility in the amount of  approximately  $250,000.  The base rent for the
tenant  improvements is  approximately  $5,500 per month from March 2004 through
October 2006.  Following the expiration of the Company's current  sublease,  the
base rent for the facility and tenant  improvements  from  November 2006 through
February 2009 will be  approximately  $40,000 per month. The Company also leases
office space in Pleasanton,  California  under a  noncancelable  operating lease
which  expires  in June 2007.  The  Company  also  leases  office  and  research
laboratory  space  in  Vancouver,  Washington  under a  noncancelable  operating
sublease which expires in May 2007. The Company leased office and  manufacturing
space in  Alameda,  California,  under a  noncancelable  operating  lease  which
expired in June 2004.

Total rent  expense  under these  leases was $804,000 and $836,000 for the years
ended December 2004 and 2003, respectively. Future minimum rental payments under
all noncancelable operating leases as of December 31, 2004 were (in thousands):

Year ended December 31,
2005                                                                  $   697
2006                                                                      707
2007                                                                      620
2008                                                                      574
2009                                                                       96
Thereafter                                                                  -
                                                                      -------

Total                                                                 $ 2,694
                                                                      =======

(9)   MANDATORILY REDEEMABLE PREFERRED STOCK

At the time of its original incorporation,  the Company issued both common stock
and $1,000,000 of mandatorily  redeemable  Series A preferred stock. The Company
is required to redeem all shares of  mandatorily  redeemable  Series A preferred
stock  within  60 days of any  fiscal  year-end  in which  the  Company  attains
$3,000,000  in  retained  earnings,  and funds are legally  available.  Based on
losses accumulated through December 31, 2004, the Company must achieve in excess
of $148,000,000  in future  retained  earnings before any repayment is required.
The mandatorily  redeemable Series A preferred stock is nonvoting and holders of
these shares are entitled to receive  cumulative  dividends at the rate of $1.20
per share per annum.  Through  June 30,  2003,  cumulative  preferred  dividends
totaling  $1,636,000  had been  charged to  stockholders'  equity  (deficit)  to
accrete for the mandatorily redeemable Series A preferred stock redemption value
with  a  corresponding  increase  in the  recorded  amount  of  the  mandatorily
redeemable  Series A preferred  stock.  Since the  Company's  third quarter 2003
adoption of SFAS No. 150, as described in Note 2, cumulative preferred dividends
totaling  $120,000  and $60,000 for the years ended  December 31, 2004 and 2003,
repectively,   have  been  charged  to  interest  expense  to  accrete  for  the
mandatorily  redeemable  Series  A  preferred  stock  redemption  value  with  a
corresponding  increase in the  recorded  amount of the  mandatorily  redeemable
Series A preferred stock.

In  anticipation  of using a portion of the  proceeds  from its  Initial  Public
Offering to redeem the Series A preferred  stock,  the  Company  eliminated  the
Series A preferred stock from its articles of incorporation upon reincorporation

                                      F-24
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


of the Company in Delaware in June 1996. However,  management subsequently chose
not to redeem  the  Series A  preferred  stock and as of  December  31,  2004 it
remains outstanding. The holders of such shares maintain the same rights as held
before the reincorporation.

(10)  STOCKHOLDERS' EQUITY (DEFICIT)

Increase in Authorized Shares

On February 14, 2003, the Company filed an Amendment to its Amended and Restated
Certificate  of  Incorporation  with the  Secretary  of State of  Delaware  that
increased  the number of shares of  authorized  common stock from 200 million to
800  million.  The  Company's   stockholders   approved  the  Amendment  to  the
Certificate of  Incorporation  at the Special  Meeting of  Stockholders  held on
February 14, 2003. A principal purpose for authorizing the additional shares was
for  issuance  pursuant  to  arrangements  to finance the  Company's  continuing
operations.

Private Placements

As detailed in the Consolidated Statements of Stockholders' Equity (Deficit) and
as discussed below, the Company raised gross proceeds of $10.8 million and $12.5
million  in  private  placement   transactions  with  accredited  investors  who
purchased  26,970,000 and 28,333,333  shares of its common stock during 2004 and
2003, respectively.

On July 31,  2003,  when the  market  price of its  common  stock  was $0.18 the
Company entered into a financing  agreement with Marr Technologies B.V. ("Marr")
pursuant  to which it issued  8,333,333  restricted  shares of its common  stock
priced at $0.30 for aggregate proceeds of $2.5 million. The Company's stock just
prior to the  announcement  had been trading in a range  between $0.11 and $0.12
per  share.  The  agreement  contained  a  12  month  lock-up  (holding  period)
provision.  In  conjunction  with the  investment,  Marr was  given the right to
nominate two  mutually-agreeable  individuals  for  appointment to the Company's
Board of Directors.  During 2004 two Directors  initially nominated by Marr were
appointed to the Company's  Board of Directors.  The two companies also signed a
Memorandum of Understanding to form a joint venture in China, with the intent of
creating a platform for  manufacturing,  distributing  and selling the Company's
products in China.  On September 2, 2003, when the market price of the Company's
stock was $0.82,  the Company  announced  that it had entered into an additional
$10 million  equity  financing  agreement  with Marr in which the Company issued
20,000,000 restricted shares of its common stock priced at $0.50 per share. This
agreement also contained a 12 month lock-up provision. The shares issued to Marr
were  included in the  Company's  June 15, 2004  registration  statement,  which
became effective on July 8, 2004.

On May 28,  2004,  when the market price of its common stock was $0.50 per share
and pursuant to  Regulations S and D, the Company issued  15,750,000  restricted
shares of its common  stock and  warrants to purchase an  aggregate of 5,512,500
shares of its  common  stock to 6  unaffiliated  investors  and  received  gross
proceeds  of  $6,300,000.  Under the terms of the Marr  Credit  Facility,  which
provided Marr participation rights in subsequent financings on the same terms as
other  investors,  Marr invested  $3,000,000  in this private  placement and the
Company  issued to Marr  7,500,000  restricted  shares of its  Common  Stock and
warrants to purchase  2,625,000  shares of its common stock.  Under the terms of
the  subscription  agreement,  each investor  received  warrants to purchase the
Company's  common  stock in an  amount  equal  to 35% of the  number  of  shares
purchased in the private placement. The Company also issued warrants to purchase
an additional  630,000  shares of its Common Stock  pursuant to placement  agent
agreements.  The  warrants are  exercisable  at a price of $0.50 per share for a
period  of five  years  from the May 28,  2004  date of  issuance.  The  Company
included  the shares  issued in the May 2004  private  placement  and the shares
underlying the related warrants in the  registration  statement it filed on June
15, 2004 and which was declared effective on July 8, 2004.

On July 9, 2004, when the market price of the Company's  common stock was $0.615
per share and pursuant to Regulation D, the Company issued 3,720,000  restricted
shares of its Common  Stock and  warrants to purchase an  aggregate of 2,604,000
shares of its  common  stock to 5  unaffiliated  investors  and  received  gross
proceeds  of  $1,488,000.  The  Company  also  issued  warrants  to  purchase an
additional  148,800  shares of its Common  Stock  pursuant to  placement  agency
agreements.  The  warrants are  exercisable  at a price of $0.50 per share for a
period  of five  years  from the July 9,  2004  date of  issuance.  The  Company
included  the  shares  issued  in the  July  private  placement  and the  shares
underlying the warrants in its July 16, 2004 registration  statement,  which was
declared effective on July 28, 2004.

Based on the  results  of an  independent  valuation,  the  Company  valued  the
warrants  issued in the May and July 2004  private  placements  at  inception at
$0.4121 per share, yielding an aggregate value of approximately $4,427,000.  The
Company  determined  the value based on the Black Scholes  option  pricing model
with the  following  assumptions:  expected  dividend  yield of 0.0%;  risk free
interest rate of 2.70%,  estimated term of 2.5 years and stock price  volatility
of 118.887%. The Company evaluated the anti-dilution  provisions of the warrants
in  accordance  with the  provisions  of SFAS No.  150,  Accounting  for Certain
Financial  Instruments with  Characteristics of both Liabilities and Equity, and
Emerging  Issues Task Force (EITF) Issue No. 00-19,  Accounting  for  Derivitave
Financial  Instruments  Indexed to, and Potentially  Settled in, a Company's Own
Stock and determined that the warrants should be classified as equity.

                                      F-25
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


The securities  purchase  agreements for both the May 2004 and July 2004 private
placements   (the  "2004  PIPEs")   provide  the   respective   investors   with
participation  rights on the same terms and conditions as other investors in any
subsequent  financing  transactions  the Company may complete within one year of
the closing of these  placements.  With the  exception  of warrants  acquired by
Marr,  the  exercise of the warrants is subject to an  ownership  limitation  of
9.99%.

Anti-dilution provisions in 2004 PIPEs

The securities purchase agreements in each of the 2004 PIPE transactions contain
anti-dilution  provisions  that could  require the  Company to issue  additional
shares of common stock to the investors if the Company raises  additional equity
financing at a price below $0.40 per share in the year  following the closing of
the  transactions,   except  under  the  provisions  of  previously  outstanding
convertible  debt,  option or warrant  agreements.  Should the  Company  close a
financing  transaction at a per share price below the $0.40 trigger  price,  the
securities purchase agreements'  anti-dilution  provisions require that it issue
to the investors for no additional consideration an additional 25,000 shares per
each million  shares  purchased in the 2004 PIPEs for each $0.01  decrease below
the $0.40 trigger  price.  Had the Company  completed a financing of any size at
the $0.39 market  price of its common stock at December 31, 2004,  it would have
been required to issue  approximately  674,000  additional  shares of its common
stock.  The  Company  determined  that  the  anti-dilution   provisions  of  the
securities  purchase  agreements are, in effect, a net share settled written put
option  as  contemplated  by SFAS No.  150,  Accounting  for  Certain  Financial
Instruments  with  Characteristics  of both  Liabilities and Equity and that the
valuation of the  anti-dilution  obligation  should be classified as a liability
and  marked-to-market  at each  balance  sheet date with the change in liability
being  recorded as  interest  expense.  Based on the  results of an  independent
valuation  of the  obligations,  the  Company  determined  that the value of the
anti-dilution  obligations  under the  securities  purchase  agreements  was not
significant  at the inception of the  agreements  in May and July 2004.  This is
because the obligations  were limited to a one-year  period,  and, as of May and
July 2004, it was  determined to be unlikely that the Company would have to seek
additional  financing during this period at an offering price that would require
the issuance of anti-dilution shares.

As of December 31, 2004,  however,  the Company was  contemplating an additional
round of financing in the first quarter of 2005. Accordingly,  the anti-dilution
obligations were revalued at $1.68 million at December 31, 2004, and recorded as
a liability, with a corresponding charge to non-cash interest expense. The value
of the  anti-dilution  obligations  was based on the market  value of the shares
that  would  be  issuable  to  investors   using  the  offering   price  of  the
then-contemplated 2005 financing.

The warrant  agreements  in the May and July 2004 PIPE  offerings  also  include
anti-dilution  provisions  that provide for repricing the shares  issuable under
the warrants and for a grant of additional  warrants should the Company complete
certain  equity  financing  transactions  at a price  lower  than $.40 per share
within a one-year period. The warrant  anti-dilution  provision uses a different
formula than that used under the  securities  purchase  agreements  to calculate
share  repricing and number of additional  warrants.  The warrant  anti-dilution
formula  gives weight to the size of the offering and the total number of shares
of the Company's common stock outstanding after the offering.

Based on the results of an  independent  valuation of the warrant  anti-dilution
provision,  the  Company  determined  that  the  value  of the  warrants  at the
inception  of  the  warrant  agreements  was  not  predominantly  based  on  its
anti-dilution  rights.  Had the Company  raised an  additional $5 to $10 million
financing at December  31,  2004,  when the market price of its common stock was
$.39 per share, the required warrant  anti-dilution  adjustments  would not have
been  significant.  The Company would have been  obligated to reprice the shares
issuable under the warrants from $.50 per share to $.49 per share,  and to issue
additional warrants for an aggregate of 219,200 common shares at $.49 per share.

Refer to Note 18, Subsequent Events,  for a description of additional  financing
completed in March 2005 and an amendment to the anti-dilution  provisions of the
2004 PIPEs.

Other warrants, options and stock grants

During 2003,  the Company  entered into  contracts  and extended  certain  other
contracts with existing consultants to perform various legal, business advisory,
marketing and distribution functions. The Company issued warrants to purchase an
aggregate of  4,463,834  shares of its common  stock as  compensation  for these
services.  During 2003, the consultants exercised warrants to purchase 4,263,834
shares of the  Company's  common  stock and the  Company  received  proceeds  of
$2,707,000.  The warrants were  non-forfeitable  and fully-vested at the date of
issuance and were valued using the Black-Scholes  option pricing model using the
following range of assumptions:


                                      F-26
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


                                                           Low          High
                                                       ----------    ----------
Exercise price per share                                  $0.080         $1.50
Market price of Calypte's stock on date of issuance        $0.18         $2.01
Assumptions:
   Expected dividend yield                                  0.0%          0.0%
   Risk free rate of return                                0.92%         1.86%
   Contractual life                                     3 months     24 months
   Volatility                                            131.35%       411.50%
Fair Market Value                                          $0.11         $1.46


Pursuant to the requirements of FASB Statement No. 123 and EITFs 96-18 and 00-18
related to  accounting  for  stock-based  compensation,  the Company  recognized
non-cash  selling,  general  and  administrative  expense  in the amount of $2.8
million attributable to these warrants at the date of grant in 2003.

In addition to the  warrants  and options  described  above,  during  2003,  the
Company  also issued  stock  grants for  approximately  3,637,000  shares of its
common stock to certain  consultants and other vendors under various  agreements
and recorded non-cash selling,  general and  administrative  expense and royalty
expense of $2,407,000 and $305,000 respectively, based on the intrinsic value of
the stock on the date of grant.

During 2004,  consultants exercised warrants granted in 2003 to purchase 100,000
shares of the  Company's  common  stock and the  Company  received  proceeds  of
$18,000.

During 2004, the Company issued stock grants for approximately 808,000 shares of
its  common  stock to  certain  consultants  and  other  vendors  under  various
agreements and recorded non-cash selling, general and administrative expense and
royalty expense of $486,000 and $305,000, respectively.

Intellectual Property and Equipment Purchase Using Stock

On September 30, 2004,  when the market price of the Company's  common stock was
$0.39 per  share and  pursuant  to  Regulation  S, the  Company  entered  into a
licensing,   technology  transfer  and  equipment  purchase  agreement  (License
Agreement)  pursuant to which the Company is required to pay to the  licensor an
aggregate of 1,232,840  Euros  (approximately  US $1,500,000) to acquire certain
licenses and manufacturing  equipment. On September 30, 2004, the Company issued
1,172,205  restricted shares of its common stock having a value of approximately
$469,000 to the licensor,  representing  approximately  $373,000 attributable to
technology  license and $96,000  attributable  to the  equipment  purchase.  The
Company  included  the shares  issued in a  registration  statement  that became
effective on December 29, 2004. The Company paid the next installment of 100,000
Euros  (approximately  $134,000) in cash in December 2004. The Company  recorded
the contractual  amount  attributable to the technology license as an intangible
asset and the corresponding  amounts payable as an accrued expense.  The Company
recorded the value of the stock  issued as a deposit for the  equipment as Other
Assets, pending delivery of the equipment.

Change of Control Provisions

Certain provisions of the Company's  Certificate of Incorporation and Bylaws may
have the  effect of  preventing,  discouraging  or  delaying  any  change in the
control of the Company and may maintain the incumbency of the Board of Directors
and  management.  The  authorization  of  undesignated  preferred stock makes it
possible  for the Board of  Directors  to issue  preferred  stock with voting or
other  rights or  preferences  that could  impede the  success of any attempt to
change  control of the Company.  Additionally,  in December  1998, the Company's
Board of  Directors  declared a dividend  distribution  of one  preferred  share
purchase  right (a Right)  for each  outstanding  share of  common  stock of the
Company.  The dividend was payable to the  stockholders  of record on January 5,
1999.  The Rights  have  certain  anti-takeover  effects.  The Rights will cause
substantial  dilution to a person or group that  attempts to acquire the Company
without  conditioning  the offer on the Rights being  redeemed or a  substantial
number of Rights being acquired.  However,  the Rights should not interfere with
any tender  offer or merger  approved by the  Company  because the Rights do not
become  exercisable  in the  event of a  permitted  offer  or other  acquisition
exempted by the Board.


(11)  INCENTIVE STOCK AND STOCK OPTIONS PLANS

Stock option  grants to employees are  generally  issued with an exercise  price
equal to the market price at the grant date. To the extent that the market price
of the common  stock  exceeds the  exercise  price of the  options,  the Company
recognizes deferred  compensation for the intrinsic value in accordance with APB
25 and FIN 44. The Company  amortizes  deferred  compensation on a straight-line
basis over the vesting period of the option.

                                      F-27
<PAGE>


                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


Option  grants  to  non-employees  are  valued  at the date of grant  using  the
Black-Scholes  option-pricing  model in accordance  with FAS 123.  Option grants
that do not include sufficient  disincentive for  non-performance  are accounted
for in accordance with EITFs 96-18 and 00-18.  In such  instances,  the deferred
compensation  is amortized  over the term of the  agreement  on a  straight-line
basis. Until the awards are fully vested or a measurement date is achieved,  the
Company records an adjustment to deferred compensation and consultant expense to
reflect the impact of the fair  value,  as  remeasured  at  quarter-end,  of the
options based on changes to the Company's stock price.

Stock bonuses and awards reflect shares of the Company's common stock granted to
employees  and  consultants.  Compensation  expense is recognized at the time of
grant,  and is determined  based on the number of shares awarded and the closing
market price at the date of the award, in accordance with APB 25.

2004 Incentive Plan

At the annual  stockholders'  meeting in June 2004,  the Company's  stockholders
approved the adoption of the Company's  2004  Incentive  Plan (the 2004 Plan) to
replace the Company's 2000 Equity  Incentive Plan (the 2000 Incentive Plan), for
which only a small number of authorized shares remained available for grant. The
stockholders  authorized  30,000,000  shares for awards from the 2004 Plan.  The
Compensation Committee of the Company's Board of Directors administers the Plan.
The Board of  Directors  may amend or modify the 2004 Plan at any time.  It will
expire in June 2014, unless terminated earlier by the Board of Directors.

Under  the  terms  of the  2004  Plan,  the  Compensation  Committee  may  grant
nonstatutory  stock options,  stock  appreciation  rights,  dividend  equivalent
rights, restricted stock, restricted stock units and stock bonuses to employees,
including directors who are employees,  non-employee directors, and consultants.
The Compensation Committee may grant incentive stock options only to employees.

Nonstatutory  stock  options may be granted  under the 2004 Plan at a price less
than the  fair  market  value of the  common  stock  on the date the  option  is
granted.  Incentive  stock options may not be granted  under the 2004  Incentive
Plan at a price less than 100% of the fair market  value of the common  stock on
the date the option is granted.  Incentive  stock  options  granted to employees
who, on the date of grant,  own stock  representing  more than 10% of the voting
power of all classes of stock of the  Company  are granted at an exercise  price
not less than 110% of the fair market value of the common stock. Options granted
to employees  under the 2004 Plan  generally  vest monthly over periods of up to
three years, as specified in the option agreements. The term of nonstatutory and
incentive  stock options granted is 10 years or less from the date of the grant,
as provided in the option agreements.

The 2004 Plan permits the granting of stock  appreciation  rights in conjunction
with all or part of a stock option granted under the 2004 Plan. In the case of a
nonstatutory  stock  option,  such rights may be granted  either at or after the
date of grant of such option.  In the case of an incentive  stock  option,  such
rights  may be  granted  only  at the  date  of  grant  of  such  option.  Stock
appreciation rights will be exercisable only at such time and to the extent that
the stock options to which they relate are exercisable. Upon exercise of a stock
appreciation right, a participant will receive an amount equal to the product of
(a) the excess of the fair  market  value of one share of Common  Stock over the
exercise  price per share  specified  in the related  stock option times (b) the
number of shares in respect  of which the stock  appreciation  right  shall have
been exercised,  in cash,  shares of Common Stock or both, with the Compensation
Committee having the right to determine the form of payment.

The 2004 Plan  permits  the  Compensation  Committee  to  include in any award a
dividend  equivalent right entitling the participant to receive amounts equal to
all or any portion of the  dividends  that would be paid on the shares of common
stock  covered by the award if such  shares had been  delivered  pursuant to the
award. The Compensation Committee will determine whether the payment of dividend
equivalent  rights will be made in cash, in shares of common stock or in another
form,  whether they shall be conditioned upon the exercise of the award to which
they  relate,  the time at which  they shall be made,  and such other  terms and
conditions as the Committee considers appropriate.

The 2004 Plan permits the granting of or offering for sale restricted  shares of
common  stock and  restricted  stock  units in such  amounts and subject to such
terms and conditions as the Compensation  Committee may determine.  Upon receipt
of  restricted  shares of common  stock,  the  participant  has the  rights of a
shareholder  with respect to the restricted  stock,  subject to any restrictions
and conditions that the Compensation  Committee may impose. On the delivery date
of a restricted  stock unit, the participant  receives one share of common stock
or cash equal in value to a share of common stock or a combination  thereof,  as
specified  by the  Compensation  Committee.  No more  than a total of  8,000,000
shares of common  stock are  available  for  delivery  as  restricted  stock and
restricted stock units.


                                      F-28
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


The 2004  Plan  permits  the  Compensation  Committee  to grant  other  types of
equity-based or equity-related  awards (including the grant or offer for sale of
unrestricted  shares of Common  Stock) in such amounts and subject to such terms
and  conditions as the  Compensation  Committee may  determine.  Such awards may
entail the transfer of actual shares of Common Stock to  participants or payment
in cash or otherwise of amounts based on the value of shares of Common Stock.

The 2004 Plan permits the  Compensation  Committee to grant Incentive  awards in
such amounts and subject to the achievement of performance goals and other terms
and conditions as the Committee may determine.  Incentive awards will be granted
and  administered  to comply  with the  requirements  of  Section  162(m) of the
Internal Revenue Code. After the term for the applicable  performance period has
ended,  the  participant  will be  entitled  to  payment  based on the  level of
achievement of the  performance  goals set by the  Compensation  Committee.  The
Compensation  Committee will certify the achievement of the performance goals in
writing  before  the  incentive  award  is  settled.  At the  discretion  of the
Compensation  Committee,  the  settlement  of  incentive  awards may be in cash,
shares of common stock, or in some combination thereof.

The Compensation Committee may grant to a participant a specified amount for the
purpose of assisting the participant to pay taxes resulting from the grant of an
award.

The  Company  records  deferred  compensation  related  to  options  granted  to
non-employees  and options granted to employees when the exercise price is below
the fair market value of the underlying  common stock, if any. The  Compensation
Committee  granted only  nonstatutory and incentive stock options at market from
the 2004  Plan  during  2004 and only to  employees.  Accordingly,  the  Company
recorded no deferred  compensation  in 2004 with respect to awards  granted from
the 2004 Plan.

The following table summarizes 2004 option activity for the 2004 Plan:

                                                                   WEIGHTED
                                                                    AVERAGE
                                                 OPTIONS        EXERCISE PRICE
                                                ===========     ==============
Granted                                          18,468,000      $     0.580
Cancelled                                           (60,000)           0.390
                                               -----------

Outstanding as of December 31, 2004              18,408,000      $     0.580
                                               ===========

Exercisable as of December 31, 2004              11,506,168      $     0.585
                                               ===========

The following  table  summarizes  the per share  weighted-average  fair value of
stock options granted during 2004, on the date of grant using the  Black-Scholes
option-pricing model with the indicated weighted-average assumptions:

Per share weighted-average fair value of options granted                $0.516
Expected dividend yield                                                  0.00%
Risk-free interest rate                                                  4.72%
Volatility                                                             210.79%
Expected life                                                      10.00 years

2000 Equity Incentive Plan

In June 2000,  the Company's  Board of Directors and  stockholders  approved the
adoption of the Company's 2000 Equity Incentive Plan (the "2000 Incentive Plan")
to replace the Company's 1991 Incentive Stock Plan, which expired in April 2001.
At the Annual Meeting of  Stockholders  in May 2003, the Company's  stockholders
approved  an  increase  to  10,000,000  shares  in the  number  of shares of the
Company's common stock authorized for issuance under this plan. The Compensation
Committee of the Company's Board of Directors administers the Plan. The Board of
Directors may amend or modify the 2000  Incentive  Plan at any time. It has been
replaced by the 2004 Plan, but has not been formally  terminated by the Board of
Directors.

Under  the  terms  of the  2000  Incentive  Plan,  nonstatutory  stock  options,
restricted  stock and stock  bonuses  may be  granted  to  employees,  including
directors who are employees, non-employee directors, and consultants.  Incentive
stock options may be granted only to employees.

Nonstatutory  stock  options may be granted under the 2000  Incentive  Plan at a
price less than the fair market value of the common stock on the date the option
is granted.  Prior to the amendment of the 2000  Incentive  Plan approved by the
Company's   stockholders  at  the  May  2003  Annual  Meeting  of  Stockholders,
nonstatutory  stock options could not be granted at a price less than 85% of the
fair market value of the common stock on the grant date. Incentive stock options
may be not be granted under the 2000 Incentive Plan at a price less than 100% of
the fair market value of the common stock on the date the option is granted.

                                      F-29
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


Incentive  stock  options  granted to employees  who, on the date of grant,  own
stock  representing more than 10% of the voting power of all classes of stock of
the  Company  are  granted at an  exercise  price not less than 110% of the fair
market value of the common stock.  Options  granted to employees  under the 2000
Incentive  Plan  generally  vest monthly  over periods of up to three years,  as
specified in the option agreements. The term of nonstatutory and incentive stock
options  granted is 10 years or less from the date of the grant,  as provided in
the option agreements.

Restricted  stock awards may be granted to purchase stock either in addition to,
or in tandem with,  other awards under the 2000 Incentive Plan, under conditions
determined by the  Compensation  Committee.  The purchase  price for such awards
must be no less than 85% of the fair market value of the Company's  Common Stock
on the date of the grant. The Compensation  Committee may also grant stock bonus
awards to employees or consultants  for services  rendered to the Company.  Such
awards may also be  granted  either in  addition  to, or in tandem  with,  other
awards  under  the 2000  Incentive  Plan,  under  conditions  determined  by the
Compensation Committee.

The  Company  records  deferred  compensation  related  to  options  granted  to
non-employees  and options granted to employees when the exercise price is below
the fair market  value of the  underlying  common  stock,  if any. For the years
ended December 31, 2004 and 2003, the Company recorded deferred  compensation of
$(2,000) and $10,000,  respectively,  for certain of the Company's  common stock
options granted under the Stock Plan. This amount is amortized over the relevant
period of  service.  The  amortized  compensation  expense  for the years  ended
December 31, 2004 and December 31, 2003 was $1,000 and $3,000, respectively. The
Company  recorded  compensation  expense of $148,000 and $94,000,  respectively,
attributable  to stock bonus awards of 295,006  shares of common  stock  granted
during 2004 and 48,667 shares of common stock granted during 2003.  Compensation
expense  attributable  to stock bonuses is determined by multiplying the closing
market price of the Company's common stock on the date of grant by the number of
shares granted. The weighted average price of shares issued as stock bonuses was
$0.51 in 2004 and $1.92 in 2003.

The following  table  summarizes  option grant activity under the 2000 Incentive
Plan:

<TABLE>
<CAPTION>
                                                                          WEIGHTED
                                                                           AVERAGE
                                                         OPTIONS       EXERCISE PRICE
                                                       ==========      ==============
<S>                                                    <C>             <C>
Outstanding as of December 31, 2002                        57,411        $   3.74
Granted                                                 8,528,626            0.33
Exercised                                              (1,426,510)           0.38
Cancelled                                                (562,778)           0.36
                                                       ----------

Outstanding as of December 31, 2003                     6,596,749        $   0.35
Granted                                                 1,454,080            0.48
Exercised                                                (418,622)           0.10
Cancelled                                                (321,924)           0.47
                                                       ----------

Outstanding as of December 31, 2004                     7,310,283        $   0.38
                                                       ==========

Exercisable as of December 31, 2003                     2,431,636        $   0.34

Exercisable as of December 31, 2004                     6,132,719        $   0.35
</TABLE>

As of December 31, 2004, 152,722 shares of common stock were available for grant
under the 2000  Incentive  Plan.  The following  table  summarizes the per share
weighted-average  fair value of stock options  granted  during 2004 and 2003, on
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
indicated weighted-average assumptions:

<TABLE>
<CAPTION>
                                                                2004           2003
                                                             =========      =========
<S>                                                          <C>            <C>
Per share weighted average fair value of options granted     $   0.672      $   0.336
Expected dividend yield                                           0.00%          0.00%
Risk-free interest rate                                           2.91%          3.44%
Volatility                                                       268.4%         226.1%
Expected life                                                5.9 years      8.0 years
</TABLE>


                                      F-30
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


1991 Incentive Stock Plan

In April 1991,  the  Company's  Board of Directors  approved the adoption of the
Company's  Incentive  Stock Plan (the Stock Plan).  A total of 141,366 shares of
common stock were reserved for issuance under the Stock Plan. Since the adoption
of the 2000 Equity  Incentive Plan in June 2000, no additional  shares have been
granted  from the Stock Plan.  At  December  31,  2003,  there were no shares of
common stock available for grant under the Stock Plan.  There was no activity in
the Stock Plan during 2004.

The following  table  summarizes  activity  under the Stock Plan during 2003 and
2004:

<TABLE>
<CAPTION>
                                                                          WEIGHTED
                                                                           AVERAGE
                                                        OPTIONS        EXERCISE PRICE
                                                       ==========      ==============
<S>                                                    <C>             <C>
Outstanding as of December 31, 2002                        6,756         $111.31
Cancelled                                                   (500)         210.00
                                                         -------

Outstanding as of December 31, 2003 and 2004               6,256         $103.42
                                                         =======

Exercisable as of December 31, 2003 and 2004               6,256         $103.42
</TABLE>


1995 Director Option Plan

In December 1995, the Company's  Board of Directors  approved the Company's 1995
Director  Option  Plan (the  Director  Option  Plan).  At the Annual  Meeting of
Stockholders  in May 2003,  the Company's  stockholders  approved an increase to
2,000,000  shares  in the  number  of  shares  of  the  Company's  common  stock
authorized  for issuance  under this plan.  Under the Director  Option Plan, the
Company's  Board of Directors  determines  the number of shares of the Company's
stock that will be granted each year to newly-elected and re-elected  directors.
Options may be granted under this plan to non-employee directors or, pursuant to
an agreement  between the Company and another  person,  entity or affiliate with
whom a  non-employee  director is  associated,  that other  person,  entity,  or
affiliate.  Each option granted under the Director Option Plan is exercisable at
100% of the fair  market  value of the  Company's  common  stock on the date the
option was  granted.  Each grant  under the plan vests  monthly  over the twelve
month period  commencing  with the director's  date of election or  re-election,
provided that the option will become vested and fully exercisable on the date of
the next annual  meeting of  stockholders  if such meeting  occurs less than one
year after the date of the grant.  The plan will expire in December  2005 unless
terminated earlier in accordance with certain provisions of the Plan.

The Company has not recorded any deferred  compensation for the Company's common
stock options granted under the Director Option Plan.

The following table summarizes activity under the Director Option Plan:

<TABLE>
<CAPTION>
                                                                       WEIGHTED
                                                                       AVERAGE
                                                      OPTIONS       EXERCISE PRICE
                                                    ==========      ===============
<S>                                                <C>              <C>
Outstanding as of December 31, 2002                    20,681         $    39.56
Granted                                               631,667               0.33
Exercised                                              (8,333)              0.32
Cancelled                                            (206,335)              0.87
                                                   ----------

Outstanding as of December 31, 2003                   437,680         $     1.93
Granted                                             1,000,000               0.58
Exercised                                                  --                 --
Cancelled                                                  --                 --
                                                   ----------

Outstanding as of December 31, 2004                 1,437,680         $     0.99
                                                   ==========

Exercisable as of December 31, 2003                   271,004         $     2.93

Exercisable as of December 31, 2004                 1,437,680         $     0.99
</TABLE>


As of December 31, 2004, 553,962 shares of common stock were available for grant
under the Director  Option Plan.  The following  table  summarizes the per share
weighted-average  fair value of stock options  granted  during 2004 and 2003, on
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
indicated weighted-average assumptions:


                                      F-31
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                   2004              2003
                                                                =========         =========
<S>                                                             <C>               <C>
Per share weighted-average fair value of options granted        $   0.580         $   0.332
Expected dividend yield                                              0.00%             0.00%
Risk-free interest rate                                              4.13%             3.57%
Volatility                                                         213.95%            217.1%
Expected life                                                   10.0 years        10.0 years
</TABLE>

2003 Non-Qualified Stock Option Plan

In June 2003,  the  Company's  Board of  Directors  authorized  and the  Company
registered  a total of  10,000,000  shares of its common  stock under a Form S-8
Registration Statement for issuance under the Company's 2003 Non-Qualified Stock
Option Plan (the "2003  Plan").  Under the 2003 Plan,  at the  discretion of the
Board of Directors,  shares may be awarded in consideration of services rendered
to the  Company.  Options  or  awards  may be  granted  under  this plan only to
non-officer employees and consultants.  The 2003 Plan is no longer active as all
authorized shares have been granted as options or stock awards,  and all options
have been  exercised.  In 2003,  the  Company  granted  options to  purchase  an
aggregate of 7,227,500  shares of its common stock at an average  exercise price
of $0.16 per share.  All of the options  granted in 2003 were exercised in 2003.
The  weighted-average  fair  value  of stock  options  granted  during  2003 was
determined  to be $0.114 per share on the date of grant using the  Black-Scholes
option-pricing model with the following weighted-average assumptions:

Expected dividend yield                                                0.00%
Risk-free interest rate                                               0.918%
Volatility                                                            156.1%
Expected life                                                     0.22 years

The Company granted no stock options from the 2003 Plan in 2004.

The Company  also  granted  stock  awards from the 2003 Plan for an aggregate of
82,978  and  2,689,552  shares  of its  common  stock  during  2004 and 2003 and
recorded   compensation   expense  of  $45,000   and   $788,000,   respectively.
Compensation  expense  attributable to stock awards is determined by multiplying
the closing  market price of the Company's  common stock on the date of grant by
the number of shares  granted.  The weighted  average  price of shares issued as
stock awards was $0.50 and $0.36 in 2004 and 2003, respectively.

The following table summarizes  information  about stock options  outstanding at
December 31, 2004 under the 2004 Incentive Plan, the 2000 Equity Incentive Plan,
the 1991 Incentive Stock Plan, and the 1995 Director Option Plan.

<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                              =============================================    ================================
                                                    WEIGHTED
                                                   -AVERAGE      WEIGHTED         NUMBER            WEIGHTED
                                    NUMBER         REMAINING     -AVERAGE      EXERCISABLE          -AVERAGE
                                 OUTSTANDING        YEARS TO     EXERCISE          AT               EXERCISE
RANGE OF EXERCISE PRICES         AT 12/31/04       EXPIRATION     PRICE          12/31/04            PRICE
===============================================================================================================
<S>        <C>                    <C>                 <C>        <C>               <C>           <C>
$0.010 -   $0.300                 1,025,279           4.68       $   0.150         723,614       $      0.113
$0.320 -   $0.320                 5,657,982           6.38       $   0.320       5,324,281       $      0.320
$0.390 -   $0.560                   443,000           9.46       $   0.500         210,392       $      0.558
$0.585 -   $0.585                18,800,000           9.46       $   0.585      12,300,000       $      0.585
$0.060 - $210.00                  1,235,958           8.58       $   1.912         524,530       $      3.540
                                 ----------                                     ----------

$0.010 - $210.00                 27,162,219           8.60       $   0.572      19,082,823       $      0.574
                                 ==========                                     ==========
</TABLE>


1995 Employee Stock Purchase Plan

In December  1995,  the  Company's  Board of Directors  approved  the  Company's
Employee  Stock  Purchase  Plan  (ESPP).  The ESPP is intended to qualify  under
Section 423 of the Internal  Revenue Code (the Code).  At the Annual  Meeting of
Stockholders  in May 2003,  the Company's  stockholders  approved an increase to
1,000,000  shares  in the  number  of  shares  of  the  Company's  common  stock
authorized  for issuance under this plan.  Under the ESPP, an eligible  employee
may purchase shares of common stock from the Company through payroll  deductions
of up to 10% of his or her  compensation,  at a price per share  equal to 85% of
the lower of (i) the fair  market  value of the  Company's  common  stock on the
first day of an offering  period under the ESPP or (ii) the fair market value of
the common  stock on the last day of the six month  purchase  period  during the
offering  period.  Each  offering  period  lasts for twenty four  months;  stock
purchases  occurred on June 30 and December 31 in both 2003 and 2004. During the
years ended December 31, 2004 and 2003,  employees  purchased  35,931 shares and
18,192 shares, respectively, under the ESPP. Cumulative purchases under the ESPP
through December 31, 2004 totaled 64,311 shares, leaving 935,689 shares reserved
for future purchases.


                                      F-32
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


(12)  SECTION 401(K) PLAN

Effective  January  1,  1995,  the  Company  adopted a  Retirement  Savings  and
Investment  Plan (the 401(k) Plan)  covering the Company's  full-time  employees
located in the United  States.  The 401(k)  Plan is  intended  to qualify  under
Section 401(k) of the Internal Revenue Code. Under the terms of the 401(k) Plan,
employees  may  elect  to  reduce  their  current  compensation  by  up  to  the
statutorily  prescribed  annual  limit and to have the amount of such  reduction
contributed to the 401(k) Plan. The Company matched participant's  contributions
up to the first  $2,000  during 2003,  for  approximately  $98,000.  The Company
contributed  $11,000 to the 401(k)  Plan during  2004,  which was  allocated  to
participants in proportion to their participation during 2004.

(13)  INCOME TAXES

The  provision  for income taxes for all periods  presented in the  consolidated
statements of operations  represents minimum California  franchise taxes. Income
tax expense  differed  from the amounts  computed by applying  the U.S.  federal
income tax rate of 34% to pretax losses as a result of the following:

<TABLE>
<CAPTION>
                                                                      2004            2003
                                                                     -------         -------
<S>                                                                  <C>            <C>
Computed expected tax expense                                         (5,871)         (8,960)
Losses and credits for which no benefits have been recognized          5,861           8,950
Meals and entertainment expenses, and officers life
  insurance not deductible for income tax purposes                        11              11
State tax expense, net of federal income tax benefit                       1               1
                                                                     -------         -------

                                                                     $     2         $     2
                                                                     =======         =======
</TABLE>


The tax effect of temporary  differences that give rise to significant  portions
of the deferred tax asset is presented below:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                   2004             2003
                                                                 --------         --------
<S>                                                              <C>              <C>
Deferred tax assets:
    Employee benefit reserves, including accrued vacation        $     55         $     46
    and bonuses
    Start-up and other capitalization                                 439              556
    Fixed assets, due to differences in depreciation                 (231)             300
    Deferred rent and revenue                                          29              199
    Net operating loss carryovers                                  48,479           44,070
    Research and development credits                                1,850            1,576
    Other                                                           1,565              622
                                                                 --------         --------

Total gross deferred tax assets                                    52,186           47,369
Valuation allowance                                               (52,186)         (47,369)
                                                                 --------         --------

Net deferred tax assets                                                --               --
                                                                 ========         ========
</TABLE>


The net change in the valuation  allowance for the years ended December 2004 and
2003 was an increase of $4,817,000 and $10,419,000,  respectively. Because there
is  uncertainty  regarding  the  Company's  ability to realize its  deferred tax
assets,  a  100%  valuation  allowance  has  been  established.  When  realized,
approximately  $171,000 of deferred tax assets will be  creditable to additional
paid-in capital.

As of  December  31,  2004,  the Company  had  federal  tax net  operating  loss
carryforwards of approximately $137,210,000, which will expire in the years 2005
through  2024.  The Company  also has federal  research and  development  credit
carryforwards  as of December 31, 2004 of approximately  $1,371,000,  which will
expire in the years 2005 through 2024.


                                      F-33
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


State tax net operating loss carryforwards  were  approximately  $31,316,000 and
state research and development credit carryforwards were $710,000 as of December
31, 2004.  The state net operating loss  carryforwards  will expire in the years
2005  through  2014  and  the  state  research  and  development   credits  will
carryforward indefinitely.

The  Company's  ability to  utilize  its net  operating  loss and  research  and
development  tax  credit  carryforwards  may be  limited  in the future if it is
determined  that the Company  experienced  an  ownership  change,  as defined in
Section 382 of the Internal Revenue Code.

(14)  ROYALTY AND LICENSE AGREEMENTS

The Company has entered into arrangements with various  organizations to receive
the right to utilize  certain  patents and  proprietary  rights under  licensing
agreements in exchange for the Company making certain royalty  payments based on
sales of certain products and services.  The royalty  obligations are based on a
percentage of net sales of licensed  products and include minimum annual royalty
payments under some  agreements.  The Company pays royalties to five entities on
its  urine-based  screening test and to one entity on its serum- and urine-based
Western Blot  supplemental  tests.  The patents  underlying the royalties expire
between  2004 and 2009.  There are minimum  payments  required by certain of the
agreements that apply  regardless of the amount of actual sales. The Company did
not make all of the required minimum and sales-based  payments for 2004 or 2003.
As  discussed  in Note 5,  during 2004 the  Company  has  entered  into  license
agreements  for  technology and materials  required to  commercialize  its rapid
tests. In addition to the initial or base license payments,  the agreements also
contain a royalty on sales  component based on sales of the Company's rapid test
products.

At December 31, 2004,  while the Company is essentially  current under the terms
of its contracts or negotiated  payment plans, it is  approximately  $236,000 in
arrears on the payment of royalties  under certain of the  licensing  agreements
covering its ELISA tests. Under certain of the Company's  licensing  agreements,
the patent holder or other  organization  granting rights to the Company has the
right to revoke the  license for  non-payment  of  royalties.  Should the patent
holder or other granting  organization take that step, the Company could find it
necessary to modify its manufacturing  practices or change its business plan. In
September  2003, the Company issued 500,000 shares of its common stock valued at
the date of  issuance  at  approximately  $610,000  to one of its  licensors  to
maintain its exclusivity under certain license agreements for the years 2003 and
2004.  The portion  applicable  to  exclusivity  during  2004 was  recorded as a
prepaid  expense at December 31, 2003 and amortized as a royalty  expense during
2004.

(15)  EMPLOYMENT AND CONSULTING AGREEMENTS

In January 2004, the Company entered into a three year employment agreement with
an officer  that  included  an annual  salary of  $250,000  and,  subject to the
approval of the Company's  stockholders of the 2004 Incentive Plan, the grant of
options to purchase  5,000,000  shares of the Company's  common stock.  Upon the
stockholders'  approval of the 2004  Incentive Plan on June 22, 2004, the option
was  granted  with an  exercise  price of $0.585  per  share.  The  options  are
exercisable 50% upon grant and 50% on the one year  anniversary of the grant and
have a ten year term. In the event the Company should  terminate the officer for
other  than cause  prior to the  expiration  of the  employment  agreement,  the
officer  is  entitled  to the  remaining  payments  due for the full term of the
agreement.

In June 2003, the Company entered into a five year  employment  agreement with a
director  and  officer of the  Company  that  included a base  annual  salary of
$350,000. On January 20, 2004 the officer resigned as an officer and as a member
of the  Company's  Board of  Directors.  The Company  entered  into a Separation
Agreement and Release with the officer  wherein he was paid a severance equal to
one year's  salary and was vested in options to purchase  750,000  shares of the
Company's common stock  exercisable at $0.32 granted to him in January 2004 from
the Company's 2000 Equity Incentive Plan.

In January 2003, the Company entered into a twelve month  employment  agreement,
with automatic  renewal options,  with an officer of the Company that included a
base salary of $200,000,  and the grant of options to purchase  83,333 shares of
the Company's  common stock at an exercise price of $1.50 per share,  subject to
stockholder approval of amendments at the 2003 Annual Meeting of Stockholders to
the Company's 2000 Equity  Incentive Plan. These options were to be fully vested
on the grant date. The officer had previously  been granted  options to purchase
an aggregate of 25,000  shares of the  Company's  common stock in 2001 and 2002,
pursuant to an earlier consulting  contract.  In the fourth quarter of 2002, the
officer agreed to cancel all outstanding  options previously granted to him. The
officer was granted  25,000  fully-vested  options at an exercise price of $0.32
per share,  the market  price of the  Company's  stock on the May 29, 2003 grant
date,  following  stockholder  approval at the May 20, 2003 Annual Stockholders'
Meeting of amendments to the Company's 2000 Equity  Incentive  Plan. The options
granted  conditionally under the Employment Agreement were also granted as fully
vested at $0.32 per share on May 29, 2003.  Additionally,  on May 29, 2003,  the
officer was also granted  fully-exercisable options to purchase 24,038 shares of
the Company's  stock at $0.01 per share,  in  recognition  of a salary  deferral
arrangement,  and options to purchase  625,000 shares of the Company's  stock at
$0.32 per share.  The latter options were  exercisable 50% upon grant and 50% on
the one year  anniversary of the grant.  On June 22, 2004,  upon the approval by
the Company's  stockholders  of the 2004 Incentive Plan, the officer was granted
options to purchase 1,500,000 shares of the Company's common stock at $0.585 per
share.  The  options  are  exercisable  50% upon  grant  and 50% on the one year
anniversary of the grant and have a ten year term.


                                      F-34
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


In May 2002, in conjunction with a financing  proposal,  the independent members
of the  Company's  Board of  Directors  appointed a new  Executive  Chairman and
entered into a five year employment agreement with him. The employment agreement
specified an annual salary of $400,000 and allowed for annual increases  subject
to the Company's  performance and approval of the Compensation  Committee of the
Board of  Directors.  The Company  deferred  payment of, but accrued as expense,
approximately 30% of the Executive Chairman's cash compensation during 2002. The
Company continued to defer and accrue this compensation until it was paid during
the third  quarter of 2003.  The  agreement  also  specified  that the Executive
Chairman was entitled to receive his base salary for at least twelve months,  in
the event the  Company  terminated  his  employment  other  than for  cause.  As
specified in the employment agreement, on May 10, 2002, when the market price of
the  Company's  common  stock was $0.90 per share,  the  Executive  Chairman was
granted  fully-vested  options to purchase 65,556 shares of the Company's common
stock at $0.45 per share and options to purchase 200,000 shares of the Company's
common  stock at $0.90 per share,  with the option to  purchase  100,000  shares
vested  immediately  and the  option to  purchase  the  remainder  vested on the
one-year  anniversary of the option grant.  The options had a five-year term. In
the fourth  quarter of 2002,  the Company  renegotiated  the terms of the option
grant  contained in the  employment  agreement,  canceling all but 30,000 of the
options   granted  at  $0.90.   The  Executive   Chairman  was  granted  235,556
fully-vested  options at an exercise price of $0.32 per share,  the market price
of the  Company's  stock on the May 29, 2003 grant date,  following  stockholder
approval at the May 20, 2003 Annual  Stockholders'  Meeting of amendments to the
Company's 2000 Equity  Incentive  Plan. On May 29, 2003, the Executive  Chairman
was also granted  fully-exercisable  options to purchase  256,785  shares of the
Company's  stock at $0.01 per share,  in  recognition  of an  additional  salary
deferral arrangement,  and options to purchase 2,000,000 shares of the Company's
stock at $0.32 per share. The latter options were exercisable 50% upon grant and
50% on the one year  anniversary  of the grant and had a ten year term.  On June
22, 2004, upon the approval by the Company's  stockholders of the 2004 Incentive
Plan, the Executive Chairman was granted options to purchase 5,000,000 shares of
the Company's common stock at $0.585 per share. The options were exercisable 50%
upon grant and 50% on the one year  anniversary  of the grant and had a ten year
term.  The  Executive  Chairman  resigned  effective  November  15,  2004 as the
Company's  Executive  Chairman  and  as a  member  of  the  Company's  Board  of
Directors.  Under the terms of a Separation and Consulting Agreement and Release
of Claims,  the Company  entered  into a  consulting  arrangement  that  extends
through November 15, 2006 under which it agreed to pay approximately $1 million,
of which  approximately  half was to be a non-cash  payment,  and to  accelerate
vesting of all his then-unvested  options. At December 31, 2004, the Company has
accrued the liability under the terms of the Separation Agreement.

In October  2002,  the Company  entered into a new  five-year  agreement  with a
former officer and director that included an annual salary of $300,000,  subject
to annual  review.  The previous  agreement,  which  commenced in October  1999,
provided for an initial annual salary of $220,000,  subject to annual increases.
In  conjunction  with the new  agreement,  the Company  also granted the officer
options to purchase  146,667  shares of common  stock,  at an exercise  price of
$2.40,  subject to stockholder approval of amendments at the 2003 Annual Meeting
of Stockholders to the Company's 2000 Equity  Incentive Plan. These options were
to be fully vested on the grant date. In February  2003,  the exercise  price of
this option was reduced to the lesser of $1.50 per share or the market  price on
the grant date. In the fourth  quarter of 2002, the officer agreed to cancel all
outstanding  options  previously granted under the 1991 Incentive Stock Plan and
the 2000 Equity Incentive Plan, an aggregate of 62,573 options.  The officer was
granted 62,573 fully-vested options at an exercise price of $0.32 per share, the
market price of the  Company's  stock on the May 29, 2003 grant date,  following
stockholder  approval  at the May  20,  2003  Annual  Stockholders'  Meeting  of
amendments to the Company's  2000 Equity  Incentive  Plan.  The options  granted
conditionally  under the Employment  Agreement were also granted as fully vested
at $0.32 per share on May 29, 2003.  Additionally,  on May 29, 2003, the officer
was also  granted  fully-exercisable  options to purchase  85,236  shares of the
Company's  stock  at $0.01  per  share,  in  recognition  of a  salary  deferral
arrangement,  and options to purchase 1,250,000 shares of the Company's stock at
$0.32 per share.  The latter options were  exercisable 50% upon grant and 50% on
the  one  year  anniversary  of the  grant.  Under  the  terms  of a  Separation
Agreement,  Mutual Release and Waiver of Claims,  the officer resigned effective
June 2,  2003  as the  Company's  President  and  Chief  Executive  Officer  and
effective June 27, 2003 as a member of the Company's  Board of Directors.  Under
the terms of the Separation  Agreement,  the Company agreed to pay approximately
$313,000 over a period of up to one year and to permit previously issued options
to vest in accordance with the terms of their grants.

In April 2003, the Company  entered into a three-year  consulting  agreement for
advisory and other services  related to the marketing,  distribution and sale of
its  products.  The  agreement  obligates  the Company to pay the  consultant an
aggregate of $3,000,000 in cash as follows: $750,000 in 2003, $1,000,000 in both
2004 and 2005,  and $250,000 in 2006;  and an aggregate of 200,000 shares of its
common  stock.  At December  31,  2004,  the Company  had paid an  aggregate  of
$1,000,000  pursuant to the contract and had accrued the remaining liability for
the balance due through 2004.


                                      F-35
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003


(16)  RELATED PARTY TRANSACTIONS

As  described  in Note 7, in August  2001,  the Company  issued a $400,000  8.5%
Promissory  Note to the parent  company  of its  then-largest  stockholder.  The
Company  renegotiated  the note during 2001, 2002 and subsequently in 2003. This
note was repaid in 2003. Also as discussed in Note 7, the Company entered into a
Note  Purchase   Agreement  with  its  largest   stockholder  in  2003  that  it
subsequently  modifed  during  2004.  The  Company  issued no notes  under  this
facility prior to its December 31, 2004 expiration.

In connection with the aggregate $12.5 million  investments by Marr Technologies
BV during 2003,  the Company  signed a Memorandum Of  Understanding  to create a
joint  venture in China to market the  Company's  current  and future  products.
Additionally,  the  Nominating  Committee  of the  Company's  Board of Directors
agreed   to  grant   Marr  the   right  to   nominate   two   mutually-agreeable
representatives to the Company's Board of Directors.  During 2004, two directors
initially nominated by Marr were added to the Company's Board of Directors.

In November 2003, the joint venture, Beijing Calypte Biomedical Technology Ltd.,
was formed, with the Company owning 51% of its stock.

(17)  COMMITMENTS AND CONTINGENCIES

The Company does not, in the normal course of business,  enter into  significant
purchase  contracts  for  materials  or  supplies.  As  discussed in Note 10, in
September  2004, the Company entered into a licensing,  technology  transfer and
equipment  purchase  agreement  pursuant  to which it  issued  stock  valued  at
approximately  $96,000 as a deposit for the purchase of specified  manufacturing
equipment  to be  acquired  for an  aggregate  purchase  price of 233,000  Euros
(approximately $300,000).

The Company is a party to a lawsuit  which has arisen in the ordinary  course of
business.  The Company believes that the outcome of such lawsuit will not have a
material  adverse  effect on its  business,  financial  condition  or results of
operations.  The Company has product liability and general  liability  insurance
policies in amounts that it believes to be reasonable given its current level of
business.  Although  historically the Company has not paid any product liability
claims,  it is  conceivable  that it  could  incur  claims  for  which it is not
insured.

(18)  SUBSEQUENT EVENTS

CONSULTING AGREEMENT

On  February 9, 2005,  the  Compensation  Committee  of the  Company's  Board of
Directors  approved a consulting  contract under which the Chairman of the Board
of Directors will provide certain strategic and advisory services to the Company
through  July 31,  2005  (the  "Consulting  Contract").  Under  the terms of the
Consulting  Contract  and  concurrent  with  its  approval  by the  Compensation
Committee,  the Company granted to its Chairman immediately  exercisable options
to purchase 850,000 shares of its common stock at an exercise price of $0.35 per
share,  which was the market price of the Company's common stock on the date the
option  was  granted.  The  options  have a life of ten years  and were  granted
pursuant to the Company's 2004 Incentive Plan.

FINANCING ACTIVITIES

January 2005 Promissory Note

On January 14, 2005, the Company issued an unsecured $2 million  promissory note
to Marr  Technologies BV (Marr),  its largest  stockholder,  which was funded on
January 18, 2005. The  promissory  note bears interest at a rate of 7% per annum
and was payable in full no later than March 31,  2005.  On March 30,  2005,  the
Company and Marr agreed to extend the maturity  date of the note until April 30,
2005.


                                      F-36
<PAGE>



 PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
            ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.

                                        CALYPTE BIOMEDICAL CORPORATION
                                        (Registrant)

                                        /s/ J. Richard George
                                        -------------------------------------
                                        By: J. RICHARD GEORGE
                                        PRESIDENT AND CHIEF EXECUTIVE OFFICER


Date: March 31, 2005


                                POWER OF ATTORNEY

Each Director of the Registrant whose signature  appears below,  hereby appoints
J. Richard George and Richard D. Brounstein as his  attorney-in-fact  to sign in
his name and on his behalf as a Director of the Registrant, and to file with the
Securities and Exchange Commission any and all Amendments to this report on Form
10-KSB to the same extent and with the same effect as if done personally.

Pursuant to the  requirement of the  Securities  and Exchange Act of 1934,  this
report  has been  signed  below,  by the  following  persons  on  behalf  of the
Registrant and in the capacities indicated.

<TABLE>
<CAPTION>
                 SIGNATURE                                         TITLE                                       DATE
--------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                                                        <C>

             /s/ Roger I. Gale                 Chairman of the Board of Directors                         March 31, 2005
===========================================
               ROGER I. GALE


          /s/ J. Richard George                President, Chief Executive Officer                         March 31, 2005
===========================================
             J. RICHARD GEORGE


         /s/ Richard D. Brounstein             Executive Vice President and Chief Financial               March 31, 2005
===========================================    Officer (Principal Financial and Accounting
           RICHARD D. BROUNSTEIN               Officer)



           /s/ John J. DiPietro                Director                                                   March 31, 2005
===========================================
             JOHN J. DIPIETRO


             /s/ Paul Freiman                  Director                                                   March 31, 2005
===========================================
               PAUL FREIMAN


        /s/ Julius R. Krevans, M.D.            Director                                                   March 31, 2005
===========================================
          JULIUS R. KREVANS, M.D.


           /s/ Maxim A. Soulimov               Director                                                   March 31, 2005
===========================================
             MAXIM A. SOULIMOV
</TABLE>


                                       S-1