**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**





**(Mark One)**





x
            
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE
                SECURITIES****EXCHANGE
                ACT OF 1934****For
                the fiscal year ended December 31, 2007**
              **or** ̈
            
            **TRANSITION
                REPORT UNDER 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**
              **incorporation
                or organization)**
            
            **(I.R.S.
                Employer**
              **Identification
                Number)****16290
                S.W. Upper Boones Ferry Road, Portland, OR**
            
            **97224****(Address
                of principal executive offices)**
            
            **(Zip
                Code)**




**Issuer’s
      Telephone Number: (503) 726-2227**




**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**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Exchange Act. Yes o No x





Indicate
      by check mark whether the registrant (1) has 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 
      o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Regulation S-K
      (Sec. 229.405 of this chapter) is not contained in this form and will not be
      contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this Form 10-K.   o





Indicate
      by check mark whether the registrant is a large accelerated filer, a
      non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2
      of the Exchange Act).


Large
                accelerated filer  o
            
            Accelerated
                Filer      oNon-accelerated
                filer    o
            (Do
                not check if a smaller reporting company)
            Smaller
                reporting company   x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  o No x





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 June 29, 2007 was approximately
      $21,899,000 based on the $0.084 per share closing price of the common stock
      on
      that date reported on the NASD Over the Counter Bulletin Board.





As
      of March
      27,
      2008, 370,721,020 shares of the
      registrant’s common stock, $.03 par value, were outstanding.









**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 2008 Annual Meeting
      of Stockholders are incorporated by reference into Part III of this Form 10-K..









**CALYPTE
      BIOMEDICAL CORPORATION******


**FORM
      10-K**


**INDEX**


**Page
                  No.****PART I.**Item
                  1.
              Business
              1Item
                  1A.
              Risk
                  Factors
              12Item
                  2.
              Properties
              27Item
                  3.
              Legal
                  Proceedings
              27Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              27**PART
                  II.**Item
                  5.
              Market
                  for the Registrant’s Common Equity and Related Stockholder
                  Matters
              29Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              29Item
                  8.
              Financial
                  Statements and Supplementary Data
              40Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              40Item
                  9A(T).
              Controls
                  and Procedures
              40**PART
                  III.**Item
                  10.
              Executive
                  Officers and Directors of the Registrant
              42Item
                  11.
              Executive
                  Compensation
              45Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              49Item
                  13.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              51Item
                  14.
              Principal
                  Accountant Fees and Services
              52**PART
                  IV.**Item
                  15.
              Exhibits
                  and Reports on Form 8-K
              54Signatures
              S-1Certifications




*Except
      for the historical information contained in this annual report on Form 10-K,
      the
      matters discussed herein contain forward-looking statements that are subject
      to
      certain risks and uncertainties that could cause actual results to differ
      materially from those projected. These risks and uncertainties include, but
      are
      not limited to, 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 tests, as well as the other risks and uncertainties
      described in Item 1A. Risk Factors beginning on page 12 and elsewhere in this
      Annual Report on Form 10-K. The Company assumes no obligation to update any
      forward-looking statements contained herein.*







**FACTORS
      THAT MAY AFFECT FUTURE RESULTS**





This
      Annual Report on Form 10-K 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 or
      revenue growth rate in 2008 and beyond. 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**





**Overview**


Calypte
      Biomedical Corporation (the “Company”) develops, manufactures, and distributes *in
      vitro* diagnostic tests, primarily for the diagnosis of Human Immunodeficiency Virus
      (“HIV”) infection. We were incorporated in California in 1989 and reincorporated
      in Delaware in 1996 at the time of our initial public offering. Since September
      8, 2006, our common stock has traded on the NASD Over the Counter Bulletin
      Board
      under the symbol “CBMC.” Prior to that date, our stock had traded on the
      American Stock Exchange under the symbol “HIV”. During the third quarter of
      2007, we combined our research and development operations and our administrative
      offices in a facility in Portland, Oregon that also includes space for
      manufacturing operations. Prior to that, our administrative offices were located
      in Lake Oswego, Oregon, a suburb of Portland, near where our research and
      development operations were located. Through our 51%-owned joint ventures,
      we
      have manufacturing and marketing operations in Beijing, China. In the second
      quarter of 2007, we established a representative sales and marketing office
      in
      Dubai, United Arab Emirates and, in the third quarter of 2007, we established
      a
      similar office in Geneva, Switzerland.





Historically,
      we manufactured and marketed urine-based HIV-1 diagnostic screening tests and
      urine and serum-based Western Blot supplemental (sometimes called
“confirmatory”) tests for use in high-volume laboratories, which we refer to as
      our “Legacy Business.” Effective November 15, 2005, under the terms of an Asset
      Purchase and License Agreement (the “Agreement”), we sold the Legacy Business to
      Maxim Biomedical, Inc. (“Maxim”).





Our
      current emphasis is commercializing our HIV-1/2 Rapid Tests, test products
      for
      the rapid detection of antibodies to HIV-1 and HIV Type 2, a second type of
      HIV
      (“HIV-2”), in oral fluid and blood samples using a lateral flow dipstick design
      (the “HIV-1/2 Rapid Tests”). Rapid tests provide diagnostic results in less than
      20 minutes and are particularly suitable for point-of-care testing in both
      the
      professional sector, such as in developing countries that lack the medical
      infrastructure to support laboratory based testing, and, for the first time,
      in
      the over-the-counter or “OTC” market. We have completed field trials or product
      evaluations of our Aware TM HIV-1/2
      OMT (oral fluid) rapid test covering an aggregate of over 8,000 samples in
      China, India, South Africa and elsewhere and believe that the results of these
      studies and evaluations have validated the test. In our studies, this test
      has
      averaged 99.7% accuracy. We have obtained regulatory approvals in parts of
      Africa, Southeast Asia, the Middle East, Russia and, recently, in India, and
      we
      expect to expand our market reach on a steady basis.





I n the
      fourth quarter of 2004, through an arrangement with the U. S. Centers for
      Disease Control and Prevention (the “CDC”), we introduced an HIV-1 BED Incidence
      EIA test (the “BED Incidence Test”) that detects HIV-1 infections that have
      occurred within approximately the prior 6 months and that can be used by public
      health agencies to identify those regions and the populations within them where
      HIV transmission is occurring most recently.




1




In
      November 2003, we became the 51% owner of a joint venture, Beijing Calypte
      Biomedical Technology Ltd. (“Beijing Calypte”), created to market our rapid test
      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 20% of our outstanding stock as of March
      27, 2008. Through 2006, the operations of Beijing Calypte were primarily
      organizational and financially insignificant.





Effective
      in January 2006, we became the 51% owner of Beijing Marr Bio-Pharmaceutical
      Co.,
      Ltd. (“Beijing Marr”). We purchased our equity interest from Marr Technologies
      Asia Limited (“Marr Asia”), an affiliate of Marr, which continues to own the
      remaining 49% interest in Beijing Marr. Through the acquisition of Beijing
      Marr,
      we have acquired rights to manufacturing
      facilities necessary to
      manufacture our HIV-1/2
      Rapid Test products
      in China. Beijing Marr has
      recently renovated the manufacturing facilities and is pursuing the necessary
      governmental approvals to begin production and sale of our HIV-1/2 rapid oral
      fluid (OMT) diagnostic test, which is currently being evaluated by the Chinese
      State Food and Drug Administration (“SFDA”). In the fourth quarter of 2007, the
      facility passed
      a
      quality system audit and obtained certification of its quality system to the
      international standard, ISO 13485:2003. We
      expect
      this facility to support the manufacturing of our products for export to other
      countries.





The
      financial statements included in Item 8 in this Form 10-K reflect the
      consolidated operations of and our ownership interests in Beijing Calypte and
      in
      Beijing Marr.





**Financial
      Considerations**


To
      successfully implement our business plans, we must obtain sustainable positive
      cash flow and profitability. Our current revenues from international sales
      of
      our HIV-1/2 Rapid Tests and sales of the BED Incidence Test are not adequate
      to
      support our business operations, requiring that we also rely on external
      financing sources to pursue our business milestones and achieve profitability.
      Although we are focusing our efforts on commercializing the HIV-1/2 Rapid Tests
      to generate the revenue stream necessary to support our operations and achieve
      our financial objectives of sustained profitable operations and increased
      stockholder value, t here
      can
      be no assurance that we will achieve expanded acceptance of or realize
      significant revenues from the sale of the HIV-1/2 Rapid Tests or the BED
      Incidence Test or other new products that we may develop or market, or that
      we
      will achieve and sustain profitability and positive cash flows in the future. Our
      future liquidity and capital requirements will depend on numerous factors,
      including successful commercialization of our HIV-1/2 Rapid Tests, protection
      of
      intellectual property rights, costs of developing our new products, including
      obtaining and maintaining the necessary intellectual property rights, our
      ability to transfer technology, set up and scale up manufacturing and obtain
      regulatory approvals of our new rapid tests, market acceptance of 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.





For
      the
      year ended December 31, 2007, we incurred a net loss of $8.3 million and a
      negative cash flow of $6.1 million as a result of our operations. At December
      31, 2007, we had a working capital deficit of $3.5 million and our stockholders’
deficit was $8.9 million. Our cash balance at December 31, 2007 was $0.8
      million. Based upon our financial condition at December 31, 2007, as well as
      our
      recurring losses and our negative cash flows from operations, our independent
      registered public accounting firm expressed an opinion on our December 31,
      2007
      consolidated financial statements citing substantial doubt about our ability
      to
      continue as a going concern.





In
      March
      2007, we received $5.2 million proceeds from the  March
      2007 private placement that funded our operations through 2007. As part of
      the
      March 2007 private placement, we issued to the investors in that private
      placement immediately exercisable warrants expiring on June 28, 2008 to purchase
      an aggregate of 100 million shares of our common stock at $0.08 per share and
      immediately exercisable warrants expiring on September 28, 2008 to purchase
      an
      aggregate of 50 million shares of our common stock at $0.11 per share as a
      potential source of additional near and medium-term financing for us. We
      expected that a portion of these short-term warrants, in addition to other
      outstanding warrants that are now also in-the-money, would be exercised during
      2007 and thereby provide us with additional and necessary funding. At March
      27,
      2008 investors in the March 2007 private placement had exercised an aggregate
      of
      11,750,000 of the warrants exercisable at $0.08 per share and we had received
      $940,000 in proceeds. We entered into a financing arrangement in January 2008
      under which the investor is obligated, under certain conditions, to purchase
      up
      to $8 million of our common stock over a 24 month period.




2





In
      the
      absence of the exercise of a significant portion of the warrants issued in
      the
      March 2007 private placement, our current cash resources and the financing
      arrangement we entered during the first quarter of 2008 may not allow us to
      fully attain our business milestones without interruption and we may need to
      seek additional financing or pursue a strategic opportunity. We do not currently
      have any definitive agreements with respect to additional financing or a
      strategic opportunity, and there can be no assurance that any such financing
      or
      strategic opportunity will be available to us on acceptable terms, or at all.
      In
      March 2007, we extended the maturity of our April 2005 Secured 8% Convertible
      Notes and related interest notes and the 7% Promissory Notes issued under the
      2005 Marr Credit Facility from April 2007 until April 2009. Additionally, in
      December 2007 we entered into a one-year agreement with Marr under which it
      can
      convert its holdings of these securities at $0.16 per share. At December 31,
      2007, we owed an aggregate of $9,490,000 under the April 2005 Secured 8%
      Convertible Notes and related interest notes and the 7% Promissory Notes issued
      under the 2005 Marr Credit Facility. The existence of these Notes and our pledge
      of our assets as security for these Notes may inhibit our ability to obtain
      financing in the future. Additionally, the presence of a significant number
      of
      unexercised in-the-money warrants may also unfavorably impact our ability to
      raise additional financing. Although we expect to be able to raise additional
      capital, if necessary, there can be no assurance that we will secure such
      financing or enter into such strategic agreements, or that our stockholders
      would approve the terms of such agreements or financing, if so required. There
      can be no assurance that our current cash resources and financing arrangements
      are sufficient to allow us to fully attain our business milestones and achieve
      positive cash flow.





Our
      longer-term liquidity and capital requirements are dependent on constraints
      similar to those which impact our current liquidity and capital resource
      considerations and which will be critical in validating our business model
      in
      2008 and beyond. In
      the
      absence of adequate resources from current working capital and existing
      financing arrangements, it will be necessary for us 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 we require
      it or
      if it is not available to us on acceptable terms, or if 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 and/or require
      stockholder approval. 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 .





**Our
      Products**




Our
      product line includes our Aware TM line
      of
      low cost rapid tests, our HIV-1 BED Incidence test and our recently-introduced
      Aware  Messenger TM specimen
      collection device. At present, our rapid tests are designed for use in
      international applications. Our business model calls for us to introduce rapid
      tests for the domestic market in the future.




***The
      Aware*** ***TM*** ***Rapid Test Product Line***




To
      address the needs of developing world markets in Africa and parts of Southeast
      Asia, as well as the Middle East and Eastern Europe, we have developed our
      Aware TM line of
      low cost rapid tests in a simple, easy to use format suitable for use in point
      of care settings in remote locations. We have developed rapid tests for the
      detection of antibodies to HIV-1 and HIV-2 that can use either oral fluid or
      blood as a specimen sample. We have also developed a rapid test that uses urine
      as a specimen sample, but it is currently not a primary focus. We are primarily
      concentrating on introducing our oral fluid rapid tests into international
      markets.




3





Regardless
      of the specimen sample, all versions of these immunochromatographic tests employ
      a lateral flow “dipstick” design, free of plastic housings to reduce cost and
      waste. After dropping the dipstick into a disposable test tube that contains
      the
      sample, the sample migrates 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 bind with IgG in the sample. So 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 both the
      oral
      fluid and blood tests, positive results are visible as soon as 5 minutes,
      although we advise users to allow 20 minutes before interpreting a result.





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 tube containing 1mL
      of
      diluent. The blood/serum/plasma test requires just 5 μL of sample in a
      dropper-full (200 μL) of diluent.





Our
      current Aware TM line
      includes the following products:





***Aware*** ***TM*** ***HIV-1/2 OMT (Oral fluid) PRO (Professional)***


We
      developed the Aware TM HIV-1/2
      OMT test to address the drawbacks of blood testing. We believe this test is
      ideally suited to clinical or professional settings in the developing world.
      Although the range of other assays that can presently be performed on OMT
      samples is limited, OMT samples can be easily collected anywhere, including
      public settings, giving the test a unique advantage over tests using other
      sample media. Evaluations suggest that the accuracy of our OMT test is only
      slightly less than a test using a laboratory blood sample and on a par with
      the
      best of rapid blood tests. The strengths of the Aware TM HIV-1/2
      OMT test are:




·
            It
                has a true IgG control line that indicates not only that the device
                is
                functional but that a human sample has been added (some assays feature
                a
                control line that appears even if the correct sample is not
                added)


·
            Kit
                packaging is designed to permit multiple users to use the kit
                simultaneously


·
            Unlike
                its primary competitor, the AwareTMOMT sample preparation step produces surplus sample, which can be
                used to
                repeat the test, or to perform a confirmatory assay such as an oral
                fluid
                Western Blot test or a second rapid oral fluid
                test.


·
            AwareTMOMT testing is painless, safe, and
                non-invasive


·
            Although
                more expensive than blood tests, the all-in costs (including costs
                of
                handling and disposal of blood) are less. Further, we expect the
                AwareTMOMT to have a cost advantage over its primary current oral fluid
                competitor. Additionally, it has a significantly longer shelf life
                than
                that of its primary competitor.





***Aware*** ***TM*** ***HIV-1/2 Oral OTC***


The
      Aware TM HIV-1/2
      Oral OTC test is an over-the-counter version of our oral fluid rapid test.
      The
      test was designed for markets in which we see substantial demand for a low-cost
      self-administered, over-the-counter HIV test, including the Middle East, Russia
      and other Eastern European and Central Asian countries. The Aware TM HIV-1/2
      Oral OTC has the same performance attributes as the PRO version but is packaged
      for individual sale and includes simplified usage instructions tailored for
      the
      non-professional consumer.





***Aware*** ***TM*** ***HIV-1/2 BSP PRO***


Although
      we are committed to non-invasive (non-blood) testing, we developed the
      Aware TM HIV-1/2
      BSP (blood/serum/plasma) test to offer a full range of testing solutions. The
      BSP test allows us to participate in tenders that specify blood tests and in
      markets where blood testing remains the norm. The BSP test also demonstrates
      our
      ability to develop and manufacture a rapid HIV test that meets uniform
      international standards and performs well in international evaluations. Further,
      it allows us to provide one-stop shopping and standardized methods for customers
      wanting to use both blood and non-blood tests. The strengths of the
      Aware TM HIV-1/2
      BSP test are:




·
            It
                has a true IgG control line that indicates not only that the device
                is
                functional but that a human sample has been added (some assays feature
                a
                control line that appears even if the correct sample is not
                added)






4




·
            Kit
                packaging is designed to permit multiple users to use the kit
                simultaneously


·
            The
                test can be used on all types of blood: serum, plasma, venous whole
                blood
                and finger-stick whole blood. This flexibility is not found in all
                rapid
                HIV blood tests


·
            Its
                clinical performance effectively competes with the top brands of
                rapid
                blood HIV test


·
            As
                with all rapid blood tests, the sampling procedure can be easily
                modified
                to permit routine and convenient sample collection for epidemiology
                purposes (BED Incidence EIA)




***HIV-1
      BED Incidence EIA***


The
      HIV-1
      BED Incidence EIA Test, recently re-named the Aware TM BED TM HIV-1
      Incidence Test, (the “Incidence Test”) is designed to estimate the rate of new
      HIV infections in a population by determining what proportion of a population
      of
      HIV infected people were infected recently (e.g. within approximately the past
      6
      months.) Under a license from the CDC, we serve as the contract manufacturer
      of
      this test and have the right to market it worldwide. We did not participate
      in
      the development or validation of the Incidence Test or the development of the
      guidelines for its use. The guidelines that dictate how the test is to be
      interpreted and how the data generated by the test are to be used are determined
      by the CDC and other authoritative public health entities such as UNAIDS. We
      also market a control kit that contains materials required to use the Incidence
      Test for testing Dried Blood, Serum or Plasma spots.





We
      believe that the capability of this test is significant because a critical
      element of reducing HIV transmission rates is identifying where the increased
      rates are occurring and instituting prevention programs accordingly. The
      Incidence Test is useful as an epidemiological measurement tool 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. We believe that
      the
      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 effectiveness of prevention programs from both a disease
      spread and financial resource perspective and allow managers to evaluate areas
      appropriate for alternative therapeutic media, such as vaccine trials.





***Aware
      Messenger*** ***TM*** ***Oral Fluid Sample Collection Device***


Early
      in
      the first quarter of 2008, we introduced the Aware MessengerTM oral fluid
      collection device, which is intended for the collection, stabilization, and
      transport of an oral fluid specimen to be used for the detection of specific
      antibodies or analytes. Aware MessengerTM specimens may be tested with
      conventional laboratory-based immunoassays (e.g. ELISA) enabling high-throughput
      batch testing, automation, quantitative results, and lower costs. Oral fluid
      specimens collected with this device are easily obtained and have been shown
      to
      yield high quality samples rich with various analytes representative of those
      found in blood. This collection device is based on the same principle as
      employed in our Aware TM HIV-1/2
      OMT test. The device can be used to collect oral fluid analytes for not only
      HIV
      antibodies, but also other screening application such as cotinine (a metabolite
      of nicotine indicative of smoking) and cocaine. Our initial target for this
      product is for research use and to reference laboratories in the life insurance
      risk assessment market having the capability to self-validate assays employing
      the device. We envision that many blood tests can be optimized for use with
      the
      Aware MessengerTM device, potentially providing a much larger market for this
      product.





**New
      Products**





***HIV-1/2
      OMT Test using a synthetic antigen***


In
      an
      effort to provide a complete oral fluid diagnostic testing solution, and to
      comply with the WHO’s rapid testing algorithm requiring two rapid tests having
      different antigens and/or platforms, we are developing a second OMT screening
      test using a synthetic antigen, for use in conjunction with our AwareTM OMT test,
      which employs a recombinant antigen. This product is designed to utilize the
      same sample collected for our current AwareTM HIV-1/2 OMT rapid test, resulting
      in a completely non-invasive real-time testing solution. We expect to complete
      the development of this product during 2008 and anticipate approval processes
      similar to those for the AwareTM product line, depending on the country of
      interest.




5





***Aware*** ***TM*** ***II (The Ani Platform)***


Our
      current Aware TM product
      line is a rapid testing solution that is well suited for developing countries.
      However, in developed countries, including in the U.S., a cassette-enclosed
      format may be more acceptable. On a longer-term basis, we plan to introduce
      the
      Aware TM II
      product line for these markets using such a format. We believe that we currently
      have all of the necessary technology licenses for this format.





The
      Aware TM II line
      provides a cassette-housed strip in a unique two-step platform that we have
      licensed from Ani Biotech Oy (the
“Ani
      Platform”). To perform the test, the
      sample applicator is first placed in the specimen - oral fluid or blood - and
      then the end of the sample applicator stick is placed in the sample inlet of
      the
      test device. The sample and the mobilized conjugate 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 antibody 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 antibody is present
      in the sample.





There
      are
      currently no U.S. FDA-approved over-the-counter HIV tests; however an FDA
      advisory panel has recommended that the FDA consider an approval protocol for
      such a test. We believe that OTC tests would be advantageous in the battle
      against HIV transmission and that a rapid test platform such as the
      Aware TM II
      platform would be appropriate for use in an FDA-approved OTC application,
      potentially coupled with tests such as a rapid incidence test and tests for
      other sexually transmitted diseases (“STD’s”) or conditions. We recently
      occupied leased laboratory and manufacturing space in Portland, Oregon that
      we
      plan to use to complete the development of and begin the U.S. FDA approval
      process for the Aware TM II
      product.





***Rapid
      Incidence Test***


We
      have
      executed a CRADA (a Cooperative Research and Development Agreement) with the
      CDC
      to develop a new HIV-1 rapid incidence blood test. This new test is intended
      to
      be part of a diagnostic protocol used to both detect HIV-1 antibodies and to
      determine the rate of new HIV-1 infections in populations. If successful, this
      dual capability would strongly distinguish the rapid incidence blood test as
      the
      next generation test by providing a more complete diagnostic protocol. We
      believe that the test will provide a simplified rapid test format that can
      be
      performed in resource poor settings and remote outreach locations for both
      diagnostic and surveillance purposes. Further, as a diagnostic tool, this test
      can direct treatment protocols, which are generally more aggressive in young
      infections.




We
      plan
      to introduce this product initially for international use on the current
      Aware TM   platform
      and manufacture it overseas. We may consider transferring it to the
      Aware TM  II platform,
      potentially serving as the lead product for that platform in the US. 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.





**Potential
      Future Products**


We
      believe that the Ani Platform provides us with an alternative product format
      having potential applicability in both the professional and OTC markets
      worldwide. It also gives us strategic opportunities. We are in the early stages
      of evaluating the feasibility of potential future products employing this
      technology. The development of a rapid test for the detection of syphilis is
      potentially the first non-HIV project that we may undertake.





We
      believe that we must prove the viability of the Ani Platform by completing
      development of the Aware TM II
      product line, filing an IDE for those tests in the U.S. and establishing
      domestic manufacturing capacity with which to begin the FDA clinical trials,
      initially for an HIV test, before we will be able to exploit any of these
      opportunities.





As
      development of this platform expands, we believe that it may be possible to
      provide multi-channel tests combining logical testing sets for 2 to 8 conditions
      in a single rapid-test device.




6




**Marketing,
      Sales and Distribution**





We
      generally rely upon local distributors to explain local market conditions,
      to
      pursue sales opportunities, follow up on leads we provide, to train and support
      local customers and to assist in the regulatory approval process. The notable
      exception to this practice is in China where our products will be marketed,
      distributed and sold through our joint venture with Marr. Additionally, we
      work
      with the CDC to distribute the Incidence Test in the US and
      internationally.





Traditionally,
      we have preferred to appoint exclusive distributors in which ongoing exclusivity
      is predicated upon the distributor’s purchase of mutually agreed minimum volumes
      of product. The distributors may, in turn, appoint sub-distributors. Where
      appropriate, we also consider more direct routes to market, or in the case
      of
      OTC, private sector or charity-backed programs, strategic relationships. On
      an
      individual distributor basis, agreement terms are typically set at 1, 2, or
      3
      years, and with a few exceptions, all purchases must be at least 50% prepaid.





We
      expect
      to continue to concentrate on the following primary markets during
      2008:





**China**


When
      it
      is approved, we expect that our Aware TM HIV-1/2
      OMT test will be the only **** alternative
      fluid rapid test available in China. We expect to capture a meaningful share
      of
      the Chinese market for diagnostic screening tests within two years following
      approval while maintaining strong margins. We believe that to meet the Chinese
      government’s goal of universal testing in its fight against HIV/AIDS only a
      non-blood test, such as ours can be safely distributed and administered on
      a
      sufficiently wide scale. As noted, we plan to manufacture and market our
      Aware TM HIV-1/2
      OMT test through our Chinese joint venture. We believe that we are ready to
      commence commercial scale manufacturing and marketing operations following
      the
      anticipated approval of our rapid test.





**Russia
      and Eastern Europe**


While
      testing is already extensive in Russia and Eastern Europe due to
      institutionalized programs originally established in the Soviet era, these
      programs are failing to reach those population groups most affected by HIV/AIDS.
      The Russian Federation’s HIV epidemic is now the largest in Eastern Europe and
      growing. There is a strong need in Russia and Eastern Europe to expand testing
      among groups that are at the highest risk of contracting HIV/AIDS. We believe
      that our AwareTM line of oral fluid rapid tests, which enable private,
      non-invasive testing, are uniquely suited for overcoming obstacles to broader
      testing in the region. Our Aware TM HIV-1/2
      OMT PRO and OTC rapid tests have been registered in Russia we expect shipments
      to begin during 2008. Among the marketing initiatives being developed for the
      Russian market is a humanitarian program involving corporate sponsorship of
      regional HIV/AIDS intervention programs.





**India**


Recent
      estimates of the epidemic in India, based on an expanded and improved
      surveillance system indicate that India has an estimated 2.5 million HIV
      infections, ranking third behind South Africa and Nigeria for the highest number
      of HIV/AIDS infected people. We expect the market for HIV diagnostic testing
      in
      India to grow significantly in the next few years. Early in the third quarter
      of
      2007, we received registration and marketing approval for our Aware TM HIV-1/2
      OMT (oral fluid) rapid test in India from the Central Drugs Standard Control
      Organisation, commonly referred to as the DCAI. We are targeting three primary
      markets in India: the private sector, the government sector, and the military.
      Late in the fourth quarter of 2007, we completed our first sale to one of the
      Indian Government’s paramilitary organizations. Given the resources and
      potential opportunities in this region, we may consider placing research and
      manufacturing operations in India.





**Africa**


In
      Africa, we are currently pursuing individual country markets for our
      Aware TM HIV-1/2
      OMT rapid test products where we expect growth rates for HIV testing to be
      the
      highest. We will add other target countries as we see their markets developing.
      We received our initial orders for the Aware TM HIV-1/2
      OMT test in 2006 from South Africa, and sales to our South African distributor
      have continued regularly since then. Our Aware TM HIV-1/2
      OMT test is currently approved in South Africa, Kenya, and Uganda. We have
      also
      initiated registration in Nigeria, Tanzania, Cameroon and elsewhere and are
      working to effect product approvals.




7





**Middle
      East**


During
      2007, we began the process to enter several country markets within the region.
      We have obtained product approval in Iraq and are actively pursuing
      registrations in Saudi Arabia, Kuwait, Iran (pending U.S. government clearance),
      Morocco, Libya and Egypt.




**Competition**





Throughout
      the world there are numerous manufacturers of rapid HIV antibody tests.
      Competitors include specialized biotechnology firms as well as pharmaceutical
      companies with biotechnology divisions and medical diagnostic companies. Many
      of
      the tests are manufactured in countries with emerging biotechnology industries
      such as India, China and Korea. With few exceptions, the products offered were
      blood tests and, while their quality varies, they are generally of adequate
      accuracy to pass local regulatory requirements. The tests are often marketed
      at
      very low prices to the end-user, which may indicate that the manufacturers
      are
      not paying royalties on certain key patents such as those for detection of
      HIV-2. While many of these manufacturers were initially established to supply
      products for their regional or domestic markets, many have now begun to expand
      into other regions having less-stringent regulatory and intellectual property
      environments and strong demand for low-cost HIV tests.





Among
      these manufacturers, there are a few that sell products meeting North American
      and Western European quality standards in developing countries. These global
      players typically have an established presence in more than one geographic
      region and their products set the performance standard for the industry. While
      these companies are primarily headquartered in Western Europe or the United
      States, they may manufacture in lower cost developing countries. Their HIV
      rapid
      diagnostic tests are considered to be the quality leaders in the market, with
      accuracies easily exceeding 99%.




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 menu of HIV-1/2 Rapid Tests designed for use with either oral fluid or
      blood. Second, we believe our OMT tests have unique advantages compared with
      blood based tests, as indicated below.




§
            Non-invasive
                and painless sampling. Studies show greater acceptance of HIV testing
                without the pain and risks of drawing blood, which translates into
                higher
                testing rates. Increasing testing rates is one of the keys to controlling
                the spread of HIV/AIDS




§
            Safer
                than blood tests. Eliminates the risk of infection through accidental
                needle or lancet stick injuries for both patients and health care
                workers




§
            Easier
                to use. Enables self sampling and self testing--no technicians, no
                needles, no lancets




§
            Sample
                can be collected anywhere, anytime, including open public
                settings




§
            More
                cost effective than blood diagnostic tests (considering the all-in
                costs
                of drawing, handling and disposing of venous
                blood)




§
            Risk
                of exposure to infectious agents during handling is minimal to
                non-existent




§
            The
                Over-The-Counter (OTC) version may foster increased use as a result
                of
                increased privacy




§
            Unlike
                other oral fluid tests, the AwareTMsampling system allows for a sample to be tested multiple times with
                different test devices and stored for future
                use





**Research
      and Development Spending**





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 and to
      develop the next generation of those tests. To a lesser extent, we are also
      exploring the potential for other new diagnostic test products. Our product
      research and development spending decreased from
      $1.7
      million in 2006 to $1.3 million in 2007. Domestic R&D expense decreased by
      approximately $0.1 million in 2007 primarily as a result of vacancies in our
      R&D staffing and lower costs related to outside consultants, clinical trials
      and travel expenses. Our Beijing Marr joint venture incurred approximately
      $0.3
      million less in R&D expenses during 2007 compared with 2006 as personnel and
      resources were directed away from product development to pre-manufacturing
      activities recognized as administrative expense in 2007. Depending
      on the timing of certain clinical trials and the availability of both human
      and
      financial resources, we expect our R&D costs to increase in 2008.




8




**Component
      Supply**




Our
      manufacturing operations employ a number of component s,
      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 the 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 might require additional changes
      to our products, potentially subjecting them to additional regulatory
      requirements and reviews. 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 rights to intellectual property and related materials
      necessary for the manufacture and worldwide sale of our HIV-1/2 Rapid Tests.





**Synthetic
      Antigen (Adaltis, Inc.):**


In
      April
      2004, we entered into a license and supply agreement with Adaltis, Inc. under
      which Adaltis supplies us with HIV-1/2 peptides for use in our HIV-1/2 Rapid
      Tests.





**Guire/Swanson
      Patent Suite (Abbott Laboratories, Inc.):**


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.





**HIV-2
      (Bio-Rad Laboratories):**


In
      September 2004, we entered into a worldwide, non-exclusive sub-license agreement
      with Bio-Rad Laboratories and Bio-Rad Pasteur for HIV-2 rights. This agreement
      permits 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.





**Ani
      Platform (Ani Biotech Oy):**


In
      September 2004, we acquired a license to the Ani Platform from Ani Biotech
      Oy.
      Under the terms of the license, we have the exclusive right to develop,
      manufacture and sell rapid diagnostic tests for sexually transmitted diseases,
      including HIV, HPV, Hepatitis B, Hepatitis C, Syphilis, Gonorrhea, and Chlamydia
      when urine or oral fluid are the sample media. Additionally, we have the
      non-exclusive right to develop, manufacture and sell the same sexually
      transmitted disease tests when blood, serum, plasma, or urogenital swabs are
      the
      sample media.




9





***Incidence
      Test***


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).





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 products without infringing
      our licensed patent rights. The issuance of a patent is not conclusive as to
      validity or as to the enforceable scope of the patent that we license. 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
      rights to use this intellectual property or our rights to use our trademarks
      or
      trade secrets in the U. S. 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.




**Manufacturing**




To
      meet
      the challenges of testing for HIV in the developing world, we have adopted
      a
      manufacturing strategy for our rapid tests that recognizes the reduced labor
      and
      overhead rates typical of the regions in which we expect to sell our tests.
      We
      have established manufacturing capabilities in the U. S. and Thailand and our
      manufacturing operations in China, through our joint venture, has received
      a
      Medical Devices Manufacturing Permit and has obtained its ISO 13485:2003
      certification. We may consider establishing research and manufacturing centers
      in other targeted markets. A key consideration in selecting manufacturing
      locations for the current Aware TM product
      relates to the presence and enforcement of certain lateral flow patents.
      Accordingly, we plan to produce our Aware TM line in
      countries that offer both low cost manufacturing and where we have technological
      freedom to operate. Thailand and China meet these criteria. We believe there
      are
      no intellectual property restrictions for the Incidence Test or for our Aware
      II TM Tests.





***Pacific
      Biotech***


We
      have
      outsourced production of our Aware TM product
      line to Pacific Biotech in Thailand. Under the terms of the contract
      manufacturing agreement, we pay Pacific Biotech a volume-variable price per
      test
      for assembly of Aware TM test
      kits. Either we or Pacific Biotech may source the component materials. Pacific
      Biotech charges back to us at cost the materials that they source. Product
      produced at Pacific Biotech is available for shipment into Africa, the Middle
      East, Eastern Europe and parts of Southeast Asia. Pacific Biotech is a GMP
      and
      ISO 13485 certified manufacturing facility.





***MML***


We
      have
      outsourced production of the Incidence Test and the Aware Messenger TM oral
      fluid sampling device to MML in Troutdale, Oregon. The terms of the MML
      agreement are similar to the Pacific Biotech agreement. MML charges us a flat
      price per test for assembly of Incidence test kits or sampling devices. MML
      is
      an FDA registered GMP and ISO certified manufacturing facility.





***Beijing
      Marr***


Our
      joint
      venture, Beijing Marr, has acquired a manufacturing facility in the Huairou
      district of Beijing. The site currently houses about 2,100 square meters of
      manufacturing space with ample room to expand. Beijing Marr has recently
      renovated and upgraded the facility to meet the requirements for the production
      of our Aware TM rapid
      test product line. Additionally, the facility has recently received ISO 13485
      certification. Production capacity at this facility is planned for up to 10
      million tests per month before a facility expansion is required. We would need
      to add additional personnel and equipment to achieve that production level.
      Product from this plant will be available for sale in China as well as for
      export.




10





**Government
      Regulation**




***Aware*** ***TM*** ***Rapid Tests***


Regulatory
      approvals to sell products are characteristic of the diagnostic industry.
      Throughout the developing world, countries can generally be classified in one
      of
      the following three categories regarding regulatory approvals:





1.
            Those
                requiring no local approval;


2.
            Those
                requiring local approvals, and possibly clinical trials; or those
                requiring approval in the country of manufacture; or


3.
            Those
                that may or may not require local approvals, but that rely on
                organizations such as the United States Agency for International
                Development (USAID) “approval” as a proxy for their own and for access to
                U.S. PEPFAR funding.





Though
      few in number, countries with regulatory mechanisms represent the path of least
      resistance. Generally, however, these countries are less likely to make
      purchasing decisions based upon product quality and demonstrated performance,
      but rather, based upon price. We designed our Aware TM products
      to be high in quality, which typically makes them ill-suited to compete with
      locally-produced tests based solely on price. The
      majority of our target markets, therefore, have a local or other regulatory
      process.





**Local
      Approvals**





The
      time,
      effort, and cost of market entry for non-blood tests is significantly higher
      than for blood tests. In many countries, blood HIV tests may be evaluated using
      archived sets of well characterized blood samples known as standardized panels.
      While readily available for blood, such panels do not exist for oral fluid
      tests. Consequently, we must demonstrate the clinical performance of our oral
      fluid tests through formal clinical trials. Regulatory requirements represent
      a
      potential barrier to our timely entry to certain markets due to the high cost
      and time required for clinical trials.





The
      following table summarizes the regulatory approvals that we have received for
      products in our Aware TM  product
      line as of March 2008.





**Aware
                OMT**
            
            **Aware
                BSP**§
            India
            §
            Kenya§
            Kenya
            §
            Malaysia§
            Russia
            §
            South
                Africa§
            South
                Africa
            §
            Uganda§
            Uganda
            §
            Zimbabwe§
            Iraq
            §
            USAID§
            United
                Arab Emirates§
            USAID




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 our products in China, through our 51% owned
      subsidiary, Beijing Marr. Additionally, w e
      are
      actively pursuing regulatory approval in China, not only because of the
      significance of that market to the HIV/AIDS epidemic, but also because, with
      our
      manufacturing facility there, we will obtain approval in the country of
      manufacture. Such a “certificate of origin” is expected to facilitate approvals
      in several additional target countries.




11





**USAID
      Waiver**





Many
      international HIV intervention programs are supported by foreign funding. In
      the
      case of funding supplied by the United States, typically through USAID or
      PEPFAR, products that are not approved locally in the country of intended use
      or
      by the USFDA may be used, provided they have a waiver issued by the USAID and
      CDC. At the end of 2007, both our Aware TM HIV-1/2
      rapid blood test and our Aware TM HIV-1/2
      rapid oral fluid test are included on the USAID waiver list.




***BED
      Incidence Test***




Our
      Incidence Test is regulated by the FDA Center for Biologics Evaluation and
      Research. The FDA has
      classified the test as being “for surveillance use” and not for clinical
      diagnosis within the U. S. and “for research use” internationally, simplifying
      its availability for use by both domestic and foreign public health
      organizations.




**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.




**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 $5,000,000 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.




**Employees**




As
      of
      March 21, 2008, we have eighteen
      full and
      part-time time employees in the U. S., eight in research and development, two
      in
      quality systems, and
      eight in
      marketing and 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
      1A. Risk Factors**





*Our
      most significant risks are described below; however, they are not the only
      risks
      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. Investors should be aware of the existence of these
      risk factors.*




12




***Risks
      Related to Our Financial Condition***





*We
      Will Require Additional Financing to Sustain Our Operations and Without It,
      We* *May
      Have to Significantly Curtail the Scope of Our Operations and Alter Our Business
      Model.*




At
      December 31, 2007 and 2006, we had working capital deficits of $3.5 million
      and
      $4.7 million, respectively. **** Our
      independent registered public accounting firm’s report for the year ended
      December 31, 2007 includes an explanatory paragraph to the audit opinion stating
      that our recurring losses from operations and working capital deficiency raise
      substantial doubt about our ability to continue as a going concern. We reported
      an operating cash flow deficit of $6.1 million and $5.5 million for the years
      ended December 31, 2007 and 2006, respectively.





Under
      the
      terms of the Purchase Agreement we entered with Fusion Capital Fund II, LLC
      (“Fusion Capital”) in January 2008, we only have the right to receive $100,000
      every three business days unless the market price of our common stock equals
      or
      exceeds $0.10 per share, in which case we can sell greater amounts to Fusion
      Capital as the price of our common stock increases. Fusion Capital does not
      have
      the right nor the obligation to purchase any shares of our common stock on
      any
      business day that the market price of our common stock is less than $0.052
      per
      share. Based on the number of shares of our common stock that we registered
      for
      resale by Fusion Capital, the selling price of our common stock to Fusion
      Capital will have to average at least $0.16 per share for us to receive the
      maximum proceeds of $8.0 million potentially available under the Purchase
      Agreement. Assuming Fusion Capital purchases the full 50,259,599 shares of
      our
      common stock registered under the terms of the Purchase Agreement at an average
      purchase price of $0.11 per share (the closing sale price of our common stock
      on
      March 5, 2008) we would only receive approximately $5.5 million in
      proceeds.





In
      March
      2007 we received $5.2 million in a private placement (the “March 2007 Private
      Placement”) that, in conjunction with the proceeds we received from the exercise
      of certain common stock purchase warrants, funded our operations through 2007.
      Those proceeds, however, are not adequate to carry us through the execution
      of
      our business plan or until we achieve positive cash flow or profitability.
      As
      part of the March 2007 Private Placement, we issued to the investors in that
      transaction immediately exercisable warrants expiring on June 28, 2008 to
      purchase an aggregate of 100 million shares of our common stock at $0.08 per
      share and immediately exercisable warrants expiring on September 28, 2008 to
      purchase an aggregate of 50 million shares of our common stock at $0.11 per
      share as a potential source of up to $13.5 million in additional financing
      for
      us. We expected that a significant portion of these short-term warrants would
      be
      exercised during 2007, providing us with additional and necessary funding.
      Through March 27, 2008, approximately 11.8 million of these warrants have been
      exercised, resulting in proceeds to us of $940,000.





The
      extent to which we rely on Fusion Capital as a source of funding will depend
      on
      a number of factors, including, without limitation, the prevailing market price
      of our common stock at the time we wish to sell shares to Fusion Capital and
      the
      extent to which we are able to secure working capital from other
      sources **,** such
      as
      from the exercise of warrants issued in the March 2007 Private Placement or
      other outstanding warrants, or through the sale of our products. If obtaining
      sufficient financing from Fusion Capital were to prove unavailable or
      prohibitively dilutive, or if the investors in the March 2007 Private Placement
      do not exercise at least a significant portion of their warrants, or if we
      are
      unable to commercialize and sell sufficient quantities of our products, we
      will
      need to secure other sources of funding or seek a strategic opportunity to
      satisfy our working capital needs. Even if we are able to access the full $8.0
      million under the Purchase Agreement, we may still need additional capital
      to
      fully implement our business, operating and development plans. Should the
      financing we require to sustain our working capital needs be unavailable or
      prohibitively expensive, the consequences could have a material adverse effect
      on our business, operating results, financial condition and future prospects.





We
      do not
      currently have any definitive agreements with respect to additional financing
      or
      a strategic opportunity, and there can be no assurance that any such financing
      or strategic opportunity will be available to us on acceptable terms, or at
      all.
      The terms of a subsequent financing may involve a change of control or require
      stockholder approval and could result in substantial dilution to our existing
      stockholders. If we are unable to obtain acceptable financing, we would or
      might
      be required to consider strategic opportunities, including merger,
      consolidation, sale or other comparable transaction, to sustain our operations.
      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 . At
      December 31, 2007, we owed an aggregate of $9.5 million pursuant to secured
      promissory notes issued in connection with our April 2005 financing and our
      credit facility with Marr Technologies BV (“Marr”), all of which are now due in
      April 2009. The existence of these notes and the security interests in our
      assets granted in connection with the notes may inhibit our ability to obtain
      financing in the future or be an impediment to completing a strategic
      transaction.




13





*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.*





At
      December 31, 2007, our domestic trade accounts payable totaled $1.5 million,
      of
      which approximately $1.3 million was over sixty days past due. Further, we
      currently have a number of cash-only arrangements with suppliers. Certain
      vendors and service providers may choose to bring legal action against us to
      recover amounts they deem due and owing. While we may dispute certain of these
      claims, should a creditor prevail, we may be required to pay all amounts due
      to
      the creditor. If the working capital that enables us to make payments is not
      available when required, we will be placed in significant financial jeopardy
      and
      we may be unable to continue our operations at current levels, or at all.
      Additionally, our financial condition has prevented us from ordering certain
      materials in the most economical order quantities, which increases the cost
      of
      our products and reduces our margins.





*We
      Have an Operating History of Significant Losses and Expect Losses to Continue
      for the Near Future.*





We
      have
      incurred losses in each year since our inception. We incurred annual operating
      losses of $9.2 million, and $5.9 million during the years ended December 31,
      2007 and 2006, respectively. At December 31, 2007, we had an accumulated deficit
      of $175.9 million. We incurred net losses of $8.3 million and $13.8 million
      for
      the fiscal years ended December 31, 2007 and 2006, respectively. Our revenues
      have not been sufficient to sustain our operations and we do not expect that
      our
      revenues will be sufficient to sustain our operations in 2008. Our profitability
      will require that we successfully commercialize our HIV-1/2 rapid diagnostic
      tests and other new products we may develop. There can be no assurance that this
      will occur or that we will ever become profitable.





Our
      independent registered public accounting firm has added an explanatory paragraph
      to their audit opinion issued in connection with the financial statements for
      the year ended December 31, 2007 relative to our ability to continue as a going
      concern. Our ability to obtain additional funding will determine our ability
      to
      continue as a going concern. Our financial statements do not include any
      adjustments that might result from the outcome of this uncertainty





*We
      Have Federal and State Net Operating Losses and Research and Development Credits
      Which May Expire Before We Can Utilize Them.*





At
      December 31, 2007, we had federal net operating loss carryforwards of
      approximately $170 million.  Section 382 of the Internal Revenue Code
      imposes an annual limitation on the utilization of net operating loss
      carryforwards following a “change in ownership.”  The amount of the
      limitation is based on a statutory rate of return and the value of the
      corporation at the time of the change of ownership.  Our private placements
      and other sales of our equity securities can potentially cause a change of
      ownership either individually or in the aggregate. We have conducted a
      preliminary analysis of our stock ownership changes which indicates that
      ownership changes within the meaning of Section 382 of the Internal Revenue
      Code
      may have occurred in 2003 and 2004. After applying the Section 382 limitations
      resulting from these presumed ownership changes, approximately $88 million
      and
      $32 million of federal and state net operating loss carryforwards, respectively,
      are available at December 31, 2007. If a change of ownership has occurred as
      a
      result of past financings and an annual limitation is imposed, we may not be
      able to fully utilize all of our federal and state loss carryforwards and
      resesarch and development credit carryforwards. Our inability to fully utilize
      our net operating loss carryforwards and tax credits could have a negative
      impact on our tax asset, financial position and results of
      operations.




14





***Risks
      Related to the Market for Our Common Stock***





*The
      Sale of Our Common Stock to Fusion Capital May Cause Dilution to Our Current
      Stockholders and Fusion Capital’s Sale of Common Stock May Cause the Price of
      Our Common Stock to Decline.*





The
      number of shares of our common stock ultimately offered for sale by Fusion
      Capital is dependent upon the number of shares Fusion Capital purchases from
      us
      under the Purchase Agreement. The purchase price for the common stock to be
      sold
      to Fusion Capital pursuant to the Purchase Agreement will vary based on the
      market price of our common stock at the time of each sale. We expect that Fusion
      Capital will sell the shares we registered for its resale over a period of
      up to
      24 months from the effective date of the registration statement, February 8,
      2008. Depending upon market liquidity, Fusion Capital’s resale of shares of our
      common stock at any given time could cause the market price of our common stock
      to decline. Fusion Capital may ultimately purchase all, some, or none of the
      54,000,000 shares that we registered for resale by Fusion Capital. After it
      has
      acquired such shares, it may sell all, some or none of those shares. As a
      result, sales to Fusion Capital by us under the Purchase Agreement may result
      in
      substantial dilution to the interests of other holders of our common stock.
      The
      sale of a substantial number of shares of our common stock under this offering,
      or market anticipation of such sales, may make it more difficult for us to
      sell
      equity or equity-related securities in the future and may lower the price at
      which we can sell equity or equity-related securities.





*The
      Significant Amount of Securities Issued in Recent Financings May Have a Negative
      Effect on the Market Price of Our Common Stock.*





In
      February and March 2007, we issued approximately 104 million shares of common
      stock and warrants to purchase 155 million shares of common stock to
      non-affiliated investors. In our May and July 2004 financings and April 2005
      financings we issued (i) promissory notes that are convertible into at least
      17.6 million shares of common stock and (ii) warrants to purchase approximately
      30 million shares of common stock. The approximately 104 million shares of
      common stock issued to non-affiliated investors in February and March 2007
      have
      or will become freely tradable in February and March 2008 under Rule 144 of
      the
      Securities Act of 1933, as amended (the “Securities Act”). As and if the
      non-affiliated investors in the March 2007 private placement exercise any of
      the
      150 million warrants issued to them in that financing, the shares of stock
      they
      would acquire upon exercise of those warrants will be saleable as soon as six
      months after the date of exercise of the warrants under Rule 144, if certain
      conditions are met. In any event, the shares of common stock acquired upon
      the
      exercise of those warrants will be freely saleable one year after the exercise
      of warrants.  If the non-affiliated investors holding the convertible
      promissory notes and warrants issued in connection with the 2004 and 2005
      financings were to convert their promissory notes or exercise their warrants,
      most of the shares of common stock they would receive would immediately be
      freely tradable. Other non-affiliated investors hold approximately 160 million
      shares of common stock that are freely tradable. If non-affiliated investors
      holding a significant number of freely tradable shares decide to sell shares
      in
      the public market in a short period of time, such sales may cause significant
      downward pressure on the market price of our common stock. Such sales may also
      inhibit our ability to obtain future equity or equity-related financing on
      acceptable terms.





*We
      May Need our Stockholders to Authorize Additional Shares of Common Stock or
      a
      Reverse Split of Our Common Stock in the Near Future.*





From
      inception through December 31, 2007, we have issued approximately 357 million
      shares of common stock and raised approximately $168 million. We have 800
      million shares of common stock authorized for issuance. After considering the
      share reserves required under the Purchase Agreement with Fusion Capital and
      for
      our benefit plans and other recent financings, there are approximately 60
      million shares of common stock remaining for issuance in future financings
      or
      for other purposes. In addition to the potential dilutive effect of issuing
      such
      a number of shares at current prices, there is the potential that a large number
      of the shares may be sold in the public market at any given time, which may
      place additional downward pressure on the market price of our common stock.
      In
      this regard, significant downward pressure on the market price of our common
      stock may also cause investors to engage in short sales, which would further
      contribute significant downward pressure on the market price of our common
      stock.




15





If
      we are
      unable to access capital from Fusion Capital under the Purchase Agreement or
      if
      we determine that accessing capital from Fusion Capital is prohibitively
      dilutive, or if the investors in the March 2007 private placement do not
      exercise a significant portion of their warrants, we may not have enough
      authorized shares of common stock to issue in connection with a future financing
      of sufficient size to meet our needs. We may need to seek stockholder approval
      to increase the number of authorized shares of common stock to provide us with
      the flexibility to continue to finance our operations. Alternatively, we may
      consider a reverse split of our common stock. At current prices, our common
      stock is considered to be “penny stock,” which precludes it from trading on a
      stock exchange or other major trading market and prevents major institutional
      investors and many foreign investors from holding it in their portfolios. If
      our
      stockholders are requested to, and approve, a reverse stock split, we would
      likely keep the number of authorized shares of common stock the same as it
      is
      now, which would provide us with greater flexibility to issue stock for future
      financings or for other purposes. There can be no assurance, however, that
      the
      post-reverse split market price of our common stock would continue to reflect
      the ratio used in a reverse stock split. While there is no impending
      announcement of a reverse stock split, such an announcement may also cause
      certain investors to engage in short sales, which may further contribute
      significant downward pressure on the market price of our common stock. Moreover,
      there can be no assurance that our stockholders would, if so requested, approve
      either of these alternatives. If they do not, we may not be able to continue
      financing our operations and we would have to revise our business plan, curtail
      our operations, or both.





*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 Market Price of Our Common Stock.*





As
      we
      continue to look for ways to minimize our use of cash while obtaining required
      services, we expect to continue to issue stock bonus grants and/or warrants
      and
      stock options at or below the current market price. In 2007 and 2006, we issued
      approximately 2.9 million and 2.3 million shares of our common stock,
      respectively, in payment of consulting and other services. In addition to the
      potential dilutive effect of issuing a large number of shares of common stock
      or
      stock options, there is the potential that a large number of the shares may
      be
      sold in the public market at any given time, which could place additional
      downward pressure on the market price of our common stock.





*The
      Market Price of Our Common Stock Is Highly Volatile.*





The
      market price of our common stock has been and is expected to continue to be
      highly volatile. Our common stock has traded as low as $0.051 per share and
      as
      high as $0.23 per share in the twelve months ended December 31, 2007. We believe
      that some of the factors leading to the volatility include:




•
            price
                and volume fluctuations in the stock market at large which do not
                relate
                to our operating performance;•
            fluctuations
                in our operating results;•
            concerns
                about our ability to finance our continuing operations;•
            concerns
                about the liquidity of our stock;•
            concerns
                about the stability of our stock as a result of delisting from the
                American Stock Exchange;•
            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;•
            announcements
                of technological innovations or new products which we or our competitors
                make;•
            FDA,
                SEC and international regulatory actions;•
            availability
                of reimbursement for use of our products from private health insurers,
                governmental health administration authorities and other third-party
                payors;•
            developments
                with respect to patents or proprietary rights;•
            public
                concern as to the safety of products that we or others develop;•
            changes
                in health care policy in the United States or abroad;




16




•
            changes
                in stock market analysts’ recommendations regarding Calypte, other medical
                products companies or the medical product industry generally;•
            fluctuations
                in market demand for and supply of our products;•
            certain
                world conditions, such as an economic downturn, natural disasters
                or
                terrorist attacks; and•
            anti-American
                sentiment in certain international markets where we market or anticipate
                marketing our products.





In
      addition, the potential dilutive effects of future sales of shares of common
      stock by stockholders **** and
      by
      the Company, including by Fusion Capital pursuant to this prospectus, and
      subsequent sales of common stock by the holders of warrants and stock options,
      may have an adverse effect on the market price of our common stock.





*Our
      Charter Documents May Inhibit a Takeover.*





Certain
      provisions of our Certificate of Incorporation and Bylaws may:


•
            discourage
                potential acquisition proposals (i.e. stockholder rights plan also
                known
                as a “poison pill”);•
            delay
                or prevent a change in control;•
            diminish
                stockholders’ opportunities to participate in tender offers for our common
                stock, including tender offers at prices above the then-current market
                price;•
            inhibit
                increases in the market price of our common stock that could result
                from
                takeover attempts; or•
            grant
                to our board of directors (the “Board“) 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 our
      Board.





*We
      Have a Stockholder Rights Plan That Has Certain Anti-takeover Effects.*





On
      December 15, 1998, the Board of Calypte declared a dividend distribution of
      one
      preferred share purchase right for each outstanding share of our common stock
      (collectively, the “Rights“). The dividend is payable to the stockholders of
      record on January 5, 1999, with respect to each share of common stock issued
      thereafter until a subsequent distribution date defined in the Rights agreement
      and, in certain circumstances, with respect to shares of common stock issued
      after the distribution date.





The
      Rights may have certain anti-takeover effects. The Rights may cause dilution
      to
      a person or group that attempts to acquire us without conditioning the offer
      on
      the Rights being redeemed or a 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.





*Our
      Board has Certain Discretionary Rights With Respect to Our Preferred Stock
      That
      May Adversely Affect the Rights of our Common Stockholders.*





Our
      Board
      may, without stockholder approval, designate and issue our preferred stock
      in
      one or more series. Additionally, our Board may designate the rights and
      preferences of each series of preferred stock which may be greater than the
      rights of our common stock. Potential effects on our common stock may include
      among other things:




17


•
            restricting
                dividends;•
            dilution
                of voting power;•
            impairment
                of liquidation rights; and•
            delaying
                or preventing a change in control of the Company.





Additionally,
      we currently have approximately 60 million shares of common stock that could
      be
      issued for financing or other purposes. Dilution resulting from such issuance
      could also adversely affect the rights of our current common stockholders.
      Further restructuring, if approved by the stockholders, would further increase
      the number of shares available for future financings and would result in
      additional dilution to the current common stockholders.





*Our
      Common Stock is Subject to the “Penny Stock” Rules of the SEC and the Trading
      Market In Our Securities is Limited, Which Makes Transactions in Our Stock
      Cumbersome and May Reduce the Value of an Investment in Our
      Stock.*





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:


•
            the
                bid and offer price quotes in and for the “penny stock”, and the number of
                shares to which the quoted prices apply.•
            the
                brokerage firm’s compensation for the trade.•
            the
                compensation received by the brokerage firm’s sales person for the trade.





In
      addition, the brokerage firm must send the investor:


•
            a
                monthly account statement that gives an estimate of the value of
                each
                “penny stock” in the investor's account.•
            a
                written statement of the investor’s financial situation and investment
                goals.





Legal
      remedies, which may be available to you as an investor in “penny stocks”, are as
      follows:


•
            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.•
            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.•
            if
                you have signed an arbitration agreement, however, you may have to
                pursue
                your claim through arbitration.





If
      the
      person purchasing the securities is someone other than an accredited investor
      or
      an established customer of the broker/dealer, the broker/dealer must also
      approve the potential customer’s account by obtaining information concerning the
      customer’s financial situation, investment experience and investment objectives.
      The broker/dealer must also make a determination whether the transaction is
      suitable for the customer and whether the customer has sufficient knowledge
      and
      experience in financial matters to be reasonably expected to be capable of
      evaluating the risk of transactions in such securities. Accordingly, the
      Commission’s rules may limit the number of potential purchasers of the shares of
      our common stock.





Resale
      restrictions on transferring “penny stocks” are sometimes imposed by some
      states, which may make transactions in our stock more difficult and may reduce
      the value of the investment. Various state securities laws 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. Certain
      foreign countries also impose limitations and restrictions on the ability of
      their citizens to own stock that is not traded on a recognized exchange, which,
      in certain instances, does not include the Over the Counter Bulletin Board.




18





***Risks
      Related to Our Business***





*A
      Viable Market for Our Products May Not Develop or We May Not Be Able to
      Successfully Develop and Market New Products That We Plan to Introduce.*





Our
      future success will depend, in large part, on the market acceptance, and the
      timing of such acceptance, of our Aware TM HIV-1/2
      OMT rapid test and the HIV-1 BED Incidence Test and such other new products
      or
      technologies that we may develop or acquire. To achieve market acceptance,
      we
      must make substantial marketing efforts and spend significant funds to inform
      potential customers and the public of the perceived benefits of these products.
      We currently have limited resources with which to stimulate market interest
      in
      and demand for our products and limited evidence on which to evaluate the
      market’s reaction to products that may be developed.





We
      currently have approval to sell our Aware TM HIV-1/2
      OMT rapid test product in countries including Russia, India, South Africa,
      United Arab Emirates, Iraq, Uganda and Kenya and we have been engaged in the
      regulatory approval process in China for two years. We plan to seek regulatory
      approval in other countries as resources permit. Sub-Saharan Africa, China,
      India and Russia are the areas predicted to have the greatest increase in HIV
      infections over the next few years. We believe that a simple, non-invasive
      test
      such as ours will have significant demand as it can be used as an integral
      part
      of a real-time treatment program. Although we are optimistic regarding the
      future sales prospects for our Aware TM HIV-1/2
      OMT rapid test, obtaining regulatory approval has not resulted in significant
      product sales to date. In Africa and elsewhere, government Ministries of Health
      or similar agencies are the primary purchasers of HIV tests, typically through
      a
      tender process which currently requires the exclusive use of blood tests. Such
      tenders often consider only the purchase cost of an HIV diagnostic test,
      ignoring the ancillary costs of administration, including costs such as
      personnel and materials required to draw and dispose of blood samples. We are
      directing considerable effort, including product donations to key user agencies,
      to encourage the consideration and inclusion of our oral fluid tests in such
      tenders. We consider these efforts to be part of an “enabling” strategy in which
      the standard of care for HIV diagnosis evolves from the exclusive use of blood
      tests to more widespread use of non-invasive oral fluid-based tests. This
      process is time-consuming and expensive. There can be no assurance that our
      Aware TM HIV-1/2
      OMT rapid tests will obtain widespread market acceptance internationally or
      that
      significant sales will occur on a timetable that we can accurately project.





We
      manufacture the HIV-1 BED Incidence Test on behalf of the CDC and that test
      is
      available for sale, but we have limited experience marketing it and sales
      to-date have been modest. The CDC has issued an Information Sheet acknowledging
      that the assay may cause over-estimation under certain conditions and has issued
      revised recommendations and protocols for its use. As a result, although we
      believe that the Incidence Test is a valuable technology in the fight against
      the spread of HIV/AIDS and expect that the process of refining its applications
      will continue as its use expands, there can be no assurance that the Incidence
      Test will achieve widespread acceptance, either in the U. S. or internationally.





We
      have
      just introduced our Aware Messenger TM oral
      fluid sample collection device and have no experience marketing such a product.





If
      our
      current products fail to achieve additional regulatory approvals or market
      acceptance or generate significant revenues, 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.




19





In
      addition to our rapid HIV-1/2 diagnostic tests and the BED Incidence Test,
      we
      plan to develop and/or commercialize other diagnostic products for other
      infectious diseases or health conditions, some potentially in combination with
      each other (i.e. multi-channel tests). Through our research collaborations
      with
      the CDC, we expect to develop a blood-based rapid HIV test for diagnostic and
      surveillance purposes. We may consider licensing other capabilities from the
      CDC
      to evaluate the feasibility of additional diagnostic tests. 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 and successfully transfer the technology for commercial-scale
      manufacturing while meeting regulatory requirements or resolving potential
      patent licensing or government distribution or licensing requirements with
      respect to their marketing, then there can be no assurance that any or all
      of
      these products will achieve widespread acceptance, either in the U. S. or
      internationally,





Additionally,
      neither we nor our marketing partners have significant experience marketing
      and
      selling rapid diagnostic tests. Our success depends upon alliances with
      third-party international distributors and joint venture partners and upon
      our
      ability to penetrate expanded markets with such distributors and partners.
      There
      can be no assurance that:


•
            our
                international distributors and joint ventures will successfully market
                our
                products;•
            our
                future selling efforts will be effective, as we have not yet introduced
                in
                significant volume either an HIV-1/2 product or other point of care
                test;•
            we
                will obtain market acceptance in the medical or public health community,
                including government and humanitarian funding sources critical in
                many
                international markets, which are essential for acceptance of our
                products;
                or that the relationships we develop with humanitarian agencies or
                their
                intermediaries will prove to be reliable and sustainable; or•
            if
                our relationships with distributors or marketing partners terminate,
                we
                will be able to establish relationships with other distributors or
                marketing partners on satisfactory terms, if at all.





Consequently,
      there can be no assurance that any of our current or potential new products
      will
      obtain widespread market acceptance and fill the market need that is perceived
      to exist. Additionally, although we plan to introduce an over the counter HIV
      diagnostic test for the domestic over the counter market, there can be no
      assurance regarding the timeline for which or certainty that the FDA will
      develop protocols for evaluation and approval of such a product.





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





To
      facilitate the development and commercialization of a proprietary technology
      base for our rapid test products, we have obtained licenses to patents or other
      proprietary rights from other parties. Obtaining such licenses has required
      the
      payment of substantial amounts and will require the payment of royalties to
      maintain them in the future. We believe that the licenses to the technologies
      we
      have acquired are critical to our ability to sell our rapid tests currently
      being commercialized and other rapid tests that we may plan to develop and/or
      commercialize in the future.





There
      are
      numerous patents in the United States and other countries which claim lateral
      flow assay methods and related devices, some of which cover the technology
      used
      in our rapid test products and are in force in the United States and other
      countries. In 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 2004, we also 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 2003 we licensed an antigen necessary
      for
      certain of our rapid HIV-1/2 products from Adaltis, Inc., and in 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.




20





In
      the
      event that our financial condition inhibits our ability to pay license fees
      or
      royalty payments due under our license agreements, our rights to use, transfer
      or sublicense those licenses could be jeopardized in the event of a default
      in
      payment of fees or royalties. The loss of any of the foregoing licenses could
      have a materially adverse effect on our ability to produce our products or
      introduce new HIV or other diagnostic products in countries covered by those
      patents since the license agreements provide necessary proprietary processes
      or
      components for the manufacture of our products.





*Our
      Success Depends on Our Ability to Protect Our Proprietary Technologies.*




The
      medical diagnostics test industry places considerable importance on obtaining
      patent, trademark, and trade secret protection, as well as other intellectual
      property rights, for new technologies, products and processes. Our success
      depends, in part, on our ability to develop and maintain a strong intellectual
      property portfolio or to obtain licenses to patents for products and
      technologies, both in the United States and in other countries.




As
      appropriate, we intend to file patent applications and obtain patent protection
      for our proprietary technology. These patent applications and patents, when
      filed, are intended to cover, as applicable, compositions of matter for our
      products, methods of making those products, methods of using those products,
      and
      apparatus relating to the use or manufacture of those products. We will also
      rely on trade secrets, know-how, and continuing technological advancements
      to
      protect our proprietary technology. There is, however, no assurance that we
      will
      be successful in obtaining the required patent protection or that such
      protection will be enforced in certain countries in which we
      compete.




We
      have
      entered, and will continue to enter, into confidentiality agreements with our
      employees, consultants, advisors and collaborators. However, these parties
      may
      not honor these agreements and we may not be able to successfully protect our
      rights to unpatented trade secrets and know-how. Others may independently
      develop substantially equivalent proprietary information and techniques or
      otherwise gain access to our trade secrets and know-how.




Certain
      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.




21





Once
      a
      collaborative arrangement is established, the collaborative partner may
      discontinue funding any particular program or may, either alone or with others,
      pursue alternative technologies for the protects or diseases we are targeting.
      Competing products, developed by a collaborative partner or to which a
      collaborative partner has rights, may result in the collaborative partner
      withdrawing support as to all or a portion of our technology.





Without
      collaborative arrangements, we must fund our own research and development
      activities, accelerating the depletion of our financing resources 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.





*The
      Time Needed to Obtain Regulatory Approvals and Respond to Changes in Regulatory
      Requirements Could Adversely Affect Our Business.*




Our
      existing and proposed products are subject to regulation by the Chinese FDA
      (the
      SFDA), the FDA, Russian and Indian regulatory bodies and other governmental
      or
      public health agencies. In particular, we are subject to strict governmental
      controls on the development, manufacture, labeling, distribution and marketing
      of our products. In addition, we are often required to obtain approval or
      registration with other foreign governments or regulatory bodies before we
      can
      import and sell our products in these countries.




The
      process of obtaining required approvals or clearances from governmental or
      public health agencies can involve lengthy and detailed laboratory testing,
      human clinical trials, sampling activities and other costly, time-consuming
      procedures. The submission of an application to the SFDA, the FDA or other
      regulatory authority does not guarantee that an approval or clearance to market
      a product will be received. Each authority may impose its own requirements
      and
      delay or refuse to grant approval or clearance, even though a product has been
      approved in another country or by another agency.




Moreover,
      the approval or clearance process for a new product can be complex and lengthy.
      This time span increases our costs to develop new products as well as the risk
      that we will not succeed in introducing or selling them in our target markets.




Newly
      promulgated or changed regulations could also require us to undergo additional
      trials or procedures, or could make it impractical or impossible for us to
      market our products for certain uses, in certain markets, or at all.





*Failure
      to Comply With SFDA, FDA or Similar International Regulatory Bodies or Other
      Requirements May Require Us to Suspend Production of Our
      Products* ****** *Which
      Could Result in a Loss of Revenues.*




We
      can
      manufacture and sell products, both in China, the United States and elsewhere
      abroad, only if we comply with regulations of government agencies such as the
      SFDA and the FDA. We have implemented quality assurance and other systems that
      are intended to comply with applicable government regulations with regard to
      both our planned manufacturing in China and our contract manufacturing
      operations.




The
      SFDA,
      the FDA, or another government or public health agency could force us to stop
      manufacturing our products if it concludes that we are out of compliance with
      applicable regulations. They could also require us to recall products if we
      fail
      to comply with applicable regulations, which could force us to stop
      manufacturing such products. Either of these events would result in a material
      adverse effect on our business.





*We
      Engage Contract Manufacturers and Plan to Conduct International Manufacturing
      Operations to Produce Some of Our Products, Including Our Rapid Tests Currently
      Being Commercialized.*




We
      have
      engaged a domestic contract manufacturer to produce our BED Incidence tests
      and
      our Aware Messenger TM sampling
      device and another in Thailand to produce our rapid HIV tests and we have
      manufacturing operations in China through our affiliate and plan to do so
      elsewhere. We intend to subsequently introduce a new line of products using
      the
      Ani technology platform, and again expect to rely on outsourced or overseas
      manufacturing organizations. Initially, none of these entities will have more
      than limited experience, if any, in manufacturing our products and will have
      no
      experience in manufacturing them in commercial quantities. Furthermore, our
      rapid tests are not yet approved for sale in Thailand, which precludes us from
      selling them in certain countries in which approval in the country of
      manufacture, i.e. a “Certificate of Origin,” is a prerequisite to local product
      approval. While outsourcing our manufacturing processes to contract
      manufacturers may permit us to expand our manufacturing capacity more quickly,
      it may also subject us to problems in such areas as:




22


•
            transferring
                the technology from the laboratory or pilot operation to the contract
                manufacturer on a commercial scale;•
            lack
                of technical knowledge regarding regulated procedures and the ability
                of
                the contract manufacturer to obtain and maintain the necessary GMP
                or
                other regulatory certifications;•
            uncertain
                or unreliable production yields;•
            maintaining
                quality control and assurance;•
            regulatory
                compliance, since most rapid test manufacturers do not produce products
                that are as stringently controlled as HIV diagnostics;•
            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;•
            developing
                market acceptance for new product;•
            production
                yields;•
            quality
                control and assurance;•
            raw
                material supply;•
            shortages
                of qualified personnel; and•
            maintaining
                appropriate financial controls and
                procedures.





Any
      of
      these problems could affect our ability to meet increases in demand should
      our
      products gain market acceptance and could impede the growth of our sales
      revenues.





*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, and HIV-positive and HIV-negative testing samples. Any delay or
      interruption in the supply of these or other sole source components could have
      a
      material adverse effect on us by significantly impairing our or our contract
      manufacturer’s ability to manufacture products in sufficient quantities,
      particularly as we increase our manufacturing activities in support of
      commercial sales. Further, price increases imposed by these suppliers may result
      in increased costs and reduced margins to us, if we are unable to pass the
      increased costs on to our customers. In addition, if our financial condition
      impairs our ability to pay for critical components on a timely basis, our
      suppliers may delay or cease selling critical components to us, which could
      also
      restrict our ability to manufacture. We typically do not have long-term supply
      agreements with these suppliers, relying instead on periodic purchase orders
      to
      acquire materials with the result that suppliers could delay or decline to
      ship
      components until payment is made in advance or on a COD basis.





*We
      May Not Be Able to Retain and/or Attract Key Executives and Other Personnel.*





Certain
      of our executives and senior employees left the Company during 2006 and 2007.
      As
      a small company, our success depends on the services of key employees in various
      research and development, administrative, marketing and quality systems
      positions. Our inability to replace or attract key employees in certain
      positions as a result of our financial condition, or for other reasons, could
      have a material adverse effect on our operations.





23




*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
      2007 we incurred approximately $1.3 million in research and development
      expenses. We expect to continue to incur significant costs as a result of our
      research and development activities in the future.




A
      primary
      focus of our efforts has been, and is expected to continue to be, rapid HIV
      tests that we are commercializing or that are in the process of being developed.
      We plan to expand our product line to include tests for other STD’s or
      synergistic diseases or conditions. 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 efficacy, cost-effectiveness and other benefits prior to
      commercialization. In addition, regulatory approval must be obtained before
      most
      products may be sold. Regulatory authorities may not approve these products
      for
      commercial sale. In addition, even if a product is developed and all applicable
      regulatory approvals are obtained, there may be little or no market for the
      product at a price that will allow us to earn a reasonable profit, or we may
      be
      unable to obtain the requisite licenses to sell the product or to qualify for
      a
      government tender, which are often requirements in third world countries where
      the greatest need and largest market for HIV diagnostic testing exists.
      Accordingly, if we fail to develop commercially successful products, or if
      competitors develop more effective products or a greater number of successful
      new products, or there are governmental limitations affecting our ability to
      sell our products, customers may decide to use products developed by our
      competitors. This would result in a loss of current or anticipated future
      revenues and adversely affect our results of operations, cash flows and
      business.





*We
      Face Intense Competition in the Medical Diagnostic Products Market and Rapid
      Technological Advances by Competitors.*





Competition
      in our diagnostic market is intense and we expect it to increase. Many of our
      competitors have significantly greater financial, marketing and distribution
      resources than we do. Our competitors may succeed in developing or marketing
      technologies and products that are more effective than ours. In addition, if
      acceptance for oral fluid 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
      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:


•
            actions
                taken by the FDA or foreign regulatory bodies relating to products
                we are
                commercializing or seeking to develop;•
            the
                extent to which our current or proposed new products gain market
                acceptance;




24




•
            the
                timing and size of purchases by our customers, distributors or joint
                venture partners;•
            introductions
                of alternative means for testing for HIV by competitors;•
            Changes
                in the way regulatory authorities evaluate HIV testing, including
                supplemental testing of the results of a rapid HIV screening test;
                and•
            customer
                concerns about the stability of our business which could cause them
                to
                seek alternatives to our product.





*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.*





We
      must
      rely on revenues to be generated from sales of our current or planned incidence
      and rapid tests, largely to international distributors and/or joint ventures.
      We
      believe that our alternative fluid-based tests can provide significant benefits
      in countries that do not have the facilities or personnel to safely and
      effectively collect and test blood samples. To date, however, sales to
      international customers have resulted in relatively insignificant revenues.
      A
      majority of the companies with which we compete in the sale of HIV screening
      tests actively market their diagnostic products outside of the United States.
      Manufacturers from Japan, Canada, Europe, and Australia offer a number of HIV
      screening tests in those markets, including HIV-1/2 rapid tests, which are
      not
      approved for sale in the U.S. market. There can be no assurance that our
      products will compete effectively against these products in foreign markets.
      The
      following risks may limit or disrupt the success of our international
      efforts:


•
            the
                imposition of government controls (regulatory approval);•
            export
                license requirements;•
            political
                and economic instability;•
            trade
                restrictions;•
            changes
                in tariffs;•
            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);•
            the
                ability to secure licenses for intellectual property or technology
                that
                are necessary to manufacture or sell our products in the selected
                countries;•
            fluctuations
                in foreign currency exchanges rates;•
            the
                financial stability of our distributors and/or their expertise in
                obtaining local country regulatory approvals;•
            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;•
            the
                ability of our distributors to successfully sell into their contractual
                market territory or to successfully cover their entire territory;•
            the
                possibility that a distributor may be unable to meet minimum contractual
                commitments;•
            establishing
                market awareness; and•
            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.




25





*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 joint ventures in China with an entity related to our largest
      stockholder through which we expect to manufacture and sell our products. Our
      business in China is subject to political or economic uncertainties and may
      be
      adversely affected by political, economic and social developments in China.
      Over
      the past decade, the Chinese government has pursued economic reform policies,
      including the encouragement of private economic activity and greater economic
      decentralization. The Chinese government may choose to end these policies or
      alter them significantly to our detriment with little, if any, notice.





Changes
      in policies, laws and regulations or in their interpretation or the imposition
      of taxation, restrictions on currency conversion, restrictions or devaluations
      of currency, nationalization or other expropriation of private enterprises
      could
      have a material adverse effect on our business in China. Nationalization or
      expropriation could result in the total loss of business in China.





*An
      Economic Downturn, Terrorist Attacks or Other Conditions Beyond Our Control
      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 or regional conflicts 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, Russia, India and
      elsewhere upon successful commercialization of our rapid test products. Should
      conditions beyond our control, such as disease outbreaks, natural disasters,
      war
      or political unrest, redirect attention from the worldwide HIV/AIDS epidemic
      or
      concern for other STD’s, if and when we are able to develop and introduce such
      diagnostic products, 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.





*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 $5,000,000 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.





26





**Item
      2. Properties**




Through
      early September 2007, we leased approximately
      2,000 square feet of office space in Lake Oswego, Oregon on a month-to-month
      basis that housed our corporate administrative offices. We also leased
      approximately 3,000 square feet of research and development laboratory space
      in
      Vancouver, Washington on a month-to-month basis. In early September 2007, we
      relocated from those facilities and occupied approximately 11,000 square feet
      of
      office, laboratory and manufacturing space in Portland, Oregon subject to a
      63-month lease in which we have combined our corporate administrative and
      research and development operations.





Our
      joint
      venture subsidiary, Beijing Marr, has acquired land use rights in the Huairou
      district of Beijing, China to approximately 24,000 square meters that includes
      approximately 2,100 square meters of manufacturing facilities and other office
      and warehouse buildings. Beijing Marr has recently completed the expansion
      and
      renovation of the primary manufacturing facilities to bring them into compliance
      with recently upgraded Chinese GMP requirements and to ensure their adequacy
      for
      the manufacture of our Aware TM product
      line.





We
      believe our existing facilities are suitable. We believe that our property
      is
      adequately covered by insurance.





We
      have
      sublet our former 26,000 square foot manufacturing, research and office site
      in
      Rockville, Maryland to Maxim. In connection with the disposition of our Legacy
      Business, Maxim has assumed our obligations as lessee under this lease, which
      expires in February 2009. Should Maxim fail to fulfill its monthly payment
      or
      other obligations under the terms of the sublease, the primary landlord has
      the
      right to look to us for satisfaction of the obligations under the primary lease.
      We also sublet to a third party approximately 4,400 square feet of office space
      in Pleasanton, California that formerly housed our administrative offices.
      That
      lease expired in June 2007.




**Item
      3. Legal Proceedings**




In
      January 2006, a complaint was filed against us and certain of our current and
      former officers by Logisticorp, Inc. and Southwest Resource Preservation, Inc.
      (collectively, the “Complainants”) in the Superior Court of the State of
      California in and for the County of Los Angeles – Central District seeking
      damages in the amount of approximately $1,100,000, plus interest, trading
      penalties of $5,000 per day and other damages. On April 17, 2007, the Superior
      Court entered a final judgment dismissing the complaint with prejudice for
      failure to state a cause of action and ordering the Complainants to pay us
      our
      costs and attorneys’ fees in the aggregate amount of $106,304.40. On June 15,
      2007, the Complainants filed a notice to appeal the judgment with the Court
      of
      Appeal of the State of California, Second Appellate District, but failed to
      file
      an opening brief by the statutory deadline date. On January 3, 2008, the Court
      of Appeal dismissed the Complainants’ appeal. The Complainants subsequently
      petitioned the Court of Appeal to extend the time to file the Complainants'
      opening brief. On January 31, 2008, the Court of Appeal vacated the dismissal
      and extended the time to file the Complainants' opening brief. The
      Complainants filed an opening brief on February 29, 2008.





**Item
      4. Submission of Matters to a Vote of Security Holders**




We
      held
      our 2007 Annual Meeting of Stockholders on December 6, 2007, at which our
      stockholders approved the following proposals:





1.
            
            To
                elect six directors of the Company to hold office until the next
                Annual
                Meeting of Stockholders or until their successors are elected.2.
            
            To
                ratify the appointment by the Audit Committee and the Board of Directors
                of Odenberg Ullakko Muranishi & Co. LLP as the independent registered
                public accounting firm to audit the Company’s consolidated financial
                statements for the year ending December 31,
                2007.




27




The
      record date for determining stockholders eligible to vote at the meeting was
      October 15, 2007. On the record date, there were 342,405,393 shares of our
      common stock outstanding and eligible to vote. There were present at the
      meeting, in person or by proxy, holders of 284,415,157 shares, representing
      83.1% of the common stock outstanding.





Each
      nominee for the Board of Directors was re-elected at the 2007 Annual Meeting.
      The following number of votes was cast for and against each nominee:





**For**
            
            **Against**Roger
                I. Gale
            
            
            282,165,898
            
            
            2,249,257John
                J. DiPietro
            
            
            282,251,442
            
            
            2,163,713Paul
                E. Freiman
            
            
            281,991,241
            
            
            2,423,914Adel
                Karas
            
            
            282,075,163
            
            
            2,339,992Julius
                R. Krevans, M.D.
            
            
            282,106,442
            
            
            2,308,713Maxim
                A. Soulimov.
            
            
            282,033,511
            
            
            2,381,644





The
      stockholders also approved the other proposal. The following votes were
      tabulated:





**For**
            
            **Against**
            
            **Abstain**Proposal
                2
            
            
            282,240,039
            
            
            430,807
            
            
            1,744,311





28


**PART
      II**




**Item
      5. Market for the Registrant’s Common Equity and Related Stockholder Matters**




***Trading
      Market***





Since
      September 8, 2006 our common stock, par value $0.03 per share, has traded on
      the NASD
      OTC
      Bulletin Board under the symbol “CBMC”. Between August
      17, 2004 and September 7, 2006, our stock traded
      on
      the American Stock Exchange under the symbol “HIV.” Prior to August 17, 2004, it
      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.





**Fiscal
                Year**
            
            
            **Quarter**
            
            
            **High**
            
            
            **Low**2007
            
            
            4th
            
            $
            0.23
            
            $
            0.092007
            
            
            3rd
            
            
            0.22
            
            
            0.072007
            
            
            2nd
            
            
            0.11
            
            
            0.062007
            
            
            1st
            
            
            0.08
            
            
            0.052006
            
            
            4th
            
            
            0.11
            
            
            0.062006
            
            
            3rd
            
            
            0.22
            
            
            0.092006
            
            
            2nd
            
            
            0.24
            
            
            0.172006
            
            
            1st
            
            
            0.33
            
            
            0.16




On
      March
      27 2008, there were approximately 500 holders of record of our common stock.
      The
      closing price of our common stock on March 27, 2008 was $0.085 per share. We
      have never paid any cash dividends, and our Board 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.





**Item
      7. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




Information
      we provide in this Annual Report on Form 10-K or statements made by our
      directors, officers or employees may constitute “forward-looking” statements and
      may be subject to numerous risks and uncertainties. Any statements made in
      this
      Form 10-K, including any statements incorporated herein by reference, that
      are
      not statements of historical fact are forward-looking statements (including,
      but
      not limited to, statements concerning the characteristics and growth of our
      market and customers, our objectives and plans for future operations and
      products and our liquidity and capital resources). Such forward-looking
      statements are based on current expectations and are subject to uncertainties
      and other factors which may involve known and unknown risks that could cause
      actual results of operations to differ materially from those projected or
      implied. Further, certain forward-looking statements are based upon assumptions
      about future events which may not prove to be accurate. Risks and uncertainties
      inherent in forward looking statements include, but are not limited to:


•
            our
                ability to obtain an increased market share in the diagnostic test
                market;•
            the
                perceived benefits of our test products to governmental and other
                public
                health agencies, health care providers and consumers;•
            our
                ability to achieve growth;•
            the
                success of our future marketing and brand-building
                efforts;•
            FDA
                and international regulatory actions;•
            the
                further development of our
                technologies;




29




•
            our
                ability to protect our proprietary technologies;•
            our
                ability to compete successfully against new and existing
                competitors;•
            our
                future financial and operating results;•
            our
                liquidity and capital resources;•
            changes
                in domestic or international conditions beyond our control that may
                disrupt our or our customers’ or distributors’ ability to meet contractual
                obligations;•
            changes
                in health care policy in the United States or abroad;•
            our
                ability to obtain additional financing as necessary to fund both
                our
                long-and short-term business plans;•
            fluctuations
                in market demand for and supply of our products;•
            public
                concern as to the safety of products that we or others develop and
                public
                concern regarding HIV and AIDS;•
            availability
                of reimbursement for use of our products from private health insurers,
                governmental health administration authorities and other third-party
                payors;•
            our
                ability to obtain additional financing as necessary to fund both
                our
                short- and long-term business plans and the possible impact on us
                if we
                are unable to satisfy these financing requirements;•
            our
                ability to timely register shares issued or issuable in our private
                placements and the impact of delays in registration on our ability
                to
                obtain additional financing;•
            our
                ability to attract or retain key personnel; and•
            statements
                under the caption “Risk Factors” and other statements regarding matters
                not of historical fact.





The
      forward-looking information set forth in this Annual Report
      on
      Form 10-K is as of March 27, 2008, and we undertake no duty to update this
      information. Should events occur subsequent to March 27, 2008 that
      make
      it necessary to update the forward-looking information contained in this Form
      10-K, the
      updated forward-looking information will be filed with the SEC in a Quarterly
      Report on Form 10-Q ,
      or as
      an earnings release included as an exhibit to a Form 8-K, each of which will
      be
      available at the SEC’s website at www.sec.gov or our
      website at www.calypte.com .
      More
      information about potential factors that could affect Calypte’s business and
      financial results is included in Item 1A. Risk Factors beginning on
      page  12  of
      this
      Form 10-K.





The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our consolidated financial
      statements and notes thereto which appear elsewhere in this prospectus. This
      discussion contains “forward looking statements” based upon current expectations
      that involve risks and uncertainties, such as our plans, expectations and
      intentions. Actual results could differ materially from management’s
      expectations. This discussion should not be construed to imply that the results
      discussed herein will necessarily continue into the future or that any
      conclusion reached herein will necessarily be indicative of actual operating
      results in the future. Such discussion represents only the best present
      assessment of our management.




**Overview
      and Outlook**





Our
      current focus is on commercializing our Aware TM HIV-1/2
      Rapid Tests, primarily in international markets. We are developing a
      complementary oral fluid test using an alternative antigen that will enable
      us
      to market a completely non-invasive screening and confirmation testing system
      for HIV-1/2. Our overall plan is to significantly expand the marketing and
      sales
      of our HIV-1/2 Rapid Tests. Our plan also includes developing and
      commercializing another lateral flow platform design suitable for
      over-the-counter applications, permitting our entry into the HIV rapid test
      market in the United States and capable of expanding our product line beyond
      HIV
      to a broader set of non-invasive diagnostic tests for other sexually transmitted
      diseases or diseases such as tuberculosis and malaria. During 2007, we hired
      full-time sales and marketing employees and consultants to market our existing
      products and additional research and development employees to help develop
      our
      new products.




30





**Trends,
      Events and Uncertainties**





*BED
      Incidence Test* *.* We began
      selling the BED Incidence Test in the fourth quarter of 2004. It accounted
      for
      approximately 66% and 44% of our sales in calendar years 2007 and 2006,
      respectively. In absolute terms, revenue from the sale of the Incidence Test
      increased by approximately 61% between 2006 and 2007.





Following
      the initial ramp-up phase in 2005, sales of the Incidence Test decreased
      significantly in 2006 compared with sales in 2005. We believe the decrease
      in
      sales in 2006 was attributable to negative publicity regarding the usefulness
      of
      the data obtained from the BED Incidence Test. In February 2006, the U.S. CDC
      issued an Information Sheet: Using
      the BED HIV-1 Capture EIA Assay to Estimate Incidence Using STARHS in the
      Context of Surveillance in the U.S. suggesting expanded protocols, and indicating that data derived from use of
      the
      test in certain international settings may not be appropriate. During 2006,
      the
      U.S. CDC and UNAIDS agreed on a set of “Recommendations for Use” to address
      certain conditions that may have resulted in over-estimation of incidence.
      Since
      the issuance of that clarification, orders for the test have rebounded, as
      indicated by our increased sales. We believe that the test’s design and use and
      the interpretation of its results will continue to evolve as both domestic
      and
      international public health agencies and the U.S. CDC gain experience with
      it.  We continue to believe that the Incidence Test is a valuable
      technology in the fight against the spread of HIV/AIDS and that it will remain
      a
      viable epidemiological surveillance test. We will soon be re-naming this product
      the Aware TM BED TM HIV-1
      Incidence test.




We
      plan
      to complement the current product with a rapid test version which we anticipate
      to be more suitable for use in resource-poor international settings that do
      not
      have the infrastructure to perform the current test. We are developing the
      rapid
      incidence test in conjunction with the U.S. CDC.





*Rapid
      Tests* *.* Sales of
      our HIV-1/2 rapid diagnostic tests accounted for approximately 34% of our
      revenues in 2007 compared with 56% in 2006. We expect that our future near-
      and
      medium-term revenues will be derived primarily from selling our HIV-1/2 rapid
      tests in both the professional and over-the-counter (OTC) markets, and
      potentially from selling diagnostic tests for other STDs or synergistic tests,
      such as tuberculosis or malaria, in the longer term.





Our
      primary focus for 2008 is commercializing our HIV-1/2 rapid tests, especially
      our current Aware TM HIV-1/2
      OMT (oral fluid) test. Our sample collection device collects sufficient sample
      media to perform multiple tests with a single sample. Using this advantage,
      we
      expect to introduce a complementary oral fluid test employing a different
      antigen in 2008. We expect that the combination of these two tests will permit
      us to satisfy the World Health Organization (“WHO”) rapid testing guideline
      algorithm by providing two distinct non-invasive rapid tests. We also sell
      a BSP
      (blood/serum/plasma) test version of the rapid test product.





We
      plan
      to utilize regional manufacturing to take advantage of local market
      opportunities. These sites could also be used to manufacture product for export
      to other markets. Our first such site is in China, with our joint venture,
      Beijing Marr. We may also consider manufacturing operations in India and in
      the
      Middle East. The objectives are better customer service and stronger margins
      for
      all parties concerned. We are also exploring regional bases for research and
      development centers allowing us to utilize local talent with the objective
      of
      accelerating our ability to bring new products, technologies and platforms
      to
      market.





We
      submitted our Aware TM HIV-1/2
      oral fluid (OMT) rapid test for approval to the Chinese State Food and Drug
      Administration (“SFDA”) in January 2006 and during 2006 the test passed a number
      of critical milestones essential to its ultimate approval. We were in routine
      contact with the SFDA during the second half of 2006 and provided additional
      or
      clarifying information as requested during their general review process. Our
      test was reviewed by an SFDA expert panel in December 2006 and subsequent to
      the
      meeting, in January 2007, we received a formal request from the SFDA for
      additional information. We submitted the requested information to the SFDA
      in
      early May 2007. In January 2008, we were advised that the SFDA had completed
      its
      technical review of our application and, p ending
      the SFDA’s review of conformity to product standard documents and labeling to
      applicable regulations, the application will progress to the concluding
      administrative approval.




31





Bejing
      Marr will manage the oral fluid test product launch in China. There are several
      large markets in China, such as those created by laws requiring HIV testing
      of
      military recruits and university students as part of their admissions process,
      as well as a publicly-announced commitment by the Chinese government to offer
      voluntary HIV testing to its entire adult population. With trained
      non-professionals and a safe, non-invasive oral fluid test, we expect strong
      demand for our initial test.





Beijing
      Marr has recently completed upgrading and renovating its manufacturing
      operations to facilitate the production of our Aware TM HIV-1/2
      rapid oral fluid (OMT) test. In the fourth quarter of 2007, the facility passed
      a
      quality system audit and obtained certification of its quality system to the
      international standard, ISO 13485:2003. We
      expect
      that, in addition to servicing the anticipated large Chinese market, this
      facility will also support the manufacturing of our products for export to
      other
      countries.




During
      the third quarter of 2006, we received approval for our Aware TM HIV-1/2
      OMT rapid test for both the professional and OTC markets in the Russian
      Federation. We have initiated contacts in the private sector, where a number
      of
      large corporations are focusing a portion of their social budgets on the
      HIV/AIDS problem in their communities. We are also reviewing distribution
      options as the government sector can also be a significant opportunity in this
      market. Russia is reported to currently have one of the fastest growing rates
      of
      increase in HIV/AIDS infection worldwide.




In
      the
      third quarter of 2007, we received registration and marketing approval of our
      Aware TM HIV-1/2
      OMT rapid test from the Central Drugs Standard Control Organisation, commonly
      referred to as the DCAI, of the Government of India. We are evaluating
      in-country markets and distribution options as we focus on positioning our
      test
      as a non-invasive alternative to the exclusive use of blood tests for HIV
      diagnosis. We recently completed our first sale to a paramilitary organization
      of the Indian government.




Although
      we cannot predict when we may receive the expected approval of our
      Aware TM HIV-1/2
      OMT rapid test in China, we have received approval to sell this product in
      other
      countries including Russia and India, as well as in South Africa, Uganda and
      Kenya. Upon receipt of approval in China, we will have achieved our initial
      sales and marketing milestone - regulatory approvals in the four parts of the
      world having the greatest HIV/AIDS prevalence, namely Sub-Saharan Africa, China,
      India and Russia. These focus areas mirror the areas predicted to have the
      greatest increase in HIV infections over the next few years. We believe that
      a
      simple, non-invasive test such as ours will have significant demand as it can
      be
      used as an integral part of a real-time treatment program. Although we are
      optimistic regarding the future sales prospects for our Aware TM HIV-1/2
      OMT rapid test, obtaining regulatory approval does not immediately result in
      product sales.




In
      many
      of our target markets, government Ministries of Health or similar agencies
      are
      the primary purchasers of HIV tests, typically through a “lowest-cost” tender
      process which currently requires the agency to purchase blood tests exclusively.
      The efficacy, safety and ease of use of our oral fluid tests are easily
      demonstrated, but the cost comparisons neglect to account for the significant
      ancillary costs of a blood test beyond the absolute cost of the test. We are
      directing considerable effort, including product donations to key user agencies
      and lobbying for changes in tender regulations, to encourage the consideration
      and inclusion of our oral fluid tests in such tenders. We consider these efforts
      to be part of an “enabling” strategy in which the “standard of care” for HIV
      diagnosis evolves from the exclusive use of blood tests to more widespread
      use
      of non-invasive oral fluid-based tests. If we can successfully change the
      standard of care, we expect to reach a point at which time our revenue growth
      will increase significantly. We are not forecasting the timing of this point
      as
      it is largely governed by factors that we can only partially influence.





Our
      Aware TM HIV-1/2
      OMT rapid test is based on a synthetic antigen. We plan to commercialize a
      second oral fluid test using a recombinant antigen. This will provide us with
      a
      full non-invasive testing algorithm in accordance with WHO rapid-testing
      guidelines. Not only will this benefit current diagnostic and treatment efforts,
      we believe it will help us to increase our sales in regions that adhere to
      the
      WHO testing algorithm. We expect to be able to produce this test from all sites
      that manufacture our current Aware TM products.




32





We
      continue to pursue business opportunities in the Middle East through our
      representative office in Dubai, targeting the United Arab Emirates (the “UAE”),
      which granted our first approval in that region of the world. We may consider
      placing a local manufacturing or product assembly site in the region to enhance
      our strength and presence, not only in the UAE, but in Saudi Arabia, Kuwait,
      and
      throughout the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi
      Arabia and the United Arab Emirates).





We
      are
      developing additional distribution channels and plan to conduct additional
      trials in several African and Asian countries. The clinical trial and regulatory
      approval process will be on-going through 2008 and beyond. We are primarily
      targeting countries which have been selected for funding by PEPFAR, the
      President’s Emergency Plan for AIDS Relief, and currently have representation in
      more than half of them. Many HIV intervention programs in developing countries
      are supported by foreign funding. In the case of funding from the United States,
      typically through PEPFAR or USAID, products that are not approved locally or
      by
      the USFDA may be used provided they have a waiver issued by the USAID. The
      waiver is based on a product evaluation performed by the U.S. CDC Global AIDS
      Program (GAP). We have compiled the required “manufacturer’s claims” data and
      completed the CDC GAP trials for both our OMT and blood, serum and plasma
      HIV-1/2 rapid tests. Both our Aware TM HIV-1/2
      BSP (blood, serum and plasma) rapid test and our Aware TM HIV-1/2
      OMT rapid test have been evaluated and are now included in the USAID waiver
      list. We believe that obtaining the USAID waiver for these tests is another
      important milestone in the enabling process that will ultimately lead to
      expanded international sales of our rapid tests.





Our
      current Aware TM product
      line is a rapid testing solution that we believe is well suited for developing
      countries. However, in developed countries, including in the U.S., a
      cassette-enclosed format may be more acceptable. On a longer-term basis, we
      plan
      to introduce the Aware TM II
      product line for these markets using the cassette-enclosed format. We believe
      that we currently have all of the necessary technology licenses for this format.





In
      September 2006, the U.S. CDC updated its HIV testing guidelines, specifically
      recognizing the benefits of rapid tests in timely communicating HIV status
      to
      patients. The U.S. CDC’s revised recommendations include routine HIV testing for
      patients in all health-care settings after the patient is notified that testing
      will be performed unless the patient declines (opt-out screening); at least
      annual testing for persons at high risk for HIV infections; and routine opt-out
      screening for all pregnant women. We believe that a rapid HIV test based on
      the
      Aware TM II
      platform would be well-suited for testing in the professional healthcare sector
      as contemplated in the CDC’s revised guidelines.





Further,
      while there are currently no U.S. FDA-approved over-the-counter HIV tests,
      at
      least one of our competitors has expressed its intent to develop such a test
      and
      has announced that it has commenced pre-clinical trials. An FDA advisory panel
      has recommended that the FDA consider an approval protocol for such a test.
      We
      believe that OTC tests would be advantageous in the battle against HIV
      transmission and that a rapid test platform such as the Aware TM II
      platform would be appropriate for use in an FDA-approved OTC application,
      potentially coupled with tests such as a rapid incidence test and tests for
      other STD’s or conditions.





During
      the third quarter of 2007, we combined our research and development operations
      and our administrative offices in a facility in Portland, Oregon that also
      includes manufacturing space. We plan to use this facility to complete the
      development of and begin the U.S. FDA approval process for the Aware TM II
      product.





*Sampling
      Device*





In
      the
      first quarter of 2008, we introduced our Aware TM Messenger TM oral
      fluid sample collection device. This collection device is based on the same
      principle as employed in our Aware TM HIV-1/2
      OMT test. This product can be used to collect oral fluid analytes for not only
      HIV antibodies, but also for hepatitis antibodies, drugs of abuse and certain
      genetic screening applications, among others. Our initial target for this
      product is the life insurance risk assessment market.




33





**Financial
      Considerations**





For
      the
      year ended December 31, 2007, we incurred a net loss of $8.3 million and a
      negative cash flow of $6.1 million as a result of our operations. At December
      31, 2007, we had a working capital deficit of $3.5 million and our stockholders’
deficit was $8.9 million. Our cash balance at December 31, 2007 was $0.8
      million. Based upon our financial condition at December 31, 2007, as well as
      our
      recurring losses and our negative cash flows from operations, our independent
      registered public accounting firm expressed an opinion on our December 31,
      2007
      consolidated financial statements citing substantial doubt about our ability
      to
      continue as a going concern.





Our
      consolidated operating cash burn rate for calendar 2007 averaged approximately
      $516,000 per month compared to approximately $459,000 per month in 2006. Our
      increased burn rate for 2007 reflects the expansion of our research and
      development and sales and marketing efforts, including the creation of our
      representative offices in Dubai and Geneva beginning in the second quarter,
      as
      we make the expenditures required to ramp up marketing and manufacturing
      initiatives to achieve our near-term milestones.





In
      March
      2007, we received $5.2 million proceeds from the  March
      2007 private placement that funded our operations through 2007. As part of
      the
      March 2007 private placement, we issued to the investors in that private
      placement immediately exercisable warrants expiring on June 28, 2008 to purchase
      an aggregate of 100 million shares of our common stock at $0.08 per share and
      immediately exercisable warrants expiring on September 28, 2008 to purchase
      an
      aggregate of 50 million shares of our common stock at $0.11 per share as a
      potential source of additional near- and medium-term financing for us. We
      expected that a portion of these short-term warrants, in addition to other
      outstanding warrants that are now also in-the-money, would be exercised during
      2007 and thereby provide us with additional and necessary funding. We entered
      into a financing arrangement in January 2008 under which the investor is
      obligated, under certain conditions, to purchase up to $8 million of our common
      stock over a 24 month period. At March 27, 2008 investors in the March 2007
      private placement had exercised an aggregate of 11,750,000 of the warrants
      exercisable at $0.08 per share and we had received $940,000 in proceeds.





In
      the
      absence of the exercise of a significant portion of the warrants issued in
      the
      March 2007 private placement, our current cash resources and the financing
      arrangement we entered during the first quarter of 2008 may not allow us to
      fully attain our business milestones without interruption and we may need to
      seek additional financing or pursue a strategic opportunity. We do not currently
      have any definitive agreements with respect to additional financing or a
      strategic opportunity, and there can be no assurance that any such financing
      or
      strategic opportunity will be available to us on acceptable terms, or at all. In
      March 2007, we extended the maturity of our April 2005 Secured 8% Convertible
      Notes and related interest notes and the 7% Promissory Notes issued under the
      2005 Marr Credit Facility from April 2007 until April 2009. At December 31,
      2007, we owed an aggregate of $9,490,000 under the April 2005 Secured 8%
      Convertible Notes and related interest notes and the 7% Promissory Notes issued
      under the 2005 Marr Credit Facility. Additionally, in December 2007 we entered
      into a one-year agreement with Marr under which it can convert its holdings
      of
      these securities at $0.16 per share. The existence of these Notes and our pledge
      of our assets as security for these Notes may inhibit our ability to obtain
      financing in the future. Additionally, the presence of a significant number
      of
      unexercised in-the-money warrants may also unfavorably impact our ability to
      raise additional financing. Although we expect to be able to raise additional
      capital, if necessary, there can be no assurance that we will secure such
      financing or enter into such strategic agreements, or that our stockholders
      would approve the terms of such agreements or financing, if so required. There
      can be no assurance that our current cash resources and financing arrangements
      are sufficient to allow us to fully attain our business milestones and achieve
      positive cash flow.





Our
      longer-term liquidity and capital requirements are dependent on constraints
      similar to those which impact our current liquidity and capital resource
      considerations and which will be critical in validating our business model
      during 2008 and beyond. In
      the
      absence of adequate resources from current working capital and existing
      financing arrangements, we will be required to raise additional capital to
      sustain our operations.




34




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




**Critical
      Accounting Policies and Estimates**




This
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations is based upon our consolidated financial statements, which have
      been
      prepared in accordance with U.S generally accepted accounting principles. 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,
      derivative and anti-dilution liabilities 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.





·
            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.





·
            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, we also review our inventories for lower of
                cost or
                market valuation. At December 31, 2007 and 2006, our inventories
                consisted
                of only BED Incidence Test and HIV-1/2 rapid test raw materials,
                components and finished products.





·
            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 taxasset
                would increase income in the period such determination was
                made.





·
            Classification
                of Financial Instruments with Characteristics of both Liability and
                EquityWe
                account for financial instruments that we have 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, we further apply the criteria
                in
                Emerging Issues Task Force (EITF) Issue No. 00-19,*Accounting**for
                Derivative 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. We also evaluate the anti-dilution and/or
                beneficial conversion features that may be included in our financial
                instruments in accordance with the provisions of SFAS No. 133,*Accounting
                for Derivative Instruments and Hedging Activities,*which
                may classify the feature as an embedded derivative and require that
                the
                financial instrument be bifurcated and the feature accounted for
                separately. We evaluate 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
                us in our determination of the appropriate classification.





35




·
            Stock
                based compensationWe
                adopted*Statement
                of Financial Accounting Standards No. 123 (revised 2004), Share-Based
                Payment*(“SFAS 123R”) effective January 1, 2006. We adopted SFAS 123R using
                the modified prospective method, which requires that we apply the
                provisions of SFAS 123R to all awards granted or modified after the
                date
                of adoption. The unrecognized expense attributable to awards not
                fully
                vested at our January 1, 2006 date of adoption is recognized in our
                net
                loss in the periods after the date of adoption using the same valuation
                method (i.e. Black-Scholes) and assumptions determined under the
                original
                provisions of SFAS 123, “Accounting for Stock-Based Compensation,” as
                disclosed on a pro-forma basis in our previous financial statements.
                Under
                the fair value recognition provisions of SFAS 123R, we recognize
                stock-based compensation, net of an estimated forfeiture rate which
                results in recognizing compensation expense for only those awards
                expected
                to vest, over the service period of the award.Since
                our adoption of SFAS 123R, we haveestimated
                the fair value of options granted to employees and directors, and
                we
                expect to estimate the fair value of future grants, using the
                Black-Scholes option pricing model. This model requires the input
                of
                highly subjective assumptions, including the expected term of the
                stock-based awards, stock price volatility, and pre-vesting option
                forfeitures.  To date, we have generally estimated the expected life
                of options granted based on the simplified method provided in Staff
                Accounting Bulletin No. 107 for “plain vanilla” options.
                Where appropriate, we will consider separately for valuation purposes
                groups of employees or directors that have similar historical exercise
                behavior.We
                estimate the volatility of our common stock at the date of grant
                based on
                its historical volatility over a period generally equivalent to the
                expected term of the grant. We estimate the expected pre-vesting
                forfeiture rate and recognize expense for only those shares expected
                to
                vest.  We have estimated our forfeiture rate based on our historical
                experience with stock-based awards that are granted and forfeited
                prior
                to vesting.  If the actual forfeiture rate is materially
                different from the estimate, the stock-based compensation expense
                could
                also differ from what we have recorded in the current period.  As
                required under SFAS 123R, we will review our valuation assumptions
                at each
                grant date and, as a result, may periodically change the valuation
                assumptions used to value employee stock-based awards granted in
                future
                periods.





The
      following summarizes the results of our operations for the years ended December
      31, 2007 and 2006 (in thousands):





Year
                Ended December 31,2007
            
            2006Product
                sales revenue
            
            $
            589
            
            $
            547Cost
                of product sales
            
            
            559
            
            
            395Gross
                margin
            
            
            30
            
            
            152Operating
                costs and expenses:Research
                and development expenses
            
            
            1,260
            
            
            1,700Selling,
                general and administrative expenses
            
            
            6,409
            
            
            4,322Impairment
                of assets
            
            
            1,528
            
            
            -Total
                operating expenses
            
            
            9,197
            
            
            6,022Loss
                from operations
            
            
            (9,167
            )
            
            (5,870
            )Interest
                income (expense), net
            
            
            (235
            )
            
            (8,500
            )Minority
                interest in losses of consolidated joint ventures
            
            
            1,206
            
            
            517Other
                income (expense), net
            
            
            (72
            )
            
            105Loss
                before income taxes
            
            
            (8,268
            )
            
            (13,748
            )Income
                taxes
            
            
            (2
            )
            
            (2
            )Net
                loss
            
            $
            (8,270
            )
            $
            (13,750
            )





36




*Years
      ended December 31, 2007 and 2006*





Our
      revenue for 2007 totaled $589,000 compared with $547,000 in 2006, an increase
      of
      8%. Sales of our BED Incidence Test accounted for $388,000, or approximately
      66%, of our sales in 2007 compared with $241,000, or 44%, of our sales in 2006.
      Sales of our Aware TM HIV-1/2
      rapid tests accounted for the balance in both periods. In absolute terms,
      revenue from the sale of the Incidence Test increased by 61% between 2006 and
      2007 while revenue from the sale of our rapid tests decreased by 34% during
      the
      same period. Sales of our HIV-1/2 rapid tests are irregular as we gain approvals
      for those tests in various parts of the world.





Three
      customers accounted for approximately 51% of our revenue
      for 2007 .
      Our
      South African distributor purchased both BED Incidence Tests and our Aware TM HIV-1/2
      oral fluid rapid tests representing 27% of our 2007 revenue. A second quarter
      purchase of our Aware TM HIV-1/2
      oral fluid rapid tests by our Russian distributor accounted for 13 %
      of our revenue
      for 2007 . BED
      Incidence Test purchases by the CDC’s contract testing labs in New York
      accounted for 11% of our revenue for 2007. Purchases
      by three customers accounted for approximately 67% of our revenue during 2006.
      Our previous distributor for the Middle East purchased oral fluid OTC rapid
      tests representing approximately 51% of our revenues for 2006. Two customers
      purchasing the BED Incidence Test, the U.S. CDC’s incidence test contract lab,
      and the Chinese CDC accounted for approximately 9% and 7%, respectively, of
      revenues for 2006.





Our
      gross
      margin was 5% of sales in 2007 compared with 28% in 2006. The margins we
      reported in both 2007 and 2006 are not typical of our expected future results
      because of the relatively nominal amounts of revenues and product quantities
      over which certain fixed expenses, like annual royalty minimums, have been
      allocated. Product costs in both periods are based on resource-constrained
      purchasing patterns and pilot-plant-sized production lots, and do not reflect
      the economies of scale that we anticipate in our expected commercial scale
      operations. Further impacting margins in 2007 are costs associated with
      increased staffing specifically dedicated to our manufacturing quality systems,
      which we treat as a component of product costs. Additionally, in the third
      quarter of 2007 we scrapped expired finished product for which we had not
      received subsequent orders as well as packaging and other product materials
      rendered obsolete due to the relocation of our operations to our new Portland,
      Oregon facility.




Research
      and development costs decreased by $440,000 or 26%, from $1,700,000 in 2006
      to
      $1,260,000 in 2007. Our domestic R&D expense decreased by $104,000 in 2007
      primarily as a result of vacancies in our R&D staffing early in the year and
      lower costs related to outside consultants and clinical trials. Our Chinese
      joint ventures reduced their research and development spending by $336,000
      in
      2007 compared with 2006 primarily as Beijing Marr personnel and resources were
      directed away from product development to preparing the plant for production,
      which we recorded as an administrative expense.




Selling,
      general and administrative costs increased by $2,087,000 or 48%, from $4,322,000
      in 2006 to $6,409,000 in 2007. The primary components of the increase include
      the following:


·
            increases
                in compensation costs, including approximately $886,000 of non-cash
                expense related to the grants of options to our non-employee directors
                in
                the fourth quarter of 2007;


·
            increased
                consulting expenses, including costs attributable to new staffing
                and
                related expenses for local representation and business development
                functions based in Dubai, Geneva and India ;


·
            increased
                travel expense, product donations, trade show participation and corporate
                sponsorships incurred in pursuing business development opportunities,
                primarily in the Middle East, Africa and India; and


·
            a
                net increase of $242,000 incurred by our Chinese joint ventures as
                a
                result of pre-manufacturing staffing and overhead expenses recognized
                as
                administrative expense in 2007, offset by personnel reductions and
                reorganizations within those
                entities.




In
      the
      fourth quarter of 2007, we recorded non-cash impairment losses aggregating
      $1,528,000 attributable to certain regulatory approvals, licenses and
      certifications included in the manufacturing assets acquired by Beijing Marr
      prior to the creation of our joint venture that we do not believe are
      recoverable in the future.




37


Our
      loss
      from operations for 2007, at $9,167,000, including the non-cash expense from
      impairment of assets, reflects a 56% greater loss than the $5,870,000 loss
      reported for 2006.





We
      recorded net interest expense of $235,000 for 2007 compared with $8,500,000
      of
      net interest expense in 2006. The reduction in net interest expense in 2007
      is
      primarily the result of the accounting for the reduction in the anti-dilution
      obligation related to our first quarter 2007 financings as well as reductions
      in
      the amortization of discounts and issuance costs related to our 2005 convertible
      note financing and the costs associated with the third quarter 2006 induced
      conversion of 8% Secured Convertible Notes and extinguishment of 7% Promissory
      Notes related to the re-pricing of certain outstanding warrants. The following
      table summarizes the components of interest expense (in thousands):





(Increase)Year ended December 31,
            
            Decrease2007
            
            2006
            
            ExpenseInterest
                expense on debt instruments paid or payable in cash
            
            $
            (315
            )
            $
            (284
            )
            $
            (31
            )Non-cash
                expense composed of:Accrued
                interest on 8% Convertible Notes (paid by issuing additional
                Notes)
            
            
            (416
            )
            
            (481
            )
            
            65Amortization
                and proportional write-off upon conversion of 8% convertible note
                discounts and deferred offering costs through original maturity
                date
            
            
            (1,208
            )
            
            (5,694
            )
            
            4,486Amortization
                of discounts associated with March 2007 extension and December 2007
                restuctructuring of 8% convertible notes and Marr Credit Facility
                notes
            
            
            (449
            )
            
            -
            
            
            (449
            )Mark
                to market adjustment of and intrinsic value of shares issued under
                anti-dilution obligations arising from the February and March 2007
                financings
            
            
            2,281
            
            
            -
            
            
            2,281Expense
                attributable to extension of maturity of August 2006 Additional
                Warrants
            
            
            (29
            )
            
            -
            
            
            (29
            )Expense
                attributable to extension of maturity of August 2006 obligations
                arising
                from the April 2005 financing
            
            
            -
            
            
            (375
            )
            
            375Expense
                attributable to extinguishment of 7% Promissory Notes and induced
                conversion of 8% Convertible Notes resulting from warrant re-pricing
                and
                exercise, and debt cancellation
            
            
            -
            
            
            (1,549
            )
            
            1,549Expense
                attributable to dividends on mandatorily redeemable Series A preferred
                stock
            
            
            (120
            )
            
            (120
            )
            
            -Total
                non-cash items
            
            
            59
            
            
            (8,219
            )
            
            8,278Total
                interest expense
            
            
            (256
            )
            
            (8,503
            )
            
            8,247Interest
                income
            
            
            21
            
            
            3
            
            
            18Net
                interest expense
            
            $
            (235
            )
            $
            (8,500
            )
            $
            8,265





**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.





*Operating
      Activities*





During
      2007 and 2006, we used cash of $6.1 million and $5.5 million, respectively,
      in
      our operations. In both periods, the cash used in operations was primarily
      for
      development and commercialization of our rapid tests, as well as for our
      selling, general and administrative expenses, including those of our Chinese
      joint ventures.





Our
      primary source of liquidity at December 31, 2007 was cash that we raised in
      our
      recent financing activities, most notably the March 2007 private placement
      and
      warrant exercises by investors in that private placement and earlier financings.
      We entered into a financing arrangement in January 2008 under which the investor
      is obligated, under certain conditions, to purchase up to $8 million of our
      common stock over a 24 month period.




38




Based
      on
      our current operating burn rate, our known commitments and the uncertainty
      of
      both the exercise of the warrants issued in the March 2007 private placement
      and
      our ability to sell our shares under the terms and conditions of the January
      2008 financing arrangement, we do not expect our current cash resources or
      our
      near-term cash flow from operations to be adequate to maintain our operations
      through the execution of our business plan or until we are able to achieve
      positive cash flow or profitability. We view the warrants issued in the March
      2007 private placement and certain other outstanding in-the-money warrants
      as
      potential sources of much needed near-term cash. However, there can be no
      assurance that the investors will exercise a significant portion, or any
      additional, warrants on a timetable that will coincide with our cash
      requirements. Additionally, under the terms of the January 2008 arrangement,
      we
      only have the right to sell $100,000 of our common stock every three business
      days unless the market price of our common stock equals or exceeds $0.10 per
      share, in which case we can sell greater amounts. However, the investor does
      not
      have the right nor the obligation to purchase any shares of our common stock
      on
      any business day that the market price of our common stock is less than $0.052
      per share. In the absence of the exercise of a significant portion of the
      warrants issued in the March 2007 private placement or our ability to sell
      our
      common stock under the January 2008 agreement, our current cash resources will
      not allow us to attain either our near or long-term business goals without
      interruption and without seeking additional financing or pursuing a strategic
      opportunity.





**Recent
      Accounting Pronouncements**





In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* (“SFAS
      160”) *,* which
      introduces changes in the accounting and report form business acquisitions
      and
      noncontrolling interest in a subsidiary. The changes introduced by SFAS 160
      include reporting noncontrolling interest (previously referred to as minority
      interest) as part of equity in the consolidated financial statements; allocating
      losses to the noncontrolling interest even which such allocation might result
      in
      a deficit balance and reduce the loss allocated to the controlling interest;
      treating changes in ownership interests as equity transactions if control is
      maintained; and recognizing in earnings any gain or loss on the interest sold
      upon a loss of control, with the retained interest remeasured at fair value
      on
      the date control is lost. SFAS 160 is effective for fiscal years beginning
      after
      December 15, 2008. We have not yet evaluated the impact on our consolidated
      financial statements of adopting SFAS No. 160.





In
      June
      2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
      No. 07-03, *Accounting
      for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities* (“EITF
      07-03”), which requires nonrefundable advance payments for future R&D
      activities to be capitalized and recognized as an expense as the goods are
      delivered or services are performed. EITF 07-03 is effective for fiscal years
      beginning after December 15, 2007. We do not believe that adopting EITF 07-03
      will have a material impact on our consolidated financial
      statements.





In
      September 2006, the FASB issued Statement No. 157, *Fair
      Value Measurements* (“FAS
      157”). FAS 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements required under other accounting pronouncements. FAS
      157
      does not change existing guidance regarding whether or not an instrument is
      carried at fair value. SFAS No. 157 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007. We are currently evaluating
      the impact on our consolidated financial statements of adopting SFAS No. 157.





In
      February 2007, the FASB issued Statement No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“FAS
      159”). FAS 159 permits the measurement of many financial instruments and certain
      other items at fair value. Entities may choose to measure eligible items at
      fair
      value at specified election dates, reporting unrealized gains and losses on
      such
      items at each subsequent reporting period. The objective of FAS 159 is to
      provide entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions. It is intended to expand
      the use of fair value measurement. FAS 159 is effective for fiscal years
      beginning after November 15, 2007. We have not evaluated the potential impact
      of
      adopting SFAS 159.





39




**Item
      8. Financial Statements and Supplementary Data**




The
      Company’s Consolidated Financial Statements as of and for the year ended
      December 31, 2007 are included on pages F-1 through F-45 of this Annual Report
      on Form 10-K.





**Item
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**




None.




**Item
      9A(T). Controls and Procedures**





(1)  *Disclosure
      Controls and Procedures* —
We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports under the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      forms, and that such information is accumulated and communicated to management,
      including our Chief Executive Officer (“CEO”) and Vice-President - Finance and
      Administration (“VP-Finance”), as appropriate, to allow timely decisions
      regarding required disclosure. Our quarterly evaluation of disclosure controls
      and procedures includes an evaluation of some components of our internal control
      over financial reporting. Internal control over financial reporting is also
      separately evaluated for purposes of providing management’s report which is set
      forth below in paragraph (2). In designing and evaluating the disclosure
      controls and procedures, management recognized that any controls and procedures,
      no matter how well designed and operated, can provide only reasonable assurance
      of achieving the desired control objectives, as they are designed to do, and
      management necessarily was required to apply its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures.





In
      connection with the preparation of this Annual Report on Form 10-K, as of
      December 31, 2007, an evaluation was performed under the supervision and with
      the participation of our management, including our CEO and VP-Finance, of the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
      Act).
      Based on this evaluation, our CEO and VP-Finance concluded that our disclosure
      controls and procedures are effective as of December 31, 2007.





(2)  *Management’s
      Report on Internal Control over Financial Reporting* –
      Internal control over financial reporting refers to the process designed by,
      or
      under the supervision of, our CEO and VP-Finance, and effected by our board
      of
      directors, management and other personnel, to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles, and includes those policies and procedures
      that:





·
            Pertain
                to the maintenance of records that in reasonable detail accurately
                and
                fairly reflect the transactions and dispositions of our
                assets;





·
            Provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that our receipts and expenditures are
                being
                made only in accordance with authorization of our management and
                directors; and





·
            Provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisitions, use or disposition of our assets that
                could
                have a material effect on the financial
                statements.





Internal
      control over financial reporting cannot provide absolute assurance of achieving
      financial reporting objectives because of its inherent limitations. Internal
      control over financial reporting is a process that involves human diligence
      and
      compliance and is subject to lapses in judgment and breakdowns resulting from
      human failures. Internal control over financial reporting also can be
      circumvented by collusion or improper management override. Because of such
      limitations, there is a risk that material misstatements may not be prevented
      or
      detected on a timely basis by internal control over financial reporting.
      However, these inherent limitations are known features of the financial
      reporting process. Therefore, it is possible to design into the process
      safeguards to reduce, though not eliminate, this risk. Management is responsible
      for establishing and maintaining adequate internal control over financial
      reporting for the company.




40




Management
      has used the framework set forth in the report entitled *Internal
      Control-Integrated Framework* published
      by the Committee of Sponsoring Organizations of the Treadway Commission, known
      as COSO, to evaluate the effectiveness of the Company's internal control over
      financial reporting. Based on this assessment, management has concluded that
      our
      internal control over financial reporting is effective as of December 31, 2007.





This
      report does not include an attestation report of our independent registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by our independent registered
      public accounting firm pursuant to temporary rules of the SEC that permit us
      to
      provide only management’s report in this report.




(3)  *Change
      in Internal Control Over Financial Reporting* –
      There has been no change in our internal controls over financial reporting
      during our most recent fiscal quarter that has materially affected, or is
      reasonably likely to materially affect, our internal controls over financial
      reporting.




41


**PART
      III**





**Item
      10. Directors, Executive Officers and Corporate Governance**





Following
      is a list of our Directors and Executive Officers as of March 27, 2008.


**Name**
              
              **Age**
              
              **Calypte Position; Principal Occupation**
              
              **Director**
                **Since**Roger
                  I. Gale
              
              55
              
              Chairman,
                  President and Chief Executive Officer; Calypte Biomedical Corporation
              
              11/04John
                  J. DiPietro
              
              49
              
              Director;
                  Chief Financial Officer, Chronix Biomedical, Inc.
              
              10/99Paul
                  E. Freiman
              
              73
              
              Director;
                  President and Chief Executive Officer, Neurobiological Technologies,
                  Inc.
              
              12/97Adel
                  Karas
              
              63
              
              Director,
                  Regional Director, World Agency of Planetary Monitoring & Earthquake
                  Risk Reduction
              
              5/07Julius
                  R. Krevans, M.D.
              
              83
              
              Director;
                  Retired Chancellor Emeritus, Director of International Medical
                  Services,
                  University of California, San Francisco
              
              3/95Maxim
                  A. Soulimov
              
              35
              
              Director;
                  Director of Legal Affairs, Global Corporate Ventures,
                  Limited
              
              4/04Ronald
                  W. Mink
              
              55
              
              Chief
                  Science Officer, Calypte Biomedical Corporation
              
              N/AJerrold
                  D. Dotson
              
              54
              
              Vice
                  President, Finance and Administration and Secretary, Calypte Biomedical
                  Corporation
              
              N/A




**Roger
      I. Gale** was
      appointed to our Board and elected its Chairman in November 2004. On May 2,
      2006, the Board appointed him as President and Chief Executive Officer,
      effective immediately. Mr. Gale had been serving in that capacity on an interim
      basis since October 2005. Mr. Gale served from October 2001 until May 2006
      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. He has previously
      held
      senior positions with the Asian Development Bank (ADB, Manila) and the
      International Finance Corporation (IFC), the private sector arm of the World
      Bank in Washington, D.C. Mr. Gale has also lectured in economics at the
      University of New England (Australia) and Lincoln College (New Zealand). He
      serves as a Director and a member of the Audit Committee of Mechel Steel Group,
      (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 our Board pursuant
      to an August 2003 agreement between Marr and us. Marr is currently our largest
      stockholder, holding approximately 20% of our outstanding common stock.




**John
      J. DiPietro** was
      elected to our Board in October 1999. Since September 2002, he has served as
      the
      Chief Financial Officer of Chronix Biomedical Inc, a private biotechnology
      company. Mr. DiPietro was a member of the Board of Chronix Biomedical from
      February 2003 through July 2006. From September 1999 to September 2002 he was
      the Chief Financial Officer and Vice President-Finance and Administration of
      Tripath Technology, Inc., a semi-conductor manufacturing company. He served
      as
      our 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 our 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.




42




**Paul
      E. Freiman** has
      served as a member of our Board 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.




**Adel
      Karas** was
      appointed to our Board in May 2007. Since December 2005 Mr. Karas has worked
      as
      the Regional Director (Asia, Africa & Middle East) for the World Agency of
      Planetary Monitoring & Earthquake Risk Reduction (WAPMERR) based in Dubai,
      United Arab Emirates (UAE).  WAPMERR is involved with disaster management
      and risk assessments. Prior to his involvement with WAPMERR, in 2003 Mr. Karas
      co-founded and served as Managing Director of Strategic Energy Investment Group
      in Dubai. He started this group following his retirement from Petroleum
      Geo-Services (PGS) in Houston, Texas where he served as Senior Vice President
      of
      Business Development for two years before moving to Dubai where he set up and,
      for the next eight years, served as President of PGS for the Middle East
      Region.  Mr. Karas served, as well, as the executive vice president for
      Grant Tensor Geophysical in Houston-Texas and as the president of Tensor
      Geophysical in Egypt. Mr. Karas attended AinShams University, University of
      Texas and University of Houston. He holds degrees in Geophysics and Operations
      Research as well as a Masters Degree in electrical engineering and an MBA.





**Julius
      R. Krevans, M.D.** has
      served on our Board 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. 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 our Board in April 2004. S ince
      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 Calypte’s
      Board pursuant
      to an August 2003 agreement between Calypte and Marr.





**Ronald
      W. Mink, Ph.D.** has
      served as our Chief Science Officer since July 2005. Prior to his appointment
      as
      Chief Science Officer, Dr. Mink had served as our Director of R&D since
      joining the Company in April 2003. From February 2001 to April 2003, he was
      a
      consultant to Calypte for rapid test development. Prior to working with Calypte,
      he was the Director of Research and Development at OraSure Technologies, Inc.
      (NASDAQ: OSUR). At OraSure, Dr. Mink was the inventor of the OraQuick® HIV-1/2
      rapid test (U.S. Patents 6,303,081 and 7,192,555), and directed the OraQuick
      research and development effort from concept through its initial international
      product launch. Dr. Mink received his Ph.D.
      and
      Master of Science degrees in Microbiology from the University of Illinois at
      Urbana-Champaign, and received his B.S. degree in Microbiology from Ohio State
      University.





**Jerrold
      D. Dotson** has
      served as our Vice
      President, Finance and Administration (principal financial and accounting
      officer) since
      February 1, 2007 .
      Mr.
      Dotson has served as our Corporate Secretary since 2001. Mr. Dotson also served
      as our Director of Finance from January 2000 through July 2005 and was a
      financial consultant to Calypte from August 2005 through January 2007. Prior
      to
      joining Calypte, from 1988 through 1999, Mr. Dotson worked in various financial
      management positions, including Chief Financial Officer, for California &
Hawaiian Sugar Company. Mr. Dotson is a CPA and received his BS degree in
      Business Administration with a concentration in accounting from Abilene
      Christian College.





43





**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. The charter for each of these committees
      is available on our website at www.calypte.com .
      From
      time to time when necessary, the Board may establish other committees under
      its
      direction to address specific issues.




The
      Audit
      Committee currently includes our 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 407(d)(5) of Regulation S-K of the
      Securities Exchange Act of 1934 (the “Exchange Act”) and are independent within
      the meeting of Item 407(a)(i) 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 Principal Financial
      and Accounting 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 and Mr.
      Karas. 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.





The
      Nominating Committee will consider candidates nominated by stockholders in
      accordance with the procedures set forth in our by-laws. Under our by-laws,
      nominations other than those made by the Board of Directors or the Nominating
      Committee must be made pursuant to timely notice in proper written form to
      our
      Secretary. To be timely, a stockholder’s request to nominate a person for
      election to the Board at an annual meeting of stockholders, together with the
      written consent of such person to serve as a Director, must be received by
      our
      Secretary not less than 120 days prior to the anniversary of the annual meeting
      of stockholders held in the previous year. To be in proper written form, the
      notice must contain certain information concerning the nominee and the
      shareholder submitting the nomination.





**Compliance
      with Section 16(a) of the Exchange Act**




Section
      16(a) (“Section 16(a)”) of the Exchange Act requires our executive officers,
      directors, and persons who beneficially own more than 10% of our Common Stock
      (collectively, “Reporting Persons”) to file reports of ownership on Form 3 and
      changes in ownership on Form 4 or Form 5 with the Commission. Such Reporting
      Persons are also required by the Securities and Exchange Commission rules to
      furnish us with copies of all Section 16(a) forms that they file. Except as
      described below, we believe that during fiscal year 2007, all of the Reporting
      Persons complied with all applicable filing requirements.





On
      March
      28, 2007, David Khidasheli acquired a beneficial ownership of more than 10%
      of
      our common stock, but did not report that he was subject to Section 16 until
      October 31, 2007. On March 28, 2007, Mohamed Yousif Ahmed Saleh Sulaiman
      acquired a beneficial ownership of more than 10% of our common stock, but did
      not report that he was subject to Section 16 until November 2, 2007. On March
      28, 2007, Mohamed Ahmed acquired a beneficial ownership of more than 10% of
      our
      common stock, but did not report that he was subject to Section 16 until October
      30, 2007. On March 28, 2007, Ahmed Abdalla Deemas Alsuwaidi acquired a
      beneficial ownership of more than 10% of our common stock, but did not report
      that he was subject to Section 16 until October 29, 2007





44





**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 Principal Financial and Accounting
      Officer, and to the members of our Board of Directors. The Code of Business
      Conduct is posted on our website at www.calypte.com .





**Compensation
      Committee Interlocks and Insider Participation**




During
      2007, 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. Executive Compensation**





The
      following table sets forth compensation we awarded or paid to persons who served
      as our Chief Executive Officer and as our other most highly compensated
      executive officers in 2007 (collectively, the “Named Executive Officers”) for
      the years ended December 31, 2007 and 2006.





**SUMMARY
      COMPENSATION TABLE**





Name and Principal Position
            
            Year
            
            Salary ($)
            
            Bonus ($)
            
            Stock
              Awards ($)
            
            Option
              Awards ($)
            
            All Other
              Compensation
            
            Total ($)(a)
            
            (b)
            
            (c
                )
            
            (d)
            
            (e)
            
            (f)(1)
            
            (i)(2)
            
            (j)Roger
                I. Gale, Chief Executive
            
            
            2007
            
            $
            350,000
            (3)
            $
            -
            
            $
            150,000
            
            $
            -
            
            $
            50,515
            (4)
            $
            550,515Officer,
                President and Chairman of the Board
            
            
            2006
            
            $
            294,141
            (5)
            $
            -
            
            $
            250,000
            
            $
            -
            
            $
            37,537
            (6)
            $
            581,678Richard
                D. Brounstein,
            
            
            2007
            
            $
            181,169
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            200,000
            (8)
            $
            381,169Executive
                Vice President (7)
            
            
            2006
            
            $
            204,800
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            204,800Theodore
                R. Gwin, Chief
            
            
            2007
            
            $
            7,692
            
            $
            -
            
            $
            -
            
            $
            39,700
            (10)
            $
            40,734
            (11)
            $
            88,126Financial
                Officer (9)
            
            
            2006
            
            $
            200,000
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            200,000Ronald
                W. Mink,
            
            
            2007
            
            $
            226,135
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            226,135Chief
                Scientific Officer
            
            
            2006
            
            $
            200,000
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            200,000Jerrold
                D. Dotson,
            
            
            2007
            
            $
            184,615
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            15,000
            (12)
            $
            199,615Vice
                President-Finance





(1)
            
            The
                assumptions used to derive the fair value of the stock option award
                noted
                in this column are discussed in Footnote 11 to the Consolidated Financial
                Statements included in Item 8 of this Form 10-K.(2)
            
            Does
                not include the value of perquisites and other personal benefits
                that do
                not aggregate at least $10,000 in each fiscal year for each Named
                Executive Officer.(3)
            
            This
                amount reflects Mr. Gale’s total annual salary entitlement for fiscal year
                2007. Mr. Gale elected to receive $309,615 in cash and to forego
                $40,385
                and instead receive shares of common stock and warrants to purchase
                shares
                of common stock on the same terms and conditions as the investors
                in our
                March 28, 2007 private placement. As indicated in notes (4), (5)
                and (6),
                Mr. Gale elected to forego cash payment of other amounts of compensation
                earned in 2006 and 2007 and instead receive shares of our common
                stock and
                warrants. In aggregate, Mr. Gale received 8,271,870 shares of our
                common
                stock valued at $0.0.052 per share, a 12-month warrant to purchase
                8,271,870 shares of our common stock at the exercise price of $0.08
                per
                share and an 18-month warrant to purchase 4,135,935 shares of our
                common
                stock at the exercise price of $0.11 per share based on an aggregate
                investment of $430,137, including the compensation amounts described
                in
                this table. Mr. Gale’s aggregate investment also includes the repayment of
                $90,000, plus accrued interest, of loans made to us by Mr. Gale in
                2006
                and 2007 and a $100,000 advance he made to us on November 16, 2006.




45




(4)
            
            This
                amount represents perquisites and other personal benefits paid to
                Mr. Gale
                under his employment agreement, including, without limitation, $36,000
                for
                his housing allowance and $9,600 for his automobile allowance, of
                which he
                elected to forego cash in the aggregate amount of $10,523 and receive
                shares of common stock and warrants to purchase shares of common
                stock on
                the same terms and conditions as the investors in our March 28, 2007
                private placement. See note (3) above for the details of this stock
                and
                warrant compensation.(5)
            
            This
                amount reflects Mr. Gale’s total annual salary entitlement for fiscal year
                2006. Mr. Gale received $105,000 in cash and elected to forego $15,000
                and
                instead receive 77,934 shares of our common stock. The remaining
                $174,141
                was accrued but not paid to Mr. Gale during fiscal year 2006. In
                March
                2007, Mr. Gale elected to forego cash payment of the accrued salary
                amount
                and to instead receive shares of our common stock and warrants to
                purchase
                shares of our common stock on the same terms and conditions as the
                investors in our March 28, 2007 private placement. See note (3) above
                for
                the details of this stock and warrant compensation.(6)
            
            This
                amount includes $24,310 for Mr. Gale’s relocation expenses from Great
                Britain to Oregon, $10,442 accrued, but not paid, for Mr. Gale’s housing
                allowance and $2,785 accrued, but not paid, for Mr. Gale’s automobile
                allowance. In March 2007, Mr. Gale elected to forego cash payment
                of the
                aggregate $13,227 accrued amounts and to instead receive shares of
                our
                common stock and warrants to purchase shares of our common stock
                on the
                same terms and conditions as the investors in our March 28, 2007
                private
                placement. See note (3) above for the details of this stock and warrant
                compensation.(7)
            
            Mr.
                Brounstein’s employment terminated in November 2007.(8)
            
            This
                represents the amount accrued****with
                respect****to
                Mr. Brounstein as severance pursuant to the constructive termination
                of
                his employment agreement in July 2005. In March 2007, Mr. Brounstein
                elected to forego his severance cash compensation and instead to
                receive
                shares of common stock and warrants to purchase shares of common
                stock on
                the same terms and conditions as the investors in our March 28, 2007
                private placement. Mr. Brounstein received 3,846,154 shares of our
                common
                stock valued at $0.052 per share, a 12-month warrant to purchase
                3,846,154
                shares of our common stock at the exercise price of $0.08 per share
                and an
                18-month warrant to purchase 1,923,077 shares of our common stock
                at the
                exercise price of $0.11 per share.(9)
            
            Mr.
                Gwin’s employment terminated in January 2007.(10)
            
            This
                amount represents the fair value of an option to purchase 500,000
                shares
                of common stock at an exercise price of $0.03 per share, which was
                granted
                to Mr. Gwin as severance. The stock option was granted pursuant to
                the
                2004 Incentive Plan.(11)
            
            This
                amount represents accrued vacation benefits of $17,637 and severance
                of
                $23,097 paid to Mr. Gwin upon termination of his employment.(12)
            
            This
                amount represents amounts paid pursuant to a consulting agreement
                with Mr.
                Dotson prior to his employment as Vice President –
                Finance.




**Employment
      Agreements**


**Roger
      Gale**





Interim
      CEO Agreement .
      Effective as of October 3, 2005, we entered into an agreement with Mr. Gale
      (the
“Interim CEO Agreement”) pursuant to which Mr. Gale was engaged as interim Chief
      Executive Officer. Under the terms of the Interim CEO Agreement, Mr. Gale was
      to
      receive cash compensation of $15,000 per month, beginning October 3, 2005 and
      was awarded 1,000,000 shares of our common stock pursuant to the 2004 Incentive
      Plan. As of June 1, 2006, Mr. Gale’s cash compensation was increased to $350,000
      per annum.




46




Employment
      Agreement .
      Effective as of September 26, 2006, we entered into an employment agreement
      with
      Mr. Gale (the “Employment Agreement”), pursuant to which Mr. Gale was employed
      as President and Chief Executive Officer for a two year term. The Employment
      Agreement will automatically renew for one-year terms, unless otherwise
      terminated. The Employment Agreement provides for an annual base salary of
      $350,000, housing and automobile allowances of $3,000 and $800 per month,
      respectively, personal travel allowance of $15,000 per year and certain other
      cash allowances and reimbursements relating to relocation, repatriation and
      U.S.
      tax advice, as described in the Employment Agreement; an award of 2,000,000
      shares of our common stock and an award of 2,500,000 shares of restricted stock
      units. At December 31, 2006, we had not yet made the stock or restricted stock
      unit grants. We granted the stock bonus award to Mr. Gale in January 2007,
      but
      at December 31, 2007, had not made the restricted stock unit or any
      other equity grant. Beginning in calendar year 2007, Mr. Gale is
      entitled to receive an annual performance-based bonus of up to 50% of his annual
      base salary, payable in cash, equity or a combination of the two. At December
      31, 2007 no such award has been earned or accrued. All entitlements under the
      agreement cease upon termination for “cause,” termination without cause by Mr.
      Gale and Mr. Gale’s death or disability. Termination for “cause” is defined as
      personal dishonesty, incompetence, failure to adequately perform duties, willful
      misconduct, breach of fiduciary duty involving personal profit, willful
      violation of any law, rule or regulation, conviction of a felony or any material
      breach of the agreement. If the agreement is terminated for any other reason,
      including, without limitation, termination without cause by us, termination
      due
      to change of control and constructive termination, Mr. Gale will be entitled
      to
      receive an amount equal to his base salary for a 12-month period, payable in
      12
      equal monthly installments.





We
      do not
      have employment or other compensation agreements with any other of our executive
      officers.




**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**





The
      following table sets forth information concerning stock options granted to
      the
      Named Executive Officers that are outstanding at December 31, 2007.





Name
            
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
                (#)
              Exercisable
            
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
                (#)
              Unexercisable
            
            Option
              Exercise
              Price
                ($)
            
            Option
              Expiration
              Date(a)
            
            (b)
            
            (c
                )
            
            (e)
            
            (f)Roger
                I Gale
            
            
            200,000
            
            
            -
            
            $
            0.31
            
            
            1/6/2015850,000
            
            
            -
            
            $
            0.35
            
            
            2/9/2015Ronald
                W. Mink
            
            
            1,667
            
            
            -
            
            $
            0.32
            
            
            5/29/201340,000
            
            
            -
            
            $
            0.32
            
            
            5/29/2013500,000
            
            
            -
            
            $
            0.585
            
            
            6/22/201425,000
            
            
            -
            
            $
            0.38
            
            
            2/10/2015Richard
                D. Brounstein
            
            
            24,038
            
            
            -
            
            $
            0.01
            
            
            2/16/200883,333
            
            
            -
            
            $
            0.32
            
            
            2/16/200825,000
            
            
            -
            
            $
            0.32
            
            
            2/16/2008625,000
            
            
            -
            
            $
            0.32
            
            
            2/16/20081,500,000
            
            
            -
            
            $
            0.585
            
            
            5/23/2008Theodore
                R. Gwin
            
            
            500,000
            
            
            
            
            $
            0.03
            
            
            2/1/2017Jerrold
                D. Dotson
            
            
            15,633
            
            
            -
            
            $
            0.32
            
            
            5/29/201340,000
            
            
            -
            
            $
            0.32
            
            
            5/29/20131,000,000
            
            
            -
            
            $
            0.585
            
            
            6/22/2014





47





**DIRECTOR
      COMPENSATION**




We
      have
      no compensation arrangements with our directors. Directors are reimbursed for
      their out-of-pocket travel expenses associated with their attendance at Board
      and committee meetings.





The
      following table sets forth compensation we awarded or paid to persons who served
      as our Directors during 2007.




Name
            
            Fees Earned or
              Paid in Cash ($)
            
            Stock
              Awards ($)
            
            Option
              Awards ($)
            
            All
                Other
              Compensation
              ($)
            
            Total
                ($)(a)
            
            (b)
            
            (c
                )
            
            (d)
            
            (g)
            
            (h)Roger
                I. Gale
            
            $
            -
            
            $
            -
            
            $
            -
            (1)
            $
            -
            
            $
            -John
                J. DiPietro
            
            $
            -
            
            $
            -
            
            $
            190,879
            (2)
            $
            -
            
            $
            190,879Paul
                E. Freiman
            
            $
            -
            
            $
            -
            
            $
            190,889
            (3)
            $
            -
            
            $
            190,889Adel
                Karas
            
            $
            -
            
            $
            -
            
            $
            169,146
            (4)
            $
            -
            
            $
            169,146Julius
                R. Krevans, M.D.
            
            $
            -
            
            $
            -
            
            $
            190,889
            (5)
            $
            -
            
            $
            190,889Maxim
                A. Soulimov
            
            $
            -
            
            $
            -
            
            $
            190,586
            (6)
            $
            -
            
            $
            190,586


(1)
        At December 31, 2007, Mr. Gale has outstanding options to purchase an aggregate
        of 1,050,000 shares of our common stock.


(2)
      At
      December 31, 2007, Mr. DiPietro has outstanding options to purchase an aggregate
      of 3,510,468 shares of our common stock.


(3)
      At
      December 31, 2007, Mr. Freiman has outstanding options to purchase an aggregate
      of 3,512,335 shares of our common stock.


(4)
      At
      December 31, 2007, Mr. Karas has outstanding options to purchase an aggregate
      of
      3,000,000 shares of our common stock.


(5)
      At
      December 31, 2007, Dr. Krevans has outstanding options to purchase an aggregate
      of 3,510,668 shares of our common stock.


(6)
      At
      December 31, 2007, Mr. Soulimov has outstanding options to purchase an aggregate
      of 3,400,000 shares of our common stock.





48


**Item
      12. 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 27, 2008 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 current
      directors and executive officers of the Company as a group.





**5%
                Stockholders, Directors and Officers (1)**
            
            **Shares**
              **Beneficially**
              **Owned**
            
            **%
                of**
              **Total
                (2)**Marr
                Technologies BV (3)
            
            
            125,869,985
            
            
            29.77Strawinskylaan
                14311077XX,
                AmsterdamThe
                NetherlandsDavid
                Khidasheli (4)
            
            
            75,000,000
            
            
            18.13Sheikh
                Zayed RoadFairmont
                Building, # 3104Dubai,
                United Arab EmiratesMohamed
                Yousif Ahmed Saleh Sulaiman (5)
            
            
            70,000,000
            
            
            17.02P.O.
                Box 19533Sharjah,
                United Arab EmiratesMohamed
                Ahmed (6)
            
            
            55,000,000
            
            
            13.77P.O.
                Box 33280Dubai,
                United Arab EmiratesAhmed
                Abdalla Deemas Alsuwaidi (7)
            
            
            50,000,000
            
            
            12.60P.O.
                Box 681Sharjah,
                United Arab EmiratesSF
                Capital Partners Ltd. (8)
            
            
            28,205,355
            
            
            7.093600
                South Lake DriveSt.
                Francis, WI 53235Roger
                I. Gale (9)
            
            
            25,206,411
            
            
            6.56Richard
                D. Brounstein (10)
            
            
            11,872,756
            
            
            2.95606
                Bella Vista CourtFremont,
                CA 94539John
                J. DiPietro (11)
            
            
            2,010,711
            
            
            
            *Jerrold
                D. Dotson (12)
            
            
            1,076,377
            
            
            
            *Paul
                E. Freiman (13)
            
            
            2,010,335
            
            
            
            *Theodore
                R. Gwin (14)
            
            
            500,000
            
            
            
            *Adel
                Karas (15)
            
            
            1,550,000
            
            
            
            *Julius
                R. Krevans, M.D.(16)
            
            
            2,011,135
            
            
            
            *Ronald
                L. Mink (17)
            
            
            568,584
            
            
            
            *Maxim
                A. Soulimov (18)
            
            
            1,900,000
            
            
            
            *All
                current directors and executive officers as a group (8
                persons)
            
            
            36,335,552
            
            
            9.19





*
            
            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, 16290 S.W. Upper Boones Ferry
                Road,
                Portland, Oregon 97224.(2)
            
            Based
                on370,721,020shares
                outstanding as of March 27, 2008.




49




(3)
            
            Based
                on holdings reported in Amendment No. 6 to Schedule 13D dated December
                6,
                2007 filed with the Commission on March 20, 2008 plus 441,360 shares
                issuable subject to a Secured 8% Convertible Note to be issued in
                payment
                of quarterly interest through April 3, 2008, which will be immediately
                convertible at $0.16 per share, plus 290,927 shares subject to accrued
                interest payable within 60 days on 7% Promissory Notes having an
                aggregate
                face value of $4,199,857.26 which Notes and accrued interest are
                immediately convertible at $0.16 per share. Marat Safin has voting
                and
                investment control over shares held by Marr Technologies BV.(4)
            
            Based
                on holdings reported in Schedule 13G dated March 28, 2007 filed with
                the
                Commission on October 31, 2007. Includes 43,000,000 shares underlying
                warrants exercisable within 60 days of March 27, 2008.(5)
            
            Based
                on holdings reported in Schedule 13G dated March 28, 2007 filed with
                the
                Commission on November 2, 2007. Includes 40,625,000 shares underlying
                warrants exercisable within 60 days of March 27, 2008.(6)
            
            Based
                on holdings reported in Schedule 13G dated March 28, 2007 filed with
                the
                Commission on October 30, 2007. Includes 28,625,000 shares underlying
                warrants exercisable within 60 days of March 27, 2008.(7)
            
            Based
                on holdings reported in Schedule 13G dated March 28, 2007 filed with
                the
                Commission on October 29, 2007. Includes 26,000,000 shares underlying
                warrants exercisable within 60 days of March 27, 2008.(8)
            
            Based
                on holdings reported in Amendment No. 5 to Schedule 13G dated December
                31,
                2007 filed with the Commission on February 14, 2008 plus shares underlying
                Secured 8% Convertible Notes issued or issuable in payment of interest
                through April 3, 2008 that are immediately convertible, or convertible
                within 60 days, at $0.30 per share. The Secured 8% Convertible Notes
                which
                are immediately convertible and the immediately exercisable warrants
                contain 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) in excess of 9.999% of the Company’s common stock, giving
                effect to such exercise. Those conversion caps are currently not
                applicable. Michael A. Roth and Brian J. Stark possess voting and
                dispositive power over all of the shares owned by SF Capital Partners
                Ltd.(9)
            
            Includes
                1,050,000 shares underlying options exercisable within 60 days of
                March
                27, 2008 and 12,407,805 shares underlying warrants exercisable within
                60
                days of March 27, 2008. Marr Technologies BV, the beneficial owner
                of
                125,869,985 shares of our Common stock, was granted the right to
                nominate
                two (2) mutually-agreeable candidates for appointment to our Board
                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 our
                Board.
                He has been re-elected as a director at each of the Annual Meetings
                of
                Stockholders since his appointment. Mr. Gale disclaims any direct
                or
                indirect beneficial ownership of shares held by Marr 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
                shares held by Marr.(10)
            
            Includes
                2,233,333 shares underlying options exercisable within 60 days of
                March
                27, 2008 and 5,769,231 shares underlying warrants exercisable within
                60
                days of March 27, 2008.(11)
            
            Includes
                2,010,468 shares underlying options exercisable within 60 days of
                March
                27, 2008.(12)
            
            Includes
                1,055,633 shares underlying options exercisable within 60 days of
                March
                27, 2008.(13)
            
            Includes
                2,012,335 shares underlying options exercisable within 60 days of
                March
                27, 2008.




50




(14)
            
            Includes
                500,000 shares underlying options exercisable within 60 days of March
                27,
                2008.(15)
            
            Includes
                1,500,000 shares underlying options exercisable within 60 days of
                March
                27, 2008.(16)
            
            Includes
                2,010,668 shares underlying options exercisable within 60 days of
                March
                27, 2008.(17)
            
            Includes
                566,667 shares underlying options exercisable within 60 days of March
                27,
                2008.(18)
            
            Includes
                1,900,000 shares underlying options exercisable within 60 days of
                March
                27, 2008.Marr
                Technologies BV, the beneficial owner of 125,869,985 shares of our
                Common
                stock, was granted the right to nominate two (2) mutually-agreeable
                candidates for appointment to our Board 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 our Board. He has been re-elected as
                a
                director at each of the Annual Meetings of Stockholders since his
                appointment. Mr. Soulimov disclaims any direct or indirect beneficial
                ownership of shares held by Marr 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 shares held by
                Marr.





**Item
      13. Certain Relationships and Related Transactions, and Director
      Independence**





We
      entered into a Credit Facility Agreement in April 2005 with Marr, our largest
      stockholder. The Credit Facility Agreement was subsequently modified between
      2005 and 2007, including an amendment in March 2007 to extend the maturity
      of
      the 7% Notes issued under the Credit Facility from April 3, 2007 to April 3,
      2009 and an amendment in December 2007 granting a one-year conversion option
      at
      $0.16 per share for Notes and related accrued interest outstanding under the
      facility. At December 31, 2007, we have Promissory Notes in the face amount
      of
      $4,200,000 and accrued interest of $443,000 outstanding under the credit
      facility, which will be due on April 3, 2009 unless converted into shares of
      our
      common stock prior to the expiration of the conversion option in December 2008.





In
      March
      2007 we also extended the due date of an aggregate of $4,983,000 of 8% Secured
      Convertible Notes, of which $3,223,000 were held by Marr, and all subsequent
      Notes issued in payment of quarterly interest from April 3, 2007 to April 3,
      2009. Additionally, in December 2007, we granted Marr the right to convert
      any
      such Notes it holds at $0.16 per share, rather than $0.30 per share, for a
      one-year period. At December 31, 2007, Marr holds an aggregate of $3,422,000
      of
      the 8% Secured Convertible Notes. We issued an additional 8% Secured Convertible
      Note to Marr in January 2008 in payment of quarterly interest.





During
      2006 and 2007 we issued 8% Promissory Notes in the aggregate face amount of
      $96,300 to our Chief Executive Officer and received $100,000 as an advance
      from
      him for participation in a future equity financing. In 2007, we repaid $6,300
      in
      cash and our Chief Executive Officer participated in the March 2007 Private
      Placement by applying the previously subscribed funds and canceling our
      obligation to repay notes and accrued but unpaid compensation under the
      Consulting Contract and the Employment Agreement owed to him, aggregating
      approximately $430,000, in return for issuance of stock and warrants on the
      same
      terms as those issued to the investors in the March 2007 Private
      Placement.





Another
      of our named executive officers participated in the March 2007 Private Placement
      by canceling our obligation to pay $200,000 of accrued but unpaid severance.
      The
      named executive officer was issued stock and warrants on the same terms as
      those
      issued to the investors in the March 2007 Private Placement.





On
      February 26, 2007, we issued a 12% secured promissory note to an employee in
      the
      face amount of $65,000. We used the proceeds of the note to purchase materials
      to produce our BED Incidence tests. We granted the employee a purchase money
      security interest in the tests produced. We repaid the note and accrued interest
      on May 18, 2007.





In
      July
      2007, we entered into a 9-month lease with renewal options for office space
      in
      Geneva, Switzerland with a company controlled by one of the investors in the
      March 2007 Private Placement.




51




In
      October 2005, prior to our acquisition of our 51% equity interest in Beijing
      Marr, Beijing Marr received an unsecured, non-interest-bearing advance of
      approximately $1,880,000 from Beijing Mobix, an affilate of Marr and Marr Asia.
      The proceeds of the advance were used by Beijing Marr in the acquisition of
      its
      manufacturing facility and other assets. We have reflected this advance as
      a
      current liability in our Consolidated Balance Sheet at December 31, 2007.





In
      October 2005, Beijing Calypte received an unsecured, non-interest-bearing
      advance in the amount of $166,000 from Beijing Mobix. In November 2005, Beijing
      Calypte also received an unsecured, non-interest-bearing advance in the amount
      of $25,000 from its Executive Chairman. Beijing Calypte used each of these
      advances to fund its general corporate expenses. We have reflected these
      advances as current liabilities in our Consolidated Balance Sheet at December
      31, 2007.




In
      December 2005, we entered into an Equity Transfer Agreement with Marr Asia,
      an
      affiliate of Marr Technologies BV. Under the terms of the Equity Transfer
      Agreement, we acquired from Marr Asia a 51% equity interest in Beijing Marr.
      The
      Equity Transfer Agreement became effective on January 18, 2006, the date it
      was
      approved by the Huairou County Commerce Bureau. Pursuant to the Equity Transfer
      Agreement, we will contribute $1,836,000 to the registered capital of Beijing
      Marr and Marr Asia will contribute $1,764,000. Through December 31, 2006, we
      had
      made $1,170,000 and Marr Asia had made $1,254,000 of our respective capital
      contributions. The business purpose of Beijing Marr is to pursue the
      manufacture, distribution, marketing and sale of our rapid test products in
      China.





In
      December 2005, we also entered into an agreement with Marr Asia in connection
      with the Equity Transfer Agreement that governs the relationship between Marr
      Asia and us as shareholders of Beijing Marr. The agreement provides for certain
      protective provisions for Marr Asia, as the minority shareholder, board
      composition and voting, buy-sell, non-competition and other provisions governing
      the other rights, duties and obligations of the shareholders (the “Shareholders
      Agreement”) in connection with the operation of Beijing Marr.





In
      connection with the aggregate $12.5 million investments by Marr Technologies
      BV
      during 2003, we signed a Memorandum Of Understanding to create a joint venture
      in China to market our current and future products. Additionally, the Nominating
      Committee of our Board of Directors agreed to grant Marr the right to nominate
      two mutually-agreeable representatives to our Board of Directors. During 2004,
      two directors initially nominated by Marr were added to our Board of Directors
      and remain as members of our Board.





In
      November 2003, the joint venture, Beijing Calypte Biomedical Technology Ltd.,
      was formed. We own 51% of its stock.





**Director
      Independence**





The
      Board
      has determined that Messrs. DiPietro, Freiman, Karas and Krevans are independent
      under the rules of the American Stock Exchange and have no direct or indirect
      material relationships with us. In particular, the Board has determined that
      none of these directors have relationships that would cause them not to be
      independent under the specific criteria of Section 803(A)(2) of the American
      Stock Exchange Company Guide.




**Item
      14. Principal Accountant Fees and Services**




Odenberg
      Ullakko Muranishi & Co. LLP (“OUM”) is the independent registered public
      accounting firm that audited our financial statements for the years ended
      December 31, 2007 and 2006. The Audit Committee of the Board of Directors first
      engaged OUM in December 2003. OUM performed audit and review services for 2007
      and 2006. The aggregate fees billed during 2007 and 2006 for each of the
      following categories of services are set forth below:





52




2007
            
            2006Audit
                fees
            
            $
            203,085
            
            $
            176,822Audit-related
                fees
            
            
            -
            
            
            -Tax
                fees
            
            
            -
            
            
            -All
                other fees
            
            
            -
            
            
            -





“Audit
      fees” include fees invoiced in 2007 and 2006 for the audits of our annual
      financial statements for 2007 and 2006; fees for the quarterly review of the
      statements for the quarters ended March 31, June 30, and September 30, 2007
      and
      2006, as well as fees for consultation regarding accounting issues and their
      impact on or presentation in our financial statements; and fees for the review
      of registration statements and the issuance of related consents. OUM provided
      no
“Audit-related services” to us. “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 us.




53


**PART
      IV**





**Item
      15. Exhibits, Financial Statement Schedules.**




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




1.
      The
      Company’s Consolidated Financial Statements are included on pages F-1 through
      F-45 of this Annual Report on Form 10-K.




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, 2003.10.15
                  ^
              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.
  54
  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, 1996.10.51
              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, 2000.10.58
              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, 2000.10.73
                  ^
              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.
  55
  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, 2002.10.116
              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, 2002.10.121
              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, 2003.10.125
              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,
                  2003.10.128
              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, 2003.10.132
              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, 2003.10.137
              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,
                  2004.10.141
              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, 2004.10.146
              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.
  56
  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, 2004.10.152
              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
                  incorporated by reference from an exhibit filed with the Company’s Annual
                  Report on Form 10-KSB on March 31, 2005.10.156
              Form
                  of Purchase Agreement between the Company and the investors in
                  the April
                  2005 financing dated April 4, 2005 incorporated by reference from
                  an
                  exhibit filed with the Company’s Current Report on Form 8-K on April 5,
                  2005.10.157
              Form
                  of Secured 8% Convertible Promissory Note between the Company and
                  the
                  investors in the April 2005 financing dated April 4, 2005 incorporated
                  by
                  reference from an exhibit filed with the Company’s Current Report on Form
                  8-K on April 5, 2005.10.158
              Form
                  of Registration Rights Agreement between the Company and the investors
                  in
                  the April 2005 financing dated April 4, 2005 incorporated by reference
                  from an exhibit filed with the Company’s Current Report on Form 8-K on
                  April 5, 2005.10.159
              Form
                  of Series A Warrant between the Company and the investors in the
                  April
                  2005 financing dated April 4, 2005 incorporated by reference from
                  an
                  exhibit filed with the Company’s Current Report on Form 8-K on April 5,
                  2005.10.160
              Form
                  of Series B Warrant between the Company and the investors in the
                  April
                  2005 financing dated April 4, 2005 incorporated by reference from
                  an
                  exhibit filed with the Company’s Current Report on Form 8-K on April 5,
                  2005.10.161
              Form
                  of Security Agreement between the Company and the investors in
                  the April
                  2005 financing dated April 4, 2005 incorporated by reference from
                  an
                  exhibit filed with the Company’s Current Report on Form 8-K on April 5,
                  2005.10.162
              Form
                  of Amendment to Securities Purchase Agreement between the Company
                  and the
                  investors in the May 2004 and July 2004 Private Placements dated
                  April 4,
                  2005 incorporated by reference from an exhibit filed with the Company’s
                  Current Report on Form 8-K on April 5, 2005.10.163
              2005
                  Credit Facility Agreement between the Company and Marr Technologies
                  BV
                  dated April 4, 2005 incorporated by reference from an exhibit filed
                  with
                  the Company’s Current Report on Form 8-K on April 5,
                  2005.
  57
  10.164
              Agreement
                  effective September 1, 2005 between the Company and Marr Technologies
                  Asia
                  Limited describing the rights, duties and obligations of the shareholders
                  of Beijing Calypte Biomedical Technology Ltd., a corporation organized
                  in
                  the Peoples’ Republic of China incorporated by reference from an exhibit
                  filed with the Company’s Quarterly Report on Form 10-QSB dated November
                  14, 2005.10.165
              Asset
                  Purchase and License Agreement dated November 15, 2005 by and between
                  the
                  Company and Maxim Biomedical, Inc. incorporated by reference from
                  an
                  exhibit filed with the Company’s Current Report on Form 8-K on November
                  21, 2005.10.166
              Amendment
                  to 2005 Credit Facility between the Company and Marr Technologies
                  BV
                  effective November 30, 2005 incorporated by reference from an exhibit
                  filed with the Company’s Current Report on Form 8-K on December 6,
                  2005.10.167
              Letter
                  Agreement between the Company and Roger I. Gale dated January 4,
                  2006
                  incorporated by reference from an exhibit filed with the Company’s Current
                  Report on Form 8-K/A (No. 1) on January 10, 2006.10.168
              Equity
                  Transfer Agreement between the Company and Marr Technologies Asia
                  Limited
                  dated December 21, 2005 incorporated by reference from an exhibit
                  filed
                  with the Company’s Current Report on Form 8-K on March 30, 2006.10.169
              Agreement
                  dated December 21, 2005 between the Company and Marr Technologies
                  Asia
                  Limited describing the rights, duties and obligations of the shareholders
                  of Beijing Marr Bio-Pharmaceutical Technology Ltd., incorporated
                  by
                  reference from an exhibit filed with the Company’s Current Report on Form
                  8-K on March 30, 2006.10.170
              Form
                  of Subscription Agreement between the Company and two investors
                  for the
                  purchase of an aggregate of $3 million of the Company’s common stock
                  effective June 19, 2006, incorporated by reference from an exhibit
                  filed
                  with the Company’s Quarterly Report on Form 10-QSB dated August 4, 2006.10.171
              Employment
                  Agreement between the Company and Roger I. Gale dated as of June
                  28, 2006,
                  incorporated by reference from an exhibit filed with the Company’s
                  Quarterly Report on Form 10-QSB dated August 4, 2006.10.172
              Form
                  of Subscription Agreement between the Company and the investors
                  in the
                  February 2007 PIPE financings, effective February 23, 2007 through
                  March
                  27, 2007.10.173
              Form
                  of Warrant between the Company and the investors in the February
                  2007 PIPE
                  financings, effective February 23, 2007 through March 27,
                  2007.10.174
              Form
                  of Subscription Agreement between the Company and the investors
                  in the
                  March 2007 PIPE financing, dated March 28, 2007.10.175
              Form
                  of Registration Rights Agreement between the Company and the investors
                  in
                  the March 2007 PIPE financing, dated March 28, 2007.10.176
              Form
                  of Series A Warrant between the Company and the investors in the
                  March
                  2007 PIPE financing, dated March 28, 2007.10.177
              Form
                  of Series B Warrant between the Company and the investors in the
                  March
                  2007 PIPE financing, dated March 28, 2007.10.178
              Form
                  of Amendment to 8% Secured Convertible Promissory Notes between
                  the
                  Company and SF Capital Partners Ltd. dated March 21, 2007, effective
                  March
                  28, 2007.10.179
              Form
                  of Sixth Amendment to 2005 Credit Facility between the Company
                  and Marr
                  Technologies BV dated March 21, 2007, effective March 28,
                  2007.10.180
              Form
                  of Amendment to 8% Secured Convertible Promissory Notes between
                  the
                  Company and Marr Technologies BV dated March 21, 2007, effective
                  March 28,
                  2007.
  58
  10.181
              Form
                  of Amendment to 8% Secured Convertible Promissory Notes between
                  the
                  Company and Morningtown Limited dated March 21, 2007, effective
                  March 28,
                  2007.10.182
              Form
                  of Amendment to Registration Right Agreement between the Company
                  and the
                  investors in the March 2007 private placement, effective July 7,
                  2007,
                  incorporated by reference from an exhibit filed with the Company’s
                  Registration Statement on Form SB-2 on July 23, 2007 (File No.
                  333-144778).10.183
              Seventh
                  Amendment to 2005 Credit Facilitybetween the Company and Marr Technologies BV dated December 4,
                  2007,
                  incorporated by reference from an exhibit filed with the Company’sCurrent
                  Report on Form 8-K on December 10, 2007.10.184
              Amendment
                  No. 3 to Secured 8% Convertible Promissory Notesbetween
                  the Company and Marr Technologies BV dated December 4, 2007, incorporated
                  by reference from an exhibit filed with the Company’sCurrent
                  Report on Form 8-K on December 10, 2007.10.185
              Common
                  Stock Purchase Agreement, dated as of January 16, 2008, by and
                  between the
                  Company and Fusion Capital Fund II, LLC.incorporated
                  by reference from an exhibit filed with the Company’s.Current
                  Report on Form 8-K on January 23, 2008.10.186
              Registration
                  Rights Agreement, dated as of January 16, 2008, by and between
                  the Company
                  and Fusion Capital Fund II, LLC.incorporated
                  by reference from an exhibit filed with the Company’s.Current
                  Report on Form 8-K on January 23, 2008.21.1
              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 200231.2
              Certification
                  of Vice President – Finance and Administration pursuant to Section
                  302 of the Sarbanes-Oxley Act of 200232.1
              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 2007 and through March
                27,
                2008.





Form
      8-K
      regarding Item 5.02 Departure of Directors or Principal Officers; Election
      of
      Directors; Appointment of Principal Officers – filed November 26,
      2007 – Announcing the departure of Richard D. Brounstein as Executive Vice
      President effective November 16, 2007.





Form
      8-K
      regarding Item 1.01 Entry into a Material Definitive Agreement – filed
      December 10, 2007 – Announcing the amendment, effective December 4, 2007,
      of the 2005 Credit Facility Agreement between the Company and Marr Technologies
      BV (“Marr”), its largest stockholder, to grant conversion rights with respect to
      7% Promissory Notes issued under the Facility and the Amendment, also effective
      December 4, 2007, of the Secured 8% Convertible Notes held by Marr to modify
      the
      conversion rights of those Notes.




59




Form
      8-K
      regarding Item 7.01 Regulation FD Disclosure - filed December 13, 2007 -
      Announcing the results of the Company’s Annual Meeting of Stockholders held on
      December 6, 2007 and the prepared remarks of Mr. Roger Gale presented at the
      meeting and his responses to stockholder questions presented at the meeting
      and
      by e-mail prior to the meeting.





Form
      8-K
      regarding Item 1.01 Entry into a Material Definitive Agreement – filed
      January 24, 2008 – Announcing the Company’s entry into a Purchase Agreement
      with Fusion Capital Fund II, LLC, effective January 16, 2008, including the
      Company’s press release dated January 23, 2008.




60




**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




Report
                  of Independent Registered Public Accounting Firm
              F-2Consolidated
                  Balance Sheets
              F-3Consolidated
                  Statements of Operations
              F-4Consolidated
                  Statements of Stockholders’ Deficit
              F-5Consolidated
                  Statements of Cash Flows
              F-7Notes
                  to Consolidated Financial Statements
              F-9


F-1





**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, 2007 and 2006, and the related consolidated
      statements of operations, stockholders' 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 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. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting. Our audits
      included 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,
      and
      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, 2007 and 2006, and the consolidated results of its operations
      and its cash flows for the years then ended, in conformity with U.S. generally
      accepted accounting principles.





The
      accompanying consolidated 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 2008 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.





As
      discussed in Note 2 to the consolidated financial statements, on
      January 1, 2007, the Company adopted Financial Accounting Standards Board
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* , *an
      Interpretation of FAS 109* .





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


San
      Francisco, California


March
      26,
      2008


F-2


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED
      BALANCE SHEETS**




**(in
      thousands, except per share data)**




December
                31,2007
            
            2006**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            776
            
            $
            372Accounts
                receivable, net of allowance of $1at
                December 31, 2007 and 2006
            
            
            -
            
            
            16Inventory
            
            
            520
            
            
            264Prepaid
                expenses
            
            
            320
            
            
            244Other
                current assets
            
            
            21
            
            
            74Total
                current assets
            
            
            1,637
            
            
            970Property
                and equipment, net
            
            
            3,095
            
            
            1,359Intangible
                assets, net of accumulated amortization of $436 and $218 at December 
                31,2007 and 2006, respectively
            
            
            2,498
            
            
            2,716Deposit
                on China facility acquisition
            
            
            -
            
            
            2,001Other
                assets
            
            
            226
            
            
            972Total
                assets
            
            $
            7,456
            
            $
            8,018**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            2,976
            
            $
            3,545Advances
                from related parties
            
            
            2,071
            
            
            1,8718%
                Notes payable to a related party
            
            
            -
            
            
            4612%
                Convertible debentures payable
            
            
            60
            
            
            60Anti-dilution
                obligation
            
            
            32
            
            
            -Capital
                lease obligations –
                current
                portion
            
            
            -
            
            
            131Total
                current liabilities
            
            
            5,139
            
            
            5,653Deferred
                rent obligation
            
            
            28
            
            
            -8%
                Convertible notes payable, net of discount of $1,283and
                $1,144 at December 31, 2007 and 2006, respectively
            
            
            4,007
            
            
            3,7397%
                Notes payable to a related party including accrued interest of $443
                and
                $145 at December 31, 2007 and 2006, respectively, net of discount
                of $715
                at December 31, 2007
            
            
            3,928
            
            
            4,202Minority
                interest in consolidated joint ventures
            
            
            69
            
            
            766Mandatorily
                redeemable Series A preferred stock, $0.001 par value; no shares
                authorized at December 31, 2007 and 2006; 100,000 shares issued and
                outstanding at December 31, 2007 and 2006; aggregate redemption and
                liquidation value of $1,000 plus cumulative dividends
            
            
            3,176
            
            
            3,056Total
                liabilities
            
            
            16,347
            
            
            17,416Commitments
                and contingenciesStockholders’
                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 shares authorized at December
                31, 2007
                and 2006; 357,241,802 and 221,145,656 shares issued and outstanding
                as of
                December 31, 2007 and 2006, respectively
            
            
            10,717
            
            
            6,634Common
                stock subscribed
            
            
            -
            
            
            100Additional
                paid-in capital
            
            
            156,202
            
            
            151,511Other
                comprehensive income
            
            
            103
            
            
            -Accumulated
                deficit
            
            
            (175,913
            )
            
            (167,643
            )Total
                stockholders’ deficit
            
            
            (8,891
            )
            
            (9,398
            )Total
                liabilities and stockholders' deficit
            
            $
            7,456
            
            $
            8,018




See
      accompanying notes to consolidated financial statements.


F-3




**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**(in
      thousands, except per share data)**





Years
                Ended December 31,2007
            
            2006Revenues:Product
                sales
            
            $
            589
            
            $
            547Operating
                costs and expenses:Cost
                of product sales
            
            
            559
            
            
            395Research
                and development expenses
            
            
            1,260
            
            
            1,700Selling,
                  general and administrative expenses (non-cash of $1,500 and $606
                  in 2007
                  and 2006, respectively
            
            
            6,409
            
            
            4,322Impairment
                of assets
            
            
            1,528
            
            
            -Total
                operating expenses
            
            
            9,756
            
            
            6,417Loss
                from operations
            
            
            (9,167
            )
            
            (5,870
            )Interest
                  expense, net (non-cash income of $59 in 2007 and non-cash expense
                  of
                  $(8,219) in 2006)
            
            
            (235
            )
            
            (8,500
            )Minority
                interest in losses of consolidated joint ventures
            
            
            1,206
            
            
            517Other
                income (expense), net
            
            
            (72
            )
            
            105Loss
                before income taxes
            
            
            (8,268
            )
            
            (13,748
            )Income
                taxes
            
            
            (2
            )
            
            (2
            )Net
                loss
            
            $
            (8,270
            )
            $
            (13,750
            )Net
                loss per share (basic and diluted)
            
            $
            (0.03
            )
            $
            (0.07
            )Weighted
                  average shares used to compute net loss per share (basic and diluted)
            
            
            314,928
            
            
            202,783




See
      accompanying notes to consolidated financial statements.


F-4


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ DEFICIT**




**Years
      Ended December 31, 2006 and 2007**





**(in
      thousands, except share data)**


Number of
                  Common Shares
              
              Common
                  Stock
              
              Common
                Stock
                  Subscribed
              
              Additional
                Paid-in
                  Capital
              
              Accumulated
                  Other Comprehensive Income
              
              Accumulated
                  Deficit
              
              Total
                  Stockholders' DeficitBalances
                  at December 31, 2005
              
              
              181,060,394
              
              $
              5,432
              
              $
              -
              
              $
              141,310
              
              $
              -
              
              $
              (153,893
              )
              $
              (7,151
              )Shares
                  issued upon exercise of employee options
              
              
              141,112
              
              
              4
              
              
              -
              
              
              14
              
              
              -
              
              
              -
              
              
              18Stock-based
                  employee compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              149
              
              
              -
              
              
              -
              
              
              149Shares
                  issued in June 2006 PIPE
              
              
              2,750,000
              
              
              83
              
              
              -
              
              
              412
              
              
              -
              
              
              -
              
              
              495Shares
                  issued upon cash exercise of re-priced warrants
              
              
              1,719,583
              
              
              52
              
              
              -
              
              
              206
              
              
              -
              
              
              -
              
              
              258Shares
                  issued upon voluntary conversion of 8% convertible notes
              
              
              9,848,048
              
              
              295
              
              
              -
              
              
              2,659
              
              
              -
              
              
              -
              
              
              2,954Shares
                  issued upon induced conversion of 8% convertible notes
              
              
              6,396,306
              
              
              192
              
              
              -
              
              
              767
              
              
              -
              
              
              -
              
              
              959Write-off
                  of proportional share of note derivative liability upon conversion
                  of 8%
                  convertible notes and upon derivative expiration
              
              
              -
              
              
              -
              
              
              -
              
              
              1,994
              
              
              -
              
              
              -
              
              
              1,994Shares
                  issued upon extinguishment of 7% promissory notes and related accrued
                  interest
              
              
              16,964,583
              
              
              509
              
              
              -
              
              
              2,036
              
              
              -
              
              
              -
              
              
              2,545Charge
                  for induced conversion of 8% convertible notes and extinguishment
                  of 7%
                  promissory notes
              
              
              -
              
              
              -
              
              
              -
              
              
              1,549
              
              
              -
              
              
              -
              
              
              1,549Shares
                  issued as compensation to consultants and service
                  providers
              
              
              2,265,630
              
              
              67
              
              
              -
              
              
              386
              
              
              -
              
              
              -
              
              
              453Fair
                  value of warrants issued to consultants and mark to market
                  adjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              29
              
              
              -
              
              
              -
              
              
              29Common
                  stock subscribed
              
              
              -
              
              
              -
              
              
              100
              
              
              -
              
              
              -
              
              
              -
              
              
              100Net
                  loss and comprehensive loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (13,750
              )
              
              (13,750
              )Balances
                  at December 31, 2006
              
              
              221,145,656
              
              $
              6,634
              
              $
              100
              
              $
              151,511
              
              $
              -
              
              $
              (167,643
              )
              $
              (9,398
              )





(continued)


F-5


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ DEFICIT (CONTINUED)**




**Years
      Ended December 31, 2006 and 2007**





**(in
      thousands, except share data)**





Number of
                Common Shares
            
            Common
                Stock
            
            Common
              Stock
              Subscribed
            
            Additional
              Paid-in
                Capital
            
            Accumulated
                Other Comprehensive Income
            
            Accumulated
                Deficit
            
            Total
                Stockholders' DeficitBalances
                at December 31, 2006
            
            
            221,145,656
            
            $
            6,634
            
            $
            100
            
            $
            151,511
            
            $
            -
            
            $
            (167,643
            )
            
            (9,398
            )Shares
                issued upon exercise of employee options
            
            
            16,827
            
            
            1
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1Stock-based
                employee and director compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            999
            
            
            -
            
            
            -
            
            
            999Shares
                issued in February 2007 Private Placement (including anti-dilution
                shares)
            
            
            4,326,924
            
            
            130
            
            
            -
            
            
            138
            
            
            -
            
            
            -
            
            
            268Shares
                issued in March 2007 Private Placement, net of expenses
            
            
            112,118,024
            
            
            3,364
            
            
            (100
            )
            
            2,446
            
            
            -
            
            
            -
            
            
            5,710Shares
                issued upon exercise of warrants
            
            
            14,482,292
            
            
            434
            
            
            
            
            
            657
            
            
            -
            
            
            -
            
            
            1,091Shares
                issued as compensation to employees, consultants and service
                providers
            
            
            5,152,079
            
            
            154
            
            
            -
            
            
            275
            
            
            -
            
            
            -
            
            
            429Fair
                value of options and warrants issued as severance and to consultants
                and
                and mark to market adjustments
            
            
            
            
            
            
            
            
            
            
            
            56
            
            
            
            
            
            
            
            
            56Fair
                value of modification of 2006 Additional Warrants in conjunction
                with
                March 2007 private placement
            
            
            -
            
            
            -
            
            
            -
            
            
            29
            
            
            -
            
            
            -
            
            
            29Fair
                value of anti-dilution rights associated with February 2007 and March
                2007
                Private Placements
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,357
            )
            
            -
            
            
            -
            
            
            (2,357
            )Fair
                value of modification of 8% Convertible Notes and 7% Credit Facility
                Notes
                in conjunction with March 2007 Private Placement
            
            
            -
            
            
            -
            
            
            -
            
            
            1,161
            
            
            -
            
            
            -
            
            
            1,161Fair
                value of modification of 8% Convertible Notes and gain on extinguishment
                of 7% Marr Credit Facility Notes in conjunction with December 2007
                debt
                restructuring with Marr
            
            
            -
            
            
            -
            
            
            -
            
            
            1,287
            
            
            -
            
            
            -
            
            
            1,287Foreign
                currency translation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            103
            
            
            -
            
            
            103Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,270
            )
            
            (8,270
            )Net
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,167
            )Balances
                at December 31, 2007
            
            
            357,241,802
            
            $
            10,717
            
            $
            -
            
            $
            156,202
            
            $
            103
            
            $
            (175,913
            )
            $
            (8,891
            )





See
      accompanying notes to consolidated financial statements.


F-6


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**(in
      thousands)**




Years
                ended December 31,2007
            
            2006Cash
                flows from operating activities:Net
                loss
            
            $
            (8,270
            )
            $
            (13,750
            )Adjustments
                to reconcile net loss to operating activities:Depreciation
                and amortization
            
            
            492
            
            
            363Non-cash
                interest expense attributable to:Amortization
                and proportional write-off upon conversion of note discounts and
                deferred
                debt issuance costs
            
            
            1,657
            
            
            5,694Extinguishment
                of 7% Promissory Notes and induced conversion of 8% Convertible Notes
                resulting from warrant re-pricing and exercise, and debt cancellation
            
            
            -
            
            
            1,549Dividends
                on mandatorily redeemable Series A preferred stock
            
            
            120
            
            
            120Anti-dilution
                obligation and note derivative liability
            
            
            (2,281
            )
            
            375Extension
                of maturity of August 2006 Additional Warrants
            
            
            29
            
            
            -Stock-based
                employee and director compensation expense
            
            
            999
            
            
            149Fair
                market value of common stock, warrants and options granted for services
            
            
            544
            
            
            457Loss
                on disposition of equipment
            
            
            22
            
            
            -Impairment
                loss on intangible assets acquired with China manufacturing facility
            
            
            1,528
            
            
            -Minority
                interest in joint venture losses
            
            
            (1,206
            )
            
            (517
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            16
            
            
            37Inventory
            
            
            (256
            )
            
            (117
            )Prepaid
                expenses and other current assets
            
            
            90
            
            
            (20
            )Deferred
                debt issuance costs and other assets
            
            
            73
            
            
            52Accounts
                payable, accrued expenses and other current liabilities
            
            
            327
            
            
            2Other
                non-current liabilities
            
            
            27
            
            
            100Net
                cash used in operating activities
            
            
            (6,089
            )
            
            (5,506
            )Cash
                flows from investing activities:Consolidated
                joint venture, net cash acquired
            
            
            -
            
            
            799Deposit
                on China manufacturing facility and related assets
            
            
            -
            
            
            (1,554
            )Purchases
                of equipment and other fixed assets
            
            
            (436
            )
            
            (884
            )Net
                cash used in investing activities
            
            
            (436
            )
            
            (1,639
            )Cash
              flows from financing activities:Proceeds
                from sale of stock, net of expenses
            
            
            6,496
            
            
            771Proceeds
                from common stock subscriptions
            
            
            -
            
            
            100Proceeds
                from notes issued to related parties
            
            
            508
            
            
            5,046Repayment
                of notes issued to related parties
            
            
            (321
            )
            
            -Investment
                in joint ventures by minority interest owner
            
            
            510
            
            
            1,282Principal
                payment on capital lease obligations
            
            
            (131
            )
            
            (174
            )Net
                cash provided by financing activities
            
            
            7,062
            
            
            7,025Net
                increase (decrease) in cash and cash equivalents
            
            
            537
            
            
            (120
            )Effect
                of foreign currency exchange rates on cash
            
            
            (133
            )
            
            -Cash
                and cash equivalents at beginning of period
            
            
            372
            
            
            492Cash
                and cash equivalents at end of period
            
            $
            776
            
            $
            372





(continued)


F-7





**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONTINUED)**




**(in
      thousands)**




Years
                ended December 31,2007
            
            2006


Supplemental
                disclosure of cash flow activities:Cash
                paid for interest
            
            $
            315
            
            $
            284Cash
                paid for income taxes
            
            
            2
            
            
            2Supplemental
                disclosure of noncash activities:Conversion
                of notes payable and accrued interest to common stock and proportional
                share of note derivative liability
            
            
            92
            
            
            6,477Conversion
                of accrued interest into notes payable
            
            
            407
            
            
            544Transfer
                of note derivative liability to equity
            
            
            -
            
            
            1,874Common
                stock issued in payment of accrued compensation
            
            
            438
            
            
            -Accrued
                liability for acquisition of Chinese manufacturing facility and related
                assets
            
            
            327
            
            
            -




See
      accompanying notes to consolidated financial statements.


F-8


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**




**(1)    The
      Company**




Calypte
      Biomedical Corporation (the “Company”) develops, manufactures, and distributes *in
      vitro* diagnostic tests, primarily for the diagnosis of Human Immunodeficiency Virus
      (“HIV”) infection. We were incorporated in California in 1989 and reincorporated
      in Delaware in 1996 at the time of our initial public offering. Since September
      8, 2006, our common stock has traded on the NASD Over the Counter Bulletin
      Board
      under the symbol “CBMC.” Prior to that date, our stock had traded on the
      American Stock Exchange under the symbol “HIV”. During the third quarter of
      2007, we combined our research and development operations and our administrative
      offices in a facility in Portland, Oregon that also includes space for
      manufacturing operations. Prior to that, our administrative offices were located
      in Lake Oswego, Oregon, a suburb of Portland, near where our research and
      development operations were located. Through our 51%-owned joint ventures,
      we
      have manufacturing and marketing operations in Beijing, China. In the second
      quarter of 2007, we established a representative sales and marketing office
      in
      Dubai, United Arab Emirates and, in the third quarter of 2007, we established
      a
      similar office in Geneva, Switzerland.





Historically,
      we manufactured and marketed urine-based HIV-1 diagnostic screening tests and
      urine and serum-based Western Blot supplemental (sometimes called
“confirmatory”) tests for use in high-volume laboratories, which we refer to as
      our “Legacy Business.” In November 2005, we sold the Legacy Business to Maxim
      Biomedical, Inc.





Our
      current emphasis is commercializing our HIV-1/2 Rapid Tests, test products
      for
      the rapid detection of antibodies to HIV-1 and HIV Type 2, a second type of
      HIV
      (“HIV-2”), in oral fluid and blood samples using a lateral flow dipstick design
      (the “HIV-1/2 Rapid Tests”). Rapid tests provide diagnostic results in less than
      20 minutes and are particularly suitable for point-of-care testing in both
      the
      professional sector, such as in developing countries that lack the medical
      infrastructure to support laboratory based testing, and, for the first time,
      in
      the over-the-counter or “OTC” market. We have completed field trials or product
      evaluations of our Aware TM HIV-1/2
      OMT (oral fluid) rapid test covering an aggregate of over 8,000 samples in
      China, India, South Africa and elsewhere and believe that the results of these
      studies and evaluations have validated the test. In our studies, this test
      has
      averaged 99.7% accuracy. We have obtained regulatory approvals in parts of
      Africa, Southeast Asia, the Middle East, Russia and, recently, in India, and
      we
      expect to expand our market reach on a steady basis.





I n the
      fourth quarter of 2004, through an arrangement with the U. S. Centers for
      Disease Control and Prevention (the “CDC”), we introduced an HIV-1 BED Incidence
      EIA test (the “BED Incidence Test”) that detects HIV-1 infections that have
      occurred within approximately the prior 6 months and that can be used by public
      health agencies to identify those regions and the populations within them where
      HIV transmission is occurring most recently.




In
      November 2003, we became the 51% owner of a joint venture, Beijing Calypte
      Biomedical Technology Ltd. (“Beijing Calypte”), created to market our rapid test
      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 currently holds approximately 20% of our outstanding stock.
      Through 2007, the operations of Beijing Calypte have been primarily
      organizational and financially insignificant.





Effective
      in January 2006, we became the 51% owner of Beijing Marr Bio-Pharmaceutical
      Co.,
      Ltd. (“Beijing Marr”). We purchased our equity interest from Marr Technologies
      Asia Limited (“Marr Asia”), an affiliate of Marr, which continues to own the
      remaining 49% interest in Beijing Marr. Through the acquisition of Beijing
      Marr,
      we have acquired rights to manufacturing
      facilities necessary to
      manufacture our HIV-1/2
      Rapid Test products
      in China. Beijing Marr has
      recently renovated the manufacturing facilities and is pursuing the necessary
      governmental approvals to begin production and sale of our HIV-1/2 rapid oral
      fluid (OMT) diagnostic test, which is currently being evaluated by the Chinese
      State Food and Drug Administration (“SFDA”). In the fourth quarter of 2007, the
      facility passed
      a
      quality system audit and obtained certification of its quality system to the
      international standard, ISO 13485:2003. We
      expect
      that this facility will also support the manufacturing of our products for
      export to other countries.


F-9


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**




The
      accompanying financial statements reflect our consolidated operations and
      ownership interests in Beijing Calypte and in Beijing Marr.





Our
      current revenues from international sales of our HIV-1/2 Rapid Tests and sales
      of the BED Incidence Test are not adequate to support our business operations,
      requiring that we also rely on external financing sources to pursue our business
      milestones and achieve profitability. Although we are focusing our efforts
      on
      commercializing the HIV-1/2 Rapid Tests to generate the revenue stream necessary
      to support our operations and achieve our financial objectives of sustained
      profitable operations and increased stockholder value, t here
      can
      be no assurance that we will achieve expanded acceptance of or realize
      significant revenues from the sale of the HIV-1/2 Rapid Tests or the BED
      Incidence Test or other new products that we may develop or market, or that
      we
      will achieve and sustain profitability and positive cash flows in the
      future.





For
      the
      year ended December 31, 2007, we incurred a net loss of $8.3 million and a
      negative cash flow of $6.1 million as a result of our operations. At December
      31, 2007, we had a working capital deficit of $3.5 million and our stockholders’
deficit was $8.9 million. Our cash balance at December 31, 2007 was $0.8
      million, which we do not believe is sufficient to enable us to fund our
      operations through the year 2008. If we are unable to obtain sufficient
      financing, we may be required to defer, reduce or discontinue our operations
      or
      we may not be able to continue as a going concern. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.  As
      described more completely in Note
      19,
      Subsequent Events, we
      entered into an additional financing arrangement in January 2008 under which
      the
      investor is obligated, under certain conditions, to purchase up to $8 million
      of
      our common stock over a 24 month period. Nevertheless, there can be no assurance
      that our current cash resources and financing arrangements are sufficient to
      allow us to fully attain our business milestones and achieve positive cash
      flow.





As
      described in Note 11, Stockholders’ Deficit, in March 2007, we received $5.2
      million proceeds from the  “March
      2007 private placement” that funded our operations into the fourth quarter of
      2007. As part of the March 2007 private placement, we issued to the investors
      in
      that private placement immediately exercisable warrants expiring on June 28,
      2008 to purchase an aggregate of 100 million shares of our common stock at
      $0.08
      per share and immediately exercisable warrants expiring on September 28, 2008
      to
      purchase an aggregate of 50 million shares of our common stock at $0.11 per
      share as a potential source of additional near-term financing for us. We
      expected that a portion of these short-term warrants, in addition to other
      outstanding warrants that are now also in-the-money, would be exercised during
      2007 and thereby provide us with additional and necessary funding. At December
      31, 2007 investors in the March 2007 private placement had exercised an
      aggregate of 6,000,000 of the warrants exercisable at $0.08 per share and we
      had
      received $480,000 in proceeds. (Refer to Note 19, Subsequent Events, for a
      description of subsequent warrant exercises.) In the absence of the exercise
      of
      a significant portion of the warrants, our current cash resources and the
      financing arrangement we entered during the first quarter of 2008 may not allow
      us to fully attain our business milestones without interruption and we may
      need
      to seek additional financing or a strategic opportunity. We do not currently
      have any definitive agreements with respect to additional financing or a
      strategic opportunity, and there can be no assurance that any such financing
      or
      strategic opportunity will be available to us on acceptable terms, or at all.
      In
      March 2007, we extended the maturity of our April 2005 Secured 8% Convertible
      Notes and related interest notes and the 7% Promissory Notes issued under the
      2005 Marr Credit Facility from April 2007 until April 2009. At December 31,
      2007, we owed an aggregate of $9,490,000 under the April 2005 Secured 8%
      Convertible Notes and related interest notes and the 7% Promissory Notes issued
      under the 2005 Marr Credit Facility. Additionally, refer to Note 8, Notes and
      Debentures Payable, for a description of a conversion option we granted to
      Marr
      in December 2007 with respect to its holdings of these securities. The existence
      of these Notes and our pledge of our assets as security for these Notes may
      inhibit our ability to obtain financing in the future. Additionally, the
      presence of a significant number of unexercised in-the-money warrants may also
      unfavorably impact our ability to raise additional financing.


F-10


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





**(2)    
      Summary of Significant Accounting Policies**




*Principles
      of Consolidation*


The
      accompanying consolidated financial statements include the results of operations
      of the Company, its wholly-owned subsidiary, Calypte, Inc., and its 51% ownerhip
      interests in both Beijing Calypte and Beijing Marr. We have eliminated all
      significant intercompany accounts and transactions in consolidation.





*Foreign
      Currency Translation*


The
      functional currency of our consolidated Chinese joint ventures is the local
      currency, the Chinese Yuan Renminbi. We translate the assets and liabilities
      of
      our foreign subsidiary to U.S. dollars at the rate of exchange in effect at
      the
      end of the reporting period. We translate revenues and expenses at the average
      rates of exchange for the accounting period. We report the effect of translation
      gains and losses as our only component of other comprehensive income in our
      Consolidated Statements of Stockholders’ Deficit.





*Cash
      and Cash Equivalents*


Cash
      equivalents consist of investments in money market accounts.




*Allowance
      for Doubtful Accounts*


We
      provide 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*


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





*Property
      and Equipment*


Our
      property and equipment is stated at cost, net of accumulated depreciation.
      We
      depreciate our buildings, machinery and equipment, furniture and fixtures,
      and
      computer equipment using the straight line method over the estimated useful
      lives of the assets. We amortize land use rights related to property in China
      occupied by our Chinese joint venture over the life of the rights. We generally
      depreciate our assets as follows:




Computer
                equipment
            
            3
                yearsMachinery
                and equipment
            
            5
                yearsFurniture
                and fixtures
            
            5
                yearsBuildings
            
            20-40
                yearsLand
                use rights
            
            Life of use rights, 43 yearsLeasehold
                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.




*Impairment
      of Long-Lived Assets*


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


F-11


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





*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 maturity amount of the
      convertible notes approximates fair value because of the relatively short period
      until the maturity of the notes. The face amount of the convertible notes is
      offset by discounts related to the unamortized portion of beneficial conversion
      and/or anti-dilution features, if any, embedded in the notes or discounts
      occuring as a result of modification of the notes. We record any related
      anti-dilution obligations and/or note derivative liabilities at their fair
      value
      at the end of each reporting period.




*Revenue
      Recognition*


We
      record
      revenues only upon the occurrence of all of the following conditions:




•
            We
                have 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).•
            The
                purchase price has been fixed, based on the terms of the purchase
                order.•
            We
                have delivered the product from our contract manufacturing plant
                to a
                common carrier acceptable to the purchaser. Our customary shipping
                terms
                are FOB shipping point. Because of the need for controlled conditions
                during shipment, we suggest, but leave 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.•
            We
                deem the collection of the amount invoiced probable. To eliminate
                the
                credit risk associated with international distributors with whom
                we have
                had little or no experience, we require prepayment of the order or
                a
                letter of credit before shipment.





Except
      in
      the event of verified product defect, we do not permit product returns. Our
      products must be maintained under rigidly controlled conditions that we cannot
      control after the product has been shipped to the customer.




We
      provide no price protection. Subject to the conditions noted above, we recognize
      revenue upon shipment of product.





*Income
      Taxes*


We
      account 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, we recognize deferred tax assets and
      liabilities 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.
      We
      measure deferred tax assets and liabilities 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. To date, we have no history of
      earnings. Therefore, our deferred tax assets are reduced by a valuation
      allowance to the extent that realization of the related deferred tax asset
      is
      not assured. We have recorded a valuation allowance for the full amount of
      our
      calculated deferred tax asset as of December 31, 2007 and 2006.





We
      adopted the provisions of FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109* (“FIN
      48”), on January 1, 2007. FIN
      48
      provides clarification related to the process associated with accounting for
      uncertain tax positions recognized in financial statements. FIN 48 prescribes
      a
      more-likely-than-not threshold for financial statement recognition and
      measurement of a tax position taken, or expected to be taken, in a tax return.
      FIN 48 also provides guidance related to, among other things, classification,
      accounting for interest and penalties associated with tax positions, and
      disclosure requirements. Upon adoption of FIN 48, we determined that we did
      not
      have any unrecognized tax benefits and there was no effect on our financial
      condition or results of operations as a result of implementing FIN 48 (see
      Note
      14, Income Taxes).


F-12





**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





*Classification
      of Financial Instruments with Characteristics of both Liability and
      Equity*


We
      account for financial instruments that we have 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, we further apply the criteria
      in
      Emerging Issues Task Force (EITF) Issue No. 00-19, *Accounting*  *for
      Derivative 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. We also evaluate the anti-dilution and/or beneficial
      conversion features that may be included in our financial instruments in
      accordance with the provisions of SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities,* which
      may
      classify the feature as an embedded derivative and require that the financial
      instrument be bifurcated and the feature accounted for separately. We evaluate
      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 our detemination of the appropriate
      classification.




*Stock-Based
      Compensation Expense* ****


We
      adopted *Statement
      of Financial Accounting Standards No. 123 (revised 2004), Share-Based
      Payment* (“SFAS
      123R”) effective January 1, 2006, using the modified prospective method.
      Under this method, we apply the provisions of SFAS 123R to all awards granted
      or
      modified after the date of adoption. The unrecognized expense attributable
      to
      awards not yet vested at the January 1, 2006 date of adoption is recognized
      in
      net income (loss) in the periods after the date of adoption using the same
      valuation method (i.e. Black-Scholes option valuation model) and assumptions
      determined under the original provisions of SFAS 123, “Accounting for
      Stock-Based Compensation,” as disclosed on a pro-forma basis in our previous
      financial statements. During
      2007 and 2006, we recorded stock compensation expense attributable to unvested
      options granted prior to our adoption of SFAS 123R of $59,000 and $149,000,
      respectively, in selling, general and administrative expenses in our Statement
      of Operations. Under
      the
      fair value recognition provisions of SFAS 123R, we recognize stock-based
      compensation, net of an estimated forfeiture rate which results in recognizing
      compensation expense for only those awards expected to vest, over the service
      period of the award.  Prior to adopting SFAS 123R, we accounted for
      share-based payments under APB 25 and, accordingly, generally recognized
      compensation expense related to employee stock options for only those options
      granted with intrinsic value and we accounted for forfeitures as they
      occurred.




We
      granted stock options to one employee during the third quarter of 2007 and
      to
      our non-employee directors in the fourth quarter of 2007, the first employee
      and
      director stock option grants since our adoption of SFAS 123R. We estimated
      the fair value of these grants, and expect to estimate the fair value of future
      grants, using the Black-Scholes option pricing model. Calculating stock-based
      compensation expense under the provisions of SFAS 123R requires the input of
      highly subjective assumptions, including the expected term of the stock-based
      awards, stock price volatility, and pre-vesting option forfeitures.  To
      date, we have generally estimated the expected life of options granted in the
      future based on the simplified method provided in Staff Accounting Bulletin
      No.
      107 for “plain vanilla” options. Where
      appropriate, we will consider separately for valuation purposes groups of
      employees or directors that have similar historical exercise behavior. We
      estimate the volatility of our common stock at the date of grant based on its
      historical volatility over a period generally equivalent to the expected term
      of
      the grant. We estimate the expected pre-vesting forfeiture rate and recognize
      expense for only those shares expected to vest.  We have estimated our
      forfeiture rate based on our historical experience with stock-based awards
      that
      are granted and forfeited prior to vesting. If the actual forfeiture rate is
      materially different from the estimate, the stock-based compensation expense
      could also differ from what we have recorded in the current period.  The
      assumptions used in calculating the fair value of stock-based awards represent
      our best estimates, but these estimates involve inherent uncertainties and
      the
      application of management judgment.  As required under SFAS 123R, we review
      our valuation assumptions at each grant date and, as a result, may periodically
      change the valuation assumptions used to value employee and director stock-based
      awards granted in future periods.


F-13


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





*Net
      Loss Per Share*


We
      compute basic net loss per share by dividing net loss by the weighted average
      number of shares of common stock outstanding during the periods presented.
      The
      computation of diluted loss per common share is similar to the computation
      of
      basic net loss per share, 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
      are the same for the periods presented in these consolidated financial
      statements. Outstanding options and warrants for 232,129,542 shares and
      64,951,878 shares were excluded from the computation of loss per share for
      the
      years ended December 31, 2007 and 2006, respectively, as their effect is
      anti-dilutive. The computation of loss per share also excludes 56,632,934 shares
      and 16,277,646 shares issuable upon the conversion of 8% Convertible Notes,
      including 8% Convertible Notes issued in payment of interest, and 7% Notes
      issued under the Marr Credit Facility for the years ended December 31, 2007
      and
      2006, respectively, as their effect is also anti-dilutive.





*Concentrations
      of Credit Risk*


Financial
      instruments which potentially subject us to concentrations of credit risk
      consist principally of cash and cash equivalents and trade accounts receivable.
      We have investment policies that limit investments to short-term, low-risk
      investments. Concentration of credit risk with respect to trade accounts
      receivable is limited due to the fact that we sell our products primarily to
      established distributors or require prepayment for certain orders where the
      relationship between the parties is not well-established.




*Use
      of Estimates*


The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires us 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*


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





*Comprehensive
      Loss*


We
      report
      the effect of translation gains and losses related to our consolidated Chinese
      joint ventures as our only component of other comprehensive income in our
      Consolidated Statements of Stockholders’ deficit.




*Segment
      and Geographic Information*


SFAS
      No.
      131 *Disclosures
      about Segments of an Enterprise and Related Information* requires
      that we report segment information based on how our management internally
      evaluates the operating performance of our business units (segments). Our
      operations are currently confined to a single business segment, the development
      and sale of HIV diagnostics.





The
      following table summarizes our product sales revenues by product for the years
      ended December 31, 2007 and 2006 (in thousands):


F-14


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





2007
            
            2006BED
                Incidence tests
            
            $
            388
            
            $
            241AwareTMRapid HIV diagnostic tests
            
            
            201
            
            
            306Revenue
                from product sales
            
            $
            589
            
            $
            547





Sales
      to
      international customers accounted for approximately 81% and 88% of our revenues
      in 2007 and 2006, respectively. At December 31, 2007 approximately $394,000,
      or
      76%, of our inventory and $2,848,000, or 92%, of our property and equipment,
      net, was held in international locations.




Three
      customers accounted for approximately 51% of our revenue
      for 2007 .
      Our
      South African distributor purchased both BED Incidence Tests and our Aware TM HIV-1/2
      oral fluid rapid tests representing 27% of our 2007 revenue. A second quarter
      purchase of our Aware TM HIV-1/2
      oral fluid rapid tests by our Russian distributor accounted for 13 %
      of our revenue
      for 2007 . BED
      Incidence Test purchases by the CDC’s contract testing labs in New York
      accounted for 11% of our revenue for 2007. Purchases
      by three customers accounted for approximately 67% of our revenue during 2006.
      Our previous distributor for the Middle East purchased oral fluid OTC rapid
      tests representing approximately 51% of our revenues for 2006. Two customers
      purchasing the BED Incidence Test, the U.S. CDC’s incidence test contract lab,
      and the Chinese CDC accounted for approximately 9% and 7%, respectively, of
      revenues for 2006.





*Reclassifications*


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





*Recent
      Accounting Pronouncements*


In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* (“SFAS
      160”) *,* which
      introduces changes in the accounting and report form business acquisitions
      and
      noncontrolling interest in a subsidiary. The changes introduced by SFAS 160
      include reporting noncontrolling interest (previously referred to as minority
      interest) as part of equity in the consolidated financial statements; allocating
      losses to the noncontrolling interest even which such allocation might result
      in
      a deficit balance and reduce the loss allocated to the controlling interest;
      treating changes in ownership interests as equity transactions if control is
      maintained; and recognizing in earnings any gain or loss on the interest sold
      upon a loss of control, with the retained interest remeasured at fair value
      on
      the date control is lost. SFAS 160 is effective for fiscal years beginning
      after
      December 15, 2008. We have not yet evaluated the impact on our consolidated
      financial statements of adopting SFAS No. 160.





In
      June
      2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
      No. 07-03, *Accounting
      for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities* (“EITF
      07-03”), which requires nonrefundable advance payments for future R&D
      activities to be capitalized and recognized as an expense as the goods are
      delivered or services are performed. EITF 07-03 is effective for fiscal years
      beginning after December 15, 2007. We do not believe that adopting EITF 07-03
      will have a material impact on our consolidated financial
      statements.





In
      September 2006, the FASB issued Statement No. 157, *Fair
      Value Measurements* (“FAS
      157”). FAS 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements required under other accounting pronouncements. FAS
      157
      does not change existing guidance regarding whether or not an instrument is
      carried at fair value. SFAS No. 157 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007. We are currently evaluating
      the impact on our consolidated financial statements of adopting SFAS No. 157.





In
      February 2007, the FASB issued Statement No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“FAS
      159”). FAS 159 permits the measurement of many financial instruments and certain
      other items at fair value. Entities may choose to measure eligible items at
      fair
      value at specified election dates, reporting unrealized gains and losses on
      such
      items at each subsequent reporting period. The objective of FAS 159 is to
      provide entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions. It is intended to expand
      the use of fair value measurement. FAS 159 is effective for fiscal years
      beginning after November 15, 2007. We have not evaluated the potential impact
      of
      adopting SFAS 159.


F-15


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**




**(3)    Inventory**




Inventory
      as of December 31, 2007 and 2006 consisted of the following (in thousands):





December
                31,2007
            
            2006Raw
                materials
            
            $
            398
            
            $
            189Work-in-process
            
            
            91
            
            
            12Finished
                goods
            
            
            31
            
            
            63Total
                inventory
            
            $
            520
            
            $
            264





**(4)    Property
      and Equipment**




Property
      and equipment as of December 31, 2007 and 2006 consisted of the following (in
      thousands):





December
                31,2007
            
            2006Computer
                equipment
            
            $
            379
            
            $
            407Machinery
                and equipment
            
            
            738
            
            
            596Furniture
                and fixtures
            
            
            79
            
            
            13Leasehold
                improvements
            
            
            63
            
            
            17Buildings
            
            
            773
            
            
            575Land
                use rights
            
            
            1,710
            
            
            -Construction
                in process
            
            
            114
            
            
            2843,856
            
            
            1,892Accumulated
                depreciation
            
            
            (761
            )
            
            (533
            )$
            3,095
            
            $
            1,359





We
      recognized depreciation and amortization of land use rights expenses of $273,000
      and $145,000 for the years ended December 31, 2007 and 2006, respectively.





**(5)    Intangible
      assets**





During
      2004 and 2005, we entered into various license agreements and similar
      arrangements under which we invested approximately $2,934,000 to acquire the
      technology and materials necessary for the commercialization of our rapid tests.
      These licenses provide us with access to the HIV-2 antigen, to certain lateral
      flow technologies and to certain HIV-1/2 peptides used in our rapid tests.
      We
      recorded the license amount for each license agreement as an intangible asset.
      We began amortizing these intangible assets in 2006, when we began commercial
      sales of the products employing the licensed technology or materials. We
      recognized amortization expense of $218,000 in each of the years ended December
      31, 2007 and 2006. 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-16




**CALYPTE
        BIOMEDICAL CORPORATION AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **December
        31, 2007 and 2006**


**(6)   
      Deposit on China Facility Acquisition**





Beijing
      Marr was incorporated in August 2005 as an entity wholly owned by Marr
      Technologies Asia Limited. In October 2005, prior to the creation of our joint
      venture, Beijing Marr acquired a manufacturing facility, certain manufacturing
      certifications and product licenses, and other assets. At December 31, 2006
      and
      through the third quarter of 2007, we reported the payments and/or deposits
      made
      by Beijing Marr in conjunction with the acquisition of these assets as a Deposit
      on China facility acquisition, pending final approval and acceptance of the
      transaction by various Chinese regulatory authorities. During the fourth quarter
      of 2007, the transaction closed and we allocated these payments to appropriate
      asset categories. We also evaluated them in conjunction with Statement of
      Financial Accounting Standards No. 144 - *Accounting
      for the Impairment or Disposal of Long-Lived Assets* and
      determined that certain of these assets would not be recoverable in the future
      as the result of changes in regulatory requirements, the expiration of certain
      certifications and our decision not to pursue the manufacture of certain
      products. Accordingly, in the fourth quarter of 2007, we recognized $1,528,000
      in impairment expense attributable to these assets in the Consolidated
      Statements of Operations.








**(7)    Accounts
      payable and accrued expenses**




Accounts
      payable and accrued expenses as of December 31, 2007 and, 2006 consisted of
      the
      following (in thousands):




December
                31,2007
            
            2006Trade
                accounts payable
            
            $
            1,530
            
            $
            1,519Accrued
                royalties
            
            
            65
            
            
            60Accrued
                salary, severance and vacation pay
            
            
            50
            
            
            349Customer
                prepayments on purchases
            
            
            90
            
            
            162Accrued
                interest
            
            
            125
            
            
            115Accrued
                audit, legal and consulting expenses
            
            
            276
            
            
            630Accrued
                liabilities under intellectual property license
              agreements
            
            
            40
            
            
            40Accounts
                  payable and accrued expenses of consolidated joint
                ventures
            
            
            145
            
            
            251Accrued
                liabilities of legacy business
            
            
            190
            
            
            190Accrued
                liability for acquisition of Chinese manufacturing
              operation
            
            
            327
            
            
            -Other
            
            
            138
            
            
            229Total
                accounts payable and accrued expenses
            
            $
            2,976
            
            $
            3,545





**(8)    
      Notes and Debentures Payable**





We
      issued
      7% promissory notes to finance our operations during 2006 and 2007 and also
      issued 8% secured convertible notes in payment of quarterly interest on
      previously outstanding 8% notes in both years. The
      following tables summarize the note and debenture activity for the years ended
      December 31, 2006 and 2007 (in thousands).


F-17


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





**Balance
                12/31/05**
            
            **Additions**
            
            **Conversion
                to Equity**
            
            **Cancellations**
            
            **Balance
                12/31/06**
            
            **Discount at
                12/31/06**
            
            **Net**
              **Balance at
                12/31/06****Current
                Notes and Debentures****8%
                Promissory Notes to related party -******Chief
                Executive Officer
            
            $
            -
            
            $
            46
            
            $
            -
            
            $
            -
            
            $
            46
            
            $
            -
            
            $
            46**12%
                Convertible Debentures –**Mercator
                  assignees - Logisticorp and Southwest Resources
                  Preservation
            
            $
            60
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            60
            
            $
            -
            
            $
            60**Non-current
                Notes Payable****8%
                Secured Convertible Notes –**April
                4, 2005
            
            $
            7,921
            
            $
            -
            
            $
            (2,573
            )
            $
            (949
            )
            $
            4,399
            
            $
            
            
            $July
                4, 2005 Interest
            
            
            164
            
            
            -
            
            
            (96
            )
            
            (2
            )
            
            66October
                4, 2005 Interest
            
            
            168
            
            
            -
            
            
            (98
            )
            
            (2
            )
            
            68January
                4, 2006 Interest
            
            
            -
            
            
            170
            
            
            (99
            )
            
            (2
            )
            
            69April
                4, 2006 Interest
            
            
            -
            
            
            159
            
            
            (89
            )
            
            (2
            )
            
            68July
                4 and 21, 2006 Interest
            
            
            -
            
            
            124
            
            
            -
            
            
            (2
            )
            
            122October
                4, 2006 Interest
            
            
            -
            
            
            91
            
            
            -
            
            
            -
            
            
            91Total
                8% Secured Convertible Notes
            
            $
            8,253
            
            $
            544
            
            $
            (2,955
            )
            $
            (959
            )
            $
            4,883
            
            $
            (1,144
            )
            $
            3,739**7%
                Promissory Notes to related party-**2005
                Credit Facility with Marr
            
            $
            1,500
            
            $
            5,000
            
            $
            -
            
            $
            (2,443
            )
            $
            4,057
            
            $
            -
            
            $
            4,057








**Balance
                12/31/06**
            
            **Additions**
            
            **Conversion
                to Equity**
            
            **Repayments**
            
            **Balance
                12/31/07**
            
            **Discount at
                12/31/07**
            
            **Net**
              **Balance at
                12/31/07****Current
                Notes and Debentures****8%
                Promissory Notes to related party -******Chief
                Executive Officer
            
            $
            46
            
            $
            50
            
            $
            (90
            )
            $
            (6
            )
            $
            -
            
            $
            -
            
            $
            -**12%
                Promissory Note to related party -******Employee
            
            $
            -
            
            $
            65
            
            $
            -
            
            $
            (65
            )
            $
            -
            
            $
            -
            
            $
            -**12%
                Convertible Debentures –**Mercator
                  assignees - Logisticorp and Southwest Resources Preservation
            
            $
            60
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            60
            
            $
            -
            
            $
            60**Non-current
                Notes Payable****8%
                Secured Convertible Notes –**April
                4, 2005
            
            $
            4,399
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            4,399July
                4, 2005 Interest
            
            
            66
            
            
            -
            
            
            -
            
            
            -
            
            
            66October
                4, 2005 Interest
            
            
            68
            
            
            -
            
            
            -
            
            
            -
            
            
            68January
                4, 2006 Interest
            
            
            69
            
            
            -
            
            
            -
            
            
            -
            
            
            69April
                4, 2006 Interest
            
            
            68
            
            
            -
            
            
            -
            
            
            -
            
            
            68July
                4 and 21, 2006 Interest
            
            
            122
            
            
            -
            
            
            -
            
            
            -
            
            
            122October
                4, 2006 Interest
            
            
            91
            
            
            -
            
            
            -
            
            
            -
            
            
            91January
                4, 2007 Interest
            
            
            -
            
            
            100
            
            
            -
            
            
            -
            
            
            100April
                3, 2007 Interest
            
            
            -
            
            
            99
            
            
            -
            
            
            -
            
            
            99July
                3, 2007 Interest
            
            
            -
            
            
            102
            
            
            -
            
            
            -
            
            
            102October
                3, 2007 Interest
            
            
            -
            
            
            106
            
            
            -
            
            
            -
            
            
            106Total
                8% Secured Convertible Notes
            
            $
            4,883
            
            $
            407
            
            $
            -
            
            $
            -
            
            $
            5,290
            
            $
            (1,283
            )
            $
            4,007**7%
                Promissory Notes to related party -**2005
                Credit Facility with Marr
            
            $
            4,057
            
            $
            393
            
            $
            -
            
            $
            (250
            )
            $
            4,200
            
            $
            (715
            )
            $
            3,485


F-18


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





*8%
      Notes to a related party*


On
      November 10 and November 30, 2006, we issued 8% promissory notes to our Chief
      Executive Officer in the face amount of $6,300 and $40,000, respectively. The
      notes were due six months from their date of issuance, on May 10, 2007 and
      May
      31, 2007, respectively. On February 6, 2007, we issued an additional 8%
      promissory note in the face amount of $50,000 to our Chief Executive Officer.
      This note was payable in full on March 31, 2007. Interest on each of the notes
      was payable in cash at maturity. We used the proceeds of the notes for general
      corporate purposes. On March 28, 2007, our Chief Executive Officer cancelled
      our
      obligation to repay the November 30, 2006 and February 6, 2007 notes and the
      related accrued interest in conjunction with his participation in the March
      2007
      Private Placement described in Note 11, Stockholders’ Deficit. We repaid the
      November 10, 2006 note in cash on March 30, 2007.





*12%
      Note to a related party*


On
      February 26, 2007, we issued a 12% secured promissory note in the face amount
      of
      $65,000 to an employee. We used the proceeds of the note to purchase materials
      to produce our BED Incidence tests. We granted the employee a purchase money
      security interest in the tests produced. We repaid the note and accrued interest
      on May 18, 2007.





*12%
      Convertible Debentures*


On
      October 2, 2003, we issued the final $130,000 tranche of two-year debentures
      under a $2 million September 2002 12% convertible debenture commitment to four
      assignees of Mercator Momentum Fund 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 we issued approximately
      118,400 shares of our common stock. At December 31, 2006 and 2007, two
      debentures having an aggregate face value of $60,000 remained outstanding.
      We
      have not issued any shares with respect to these debentures. See Notes 18 and
      19, Commitments and Contingencies and Subsequent Events, respectively, regarding
      a lawsuit brought against us by the two holders of these debentures.





*8%
      Secured Convertible Notes*


On
      April
      4, 2005, we concluded a private placement (the “April 2005 Placement”) to five
      institutional investors (the “2005 Investors”) of $8,000,000 of Secured 8%
      Convertible Notes originally due April 3, 2007 (the “Notes”). The Notes are
      convertible at $0.30 per share (the “Conversion Price”) into shares of our
      common stock. The Conversion Price of the Notes was subject to anti-dilution
      adjustments had we issued common stock or common stock equivalents for a price
      less than the Conversion Price prior to April 4, 2006, when the anti-dilution
      provisions expired. We also issued to the 2005 Investors Series A common stock
      purchase warrants (the “2005 Series A Warrants”) and Series B common stock
      purchase warrants (the “2005 Series B Warrants), each exercisable after October
      4, 2005 and expiring on April 3, 2010. The 2005 Series A Warrants are
      exercisable to purchase 26,666,667 shares of our common stock, initially at
      $0.325 per share and the 2005 Series B Warrants are exercisable to purchase
      12,000,000 shares of our common stock, initially at $0.325 per share. The 2005
      Series A Warrants provided for anti-dilution and other adjustments of the
      issuable shares and the exercise prices thereof had we issued common stock
      or
      common stock equivalents for a price less than the exercise price of the Series
      A Warrants prior to April 4, 2006. We also issued Notes in the face amount
      of
      $97,500 and related 2005 Series A Warrants and 2005 Series B Warrants as
      compensation to a placement agent in connection with the April 2005 Placement.
      Between September 2005 and April 2006, certain of the 2005 Investors converted
      approximately $3,132,000 of the 8% Convertible Notes into approximately 10.4
      million shares of our common stock. During July 2006, we offered to amend to
      $0.15 per share the exercise price of the 2005 Series A Warrants and the 2005
      Series B Warrants and other warrants issued in conjunction with certain of
      our
      previous financing arrangements for those warrant holders agreeing to exercise
      all or a portion of their warrants by July 21, 2006 (the “2006 Warrant
      Re-pricing”). Certain of the warrant holders exercised their warrants to
      purchase an aggregate of approximately 6,396,000 shares at the reduced price
      and, in lieu of paying us cash, cancelled our obligation to repay an aggregate
      of $959,000 of the 8% Convertible Notes.


F-19


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**




The
      Notes provide for quarterly interest to be paid
      in cash, or subject to certain conditions, by issuing additional Notes maturing
      on April 3, 2007. From July 2005 through October 2006, we issued additional
      8%
      Convertible Notes in an aggregate face amount of $866,000 in payment of
      quarterly interest (the “Interest Notes”). The Interest Notes issued through
      October 2006 were convertible into an aggregate of 2.9 million shares of our
      common stock at the Conversion Price. Effective January 4, 2007, we issued
      an
      aggregate of approximately $100,000 of Secured 8% Convertible Notes that are
      convertible into approximately 333,000 shares of our common stock at the
      Conversion Price in payment of quarterly interest (the “January 2007 Interest
      Notes”) on the then-outstanding principal balance of approximately $4.9 million
      of the Notes issued on April 4, 2005 plus the subsequent Interest Notes. The
      January 2007 Interest Notes have the same terms and conditions, excluding
      anti-dilution provisions, as the Notes issued on April 4, 2005. See *Extension
      of Note Maturity Dates*below.
      Effective April 3, 2007, we issued an aggregate of approximately $99,000 of
      Secured 8% Convertible Notes that are convertible into approximately 329,000
      shares of our common stock at the Conversion Price in payment of quarterly
      interest (the “April 2007 Interest Notes”) on the aggregate of the
      then-outstanding principal balance of approximately $5.0 million of the April
      4,
      2005 Notes and the subsequent quarterly interest notes. The April 2007 Interest
      Notes have the same terms and conditions as the April 4, 2005 Notes and the
      subsequently issued interest notes, all of which are now due on April 3, 2009,
      except that they do not have anti-dilution provisions. Effective July 3, 2007,
      we issued an aggregate of approximately $102,000 of Secured 8% Convertible
      Notes
      that are convertible into approximately 343,000 shares of our common stock
      at
      the Conversion Price in payment of quarterly interest (the “July 2007 Interest
      Notes”) on the aggregate of the then-outstanding principal balance of $5.1
      million of the April 4, 2005 Notes and the related quarterly interest notes.
      With the exception of the $66,000 Secured 8% Convertible Note issued to Marr,
      the July 2007 Interest Notes have the same terms and conditions as the April
      4,
      2005 Notes and the subsequently issued interest notes, except that they do
      not
      have anti-dilution provisions and they are due on April 3, 2009. EffectiveOctober
      3, 2007, when the market price of our common stock was $0.21 per
      share,we
      issued an aggregate of approximately $106,000 of Secured 8% Convertible Notes
      that are convertible into approximately 353,000 shares of our comon stock at
      the
      Conversion Price in payment of quarterly interest (the “October 2007 Interest
      Notes”) on the aggregate of the then-outstanding principal balance of $5.2
      million of the April 4, 2005 Notes and the related quarterly interest notes.
      With the exception of the $69,000 Secured 8% Convertible Note issued to Marr,
      the October 2007 Interest Notes have the same terms and conditions as the April
      4, 2005 Notes and the subsequently issued interest notes, except that they
      do
      not have anti-dilution provisions and they are due on April 3, 2009. Effective
      July 3, 2007, we entered into an Amendment Agreement with Marr which permits
      us
      to issue Secured 8% Convertible Notes to Marr in payment of quarterly interest
      due on and after July 3, 2007 which do not have registered shares of our common
      stock underlying the Notes. There are no registered shares of our common stock
      underlying the interest notes issued to Marr on July 3, 2007 or October 3,
      2007.
      We have not issued warrants in conjunction with any Interest Notes. Refer to
      Note 19, Subsequent Events, for information regarding additional notes issued
      in
      payment of interest in January 2008.




At
      April
      4, 2005, we determined that, in addition to the anti-dilution provisions
      contained therein, the Notes included a beneficial conversion feature. As a
      result of the anti-dilution provisions, however, the Notes were not considered
      conventional convertible debt under the provisions of Emerging Issues Task
      Force
      Issue No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* (“EITF
      00-19”) *.* We
      further determined that the conversion feature was subject to the provisions
      of
      SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* and was
      an embedded derivative which should be bifurcated and accounted for separately.
      Accordingly, the $5,330,000 fair value of the derivative at inception was
      accounted for as a discount to the face value of the Notes and as a
      corresponding liability that was marked to market at each balance sheet date
      with the change in the fair value of the derivative being recorded as interest
      expense.





The
      July
      and October 2005 Interest Notes and the January 2006 Interest Notes each
      contained the same beneficial conversion and anti-dilution features included
      in
      the Notes that were treated as an embedded derivative. Similarly, the fair
      value
      of the July and October 2005 Interest Notes and the January 2006 Interest Note
      derivatives were accounted for at inception as a discount to the face value
      of
      the respective Interest Notes, and as a corresponding liability, and were marked
      to market at each balance sheet date, with the change in the fair value of
      the
      derivative being recorded as interest expense.





Upon
      conversion of the Notes and Interest Notes prior to April 3, 2006, the date
      on
      which the anti-dilution provisions expired, we reclassified the proportional
      share of the Note Derivative Liability to additional paid-in
      capital.


F-20


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





The
      April
      2006 Interest Notes were issued on April 4, 2006 when the market price of our
      common stock was $0.22 per share. The July 2006 Interest Notes were issued
      on
      July 4, 2006 when the market price of our common stock was $0.20 per share.
      The
      October 2006 Interest Notes were issued on October 4, 2006 when the market
      price
      of our common stock was $0.095 per share. The January 2007 Interest Notes were
      issued on January 4, 2007 when the market price of our common stock was $0.074
      per share. The April 2007 Interest Notes were issued on April 3, 2007 when
      the
      market price of our common stock was $0.067 per share. The July 2007 Interest
      Notes were issued on July 3, 2007 when the market price of our common stock
      was
      $0.082 per share. The October 2007 Interest Notes were issued on October 3,
      2007
      when the market price of our common stock was $0.21 per share. Accordingly,
      there was no beneficial conversion feature associated with the issuance of
      any
      of these notes. Further, the April 2006 and subsequent Interest Notes did not
      include anti-dilution provisions with respect to the issuance of additional
      equity instruments that the Company might issue in the future and, therefore,
      did not contain an embedded derivative requiring separate valuation or
      accounting treatment.





The
      effective interest rate on the interest notes issued between July 2005 and
      October 2007 ranged from approximately 8% to 48% based on the stated interest
      rate, the amount of discount and the term of the notes.





Effective
      February 22, 2006, we and Marr agreed to extend the period in which we might
      issue promissory notes under the 2005 Credit Facility until July 31, 2006.
      Based
      on that modification to the Credit Facility, we determined that we would
      intentionally not complete an additional round of financing prior to the April
      3, 2006 expiration of the anti-dilution provisions of the Notes and the
      applicable Interest Notes. Accordingly, we valued the derivatives attributable
      to the April 4, 2005 Notes and the Interest Notes at February 22, 2006, when
      the
      market price of our common stock was $0.21 per share, and reclassified the
      note
      derivative liability of $1,874,000 to equity, since it was determined that
      no
      anti-dilution shares would be issued and all other shares issuable upon
      conversion of the Notes and the Interest Notes had been registered for resale.





At
      April
      4, 2005, we allocated the Note proceeds attributable to the fair value of the
      derivative described above to the derivative liability. In accordance with
      the
      provisions of EITF Issues No. 98-5, *Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios,* and
      00-27, *Application
      of Issue No. 98-5 to Certain Convertible Instruments* ,
      we
      allocated the remaining Note proceeds of approximately $2,670,000 between the
      fair value of the Notes (determined without consideration of any anti-dilution
      or conversion features) and the fair value of the Series A Warrants and the
      Series B Warrants. The relative fair value of the Series A Warrants and Series
      B
      Warrants at April 4, 2005 was approximately $1,773,000, which we recorded as
      an
      additional discount to the Notes, with a corresponding credit to additional
      paid-in capital. The
      one-year anti-dilution provision contained in the Series A Warrants potentially
      reduced the exercise price but did not increase the number of shares issuable
      to
      the warrant holders. Accordingly, the Series A Warrants did not require
      liability treatment under the provisions of SFAS No. 150, *Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity.* Furthermore,
      we determined that the proceeds allocated to the warrants should be treated
      as
      equity in accordance with the provisions of EITF 00-19. The
      aggregate amount of the discount to the Notes at April 4, 2005 was approximately
      $7,103,000, which we amortized to interest expense between April 2005 and March
      2007 using the effective interest method prescribed by APB Opinion No. 21, *Interest
      on Receivable and Payables,* over the
      life of the Notes. The effective interest rate on the Notes was approximately
      144% based on the stated interest rate, the amount of amortized discount, the
      amount of deferred offering costs attributable to the notes and their term.
      Upon
      conversion or cancellation of any portion of the Notes or the Interest Notes,
      we
      wrote off the proportional share of the remaining unamortized discount to
      interest expense. See *Extension
      of Note Maturity Dates* and *Modification
      of Conversion Terms of 2005 Credit Facility Notes and 8% Convertible Notes
      with
      Marr* below
      and
      Note 11, Stockholders Deficit.





*7%
      Promissory Notes Payable to a Related Party*


On
      April
      4, 2005, we entered into a line of credit (the “2005 Credit Facility”) with
      Marr, pursuant to which, at any time prior to December 31, 2005, we could borrow
      up to $5.5 million by issuing promissory notes bearing interest at the rate
      of
      9% per annum (each, a “Promissory Note”). We could borrow up to a maximum of
      $1,500,000 per Promissory Note, in increments of $500,000, and could issue
      no
      more than one Promissory Note in any 30-day period. The issuance of a Promissory
      Note required unanimous approval of our Board of Directors. At that time Marr
      had two representatives serving on our Board of Directors. The maximum amount
      we
      could borrow under the 2005 Credit Facility was to be reduced dollar for dollar
      by the net amount of any funds received from equity financings consummated
      after
      April 4, 2005. Each Promissory Note had a 12-month term, at which time principal
      and accrued interest would be due in full; however, any outstanding principal
      and accrued interest was to have been payable in full upon the May 31, 2006
      original expiration of the 2005 Credit Facility. As consideration for the 2005
      Credit Facility, on April 4, 2005, we issued to Marr a common stock purchase
      warrant (the “Marr Warrant”), expiring on April 3, 2010, exercisable to purchase
      500,000 shares of our common stock at $0.40 per share.


F-21


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





On
      November 30, 2005, we agreed with Marr to amend the 2005 Credit Facility to
      extend the term under which we might issue promissory notes from December 31,
      2005 until April 3, 2006. The interest rate for promissory notes issued under
      the amendment was lowered to 7% per annum from 9% per annum. The term of any
      promissory notes issued under the amendment was extended so that such promissory
      notes would become due on April 3, 2007, instead of the later of twelve months
      from the issuance date or May 31, 2006. The issuance of promissory notes under
      the terms of the amendment required approval by a majority of a quorum of our
      Board of Directors, instead of the entire Board of Directors. We granted Marr
      a
      security interest in our assets, up to an aggregate maximum of $6,000,000,
      to
      secure the repayment of monies borrowed under the terms of the amended
      agreement. We were permitted to use the proceeds from the issuance of promissory
      notes under the amended agreement for general corporate purposes, including
      investments in our international subsidiaries or joint ventures. At December
      31,
      2005, we had issued Promissory Notes totaling $1,500,000 under the amended
      terms
      of the 2005 Credit Facility.





On
      January 19, 2006, we issued a $1,500,000 promissory note to Marr under the
      amended terms of the 2005 Credit Facility. Effective on February 22, 2006,
      we
      agreed with Marr to extend the period during which we could issue promissory
      notes under the 2005 Credit Facility through July 31, 2006. On February 23,
      2006, March 31, 2006, April 27, 2006 and May 29, 2006 we issued promissory
      notes
      to Marr, each in the face amount of $500,000, for an aggregate of $2,000,000.
      Effective on July 26, 2006, we agreed with Marr to further extend the period
      during which we could issue promissory notes under the 2005 Credit Facility
      through August 31, 2006. We advised Marr of our intent to issue a Note in the
      face amount of $500,000 prior to August 31, 2006, and the Note was funded on
      September 20, 2006. Each promissory note bears interest at a rate of 7% per
      annum and was payable in full in accordance with its terms on April 3, 2007.
      See *Extension
      of Note Maturity Dates* below.
      The effective interest rate on each of these notes approximated the 7% stated
      rate.





As
      described more completely in Note 11, Stockholders’ Deficit, during July 2006,
      we offered to amend to $0.15 per share the exercise price of warrants issued
      in
      conjunction with our May and July 2004 Private Placements, our April 2005 8%
      Convertible Notes and our Credit Facility Agreement with Marr for those warrant
      holders agreeing to exercise all or a portion of their warrants by July 21,
      2006. Marr exercised its warrants to purchase an aggregate of approximately
      16,965,000 shares of our common stock. In lieu of paying us cash, Marr cancelled
      our obligation to repay an aggregate of $2,443,000 of our 7% Promissory Notes
      issued under the 2005 Marr Credit Facility and $102,000 of accrued interest
      on
      the 7% Promissory Notes. We accounted for the Warrant Re-pricing and exercise,
      and the related cancellation of the 7% Promissory Notes, as a debt
      extinguishment in accordance with Accounting Principles Board Opinion No. 26
      “Early Extinguishment of Debt” and, accordingly, we recognized non-cash interest
      expense of approximately $869,000 related to the excess of the fair value of
      the
      stock and additional warrants issued in the Warrant Re-pricing compared to
      the
      carrying value of the 7% Promissory Notes cancelled.





Effective
      on December 22, 2006, we agreed with Marr to further extend the period during
      which we could issue promissory notes under the 2005 Credit Facility through
      December 29, 2006. We issued a promissory note to Marr in the face amount of
      $1,000,000 on December 22, 2006. The promissory note bears interest at a rate
      of
      7% per annum and was payable in full on April 3, 2007. See *Extension
      of Note Maturity Dates* below.
      The effective interest rate on this promissory note approximated the 7% stated
      rate.





On
      February 7, 2007, we agreed with Marr to further amend the terms of the 2005
      Marr Credit Facility to extend the period during which we might issue promissory
      notes under the facility and to reduce the minimum size of notes issuable under
      the facility. On February 7, 2007, we issued a promissory note in the face
      amount of $142,800 to Marr, the proceeds of which we used to make a capital
      contribution to Beijing Marr. On February 23, 2007 and on March 7, 2007, we
      issued additional promissory notes to Marr in the face amount of $100,000 and
      $150,000, respectively, the proceeds of which we used for general corporate
      purposes. Each promissory note bears interest at a rate of 7% per annum. The
      February 7, 2007 note was payable in full on April 3, 2007 and the two later
      notes were payable on the earlier of five days following our completion of
      an
      equity financing transaction of at least $3,000,000, or April 3, 2007. We repaid
      the February 23, 2007 and March 7, 2007 notes in cash on March 30, 2007. The
      initial effective interest rate on the 7% notes issued under the 2005 Marr
      Credit Facility in February and March 2007 approximated the stated rate because
      there were no discounts or deferred offering costs associated with the notes.
      See *Extension
      of Note Maturity Dates* below
      and Note 11, Stockholders Deficit.


F-22


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





*Extension
      of Note Maturity Dates (the “March 2007 Debt
      Restructuring”)*


Effective
      March 28, 2007, when the market price of our common stock was $0.063, we entered
      into agreements with the three holders of our outstanding Secured 8% Convertible
      Notes and with Marr to extend the due dates of an aggregate of $4,983,000 of
      Secured 8% Convertible Notes and related Interest Notes and $4,200,000 of 7%
      Promissory Notes issued under the 2005 Credit Facility prior to February 23,
      2007 (the “7% Credit Facility Notes”) from April 3, 2007 until April 3, 2009. In
      conjunction with the extension of the note maturity dates, we agreed to re-price
      an aggregate of approximately 31 million of the investors’ outstanding warrants
      under a formula of 40% of their total outstanding warrants re-priced to $0.03
      per share and 60% re-priced to $0.10 per share. The warrants had original
      exercise prices of $0.325 and $0.25 per share. We also eliminated the piggyback
      registration rights originally granted with respect to the Additional Warrants
      issued in connection with the 2006 Warrant Re-pricing to current holders of
      our
      Secured 8% Convertible Notes and to Marr and extended the term of those warrants
      from August 3, 2007 until April 3, 2009. Refer to Note 11, Stockholders’
Deficit, for information regarding extending the term of the remaining
      Additional Warrants.





We
      evaluated the extension of the note maturity dates for both the Secured 8%
      Convertible Notes and the 7% Credit Facility Notes in accordance with the
      provisions of EITF Issue 02-4, *Determining
      Whether a Debtor’s Modification or Exchange of Debt Instruments is Within the
      Scope of FASB Statement 15* (“EITF
      02-4”) *.* We
      determined that the modification with respect to the Secured 8% Convertible
      Notes was within the Scope of FASB Statement 15, *Accounting
      by Debtors and Creditors for Troubled Debt Restructurings* (“SFAS
      15”), but that the modification with respect to the 7% Credit Facility Notes was
      not within the scope of SFAS 15.





For
      purposes of the EITF 02-4 analysis, we allocated the incremental fair value
      resulting from the re-pricing and extension of the term of the note holders’
warrants, aggregating approximately $787,000, between the outstanding face
      value
      of the Secured 8% Convertible Notes and the 7% Credit Facility Notes to
      determine the consideration provided to the respective creditors from that
      source. We calculated the incremental fair value of the warrants using the
      Black-Scholes option pricing model and the following assumptions:





Pre-modification
                Assumptions
            
            Post-modification
                AssumptionsNumber
                of shares
            
            
            408,333
            
            
            19,333,333
            
            
            11,319,792
            
            
            408,333
            
            
            8,596,666
            
            
            10,736,667
            
            
            3,827,917
            
            
            7,491,875Exercise
                price
            
            $
            0.325
            
            $
            0.325
            
            $
            0.25
            
            $
            0.10
            
            $
            0.03
            
            $
            0.10
            
            $
            0.03
            
            $
            0.10Term
                (years)
            
            
            2.17
            
            
            3.02
            
            
            0.35
            
            
            2.17
            
            
            3.02
            
            
            3.02
            
            
            2.02
            
            
            2.02Volatility
            
            
            126.03
            %
            
            121.16
            %
            
            105.97
            %
            
            126.03
            %
            
            121.16
            %
            
            121.16
            %
            
            128.55
            %
            
            128.55
            %Interest
                Rate
            
            
            4.57
            %
            
            4.51
            %
            
            5.08
            %
            
            4.57
            %
            
            4.51
            %
            
            4.51
            %
            
            4.57
            %
            
            4.57
            %Expected
                dividend rate
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %Option
                value per share
            
            $
            0.0224
            
            $
            0.0289
            
            $
            0.0004
            
            $
            0.0366
            
            $
            0.0517
            
            $
            0.0414
            
            $
            0.0488
            
            $
            0.0359





We
      allocated approximately $581,000 of the incremental fair value to the Secured
      8%
      Convertible Notes and approximately $206,000 to the 7% Credit Facility Notes.




We
      also
      calculated the fair value of the extended conversion feature of the Secured
      8%
      Convertible Notes as approximately $374,000 using the Black-Scholes option
      pricing model with the following assumptions. risk free interest rate of 4.57%;
      expected dividend rate of 0.00%; volatility of 128.55%; and expected term of
      2.02 years.




F-23


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


In
      accordance with the provisions of SFAS 15 applicable to the 8% Convertible
      Notes, we have accounted for the modification as a troubled debt restructuring
      on a prospective basis. We have recorded a discount to the 8% Convertible Notes
      equal to the allocated incremental fair value of the re-priced and extended
      warrants plus the fair value of the extended conversion feature with a
      corresponding credit to additional paid-in capital. We are amortizing the
      discount as non-cash interest expense over the remaining two-year term of the
      8%
      Convertible Notes using the effective interest method prescribed by APB Opinion
      No. 21, I *nterest
      on Receivables and Payables* .
      The
      effective interest rate of the extended 8% Convertible Notes is 19.98%.





Because
      the extension of the maturity of the 7% Credit Facility Notes is not within
      the
      provisions of SFAS 15, as determined by our EITF 02-4 analysis, we subsequently
      evaluated the modification of the 7% Credit Facility Notes in accordance with
      the provisions of EITF Issue 96-19, *Debtor’s
      Accounting for a Modification or Exchange of Debt Instruments* (“EITF
      96-19”), and EITF Issue 06-6, *Debtor’s
      Accounting for a Modification (or Exchange) of Convertible Debt
      Instruments.* In
      accordance with the provisions of EITF 96-19, we determined that the extension
      of the maturity date should be treated as a modification to the debt on a
      prospective basis. Accordingly, we recorded a discount to the 7% Credit Facility
      Notes equal to the $206,000 allocated incremental fair value of the re-priced
      and extended warrants with a corresponding credit to additional paid-in capital.
      We are amortizing the discount as non-cash interest expense over the remaining
      two-year term of the 7% Credit Facility Notes using the effective interest
      method prescribed by APB Opinion No. 21, I *nterest
      on Receivables and Payables* .
      The
      effective interest rate of the extended 7% Credit Facility Notes is 8.85%.





*Modification
      of Conversion Terms of 2005 Credit Facility Notes and 8% Convertible Notes
      with
      Marr (the “December 2007 Restructuring with Marr”)*





On
      December 4, 2007, we agreed with Marr to further amend the 2005 Credit Facility
      Agreement to give Marr the option to convert (the “Credit Facility Conversion
      Option”), for a one year period commencing on December 4, 2007 and ending on
      December 3, 2008 (the “Term”), all or any portion of the principal amount and
      accrued interest of the 7% promissory notes issued under the 2005 Credit
      Facility and outstanding during the Term into shares of our common stock at
      the
      conversion price of $0.16 per share.





Also
      on
      December 4, 2007, we entered into an amendment to the Secured 8% Convertible
      Promissory Notes (the “8% Notes Amendment”) with Marr to reduce the Conversion
      Price of the 8% convertible notes issued to Marr on April 4, 2005 and all
      subsequent Notes issued, and to be issued, to Marr thereafter for the payment
      of
      interest on the Notes from $0.30 per share to $0.16 per share of common stock,
      for the Term described above.





We
      granted Marr the Credit Facility Conversion Option and the 8% Notes Amendment
      in
      consideration for Marr’s immediate exercise of all Marr’s outstanding warrants
      to purchase shares of our common stock. Marr exercised warrants to purchase
      an
      aggregate of 8,482,292 shares of our common stock and we received cash proceeds
      of $611,000. If not converted into shares of our common stock during the Term,
      the principal balance and accrued interest of the 7% promissory notes issued
      under the 2005 Credit Facility Agreement will be due and payable on April 3,
      2009. If not converted into shares of our common stock during the Term, the
      8%
      Notes and related accrued interest may be converted into shares of the
      Registrant’s common stock at a conversion price of $0.30 per share until April
      3, 2009, at which time they will become due and payable.





We
      again
      evaluated the modification of the conversion terms for both the 8% Convertible
      Notes issued to Marr and the 7% Credit Facility Notes in accordance with the
      provisions of EITF 02-4. In accordance with the provisions of EITF 02-4 and
      EITF
      96-19, because the December 2007 Restructuring with Marr occurred within one
      year of the March 2007 Debt Restructuring, we were required to conduct the
      evaluation of the December 2007 Restructuring with Marr with respect to the
      terms of the notes that existed prior to the extension of their maturities
      in
      March 2007. As in our previous evaluation of the March 2007 Debt Restructuring,
      we determined that the conversion price modification with respect to the Secured
      8% Convertible Notes was within the scope of SFAS 15, but that the modification
      with respect to the 7% Credit Facility Notes was not within the scope of SFAS
      15.


F-24


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


In
      conducting this evaluation of the 8% Convertible Notes issued to Marr, we
      allocated to these notes the proportion of the note modification discounts
      determined in the March 2007 Debt Restructuring analyses attributable to the
      face amount of 8% Convertible Notes held by Marr. We also calculated the fair
      value of the reduced conversion price of the Secured 8% Convertible Notes held
      by Marr as approximately $662,000 by valuing the conversion feature before
      and
      after the modification using the Black-Scholes option pricing model and the
      following assumptions:





Before
            
            AfterModification
            
            ModificationMarket
                price at 12/4/07
            
            $
            0.125
            
            $
            0.125Exercise
                Price
            
            $
            0.300
            
            $
            0.160Term
                (Years)
            
            
            1
            
            
            1Volatility
            
            
            107.72
            %
            
            107.72
            %Interest
                Rate
            
            
            3.11
            %
            
            3.11
            %Expected
                dividend rate
            
            
            0.00
            %
            
            0.00
            %Number
                of shares (a)
            
            
            11,407,058
            
            
            21,388,234Option
                value per share
            
            $
            0.0233
            
            $
            0.0434





(a)
      based
      on $3,422,177.46 (outstanding balance at December 4, 2007) divided by exercise
      price




In
      accordance with the provisions of SFAS 15 applicable to the 8% Convertible
      Notes
      held by Marr, we have accounted for the reduction of the conversion price as
      a
      troubled debt restructuring on a prospective basis. We have recorded a discount
      to the 8% Convertible Notes held by Marr equal to the allocated incremental
      fair
      value of the re-priced and extended warrants plus the fair value of the extended
      conversion feature arising from the March 2007 Debt Restructuring plus the
      fair
      value of the reduced conversion price determined in the December 2007
      Restructuring with Marr with a corresponding credit to additional paid-in
      capital. We are amortizing the discount as non-cash interest expense over the
      remaining term of the 8% Convertible Notes held by Marr using the effective
      interest method prescribed by APB Opinion No. 21, I *nterest
      on Receivables and Payables* .
      The
      effective interest rate of the restructured 8% Convertible Notes held by Marr
      is
      28.10%.





Because
      the extension of the maturity of the 7% Credit Facility Notes is not within
      the
      provisions of SFAS 15, as determined by our EITF 02-4 analysis, we subsequently
      evaluated the modification of the 7% Credit Facility Notes in accordance with
      the provisions of EITF 96-19 and EITF Issue 06-6. Additionally, we determined
      the fair value of the conversion feature value as approximately $1,252,000
      using
      the Black-Scholes option pricing model and the following assumptions: risk
      free
      interest rate of 3.11%; expected dividend rate of 0.00%; volatility of 107.72%;
      and expected term of 1.00 years. We determined that the addition of the
      conversion feature to the 7% Credit Facility Notes was substantive at the date
      of the modification in accordance with the provisions of EITF Issue 05-1, *Accounting
      for the Conversion of an Instrument that Became Convertible upon the Issuer’s
      Exercise of a Call Option.* In
      accordance with the provisions of EITF 96-19, the addition of a substantive
      conversion feature is to be accounted for as a debt extinguishment, and the
      new
      debt instrument should be initially recorded at fair value and that amount
      should be used to determine the debt extinguishment gain or loss to be
      recognized and the effective rate of the new instrument.





To
      determine the fair value of the restructured debt, we considered the effective
      interest rates at the inception of our borrowings since late 2003, including
      the
      8% Convertible Notes and the 7% Credit Facility Notes. We determined, comparing
      the effective rate of our previous borrowings and our current risk profile,
      that
      65% was an appropriate discount rate for determining the present value of the
      cash flows and the fair value of the restructured debt. Accordingly, we
      determined that the fair value of the restructured 7% Credit Facility Notes
      was
      approximately $3,829,000, including the fair value of approximately $1,252,000
      of the new conversion feature, as noted above. Considering the carrying value
      of
      the 7% credit facility notes, including the discount determined in the March
      2007 Debt Restructuring and the related accrued interest, we recognized a gain
      of approximately $625,000 on the extinguishment, which we have treated as an
      additional discount to the notes. Because the restructuring was with Marr,
      our
      largest stockholder and a related party, the extinguishment gain has been
      recorded as a credit to additional paid-in capital rather than in earnings.
      The
      effective interest rate on the restructured 7% Credit Facility Notes is
      20.46%.


F-25


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


*Interest
      expense*


The
      following table summarizes the components of net interest income and (expense)
      for the years ended December 31, 2007 and 2006 related to the notes and
      debentures described above and other financing instruments reported in the
      Consolidated Statements of Operations (in thousands) *.*





Year
                ended December 31,2007
            
            2006Interest
                expense on debt instruments paid or payable in cash
            
            $
            (315
            )
            $
            (284
            )Non-cash
                expense composed of:Accrued
                interest on 8% Convertible Notes (paid by issuing additional
                Notes)
            
            
            (416
            )
            
            (481
            )Amortization
                and proportional write-off upon conversion of 8% convertible note
                discounts and deferred offering costs through original maturity
                date
            
            
            (1,208
            )
            
            (5,694
            )Amortization
                of discounts associated with March 2007 extension and December 2007
                restuctructuring of 8% convertible notes and Marr Credit Facility
                notes
            
            
            (449
            )
            
            -Mark
                to market adjustment of and intrinsic value of shares issued under
                anti-dilution obligations arising from the February and March 2007
                financings
            
            
            2,281
            
            
            -Expense
                attributable to extension of maturity of August 2006 Additional
                Warrants
            
            
            (29
            )
            
            -Mark
                to market adjustment of derivative and anti-dilution obligations
                arising
                from the April 2005 financing
            
            
            -
            
            
            (375
            )Expense
                attributable to extinguishment of 7% Promissory Notes and induced
                conversion of 8% Convertible Notes resulting from warrant re-pricing
                and
                exercise, and debt cancellation
            
            
            
            
            
            (1,549
            )Expense
                attributable to dividends on mandatorily redeemable Series A preferred
                stock
            
            
            (120
            )
            
            (120
            )Total
                non-cash items
            
            
            59
            
            
            (8,219
            )Total
                interest expense
            
            
            (256
            )
            
            (8,503
            )Interest
                income
            
            
            21
            
            
            3Net
                interest expense
            
            $
            (235
            )
            $
            (8,500
            )





**(9)
      Lease Commitments**




*Capital
      Leases*


During
      2004, we entered into a 36-month capital lease secured by machinery and
      equipment located at our former Rockville, Maryland location and having an
      agreed fair value of $500,000. The lease agreement carried an effective interest
      rate of approximately 18% per annum. In conjunction with the sale of our Legacy
      Business, we sold all of the assets subject to the capital lease to Maxim,
      but
      remained liable for its payment obligation under the lease, for which the
      monthly payments were reimbursed by Maxim. At the time of the sale of the Legacy
      Business, we recorded a non-current asset for the fair value of the aggregate
      lease payments receivable from Maxim. We reduced the amount of the non-current
      asset upon receipt of payments from Maxim. We satisfied the lease obligation
      during 2007 and have not entered into any other capital lease arrangements.





*Operating
      Leases*


During
      2006 and through August 2007, we rented our Lake Oswego, Oregon administrative
      offices under a month-to-month agreement. We also leased office and research
      laboratory space in Vancouver, Washington under a month-to-month agreement.
      In
      September 2007, we entered into a 63-month lease agreement for office,
      laboratory and manufacturing space in Portland, Oregon and terminated the Lake
      Oswego and Vancouver arrangements. In June 2007, we entered into a 19-month
      lease for office space in Dubai, United Arab Emirates. In July 2007, we entered
      into a 9-month lease, with an annual renewal option, for office space in Geneva,
      Switzerland. Our consolidated Chinese joint ventures rent office space,
      management housing, and vehicles under month-to-month arrangements. We
      previously leased manufacturing space in Rockville, Maryland under two operating
      subleases. In connection with the sale of the Legacy Business, we entered into
      a
      sublease agreement with Maxim under which Maxim has assumed our obligations
      under the Rockville premises subleases. In March 2004, we entered into a new
      lease agreement with the primary landlord of the manufacturing facility in
      Rockville that extended the lease of the premises through February 28, 2009,
      or
      28 months beyond the expiration of the original sublease. Additionally, the
      new
      lease provided for tenant improvements to be made in connection with our
      consolidation of our manufacturing operations at this facility in the amount
      of
      approximately $250,000. Prior to the August 2005 relocation of our
      administrative offices to Lake Oswego, Oregon, we leased office space in
      Pleasanton, California beginning in July 2004 under a noncancelable operating
      lease which expired in June 2007. In October 2005, we entered into a sublease
      of
      the Pleasanton office space that continued through the expiration of the lease.


F-26


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


Net
      rent
      expense under these leases was $309,000 and $195,000 for the years ended
      December 31, 2007 and 2006, respectively. Future minimum rental payments under
      all noncancelable operating leases, including the Rockville subleases, as of
      December 31, 2007 were (in thousands):




Gross
              Payments
            
            Sublease
              Payments
            
            Net
                Rental
              PaymentsYear
                ended December 31,2008
            
            $
            783
            
            $
            (574
            )
            $
            2092009
            
            
            242
            
            
            (96
            )
            
            1462010
            
            
            150
            
            
            -
            
            
            1502011
            
            
            154
            
            
            -
            
            
            1542012
            
            
            145
            
            
            -
            
            
            145Thereafter
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            1,474
            
            $
            (670
            )
            $
            804




**(10)
      Mandatorily Redeemable Preferred Stock**




At
      the
      time of our original incorporation, we issued both common stock and $1,000,000
      of mandatorily redeemable Series A preferred stock. We are required to redeem
      all shares of mandatorily redeemable Series A preferred stock within 60 days
      of
      any fiscal year-end in which we attain $3,000,000 in retained earnings, and
      funds are legally available. Based on losses accumulated through December 31,
      2007, we must achieve approximately $179,000,000 in future 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,
      we
      had charged cumulative preferred dividends totaling $1,636,000 to stockholders’
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 that date, we have
      charged the preferred dividends to interest expense to accrete for the
      mandatorily redeemable Series A preferred stock redemption value. During each
      of
      the years ended December 31, 2007 and 2006, we charged preferred dividends
      totaling $120,000 to interest expense 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, we eliminated the Series A preferred
      stock from our articles of incorporation upon our reincorporation in Delaware
      in
      June 1996. However, we subsequently chose not to redeem the Series A preferred
      stock and as of December 31, 2007 it remains outstanding. The holders of such
      shares maintain the same rights as held before the reincorporation.


F-27


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


**(11)
      Stockholders’ Deficit**





*June
      2006 Subscription Agreements*


In
      June
      2006, we entered into subscription agreements with two accredited investors
      pursuant to which the investors agreed to purchase an aggregate of 16,666,666
      shares of our common stock at a price of $0.18 per share, for an aggregate
      of
      $3,000,000, in private placement transactions pursuant to Regulation S of the
      Securities Act of 1933, as amended. On
      July
      25, 2006, we received cash of $495,000 from one of the investors and issued
      2,750,000 shares of our common stock. We granted
      piggyback registration rights with respect to the shares issued and issuable
      under the Subscription Agreements, but we have not filed a registration
      statement including such shares, which are now eligible for resale by the
      investors under the terms of Securities and Exchange Commission Rule 144.





*Repricing
      and exercise of Warrants, Settlement of Notes (the “2006 Warrant
      Re-pricing”)*


During
      July 2006, we offered to amend to $0.15 per share the exercise price of warrants
      issued in conjunction with the 2004 PIPEs, the April 2005 8% Convertible Notes
      and the 2005 Credit Facility with Marr for those warrant holders agreeing to
      exercise all or a portion of their warrants by July 21, 2006. We also agreed
      to
      issue to warrant holders exercising their re-priced warrants new warrants
      exercisable at a price of $0.25 per share (the “Additional Warrants”), equal in
      amount to 50% of the warrants exercised. On July 21, 2006, when the market
      price
      of our common stock was $0.19 per share, warrant holders exercised warrants
      to
      purchase an aggregate of 25,080,000 shares of our common stock at the reduced
      exercise price. Certain of the warrant holders exercised their warrants and,
      in
      lieu of paying us cash, cancelled our obligation to repay an aggregate of
      $959,000 of our 8% Convertible Notes and $2,443,000 of our 7% Promissory Notes
      issued under the 2005 Marr Credit Facility and $102,000 of accrued interest
      on
      the 7% Promissory Notes. We also received approximately $258,000 in cash
      proceeds from the exercises. The warrant holders who exercised the re-priced
      warrants received Additional Warrants to purchase an aggregate of approximately
      12,540,000 shares of our common stock. We issued the Additional Warrants on
      August 3, 2006 and they became exercisable 6 months after their issuance, on
      February 3, 2007, and have a term of one year after issuance. We granted
      piggyback registration rights for the shares underlying the Additional Warrants.
      As indicated in Note 8, Notes and Debentures Payable, we recognized an aggregate
      of $1,549,000 in non-cash interest expense related to the warrant re-pricing
      and
      exercise and debt cancellation. Marr exercised all of its outstanding re-priced
      warrants and purchased approximately 16,965,000 shares of our common stock.





As
      described in Note 8, Notes and Debentures Payable, in March 2007 in conjunction
      with the March 2007 Debt Restructuring, we agreed to re-price the outstanding
      warrants held by the holders of our Secured 8% Convertible Notes and 7% Credit
      Facility Notes under a formula of 40% of their total outstanding warrants
      re-priced to $0.03 per share and 60% re-priced to $0.10 per share. The warrants
      had original exercise prices of $0.325 and $0.25 per share. We also eliminated
      the piggyback registration rights originally granted with respect to the
      Additional Warrants issued in August 2006 to current holders of our Secured
      8%
      Convertible Notes and to Marr and extended the maturity of those warrants from
      August 3, 2007 until April 3, 2009.





Effective
      April 20, 2007, when the market price of our common stock was $0.079 per share,
      we entered into amendment agreements with the holders of Additional Warrants
      issued in connection with the 2006 Warrant Re-pricing who are not also holders
      of our 8% Secured Convertible Notes or our 7% Notes issued under the 2005 Marr
      Credit Facility. Under the terms of these agreements, in return for the
      cancellation of registration rights originally granted to the holders of the
      warrants, we extended the term of warrants exercisable at $0.25 per share to
      purchase an aggregate of 1,220,446 shares of our common stock from August 3,
      2007 to April 3, 2009 and provided cashless exercise rights. We recorded $29,000
      of non-cash interest expense attributable to the incremental fair value
      resulting from the extension of these warrants, calculated using the
      Black-Scholes option pricing model and the following assumptions:


F-28


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





Pre-modification
            
            Post-modificationExercise
                price
            
            $
            0.25
            
            $
            0.25Term
                (years)
            
            
            0.29
            
            
            1.95Volatility
            
            
            117.21
            %
            
            129.47
            %Interest
                Rate
            
            
            5.01
            %
            
            4.67
            %Expected
                dividend rate
            
            
            0
            %
            
            0
            %Option
                value per share
            
            $
            0.0004
            
            $
            0.0242





*Common
      Stock Subscribed*


On
      November 15, 2006, we entered into a letter agreement with our Chief Executive
      Officer under which he advanced $100,000 to us as an investment in a prospective
      equity financing that we had not completed at December 31, 2006. This
      subscription was subsequently included in the March 2007 Private Placement
      described below. We used the funds received for general corporate purposes.





*February
      2007 Private Placement*


On
      February 23, 2007, when the market price of our common stock was $0.064 per
      share, we entered into a subscription agreement with an accredited investor
      pursuant to which the investor agreed to purchase 1,666,667 shares of our common
      stock and five-year warrants exercisable at $0.12 per share to purchase
      1,666,667 shares of our common stock at a price of $0.06 per share, for an
      aggregate purchase price of $100,000, in a private placement transaction
      pursuant to Regulation D of the Securities Act of 1933, as amended. On March
      23,
      2007, when the market price of our common stock was $0.067 per share, we entered
      into a subscription agreement with the same investor pursuant to which the
      investor agreed to purchase 833,334 shares of our common stock and five-year
      warrants exercisable at $0.12 per share to purchase 1,041,668 shares of our
      common stock at a price of $0.06 per share, for an aggregate purchase price
      of
      $50,000. On March 27, 2007, when the market price of our common stock was $0.062
      per share, we entered into subscription agreements with two additional
      accredited investors pursuant to which the investors agreed to purchase an
      aggregate of 1,250,001 shares of our common stock and five-year warrants
      exercisable at $0.12 per share to purchase 1,250,001 shares of our common stock
      at a price of $0.06 per share, for an aggregate purchase price of $75,000.
      We
      granted the investors piggyback registration rights for the shares issued.
      We
      used the proceeds received for general corporate purposes.





Each
      of
      the subscription agreements in the February 2007 Private Placement contains
      an
      anti-dilution clause providing that we will issue additional shares of our
      common stock to the investors for no additional consideration if we issue shares
      of our common stock in a subsequent financing transaction at less than $0.06
      per
      share in the year following the investors’ purchase of our common stock. We
      determined that the anti-dilution provisions of the subscription 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. We valued the anti-dilution
      obligation of each tranche of the February 2007 Private Placement at its
      inception using a binomial pricing model to estimate future stock prices and
      derived an aggregate value of $95,000 using the following
      assumptions:





Current
            
            Historical
            
            Risk-free
            
            
            
            Expected
            
            Probabilityshare
            
            stock price
            
            interest
            
            Term
            
            dividend
            
            of additionalprice
            
            volatility
            
            rate
            
            (years)
            
            rate
            
            financingFebruary
                23, 2007
            
            $
            0.06
            
            
            114.61
            %
            
            5.05
            %
            
            1.0
            
            
            0
            %
            
            100
            %March
                23, 2007
            
            $
            0.06
            
            
            112.63
            %
            
            4.67
            %
            
            1.0
            
            
            0
            %
            
            100
            %March
                27, 2007
            
            $
            0.06
            
            
            130.04
            %
            
            4.93
            %
            
            1.0
            
            
            0
            %
            
            100
            %





We
      marked
      the February 2007 Private Placement anti-dilution obligation to market at
      December 31, 2007, again using a binomial pricing model, and derived a value
      of
      $1,000 using the following assumptions: current share price: $0.11; historical
      stock price volatility: 104.45% to 122.71%; risk-free interest rate: 3.06%
      to
      3.36%; term (years): 0.15 to 0.24; expected dividend rate: 0%; and a 10%
      probability of completing an additional round of financing during the remaining
      term of the obligation. We recorded the reduction in the value of the obligation
      as a non-cash credit to interest expense.


F-29


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


The
      one-year anti-dilution provision contained in each of the February 2007 Private
      Placement Warrants potentially reduces the exercise price but does not increase
      the number of shares issuable to the warrant holders. Accordingly, we determined
      that the February 2007 Private Placement warrants do not require liability
      treatment under the provisions of SFAS No. 150, *Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity.* Furthermore,
      we determined that the warrants should be treated as equity in accordance with
      the provisions of EITF 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* .





The
      terms
      of the March 2007 Private Placement, described below, triggered the
      anti-dilution provisions of the February 2007 subscription and warrant
      agreements. Under the terms of the anti-dilution provisions, we issued to the
      investors an aggregate of 576,922 additional shares in April 2007 and reduced
      the exercise price of the warrants from $0.12 per share to $0.104 per share.
      We
      recorded $43,000 of non-cash interest expense to recognize the intrinsic value
      of the additional shares issued. No adjustment was required for the re-pricing
      of the warrants.





*March
      2007 Private Placement*


On
      March
      28, 2007, when the market price of our common stock was $0.063 per share, we
      completed a private placement transaction with four accredited investors for
      the
      sale of an aggregate of 100 million shares of our common stock plus warrants
      and
      received an aggregate of $5.2 million in cash which we are using for general
      corporate purposes. The investors received immediately exercisable warrants
      to
      purchase an aggregate of 150 million additional shares of our common stock.
      The
      Series A stock purchase warrants (the “2007 Series A Warrants”) to purchase 100
      million shares have an exercise price of $0.08 per share and are exercisable
      through June 28, 2008. The Series B stock purchase warrants (the “2007 Series B
      Warrants”) to purchase 50 million shares have an exercise price of $0.11 per
      share and are exercisable through September 28, 2008. The 2007 Series A Warrants
      and the 2007 Series B Warrants are hereafter collectively referred to as the
      “March 2007 Private Placement Warrants” If fully exercised, we would receive
      cash proceeds of $13.5 million. We agreed to file a registration statement
      for
      the resale of the shares purchased and the shares underlying the March 2007
      Private Placement Warrants within 45 days of the closing and use our best
      efforts to obtain its effectiveness. The registration rights agreement was
      subsequently amended to remove our obligation to register the shares underlying
      the March 2007 Private Placement Warrants. A resale registration statement
      for
      the shares purchased is not yet effective; however, the shares will be eligible
      for resale by the investors under the terms of Securities
      and Exchange Commission Rule 144. Two of
      our officers also participated in this Private Placement by applying previously
      subscribed funds and canceling our obligation to repay notes and other amounts
      owed to them, aggregating $630,000, in return for issuance of stock and warrants
      under the same terms as those made available to the primary investors in the
      March 2007 Private Placement.





The
      subscription agreements in the March 2007 Private Placement contain an
      anti-dilution clause providing that we will issue additional shares of our
      common stock to the investors for no additional consideration if we issue shares
      of our common stock in a subsequent financing transaction at less than $0.052
      per share in the year following the investors’ purchase of our common stock. We
      determined that the anti-dilution provisions of the subscription 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. We valued the anti-dilution
      obligation of the March 2007 Private placement at its inception using a binomial
      pricing model to estimate future stock prices and derived a value of $2,260,000
      using the following assumptions: current share price: $0.06; historical stock
      price volatility: 129.29%; risk-free interest rate: 4.90%; term (years): 1.0;
      expected dividend rate: 0%; and a 100% probability of completing an additional
      round of financing during the remaining term of the obligation. We marked the
      March 2007 Private Placement anti-dilution obligation to market at December
      31,
      2007, again using a binomial pricing model, and derived a value of $31,000
      using
      the following assumptions: current share price: $0.11; historical stock price
      volatility: 104.45%; risk-free interest rate: 3.36%; term (years): 0.24;
      expected dividend rate: 0%; and a 10% probability of completing an additional
      round of financing during the remaining term of the obligation. We recorded
      the
      reduction in the value of the obligation as a non-cash credit to interest
      expense.


F-30


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


The
      March
      2007 Private Placement Warrants have one-year anti-dilution provisions which
      potentially reduce the exercise price proportionally in relation to the adjusted
      purchase price of the shares, but do
      not
      increase the number of shares issuable to the warrant holders. Accordingly,
      we
      determined that the March 2007 Private Placement Warrants do not require
      liability treatment under the provisions of SFAS No. 150, *Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity.* Furthermore,
      we determined that the warrants should be treated as equity in accordance with
      the provisions of EITF 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* .





*Warrants,
      options and stock grants*


During
      2006, we issued stock grants for 2,265,630 shares of our common stock to certain
      related parties and consultants under various agreements and recorded non-cash
      selling, general and administrative expense of approximately $457,000, net
      of
      accrued and prepaid expenses related to these grants. Included in these grants
      are:


·
            1,000,000
                shares awarded to our Chairman under the terms of a letter agreement
                approved by the Compensation Committee of our Board of Directors
                on
                January 4, 2006 pursuant to which the Chairman served as our interim
                Chief
                Executive Officer from October 2005 through September 2006;


·
            311,736
                shares awarded to the Chairman in February 2006 in lieu of cash
                compensation to which he was entitled under the terms of the letter
                agreement for the period of October 2005 through January
                2006;


·
            953,894
                shares awarded to consultants and service providers for services;
                and ·
            250,000
                shares issued to a potential investor for reimbursement of due diligence
                expenses (see Note 19, Subsequent
                Events).





During
      2007, we issued stock grants for 5,152,079 shares of our common stock to certain
      related parties and consultants under various agreements and recorded non-cash
      research and development expense of $42,000, net of accruals, and non-cash
      selling, general and administrative expense of approximately $303,000, net
      of
      prepaid amounts. Included in these grants are:


·
            2,000,000
                shares awarded to our President and Chief Executive Officer from
                our 2004
                Incentive Plan under the terms of an employment agreement approved
                by the
                Compensation Committee of the Board of Directors on January 11, 2007;


·
            2,340,279
                shares awarded to consultants and service providers from our 2004
                Incentive Plan and our 2000 Equity Incentive Plan for services; and


·
            562,000
                unregistered shares granted under the terms of an agreement for investor
                relations services.





On
      October 31, 2006, when the market price of our common stock was $0.085 per
      share, we issued an immediately exercisable warrant to purchase 500,000 shares
      of our common stock as compensation for investment banking services. We valued
      the warrant at $0.084 per share using the Black-Scholes option pricing model
      and
      the following assumptions: exercise price - $0.085 per share; contractual
      term – 5 years, volatility – 220.56%; risk free interest rate –
4.69%, dividend yield – 0%. We recorded $42,000 of non-cash selling,
      general and administrative expense in connection with this warrant. We did
      not
      grant registration rights for the shares underlying the warrant.





On
      February 1, 2007, when the market price for our common stock was $0.073 per
      share, we issued an option to purchase 500,000 shares of our common stock at
      $0.03 per share under the terms of our 2004 Incentive Plan to a former officer
      in connection with a separation agreement and recorded non-cash selling, general
      and administrative expense of approximately $40,000. The option vested 50%
      upon
      grant and 50% after 90 days. We valued the option using the Black-Scholes option
      pricing model and the following assumptions: contractual term: 10 years; stock
      price volatility: 195.94%; risk-free interest rate: 4.72%; expected dividend
      rate: 0%.





On
      August
      23, 2007, when the market price for our common stock was $0.13 per share, we
      issued an option to purchase 57,693 shares of our common stock at $0.13 per
      share under the terms of our 2004 Incentive Plan as partial compensation for
      consulting services and recorded non-cash selling, general and administrative
      expense of approximately $5,000. The option was fully vested at the date of
      grant. We valued the option using the Black Scholes option pricing model and
      the
      following assumptions: contractual term: 10 years; stock price volatility:
      130.31%; risk-free interest rate: 4.31%; expected dividend rate: 0%.


F-31


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


On
      November 15, 2007, when the market price for our common stock was $0.15 per
      share, we issued an immediately exercisable warrant to purchase 100,000 shares
      of our common stock at $0.15 per share as compensation for consulting services.
      We valued the warrant at $0.098 per share using the Black-Scholes option pricing
      model and the following assumptions: exercise price - $0.15 per share;
      contractual term – 2 years, volatility – 129.09%; risk free interest
      rate – 3.34%, dividend yield – 0%. We recorded $10,000 of non-cash selling,
      general and administrative expense in connection with this warrant. We did
      not
      grant registration rights for the shares underlying the warrant.





As
      noted
      in the preceding descriptions of the February 2007 Private Placement and the
      March 2007 Private Placement, we issued warrants to purchase an aggregate of
      3,958,336 shares of our common stock at $0.104 per share, following the
      anti-dilution price reset, in the February 2007 Private Placement and warrants
      to purchase an aggregate of 168,177,036 shares of our common stock at $0.08
      per
      share or $0.11 per share in the March 2007 Private Placement. We also issued
      an
      aggregate of 125,000 warrants to purchase our common stock at prices from $0.06
      to 0.067 per share to placement agents in the February 2007 Private Placement.
      Additionally, as described previously, in March 2007 we re-priced and extended
      the term of certain previously-issued warrants in connection with the extension
      of the due dates of our 8% Secured Convertible Notes and our 7% Notes issued
      under the 2005 Marr Credit Facility and in April 2007 we extended the term
      of
      the Additional Warrrants not held by investors who also held any of our
      outstanding notes.





In
      December 2007, two of the investors in the March 2007 Private Placement
      exercised 2007 Series A Warrants to purchase an aggregate of 6,000,000 shares
      of
      our common stock and we received cash proceeds of $480,000. As discussed in
      Note
      8, Notes and Debentures Payable, in December 2007 Marr exercised all of its
      Additional Warrants to purchase 8,482,292 shares of our common stock and we
      received cash proceeds of $611,000. At December 31, 2007, Marr remains our
      largest stockholder, holding approximately 20% of our outstanding shares of
      common stock.





At
      December 31, 2007, we had warrants outstanding to purchase an aggregate of
      200,266,188 shares of our common stock at a weighted average price of $0.104
      per
      share, as summarized in the following table:





WeightedAverageNumber
                of
            
            Exercise
                priceShares
            
            per
                share
            
            Expiration
                DateSeries
                A warrants issued in connection with March 2007 Private
                Placement
            
            
            106,118,024
            
            $
            0.080
            
            June
              28, 2008Series
                B warrants issued in connection with March 2007 Private
                Placement
            
            
            56,059,012
            
            $
            0.110
            
            September
              28, 2008Warrants
                issued in connection with February 2007 Private Placement
            
            
            3,958,336
            
            $
            0.104
            
            February
              23, 2012 to March 27, 2012Warrants
                issued to placement agents in connection with the February 2007 Private
                Placement
            
            
            125,000
            
            $
            0.062
            
            February
              23, 2012 to March 27, 2012Series
                A and Series B warrants issued in connection with April 2005 Placement,
                including warrants to placement agents
            
            
            24,041,610
            
            $
            0.119
            
            April
              3, 2010Warrants
                issued to investors in connection with the 2004 PIPEs, including
                warrants
                issued to placement agents
            
            
            4,270,300
            
            $
            0.452
            
            May
              28, 2009 or July 9, 2009Anti-dilution
                warrants issued to investors in the 2004 PIPEs
            
            
            885,677
            
            $
            0.221
            
            May
              28, 2009 or July 9, 2009Additional
                Warrants issued to investors exercising previously issued warrants
                in
                connection with July 2006 Warrant Re-pricing
            
            
            4,057,946
            
            $
            0.138
            
            April
              3, 2009Warrants
                issued for investment banking services
            
            
            500,000
            
            $
            0.085
            
            October
              31, 2011All
                other
            
            
            250,283
            
            $
            0.363
            
            February
              11, 2009 to November 15, 2009200,266,188
            
            $
            0.104


F-32


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**




*Shares
      reserved for future issuance*


The
      following table summarizes shares reserved for future issuance at December
      31,
      2007:





Shares
                issuable pursuant to options outstanding under benefit
                plans
            
            
            31,863,354Shares
                reserved for future issuance under benefit plans
            
            
            31,514,743Shares
                issuable pursuant to warrants outstanding
            
            
            200,266,188Shares
                issuable upon conversion of debt securities, including accrued interest
                through maturity
            
            
            60,949,379324,593,664





*Common
      Stock trades on the OTC Bulletin Board*


On
      July
      31, 2006, we notified the American Stock Exchange (“Amex”) that our Board of
      Directors had approved withdrawing our common stock from trading on the Amex.
      The Amex had previously informed us that we were not in compliance with the
      Exchange’s continued listing standards and would need to demonstrate that we had
      regained compliance with the standards by July 31, 2006 or the Amex would
      commence de-listing procedures. We were not in compliance with the continued
      listing standards at July 31, 2006. Effective September 8, 2006, our common
      stock began trading on the NASD Over-the-Counter Bulletin Board under trading
      symbol “CBMC”.





*Change
      of Control Provisions*


Certain
      provisions of our Certificate of Incorporation and Bylaws may have the effect
      of
      preventing, discouraging or delaying any change in the Company’s control 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, our Board of Directors declared a dividend
      distribution of one preferred share purchase right (a Right) for each
      outstanding share of our common stock. The dividend was payable to the
      stockholders of record on January 5, 1999. The Rights have certain anti-takeover
      effects. The Rights will cause 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 we approve because the Rights do
      not
      become exercisable in the event of a permitted offer or other acquisition
      exempted by the Board. The Rights expire on December 15, 2008.




**(12)
      Share Based Payments**




We
      adopted *Statement
      of Financial Accounting Standards No. 123 (revised 2004), Share-Based
      Payment* (“SFAS
      123R”) effective January 1, 2006. SFAS 123R requires the recognition of the fair
      value of stock compensation, including stock options, in net income (loss).
      We
      recognize the stock compensation expense over the requisite service period
      of
      the individual grantees, which generally is the same as the vesting period
      of
      the grant. All of our stock compensation is accounted for as an equity
      instrument. We generally issue stock option grants to employees with an exercise
      price equal to the market price at the grant date.





We
      adopted SFAS 123R using the modified prospective method. Under this method,
      the
      provisions of SFAS 123R are applied to all awards granted or modified after
      the
      date of adoption. The unrecognized expense attributable to awards not yet vested
      at the January 1, 2006 date of adoption is recognized in net income (loss)
      in
      the periods after the date of adoption using the same valuation method (i.e.
      Black-Scholes) and assumptions determined under the original provisions of
      SFAS
      123, *Accounting for Stock-Based Compensation,* as disclosed on a
      pro-forma basis in our previous filings.





We
      value
      option grants to non-employees at the date of grant using the Black-Scholes
      option-pricing model. Option grants that do not include sufficient disincentive
      for non-performance are accounted for in accordance with EITF 96-18,
*Accounting for Equity Instruments That Are Issued to Other Than Employees
      for Acquiring, or in Conjunction with, Selling Goods or Services* and EITF
      00-18, *Accounting Recognition for Certain Transactions Involving Equity
      Instruments Granted to Other Than Employees*. 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, we record 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 our stock price.


F-33


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


We
      did
      not grant options to employees or members of our Board of Directors during
      2006.
      In 2007, we granted options to one employee and to the non-employee members
      of
      our Board of Directors. During 2007 and 2006, we recorded stock compensation
      expense of $999,000 and $149,000, respectively, in selling, general and
      administrative expenses in our Statement of Operations, of which $59,000 in
      2007
      and $149,000 in 2006 was attributable to unvested options granted prior to
      our
      adoption of SFAS 123R. We utilized the Black-Scholes option pricing model with
      the following weighted average assumptions for estimating the fair value of
      the
      stock compensation granted in 2007:





Dividend
                yield
            
            
            0.00
            %Expected
                volatility
            
            
            192.59
            %Risk-free
                interest rate
            
            
            3.73
            %Expected
                life (in years)
            
            
            5.31





We
      assumed an annual pre-vesting forfeiture rate of 7.75% in determining our stock
      compensation expense in both 2007 and 2006. Based on the assumptions noted
      above, the weighted average fair value of the options granted during 2007 was
      $0.107 per share. We expect to continue utilizing the Black-Scholes option
      pricing model for estimating the fair value of stock compensation attributable
      to any options granted to employees in the future. In determining the inputs
      to
      the valuation model, we assumed a dividend yield of zero since we have never
      paid cash dividends and have no present intention to do so. We estimated
      volatility based upon the historical volatility of our common stock over a
      period generally commensurate with the expected life of the options. We
      determined the risk-free interest rate based on the quoted U.S. Treasury
      Constant Maturity Rate for a security having a comparable term at the time
      of
      the grant. For options granted during 2007, we calculated the expected term
      of
      the option using the simplified method prescribed by SEC Staff Accounting
      Bulletin 107 for “plain vanilla” options. Where
      appropriate, we will consider separately for valuation purposes groups of
      employees or directors that have similar historical exercise behavior. We
      have
      typically granted options having a ten year contractual term to our employees
      and directors.





Stock
      bonus awards reflect shares of our common stock granted to employees and
      consultants. We recognize compensation expense at the time of grant. The expense
      is determined based on the number of shares awarded and the closing market
      price
      at the date of the award.





At
      December 31, 2007, we had options to purchase shares of our common stock
      outstanding under each of the following plans:




*2004
      Incentive Plan*


At
      the
      annual stockholders’ meeting in June 2004, our stockholders approved the
      adoption of the 2004 Incentive Plan (the 2004 Plan) to replace our 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. At the annual meeting of
      stockholders in June 2005, the stockholders authorized an additional 17,000,000
      shares for awards from the 2004 Plan and an increase from 8,000,000 shares
      to
      20,000,000 shares in the number of shares of our common stock which may be
      issued as restricted share or restricted share unit awards under the 2004 Plan.
      The Compensation Committee of our 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. We granted
      no
      options from the 2004 Plan during 2006. We granted options to purchase 1,482,693
      shares of our common stock at an average price of $0.099 per share in 2007.
      At
      December 31, 2007, there were 28,688,630 shares of our common stock available
      for grant under the 2004 Plan.





*2005
      Director Incentive Plan*


At
      the
      annual stockholders’ meeting in June 2005, our stockholders approved the
      adoption of the 2005 Director Incentive Plan (the 2005 Director Plan) to replace
      the 1995 Director Option Plan (the 1995 Director Plan), which expired in
      December 2005. The stockholders authorized 18,000,000 shares for awards from
      the
      2005 Director Plan. The Compensation Committee of our Board of Directors
      administers the 2005 Director Plan. The Board of Directors may amend or modify
      the 2005 Director Plan at any time. It will expire in June 2015, unless
      terminated earlier by the Board of Directors. We granted options to purchase
      an
      aggregate of 15,808,402 shares of our common stock at an exercise price of
      $0.11
      per share under the 2005 Director Plan in 2007. At December 31, 2007, there
      were
      2,191,598 shares of our common stock available for grant under the 2005 Director
      Plan.


F-34


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


*2000
      Equity Incentive Plan*


In
      June
      2000, our Board of Directors and stockholders approved the adoption of the
      2000
      Equity Incentive Plan (the “2000 Incentive Plan”) to replace the 1991 Incentive
      Stock Plan, which expired in April 2001. The Compensation Committee of our
      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. During 2006 and
      2007
      we granted only stock bonus awards from the 2000 Incentive Plan and we do not
      anticipate making additional option grants from this plan. At December 31,
      2007,
      there were 634,515 shares of our common stock available for grant under the
      2000
      Incentive Plan.




*1995
      Director Option Plan*


In
      December 1995, our Board of Directors approved the 1995 Director Option Plan
      (the Director Option Plan). At the annual meeting of stockholders in June 2005,
      our stockholders approved the 2005 Director Incentive Plan to replace the
      Director Option Plan, which expired in accordance with its terms in December
      2005. Under the Director Option Plan, the Board of Directors determined the
      number of options to purchase shares of our stock that were granted each year
      to
      newly-elected or re-elected directors. We granted non-statutory options under
      this plan to non-employee directors or, pursuant to an agreement between us
      and
      another person, entity or affiliate with whom a non-employee director was
      associated, to that other person, entity, or affiliate. Each option granted
      under the Director Option Plan was exercisable at 100% of the fair market value
      of our common stock on the date the option was granted and generally had a
      term
      of 10 years. Each grant under the plan vested monthly over the twelve month
      period commencing with the director’s date of election or re-election, provided
      that the option became vested and fully exercisable on the date of the next
      annual meeting of stockholders if such meeting occurred less than one year
      after
      the date of the grant. There are no shares of our common stock available for
      grant under the Director Option Plan at December 31, 2007.





*1991
      Incentive Stock Plan*


In
      April
      1991, our Board of Directors approved the adoption of the 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.
      Other than the expiration of unexercised options during 2006, there was no
      activity in the Stock Plan during 2006 or 2007 and no shares are available
      for
      grant under the Stock Plan.





Under
      the
      terms of each of the Company’s active equity incentive plans, a participant’s
      options or other awards may be subject to accelerated vesting upon the occurance
      of a change of control, as defined in the plan.





*Description
      of the 2004 Plan and the 2005 Director Plan*


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.
      Under the terms of the 2005 Director Plan, the Compensation Committee may grant
      nonstatutory stock options, stock appreciation rights, dividend equivalent
      rights, restricted stock, restricted stock units and stock bonuses only to
      an
      Outside Director, who is defined as a Director who is not an employee or a
      greater than 10% stockholder, directly or beneficially, of the Company or any
      affiliate.




The
      Compensation Committee may grant nonstatutory stock options under the 2004
      Plan
      at a price less than the fair market value of the common stock on the date
      the
      option is granted. The Compensation Committee may not grant incentive stock
      options 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 our stock
      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.


F-35


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


The
      terms
      of options granted from the 2005 Director Plan are determined solely by the
      Compensation Committee. The exercise price of options granted under the 2005
      Director Plan may be paid in cash or by such other method as the Committee
      may
      prescribe, provided, however, that any participant exercising rights and
      obtaining shares pursuant to awards granted under the 2005 Director Plan must
      pay cash or other valid consideration equal to the aggregate par value of such
      shares to the extent required by the Delaware General Corporation Laws. The
      participant must pay any taxes required to be withheld at the time of exercise.
      The Compensation Committee will determine the term of any option, but no option
      may be exercised after ten years from the date it is granted. Option awards
      will
      provide rules covering the time of exercise of an option in case of retirement,
      death, disability, or other termination of service as an Outside Director.





The
      2004
      Plan and the 2005 Director Plan permit the granting of stock appreciation rights
      in conjunction with all or part of a stock option granted under the respective
      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 granted from the 2004 Plan, 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 and the 2005 Director Plan permit 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 and the 2005 Director Plan permit 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 20,000,000 shares of common stock are available for delivery as
      restricted stock and restricted stock units from the 2004 Plan.





The
      2004
      Plan and the 2005 Director Plan also permit 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.


F-36


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


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 in either the 2004 Plan or
      the
      2005 Director Plan a specified amount for the purpose of assisting the
      participant to pay taxes resulting from the grant of an award.







The
      following table presents a summary of option activity for all of our stock
      option plans from December 31, 2005 through December 31, 2007.




Weighted
            
            Weighted
            
            AggregateAverage
            
            Average
            
            IntrinsicExercise
            
            Remaining
            
            Value
                atPrice
                per
            
            Contractual
            
            DateOptions
            
            Share
            
            Term
                (years)
            
            IndicatedOptions
                outstanding at December 31, 2005
            
            
            27,390,879
            
            $
            0.551
            
            
            7.34
            
            $
            12,500Options
                granted
            
            
            -
            
            
            -Options
                exercised
            
            
            (141,112
            )
            $
            0.126Options
                forfeited or expired
            
            
            (4,840,997
            )
            $
            0.444Options
                outstanding at December 31, 2006
            
            
            22,408,770
            
            $
            0.576
            
            
            7.36
            
            $
            2,534Options
                granted - at less than market price
            
            
            500,000
            
            $
            0.030Options
                granted - at market price
            
            
            16,791,095
            
            $
            0.111Options
                exercised
            
            
            (16,827
            )
            $
            0.010Options
                forfeited
            
            
            (110,554
            )
            $
            0.234Options
                expired
            
            
            (7,709,130
            )
            $
            0.550Options
                outstanding at December 31, 2007
            
            
            31,863,354
            
            $
            0.331
            
            
            8.01
            
            $
            39,784Options
                vested and exercisable at December 31, 2006
            
            
            21,954,053
            
            $
            0.583
            
            
            7.34
            
            $
            2,534Options
                vested and exercisable at December 31, 2007
            
            
            24,275,855
            
            $
            0.399
            
            
            7.43
            
            $
            39,784


F-37




**CALYPTE
        BIOMEDICAL CORPORATION AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **December
        31, 2007 and 2006**




The
      following table summarizes information about stock options outstanding under
      all
      of our option plans at December 31, 2007.





Options
                Outstanding
            
            Options
                ExercisableRange
                of
              Exercise
              Prices
            
            Number
                Outstanding
            
            Weighted
              Average
              Remaining
              Years
                to
              Expiration
            
            Weighted
              Average
              Exercise
              Price
            
            Number
              Exercisable
            
            Weighted
              Average
              Exercise
              Price$0.01
                to $0.03
            
            
            524,038
            
            
            8.92
            
            $
            0.029
            
            
            524,038
            
            $
            0.029$0.11
            
            
            15,808,402
            
            
            9.91
            
            $
            0.110
            
            
            8,308,402
            
            $
            0.110$0.13
                to $0.56
            
            
            4,802,292
            
            
            5.26
            
            $
            0.278
            
            
            4,714,793
            
            $
            0.280$0.585
            
            
            10,100,000
            
            
            6.45
            
            $
            0.585
            
            
            10,100,000
            
            $
            0.585$0.60
                to $150.00
            
            
            628,622
            
            
            5.62
            
            $
            2.442
            
            
            628,622
            
            $
            2.44231,863,354
            
            
            8.01
            
            $
            0.331
            
            
            24,275,855
            
            $
            0.399




The
      aggregate intrinsic value is the sum of the amounts by which the quoted market
      price of our common stock at December 31, 2007, $0.105 per share, exceeded
      the
      exercise price of the options, for those options for which the quoted market
      price exceeded the exercise price (“in-the-money-options”). The aggregate
      intrinsic value of options exercised on the dates the options were exercised
      was
      approximately $2,000 and $18,000 for the years ended December 31, 2007 and
      2006,
      respectively.




At
      December 31, 2007, the expected compensation cost of options outstanding but
      not
      yet vested was approximately $736,000, net of expected forfeitures . We
      expect to recognize this cost over a weighted average period of approximately
      17
      months. We did not record any income tax benefits for stock-based compensation
      arrangements for the years ended December 31, 2007 or 2006, as we have
      cumulative operating losses and have established full valuation allowances
      for
      our income tax benefits.




We
        granted 557,693 options to consultants in 2007 and none in 2006. We re-measure
        these options until they vest, using the Black-Scholes option pricing model,
        and
        we recognize the resulting value over the period in which we receive the
        services. During the years ended December 31, 2007 and 2006, we recognized
        approximately $45,000 and $2,000, respectively, in compensation expense for
        options granted to consultants.





In
      2007,
      we granted stock bonus awards from the 2004 Plan for an aggregate of 3,381,534
      shares of our common stock. The weighted average price of the shares issued
      as
      stock bonuses was $0.069 and we recognized $42,000 in research and development
      expense (net of accruals) and $150,000 in selling general and administrative
      expense attributable to these awards in 2007. In 2006, we granted a stock bonus
      award of 1,000,000 shares of our common stock from the 2004 Plan and recognized
      $250,000 in selling general and administrative expense. We recorded compensation
      expense of $90,000 and $204,000 attributable to stock bonus awards of 958,545
      and 1,265,630 shares of common stock granted from the 2000 Incentive Plan to
      consultants in lieu of cash compensation during 2007 and 2006, respectively.
      The
      weighted average price of shares issued as stock bonuses was $0.09 in 2007
      and
      $0.16 in 2006.





**(13)    Section
      401(k) Plan**




Effective
      January 1, 1995, we adopted a Retirement Savings and Investment Plan (the
“401(k) Plan”) covering our 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 401(k)
      plan permits us to make contributions which become vested to our employees
      over
      terms as described in the plan, but we made no such contributions in either
      2007
      or 2006.




F-38


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


**(14)    Income
        Taxes**
  The
        provision for income taxes is based upon our loss before provision for income
        taxes for the years ended December 31, 2007 and 2006, as follows (in
        thousands):
  2007
                
                2006Loss
                    before income taxes:Domestic
                
                $
                (7,013
                )
                $
                (13,210
                )International
                
                
                (1,255
                )
                
                (538
                )Total
                    loss before income taxes
                
                $
                (8,268
                )
                $
                (13,748
                )
  The
        provision for income taxes for all periods presented in the Consolidated
        Statements of Operations represents minimum California franchise taxes. For
        the
        years ended December 31, 2007 and 2006, income tax expense differed from
        the
        amounts computed by applying the U.S. federal income tax rate of 34% to domestic
        pretax losses as a result of the following:
  2007
              
              2006Computed
                  expected tax expense
              
              $
              (2,384
              )
              $
              (4,491
              )Losses
                  and credits for which no benefits have been recognized
              
              
              2,376
              
              
              4,488Other
              
              
              10
              
              
              5$
              2
              
              $
              2
  The
        tax
        effect of temporary differences that give rise to significant portions of
        the
        deferred tax asset is presented below:
  December
                  31,2007
              
              2006Deferred
                  tax assets:Net
                  operating loss carryovers
              
              $
              31,197
              
              $
              28,392Research
                  and development credits
              
              
              1,073
              
              
              1,003Other
              
              
              2,789
              
              
              1,090Total
                  gross deferred tax assets
              
              
              35,059
              
              
              30,485Valuation
                  allowance
              
              
              (35,059
              )
              
              (30,485
              )Net
                  deferred tax assets
              
              $
              -
              
              $
              -
  The
        net
        change in the valuation allowance for the years ended December 31, 2007 and
        2006
        was an increase of $4,574,000 and $4,526,000, respectively. Because there
        is
        uncertainty regarding our ability to realize our deferred tax assets, a 100%
        valuation allowance has been established. In accordance with SFAS 123(R),
        we
        have excluded certain tax benefits resulting from employee stock option
        exercises from our deferred tax asset at December 31, 2007 and 2006. In the
        future, if and when such tax benefits are ultimately realized, the amount
        of
        excess tax benefits will be credited to additional paid-in capital in our
        Consolidated Statements of Stockholders’ Deficit.
  As
        of
        December 31, 2007, we had federal net operating loss carryforwards of $88.6
        million and federal research and development credit carryforwards of $413,000,
        which will expire in the years 2008 through 2027. We also have state net
        operating loss carryforwards of $32.1 million and state research and development
        credit carryforwards of $1 million as of December 31, 2007. The state net
        operating loss carryforwards will expire in the years 2008 through 2017 and
        the
        state research and development credits will carryforward indefinitely.
        Approximately $2.1 million of federal and state net operating loss carryforwards
        represent stock option deductions arising from activity under our stock option
        plans, the benefits of which will increase additional paid-in capital when
        realized.


F-39





**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**


Federal
        and state laws limit the use of net operating loss and tax credit carryforwards
        in certain situations where changes occur in the stock ownership of a company.
        We conducted a preliminary analysis of our stock ownership changes under
        Internal Revenue Code Section 382 from our inception through December 31,
        2007
        and have reported our deferred tax assets related to net operating loss and
        research credit carryforwards after recognizing change of control limitations
        that may have occurred in 2003 and 2004. The limitation of our federal and
        state
        carryforwards associated with previous net operating losses and research
        credits
        and the associated reduction in our deferred tax assets was offset by a
        reduction in our valuation allowance. Utilization of our net operating loss
        and
        credit carryforwards may still be subject to additional substantial annual
        limitations for ownership changes after December 31, 2007.  Such additional
        annual limitations could result in the expiration of our net operating loss
        and
        credit carryforwards available as of December 31, 2007 before their
        utilization.
  We
        adopted the provisions of FIN 48 effective January 1, 2007 (see Note 2, Summary
        of Significant Accounting Policies).  Upon adoption of FIN 48, we
        determined that we did not have any unrecognized tax benefits and there was
        no
        effect on our consolidated financial condition or results of operations as
        a
        result of implementing FIN 48.  In addition, we had no unrecognized tax
        benefits at December 31, 2007, nor do we expect any changes in our unrecognized
        tax benefits during 2008.
  We
        file
        income tax returns in the U.S. federal jurisdiction and in various state
        and
        foreign jurisdictions. We are subject to U.S. federal and state income tax
        examinations by tax authorities for tax years 1993 through 2007 due to net
        operating losses that are being carried forward for tax purposes.
  Our
        policy is to recognize interest and penalties related to income tax matters
        in
        income tax expense. We had no accrual for interest or penalties on our
        Consolidated Balance Sheets at December 31, 2007 and 2006, and have not
        recognized interest or penalties in our Consolidated Statements of Operations
        for the years ended December 31, 2007 and 2006.




**(15)** **Royalty
      and License Agreements**




We
      have
      entered into arrangements with various organizations for the rights to utilize
      certain patents and proprietary rights under licensing agreements in exchange
      for royalty payments based on our sales of certain products.  As discussed
      in Note 5, Intangible Assets, during 2004 we entered into license agreements
      for
      technology and materials required to commercialize our rapid tests and the
      BED
      Incidence test. In addition to the initial or base license payments we have
      recorded as intangible assets, the agreements also contain a royalty on sales
      component based on sales of our rapid test products.  The underlying
      patents expire between 2006 and 2017.  There are minimum payments required
      by certain of the agreements that apply regardless of the amount of our
      sales.   The royalty obligations are royalty payments under some
      agreements.





We
      had
      paid royalties to five entities on our Legacy Business products based on a
      percentage of net sales of licensed products or annual minimum amounts. At
      December 31, 2007, we are approximately $190,000 in arrears on the payment
      of
      royalties under certain of the licensing agreements covering our former Legacy
      Business products.




F-40




**CALYPTE
        BIOMEDICAL CORPORATION AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **December
        31, 2007 and 2006**


**(16)    Employment
      and Consulting Agreements**





In
      February 2005, the Compensation Committee of the Board of Directors approved
      a
      consulting contract under which the Chairman of the Board of Directors provided
      certain strategic and advisory services to us through July 31, 2005 (the
“Consulting Contract”). Under the terms of the Consulting Contract and
      concurrent with its approval by the Compensation Committee, we granted the
      Chairman immediately exercisable options to purchase 850,000 shares of our
      common stock at an exercise price of $0.35 per share, which was the market
      price
      of our common stock on the date the option was granted. The options have a
      life
      of ten years and were granted pursuant to the 2004 Incentive Plan. On October
      3,
      2005, following the resignation of the Company’s president and chief operating
      officer, the Board of Directors appointed its Chairman as interim Chief
      Executive Officer, effective immediately. On January 4, 2006, the Compensation
      Committee of the Board of Directors approved a letter agreement outlining the
      terms and compensation of the Chairman’s additional service as interim Chief
      Executive Officer. Under the terms of the letter agreement, the Chairman was
      to
      receive cash compensation of $15,000 per month, beginning October 3, 2005 and
      a
      grant of 1,000,000 shares of our common stock, which we issued from the 2004
      Plan in January 2006. The Chairman continued to serve as interim Chief Executive
      Officer through April 2006. In February 2006, we issued the Chairman 311,736
      shares of our common stock valued at $60,000 in lieu of cash payments under
      the
      letter agreement for the months of October 2005 through January 2006. The Board
      of Directors appointed the Chairman as Chief Executive Officer and, effective
      September 26, 2006, we entered into a two year employment agreement (the
“Employment Agreement”) with automatic one-year renewal options that includes an
      annual salary of $350,000, other cash payments as described in the agreement,
      a
      grant of 2,000,000 shares of our common stock and a grant of 2,500,000 shares
      of
      restricted stock units which vest in semi-annual installments. At December
      31,
      2006, we had not yet made the stock or restricted stock unit grants. We granted
      the stock bonus award in January 2007, but at December 31, 2007, had not made
      the restricted stock unit or any other equity grant. Beginning in calendar
      year
      2007, the Chief Executive Officer became eligible for an annual
      performance-based bonus of up to 50% of his annual base salary, payable in
      cash,
      equity or a combination of the two. At December 31, 2007 no such award has
      been
      earned or accrued. As described in Note 11, Stockholders’ Deficit, our Chief
      Executive Officer participated in the March 2007 Private Placement by applying
      previously subscribed funds and canceling our obligation to repay notes and
      accrued but unpaid compensation under the Consulting Contract and the Employment
      Agreement owed to him, aggregating approximately $430,000, in return for
      issuance of stock and warrants under the same terms as those made available
      to
      the primary investors in the March 2007 Private Placement.





In
      January 2003, we entered into a twelve month employment agreement with an
      officer, with automatic renewal options, that included a base salary of $200,000
      and fully vested options to purchase 108,333 shares of our common stock 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 our common stock
      at $0.01 per share, in recognition of an earlier salary deferral arrangement,
      and options to purchase 625,000 shares of our 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 February 24, 2004, subject to the approval of
      our
      stockholders of the 2004 Incentive Plan, the officer was conditionally granted
      options to purchase 1,500,000 shares of our common stock at an exercise price
      of
      $0.585 per share, which was the market price on that date. Upon the
      stockholders’ approval of the 2004 Incentive Plan on June 22, 2004, when the
      market price of our common stock was $0.52 per share, the grant became
      effective, with an exercise price of $0.585 per share. The options were
      exercisable 50% upon grant and 50% on the one year anniversary of the grant
      and
      have a ten year term.  In
      conjunction with the August 2005 relocation of our administrative headquarters
      to Lake Oswego, Oregon and our October 2005 appointment of another officer,
      this
      officer was constructively terminated under the terms of the employment
      agreement, triggering our liability of $200,000 to him, which we had accrued
      but
      not paid as of December 31, 2006. The officer assumed another position and
      continued his employment with us through November 2007. As described in Note
      11,
      Stockholders’ Deficit, this officer participated in the March 2007 Private
      Placement by canceling our obligation to repay the $200,000 owed to him, in
      return for issuance of stock and warrants under the same terms as those made
      available to the primary investors in the March 2007 Private Placement.





In
      August
      2007, we entered into a six month employment agreement with an officer that
      included a annual base salary of $125,000 and the grant of an immediately vested
      option to purchase 925,000 shares of our common stock at $0.135 per share.
      The
      option expires 30 months following the grant date. The officer resigned from
      that position in November 2007.





In
      May
      2002, in conjunction with a financing proposal, the independent members of
      the
      Board of Directors appointed a new Executive Chairman and entered into a five
      year employment agreement with him. The
      Executive Chairman resigned effective November 15, 2004 as our 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, we entered into
      a
      consulting arrangement that extended through November 15, 2006 under which
      we
      agreed to pay approximately $1 million and to accelerate vesting of all his
      then-unvested options. We accrued the liability under the terms of the
      Separation Agreement at December 31, 2004. In
      January 2005, the Executive Chairman exercised previously issued and vested
      options to purchase 1,625,000 shares of our common stock in the amount of
      $520,000. During 2005 and 2006, we paid the amounts due under the Separation
      Agreement.




F-41




**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**




In
      April
      2003, we entered into a three-year consulting agreement for advisory and other
      services related to the marketing, distribution and sale of our products. The
      agreement obligated us 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 issue him an aggregate of 200,000 shares of our common stock. At
      December 31, 2004, we had paid an aggregate of $1,000,000 and issued 66,666
      shares of our common stock pursuant to the contract. During 2005, we
      renegotiated the contract with the consultant to reduce our obligation for
      cash
      payments to $1,250,000 and extend the payment period. Under the terms of the
      renegotiated contract, which obligation we accrued in 2005, we paid the
      consultant $250,000 and issued 66,667 shares of our common stock to him during
      2005. We paid the consultant $500,000 in both 2006 and 2007. At December 31,
      2007, we have no remaining liability to the consultant.





**(17)    Related
      Party Transactions**





As
      described in Note 8, Notes and Debentures Payable, we entered into a Credit
      Facility Agreement in April 2005 with Marr, our largest stockholder. The Credit
      Facility Agreement was subsequently modified between 2005 and 2007, including
      an
      amendment in March 2007 to extend the maturity of the 7% Notes issued under
      the
      Credit Facility from April 3, 2007 to April 3, 2009 and an amendment in December
      2007 granting a one-year conversion option at $0.16 per share for Notes and
      related accrued interest outstanding under the facility. At December 31, 2007,
      we have Promissory Notes in the face amount of $4,200,000 and accrued interest
      of $443,000 outstanding under the credit facility which will be due on April
      3,
      2009 unless converted into shares of our common stock prior to the expiration
      of
      the conversion option in December 2008.





As
      also
      described in Note 8, Notes and Debentures Payable, in March 2007 we also
      extended the due date of an aggregate of $4,983,000 of 8% Secured Convertible
      Notes, of which $3,223,000 were held by Marr, and all subsequent Notes issued
      in
      payment of quarterly interest from April 3, 2007 to April 3, 2009. Additionally,
      in December 2007, we granted Marr the right to convert any such Notes it holds
      at $0.16 per share, rather than $0.30 per share, for a one-year period. At
      December 31, 2007, Marr holds an aggregate of $3,422,000 of the 8% Secured
      Convertible Notes. See Note 19, Subsequent Events regarding additional 8%
      Secured Convertible Notes issued to Marr in January 2008.





As
      described in Note 8, Notes and Debentures Payable, and Note 11, Stockholders’
Deficit, during 2006 and 2007 we issued 8% Promissory Notes in the aggregate
      face amount of $96,300 to our Chief Executive Officer and received $100,000
      as
      an advance from him for participation in a future equity financing. In 2007,
      we
      repaid $6,300 in cash and our Chief Executive Officer participated in the March
      2007 Private Placement by applying the previously subscribed funds and canceling
      our obligation to repay notes and accrued but unpaid compensation under the
      Consulting Contract and the Employment Agreement owed to him, aggregating
      approximately $430,000, in return for issuance of stock and warrants under
      the
      same terms as those made available to the primary investors in the March 2007
      Private Placement.





As
      described in Note 11, Stockholders’ Deficit, and Note 16, Employment and
      Consulting Agreements, another of our officers participated in the March 2007
      Private Placement by canceling our obligation to pay $200,000 of accrued but
      unpaid compensation. The officer was issued stock and warrants under the same
      terms as those made available to the primary investors in the March 2007 Private
      Placement.





As
      described in Note 8, Notes and Debentures Payable, on February 26, 2007, we
      issued a 12% secured promissory note to an employee in the face amount of
      $65,000. We used the proceeds of the note to purchase materials to produce
      our
      BED Incidence tests. We granted the employee a purchase money security interest
      in the tests produced. We repaid the note and accrued interest on May 18, 2007.





In
      July
      2007, we entered into a 9-month lease with renewal options for office space
      in
      Geneva, Switzerland with a company controlled by one of the investors in the
      March 2007 Private Placement.




F-42




**CALYPTE
        BIOMEDICAL CORPORATION AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **December
        31, 2007 and 2006**




In
      October 2005, prior to our acquisition of our 51% equity interest in Beijing
      Marr, Beijing Marr received an unsecured, non-interest-bearing advance of
      approximately $1,880,000 from Beijing Mobix, an affilate of Marr and Marr Asia.
      The proceeds of the advance were used by Beijing Marr in the acquisition of
      its
      manufacturing facility and other assets. We have reflected this advance as
      a
      current liability in our Consolidated Balance Sheet at December 31, 2007.





In
      October 2005, Beijing Calypte received an unsecured, non-interest-bearing
      advance in the amount of $166,000 from Beijing Mobix. In November 2005, Beijing
      Calypte also received an unsecured, non-interest-bearing advance in the amount
      of $25,000 from its Executive Chairman. Beijing Calypte used each of these
      advances to fund its general corporate expenses. We have reflected these
      advances as current liabilities in our Consolidated Balance Sheet at December
      31, 2007.




In
      December 2005, we entered into an Equity Transfer Agreement with Marr Asia,
      an
      affiliate of Marr Technologies BV. Under the terms of the Equity Transfer
      Agreement, we acquired from Marr Asia a 51% equity interest in Beijing Marr.
      The
      Equity Transfer Agreement became effective on January 18, 2006, the date it
      was
      approved by the Huairou County Commerce Bureau. Through December 31, 2007,
      we
      had contributed $1,836,000 to the registered capital of Beijing Marr and Marr
      Asia has contributed $1,764,000, representing the full capital contribution
      of
      each party pursuant to the Equity Transfer Agreement, The business purpose
      of
      Beijing Marr is to pursue the manufacture, distribution, marketing and sale
      of
      our rapid test products in China.





In
      December 2005, we also entered into an agreement with Marr Asia in connection
      with the Equity Transfer Agreement that governs the relationship between Marr
      Asia and us as shareholders of Beijing Marr. The agreement provides for certain
      protective provisions for Marr Asia, as the minority shareholder, board
      composition and voting, buy-sell, non-competition and other provisions governing
      the other rights, duties and obligations of the shareholders (the “Shareholders
      Agreement”) in connection with the operation of Beijing Marr.





In
      connection with the aggregate $12.5 million investments by Marr Technologies
      BV
      during 2003, we signed a Memorandum Of Understanding to create a joint venture
      in China to market our current and future products. Additionally, the Nominating
      Committee of our Board of Directors agreed to grant Marr the right to nominate
      two mutually-agreeable representatives to our Board of Directors. During 2004,
      two directors initially nominated by Marr were added to our Board of Directors
      and remain as members of our Board.





In
      November 2003, the joint venture, Beijing Calypte Biomedical Technology Ltd.,
      was formed. We own 51% of its stock.




**(18)    Commitments
      and Contingencies**





We
      do
      not, in the normal course of business, enter into significant purchase contracts
      for materials or supplies.





In
      January 2006, a complaint was filed against us and certain of our current and
      former officers by Logisticorp, Inc. and Southwest Resource Preservation, Inc.
      (collectively, the “Complainants”) in the Superior Court of the State of
      California in and for the County of Los Angeles - Central District seeking
      damages in the amount of approximately $1,100,000, plus interest, trading
      penalties of $5,000 per day and other damages. On April 17, 2007, the Superior
      Court entered a final judgment dismissing the complaint with prejudice for
      failure to state a cause of action and ordering the Complainants to pay us
      our
      costs and attorneys’ fees in the aggregate amount of $106,304.40. On June 15,
      2007, the Complainants filed a notice to appeal the judgment with the Court
      of
      Appeal of the State of California, Second Appellate District, but failed to
      file
      an opening brief by the statutory deadline date. As indicated in Note 19,
      Subsequent Events, on January 3, 2008, the Court of Appeal dismissed the
      Complainants’ appeal. On January 31, 2008, however, the Court of Appeal vacated
      the dismissal and the Complainants have filed an appeal.




F-43
  **CALYPTE
        BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**





In
      May
      2006, we were notified that on March 15, 2006, a complaint was filed against
      us
      in Beijing No. 1 Intermediate People’s Court by Beijing Zhong Yang Pute
      Biomedical Tech. Corporation (“Zypute”) seeking damages of approximately
      $350,000 relating to a distribution agreement dated October 10, 2002 (the
“Distribution Agreement”) and a Product Replacement and Donation Agreement
      signed March 25, 2004 (the “Replacement Agreement”) between Zypute and us.
      Pretrial discovery proceedings began in November 2006. Based upon the costs
      and
      uncertainties associated with defending ourselves in China, we determined that
      it was in the best interests of our stockholders to settle this matter with
      Zypute. In January 2007, we entered into a settlement agreement with Zypute
      pursuant to which we paid Zypute $100,000 in March 2007.





As
      indicated in Note 9, Lease Commitments, we entered into a sublease with a third
      party as the sublessor of our former manufacturing facilities in Rockville,
      Maryland. Should the sub-tenant not fulfill its monthly payment or other
      obligations under the terms of the sublease, the primary landlord has the right
      to look to us for satisfaction of the obligations under the primary lease.





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 paid any product liability claims, it is conceivable
      that we could incur claims for which we are not insured.




**(19)    Subsequent
      Events**





*Common
      Stock Purchase Agreement with Fusion Capital*


On January
      16, 2008, we entered into a common stock purchase agreement (the “Purchase
      Agreement”) with Fusion Capital Fund II, LLC, an Illinois limited liability
      company (“Fusion Capital”). Pursuant to the Purchase Agreement, at our
      discretion, we may sell up to $8.0 million of our common stock to Fusion Capital
      from time to time over a 24-month period after the Securities and Exchange
      Commission (“SEC”) has declared effective the registration statement related to
      the transaction. Concurrently with entering into the Purchase Agreement, we
      entered into a registration rights agreement with Fusion Capital, under the
      terms of which we filed a registration statement with the SEC covering the
      shares that have been issued or may be issued to Fusion Capital under the
      Purchase Agreement. The SEC declared the registration statement effective on
      February 8, 2008. Accordingly, we now generally have the right, but not the
      obligation, to sell to Fusion Capital, from time to time, our shares in amounts
      between $100,000 and $1.0 million depending on certain conditions. We have
      the
      right to control the timing and amount of any sales of our shares to Fusion
      Capital. The purchase price of the shares will be determined based upon the
      market price of our shares without any fixed discount. Fusion Capital shall
      not
      have the right or the obligation to purchase any shares of our common stock
      on
      any business day that the price of our common stock is below $0.052 per share.
      We may terminate the agreement at any time at our discretion without any cost
      to
      us. There are no negative covenants, restrictions on future financings,
      penalties or liquidated damages in the Purchase Agreement. In January 2008,
      we
      issued 3,490,401 shares of our common stock to Fusion Capital as a commitment
      fee for entering into the Purchase Agreement. We had issued 250,000 shares
      of
      our common stock to Fusion in December 2007 for reimbursement of due diligence
      expenses. Through March 26, 2008, we have sold an aggregate of 2,311,111 shares
      of our common stock to Fusion Capital at an average price of 0.108 per share
      and
      have received proceeds of $250,000.





*Issuance
      of 8% Convertible Notes in payment of interest*


Effective
      January 3, 2008, when the market price of our common stock was $0.10 per share,
      we issued an aggregate of approximately $108,000 of Secured 8% Convertible
      Notes
      in payment of quarterly interest (the “January 2008 Interest Notes”) on the
      aggregate of then-outstanding $5.3 million outstanding principal balance of
      the
      April 4, 2005 Notes and the related quarterly interest notes. With the exception
      of the $70,000 Secured 8% Convertible Note issued to Marr, the January 2008
      Interest Notes have the same terms and conditions as the April 4, 2005 Notes
      and
      the subsequently issued interest notes, except that they do not have
      anti-dilution provisions and they are due on April 3, 2009. We did not issue
      warrants in conjunction with the January 2008 Interest Notes. As described
      in
      Note 8, Notes and Debentures Payable, effective July 3, 2007, we entered into
      an
      Amendment Agreement with Marr which permits us to issue Secured 8% Convertible
      Notes to Marr in payment of quarterly interest due on and after July 3, 2007
      which do not have registered shares of our common stock underlying the Notes.
      There are no registered shares of our common stock underlying the interest
      note
      issued to Marr on January 3, 2008.




F-44


**CALYPTE
      BIOMEDICAL CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**December
      31, 2007 and 2006**




*Warrant
      Re-pricing and Exercises*


Effective
      February 15, 2008, when the market price of our common stock was $0.136, we
      entered into an amendment agreement with an investor in the February 2007
      Private Placement to reduce the exercise price of warrants to purchase 1,041,668
      shares of our common stock issued in the February 2007 Private Placement and
      warrants to purchase 100,000 shares of our common stock issued in November
      2007
      pursuant to a consulting agreement from $0.104 and $0.15, respectively, to
      $0.05
      per share. The investor exercised all of the re-priced warrants and we received
      cash proceeds of approximately $57,000.





During
      the first quarter of 2008, two investors in the March 2007 Private Placement
      exercised 2007 Series A Warrants to purchase an aggregate of 5,750,000 shares
      of
      our common stock and we received cash proceeds of $460,000.





*Legal
      Complaint*


On
      January 3, 2008, the Court of Appeal of the State of California dismissed the
      Complainants’ appeal of the judgment in our favor regarding the complaint filed
      against us in January 2006 as described in Note 18, Commitments and
      Contingencies. The Complainants subsequently petitioned the Court of Appeal
      to
      extend the time to file the Complainants' opening brief. On January 31, 2008,
      the Court of Appeal vacated the dismissal and extended the time to file the
      Complainants' opening brief. The Complainants filed an opening brief on February
      29, 2008.




F-45


**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)By:
              /s/
                  Roger I. Gale**Roger
                  I. Gale****Chief
                  Executive Officer**


Date:
      March 28, 2008




**POWER
      OF ATTORNEY**




Each
      Director of the Registrant whose signature appears below, hereby appoints Roger
      I. Gale and Jerrold D. Dotson 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-K to the
      same extent and with the same effect as if done personally.




Pursuant
      to the requirement of the Securities and Exchange Act of 1934, this report
      has
      been signed below, by the following persons on behalf of the Registrant and
      in
      the capacities indicated.


**Signature**
              
              **Title**
              
              **Date**/s/
                  Roger I. Gale
              
              Chairman
                  of the Board of Directors,
              
              March
                  28, 2008**Roger
                  I. Gale**
              
              President
                  and Chief Executive Officer/s/
                  Jerrold D. Dotson
              
              Vice
                  President – Finance and
              
              March
                  28, 2008**Jerrold
                  D. Dotson**
              
              Administration
                  (Principal Financial and Accounting Officer)/s/
                  John J. DiPietro
              
              Director
              
              March
                  28, 2008**John
                  J. DiPietro**/s/
                  Paul Freiman
              
              Director
              
              March
                  28, 2008**Paul
                  Freiman**/s/
                  Adel Karas
              
              Director
              
              March
                  28, 2008**Adel
                  Karas**/s/
                  Julius R. Krevans, M.D.
              
              Director
              
              March
                  28, 2008**Julius
                  R. Krevans, M.D.**/s/
                  Maxim A. Soulimov
              
              Director
              
              March
                  28, 2008**Maxim
                  A. Soulimov**




S-1