UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------
                                   FORM 10-KSB

(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, 2005
                                       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                           (I.R.S. Employer
incorporation or organization)                         Identification Number)

5 Centerpointe Drive, Suite 400, Lake Oswego, OR                97035
    (Address of principal executive offices)                  (Zip Code)

                    Issuer's Telephone Number: (917) 204-0282

         Securities registered under Section 12(b) of the Exchange Act:

                                      None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, $.03 par value per share

      Check  whether  the issuer is not  required  to file  reports  pursuant to
Section 13 or 15(d) of the Exchange Act [ ]

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

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

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

      State issuer's revenues for its most recent fiscal year.   $427,000
                                                                 ---------

      As of March 29, 2006, 184,628,399 shares of the registrant's common stock,
$.03 par value, were outstanding. The aggregate market value of the common stock
held  by  non-affiliates  of the  registrant  (i.e.,  excluding  shares  held by
executive  officers,  directors,  and control persons as defined in Rule 405) on
that date was  approximately  $32,344,000  based on the $0.24 per share  closing
price of the common stock on that date reported on the American Stock Exchange.

                       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 2006
Annual Meeting of  Shareholders  are  incorporated by reference into Part III of
this Form 10-KSB.

Transitional Small Business Disclosure Format (Check one):  Yes [ ]  No [X]

<PAGE>

--------------------------------------------------------------------------------
                         CALYPTE BIOMEDICAL CORPORATION
                                   FORM 10-KSB
                                      INDEX

                                                                           Page
                                                                            No.
                                                                           ----

PART I.
Item 1.           Business                                                    1
Item 2.           Properties                                                 18
Item 3.           Legal Proceedings                                          19
Item 4.           Submission of Matters to a Vote of Security Holders        19
PART II.
Item 5.           Market for the Registrant's Common Equity and Related
                    Stockholder Matters                                      20
Item 6.           Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                      31
Item 7.           Financial Statements and Supplementary Data                57
Item 8.           Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure                      57
Item 8A.          Controls and Procedures                                    57
PART III.
Item 9.           Executive Officers and Directors of the Registrant         59
Item 10.          Executive Compensation                                     62
Item 11.          Security Ownership of Certain Beneficial Owners and
                    Management and Related Stockholder Matters               67
Item 12.          Certain Relationships and Related Transactions             69
Item 13.          Exhibits and Reports on Form 8-K                           70
Item 14.          Principal Accountant Fees and Services                     79
                  Signatures                                                S-1
                  Certifications                                           IV-1

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

<PAGE>

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

This Annual Report on Form 10-KSB contains  forward-looking  statements,  within
the meaning of the Federal  securities  laws,  about our business and prospects,
including  without  limitation  statements  regarding  our expected  revenues or
revenue growth rate in 2006. 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

(a) Business Development.

Calypte Biomedical Corporation 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. Our common stock
currently  trades on the American  Stock  Exchange  under the symbol  "HIV." Our
administrative  offices are located in Lake  Osewego,  Oregon.  We have research
operations in Vancouver, Washington.

Historically,  we have  manufactured and marketed  urine-based  HIV-1 diagnostic
screening  tests  and  urine  and  serum-based   "confirmatory"   (Western  Blot
supplemental)  tests for use in high-volume  laboratories,  which we refer to as
our "Legacy  Business." In June 2004, we closed our  manufacturing  facility for
certain of our Legacy Business products in Alameda,  California and consolidated
all of our manufacturing  operations at our facility in Rockville,  Maryland. In
April  2005  we  announced   plans  to  restructure   our  business  by  further
consolidating our domestic  operations and focusing our capital resources on the
global  commercialization of the HIV-1/2 Rapid Tests and the BED Incidence Test.
We discontinued the Legacy Business products in the mid-fourth  quarter of 2005.
The financial statements included in Part II, Item 7 of this Form 10-KSB present
the results of our Legacy Business, which has accounted for most of our revenues
to date, as a discontinued operation.

During 2004 and 2005, we have added other HIV tests, including an incidence test
and various rapid tests.  Rapid tests provide diagnostic results in less than 20
minutes and are particularly suitable for point-of-care  testing,  especially in
lesser  developed  countries  that lack the  medical  infrastructure  to support
laboratory  based testing.  We have recently  completed  field trials or product
evaluations  of our  HIV-1/2  Rapid  Tests in China,  Uganda,  South  Africa and
Cameroon and believe that we have  validated  the tests.  In the last quarter of
2004,  through an arrangement with the United States Centers for Disease Control
and Prevention  (the "CDC") under which we manufacture  and distribute the test,
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.

We are currently focusing on the development and  commercialization  of new test
products for the rapid detection of antibodies to HIV-1 and HIV Type 2, a second
type of HIV  ("HIV-2"),  in blood and oral fluid  samples  using a lateral  flow
dipstick design (the "HIV-1/2 Rapid Tests") and the commercialization of the BED
Incidence  Test on a worldwide  basis.  While we retain  rights to a urine-based
rapid diagnostic test, urine is a particularly  difficult sample in a rapid test
environment  and we  are  delaying  further  development  and  commercialization
efforts at this time.


                                       1
<PAGE>

On April 18, 2005,  we entered into a  non-binding  letter of intent to sell the
Legacy Business to Maxim Biomedical,  Inc. ("Maxim").  Effective May 1, 2005, we
entered  into  a   manufacturing   services  and   management   agreement   (the
"Manufacturing  Services  Agreement") with Maxim under which Maxim manufactured,
shipped and performed  quality control  procedures for us in connection with the
Legacy Business. Under the terms of the Manufacturing Services Agreement,  Maxim
hired some of our ex-employees and we transferred our inventory to Maxim for use
under the agreement.  Effective  November 15, 2005,  under the terms of an Asset
Purchase and License Agreement (the "Agreement"),  we sold our Legacy Business -
our  FDA-approved  EIA and Western Blot HIV  diagnostic  test product lines - to
Maxim.  We have  classified  our Legacy  Business  operations as a  discontinued
operation in the financial statements included in Item 7 in this Form 10-KSB.

During  the  third  quarter  of  2005,  we  also   transitioned   our  corporate
administrative  offices  from  California  to Lake Oswego,  Oregon,  a suburb of
Portland, near where our research and development operations are located. During
the second quarter of 2005, we incurred severance costs for personnel terminated
at Rockville  and for certain  administrative  personnel  not  transitioning  to
Oregon.  During the third  quarter  of 2005,  we entered  into an  agreement  to
sublease our California offices through the July 2007 expiration of the lease on
that facility. We recorded  approximately $535,000 in the second quarter of 2005
for  transition-related  costs resulting from our restructuring  activities.  We
also  incurred  approximately  $1.2 million of expense in the second  quarter of
2005 related to the transfer of our  inventory to Maxim under the  Manufacturing
Services Agreement.

Having completed the  restructuring  of our Legacy Business,  we believe that we
have  significantly  reduced our monthly  operating  burn rate as compared  with
historical levels. However, the revenue stream from our Legacy Business products
has also been eliminated,  requiring us to rely on revenues from the sale of the
BED Incidence Test and,  following  regulatory  approvals,  from the sale of our
HIV-1/2  Rapid  Tests  internationally  to pursue our  business  milestones  and
achieve  profitability.  We believe  that the  geographic  consolidation  of our
domestic  operations and the termination of our Legacy  Business  resulting from
this  restructuring will improve our operational  efficiency,  decrease our cash
burn and permit us to  concentrate  on expediting  the  procedures  necessary to
commercialize  our HIV-1/2 Rapid Tests and thereby begin the process of building
the revenue stream necessary to support our operations and achieve our financial
objective of sustained profitable operations and increased stockholder value.

In November  2003, we became the 51% owner of a joint venture,  Beijing  Calypte
Biomedical  Technology Ltd. (the "Beijing  Calypte Joint  Venture"),  created to
market our 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  26%  of  our
outstanding  stock as of March 29, 2006.  To date,  the  operations of the joint
venture  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. Marr
Asia  continues to own the remaining  49% interest in Beijing Marr.  Through our
acquisition of Beijing Marr, we have acquired rights to manufacturing facilities
and other assets necessary to manufacture our AwareTM line of HIV-1/2 rapid test
products  in China.  Beijing  Marr is  currently  renovating  the  manufacturing
facilities,  completing  the transfer of assets it purchased from Beijing Yaohua
Bio-Technology   Ltd.   (the  "Yaohua   Assets")  and  obtaining  the  necessary
governmental  approvals to begin  production  of our AwareTM  HIV-1/2 rapid oral
fluid (OMT)  diagnostic test, which is currently under evaluation by the Chinese
State Food and Drug Administration ("SFDA").


Financial Considerations

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


                                       2
<PAGE>

Based upon our financial condition,  which includes $3.0 million working capital
and $7.2 million stockholders' deficits,  respectively,  recurring losses and an
accumulated  deficit of $154  million at  December  31,  2005,  our  independent
accountants  have issued an opinion on our  financial  statements as of December
31, 2005 that cites substantial doubt about our ability to continue our business
operations  as a  going  concern.  Although  we  have  issued  an  aggregate  of
$2,500,000 of 7% Promissory Notes to Marr in January through March 2006 and have
the right to issue an additional $1.5 million of such Promissory  Notes,  all of
which  are or would be due in April  2007  under  the  terms of the 2005  Credit
Facility with Marr,  the proceeds of such notes are  insufficient  to provide us
with the  liquidity  required to fully attain our business  milestones,  achieve
positive cash flow and meet our obligations when due. We do not believe that our
current cash  resources are  sufficient to sustain our  operations  through 2006
without  obtaining  additional  financing.   There  can  be  no  assurance  that
additional financing will be available,  or if it is available,  that it will be
on  acceptable  terms.  Our  pledge of the  rights to our  assets as  collateral
security  for the 8%  Convertible  Notes issued in April 2005 and under the 2005
Credit  Facility  with Marr may inhibit our ability to secure  financing  in the
future.  Further,  there  can be no  assurance  that we will be able to  achieve
expanded acceptance of or realize significant  revenues from our new products or
that we will achieve and sustain  profitability  and positive  cash flows in the
future.

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 2006. In the absence of adequate  resources from current  working capital
and  existing  financing  arrangements,  we may be required to raise  additional
capital to sustain our  operations.  There can be no assurance  that  additional
financing would be available,  or if it is available, be on acceptable terms. We
would,  or might be required to,  consider  strategic  opportunities,  including
merger,  consolidation,  sale or other  comparable  transaction,  to sustain our
operations. We do not currently have any agreements in place with respect to any
such  additional  financing  or  strategic  opportunity,  and  there  can  be no
assurance that any such opportunity will be available to us on acceptable terms,
or at all. If additional financing is not available to us if and when 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.

(b) Business of issuer.

Background on HIV

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

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

The December 2005 AIDS  Epidemic  Update  published  jointly by the Joint United
Nations Programme on HIV/AIDS  ("UNAIDS") and the World Health Organization (the
"WHO") provides the following assessment of the worldwide AIDS epidemic:

       "Acquired  Immunodeficiency  Syndrome  (AIDS)  has  killed  more  than 25
       million  people since it was first  recognized in 1981,  making it one of
       the most  destructive  epidemics  in recorded  history.  Despite  recent,
       improved access to  antiretroviral  treatment and care in many regions of
       the world,  the AIDS  epidemic  claimed 3.1 million  [2.8 - 3.6  million]
       lives in 2005; more than half a million [570 000] were children.


                                       3
<PAGE>

       The total number of people living with the human  immunodeficiency  virus
       (HIV) reached its highest  level:  an estimated 40.3 million [36.7 - 45.3
       million]  people are now living with HIV.  Close to 5 million people were
       newly infected with the virus in 2005."

The Update further reported that the number of people living with HIV at the end
of 2005 has risen in every  geographic  region  worldwide  compared  with  2003,
except the Caribbean region, the second-most affected region in the world, which
remained constant.  The epidemic continues to grow in Eastern Europe and Central
Asia,  where the number of people  living with HIV  increased  to 1.6 million in
2005, an increase of 25% compared to 1.2 million in 2003 and a nearly twentyfold
increase in the last 10 years,  and in Eastern Asia,  where the number of people
living with HIV increased by approximately  20% compared with 2003.  Sub-Saharan
Africa remains most impacted by the crisis, with 25.8 million people living with
HIV in 2005,  almost one million more than in 2003.  More than 60% of the people
living with HIV in 2005 worldwide are in sub-Saharan  Africa,  as are 77% of all
women  living  with  HIV,  even  though  sub-Saharan  Africa  is  home  to  only
approximately 10% of the world's population.

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

                       HIV Infected Persons (in millions)
          Sub-Saharan Africa            "Next Wave" Countries

                2002    2010                    2002    2010

         Low     20      30              Low     15      50
         High    23      35              High    23      75

         Source: Bill and Melinda Gates Foundation Global Health Report,
         February 2004

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


                                       4
<PAGE>

Under the terms of our License Agreement with Ani Biotech ("Ani"),  we have been
granted an exclusive  license to develop,  manufacture and sell rapid diagnostic
tests  for a number  of  sexually  transmitted  diseases,  including  HIV,  HPV,
Hepatitis B, Hepatitis C, Syphilis,  Gonorrhea, and Chlamydia when urine or oral
fluid are the sample media.  We also have a  non-exclusive  license for the same
tests using blood. We are  considering the possibility of developing  tests that
would  detect one or more  STD's,  potentially  in  conjunction  with HIV.  (See
Aware(TM) II (The Ani  Platform) in Our Products - Status of New Products  later
in this section.)


HIV Testing -The First Step in a Treatment Protocol

Experts  agree  that the most  important  actions  that can be taken to stem the
spread of the HIV/AIDS epidemic are education and testing. However, countries in
which HIV is spreading most rapidly have the lowest testing rates. These include
countries in  Sub-Saharan  Africa where the  prevalence  of HIV infection is the
highest and the "next wave" countries.

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

Since 1984, laboratory-based blood screening tests have been considered the gold
standard  of HIV  testing.  Such HIV  blood  tests can be  expensive,  requiring
trained  personnel  and  blood-sampling  equipment.  Additionally,   blood-based
testing  has  become  increasingly  more  costly  as the costs of  disposing  of
potentially  infected  specimens,  syringes,  needles  and  transfer  tubes  has
increased.  The cost of blood-based  testing is prohibitive to many large public
health screening programs,  particularly in lesser-developed  countries, many of
which  have high rates of HIV  infection.  Even in the  United  States,  certain
populations  are not  routinely  screened  due to the high  cost of  blood-based
testing.

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


The International Testing Gap

In its HIV/AIDS  Surveillance  Report,  2004 issued in 2005, the CDC reported an
HIV  prevalence  rate of  approximately  0.14% in the  United  States.  The AIDS
Epidemic Update  estimates the prevalence rate of adults (ages 15 to 49 years of
age) living  with HIV in  sub-Saharan  Africa and in Eastern  Europe and Central
Asia at 7.2% and 0.9%,  respectively,  at the end of 2005.  The  strength of the
market  for HIV  diagnostic  tests in the  United  States is not  related to the
prevalence of HIV infection, but to the significant percentage of the population
that is tested for one or more purposes.

As demonstrated  by the following table using 2003 data,  countries in which the
prevalence of HIV is greatest currently have the lowest testing rates.


                                       5
<PAGE>

<TABLE>
<CAPTION>
------------------------------------ ---------------------------    --------------------------------- --------------------------
        Developed Countries             Annual Testing Rate,              Developing Countries          Annual Testing Rate,
                                            Adults 15-64                                                    Adults 15-64
------------------------------------ ---------------------------    --------------------------------- --------------------------
<S>                        <C>                            <C>       <C>                     <C>                            <C>
USA                                                       28.0%     Sub-Saharan Africa                                     1.3%
------------------------------------ ---------------------------    --------------------------------- --------------------------
Canada                                                    14.0%     China                                                  1.6%
------------------------------------ ---------------------------    --------------------------------- --------------------------
Japan                                                     10.0%     India                                                  1.5%
------------------------------------ ---------------------------    --------------------------------- --------------------------
Western Europe                                            18.7%     Latin America                                          2.0%
------------------------------------ ---------------------------    --------------------------------- --------------------------
                                                                    Russia/Eastern Europe                                  3.0%
------------------------------------ ---------------------------    --------------------------------- --------------------------
                                                                    Asia/Pacific                                           1.5%
------------------------------------ ---------------------------    --------------------------------- --------------------------

------------------------------------ ---------------------------    --------------------------------- --------------------------
                           Average:                       18.0%                             Average:                       1.8%
------------------------------------ ---------------------------    --------------------------------- --------------------------
</TABLE>

Sources:
o   Estimated  testing  rate  for  USA  based  on  data  obtained  from  the CDC
    Behavioral Risk Factors Surveillance System Surveys
o   Estimated testing rate for Sub-Saharan Africa based on research conducted by
    LEK Consulting on behalf of Calypte Biomedical Corporation
o   Estimated  testing  rate  for all  other  areas of the  world  based on data
    obtained from the report  HIV/Aids  Testing - A global  Strategic  Report by
    Global Industry Analysts, February 2004


China,  Sub-Saharan  Africa,  Russia,  Southeast Asia,  India and Brazil are all
facing  explosive  and deadly  growth in HIV  infections.  Many of the countries
where HIV/AIDS is currently  most prevalent do not have the economic  ability or
medical  infrastructure  to adequately  diagnose and provide  therapy to persons
already  infected  or to provide  education  or take other  steps to prevent the
spread of the epidemic.  However the Global Fund,  UNAIDS,  WHO, the World Bank,
the  United  Nations,  the Gates  Foundation  and many  other  humanitarian  and
governmental organizations, including the Unites States, through its $15 billion
President's  Emergency  Plan for AIDS Relief  (PEPFAR),  have all recognized the
importance  of  mitigating  the advance of the  HIV/AIDS  epidemic and have made
significant contributions to combat the crisis through funding, science, testing
and treatment implementation.

Other countries,  such as China, that have the internal  resources to respond to
the threat of  HIV/AIDS  have only  recently  recognized  HIV/AIDS  as a serious
problem.  However, the growing prevalence of HIV/AIDS in those countries and the
example  of the human and  economic  toll of  HIV/AIDS  on Africa  are  changing
attitudes.  In China,  HIV/AIDS  is now  openly  acknowledged  at all  levels of
government  as a serious  threat to the future  prosperity  of the  country  and
resources are being mobilized to provide  comprehensive  education,  testing and
treatment.  Recent  developments  in China include the  institution of mandatory
testing of all military recruits and students,  prominent HIV/AIDS awareness and
education programs,  and establishment of programs to guarantee universal access
to  treatment.  China's  2005  prevention  budget  for  the  central  and  local
governments, as well as its Ministry of Health, now exceeds $100 million.

We expect that the worldwide  response to the HIV/AIDS crisis will significantly
increase  spending on HIV diagnostics.  We project that the worldwide market for
HIV  diagnostic  tests  will grow from  approximately  $513  million  in 2003 to
approximately  $1  billion  in 2010,  driven  largely  by  expansion  of testing
programs in developing countries.  Our estimate is based in part on the February
2004 report  HIV/AIDS  Testing - A Global  Strategic  Report by Global  Industry
Analysts and in part on our internal research.


                                       6
<PAGE>

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

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


Our Products

Following the disposition of our Legacy Business,  our product line now includes
our HIV-1 BED Incidence test and our Aware(TM) line of low cost rapid tests.

HIV-1 BED Incidence EIA

In September 2004, we began selling a unique  surveillance test called the HIV-1
BED Incidence EIA test (the "Incidence Test"). The Incidence Test is designed to
estimate the rate of new HIV  infections  in  populations  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.


                                       7
<PAGE>

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.

During 2005, the CDC conducted worldwide workshops to train representatives from
various domestic  governmental  public health and humanitarian  organizations to
use the  test  and  announced  that  the  Incidence  Test is the  exclusive  HIV
surveillance  test in the United States.  Outside of the United States,  the CDC
was also engaged in promoting the use of the Incidence Test through advocacy and
conducting "train-the-trainer" workshops.

In  February  2006,  the 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.  addressing a December  2005 UNAIDS  report  regarding
studies in Africa and Thailand  indicating  that the Incidence  Test  apparently
over-estimated  the incidence rate. The Information Sheet  acknowledges that the
assay may cause  over-estimation under certain conditions and suggests expanding
current  protocols.  The Information  Sheet notes,  "[T]he  [Incidence  Test] in
combination  with  the  appropriate  estimator  is  the  preferred  approach  to
calculating  incidence  of  HIV  infection  in the  U.S...in  the  context  of a
case-based  surveillance  system where additional  clinical and  epidemiological
information  is available  for  interpretation  and  estimation.  It may be less
successful  in a  specimen-based  system  where  these  critical  data cannot be
ascertained." We see the test's design,  use, and  interpretation of its results
evolving as public health agencies and the CDC, based on their  experience using
the Incidence Test in their U.S. and international surveys, gain experience with
it. 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,
however, that the Incidence Test will achieve widespread  acceptance,  either in
the United States or internationally.


The Aware(TM) Rapid Test Product Line

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

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

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


                                       8
<PAGE>

The ability to perform HIV testing  without the need for a blood sample has been
shown in the past to significantly  increase voluntary testing rates.  Moreover,
the elimination of needles and lancets from the testing  process  simultaneously
eliminates   the  risk  of  accidental   infection   through  needle  re-use  or
needle-stick  accident.  To address  the needs of  developing  world  markets in
Africa,  Asia and elsewhere 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. The line consists of rapid tests for the detection
of  antibodies  to HIV-1 and HIV-2 that can use either  blood or oral fluid as a
specimen sample.(1)

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 will migrate up the
strip.  Along the way, the sample will wet a Protein A: gold  conjugate pad. The
reconstituted  conjugate  is reddish in color,  and will complex with IgG in the
sample.  Thus bound,  the sample and  conjugate  will continue to migrate up the
dipstick.  As this  complex  of  sample  and gold  conjugate  migrates,  it will
encounter a line of HIV proteins (recombinant or synthetic peptide, depending on
the assay). At this point, the anti-HIV IgG in an antibody-positive  sample will
form  a   classical   antigen:antibody:conjugate   complex   which  is  visually
discernable  as a red line.  Further up the  dipstick,  the sample and conjugate
complex will  encounter a line of  anti-human  IgG  antibody.  Human IgG that is
present in the sample will form a visible antibody:antibody:conjugate line. This
second line acts as a control  line that  indicates  not only that the  reagents
imbedded in the test device are  functional,  but that a valid,  adequate sample
was  introduced to the test.  For both the blood and oral fluid tests,  positive
results are generally visible within 5 minutes although we advise users to allow
20 minutes before interpreting a result a negative.

The blood/serum/plasma  test requires just 5 uL of sample in a dropper-full (200
uL) of diluent.  Oral fluid  samples are collected by wiping a swab across upper
and lower gums,  and then  releasing  the material  collected by the swab into a
dropper-full (1mL) of diluent.

Aware(TM) HIV-1/2 BSP (Blood/Serum/Plasma) Test
While we remain committed to alternative fluid (non-blood) testing, we developed
the  Aware(TM)  HIV-1/2 BSP test  because we believe it is  important to offer a
full range of testing  solutions.  The BSP test  permits  us to  participate  in
tenders that specify blood 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 can pass all international evaluations and standards. Further, the
test provides one-stop shopping and standardized methods for customers that want
to use both blood and non-blood  tests.  The strengths of the Aware(TM)  HIV-1/2
BSP test are:

o   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)
o   Kit  packaging  is  designed  to  permit  multiple  users  to  use  the  kit
    simultaneously
o   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
o   Clinical performance that is similar to competing rapid blood HIV tests
o   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)

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. The assay is ideally suited to clinical or professional settings in the
developing  world.  Although  the range of other assays that can 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 OMT is only very slightly
less than for blood.  The strengths of the  Aware(TM)  HIV-1/2 OMT test are:

o   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)

-------------
(1) We have also  developed  a urine test that was  designed to provide the same
functionality as the oral fluid test, but it has not demonstrated the same level
of  accuracy  as either the  blood/serum/plasma  or oral  fluid  tests in recent
evaluations.  Accordingly,  we have  decided  to place the urine  test back into
development to further optimize its performance. As a result of current resource
constraints, the optimization of the urine test is not an active project.


                                       9
<PAGE>

o   Kit  packaging  is  designed  to  permit  multiple  users  to  use  the  kit
    simultaneously
o   Unlike its primary  competitor,  the Aware(TM) OMT 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
o   Aware(TM) OMT testing is painless, safe, and non-invasive
o   Although more expensive than blood tests,  Aware(TM) OMT is expected to have
    a cost advantage over its primary current oral fluid competitor
o   Clinical  performance  of the  Aware(TM) OMT test is very close to competing
    rapid  blood  HIV  tests  and  substantially  superior  to  other  non-blood
    alternatives.

Aware(TM) HIV-1/2 OMT OTC

The Aware(TM) HIV-1/2 OMT OTC test is an  over-the-counter  version of Calypte's
oral fluid rapid test.  The test was designed for markets where the Company sees
substantial demand for a low-cost over-the-counter HIV test including the Middle
East,  Russia and other  Eastern  European  and  Central  Asian  countries.  The
Aware(TM) HIV-1/2 OMT 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.


Status of New Products
----------------------

Aware(TM) II (The Ani Platform)
The original  Aware(TM)  product line is a rapid  testing  solution that is well
suited for developing  countries.  However, in developed countries the design of
the  original  Aware(TM)  product  line may  infringe  on certain  lateral  flow
technology  patents  for which we have  been  unable  to  obtain  licenses.  The
Aware(TM) II product line is our solution to these challenges.

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--blood
or oral fluid sample.  The end of the sample  applicator stick is then placed in
the sample  inlet of the test  device.  The sample and the  mobilized  conjugate
thereafter  move  through  the porous  carrier in the test  device by  capillary
action,  to the  detection  and control  zones.  In all  instances,  the labeled
conjugate is retained in the control zone, producing a color indicating that the
test is valid;  any  HIV-1/2  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.

The Ani  Platform  avoids  infringing  the  traditional  lateral flow patents by
moving a critical test  component  known as the conjugate from the test strip to
another part of the system. A conjugate of some kind is used in all lateral flow
tests  and,  in most  cases,  it is  impregnated  into  the  test  strip  during
manufacture. Ani Biotech's technology moved the conjugate from the test strip to
a plastic swizzle stick. By making this change,  both we and Ani Biotech believe
that  the Ani  Platform  entirely  avoids  the  technologies  covered  by  other
tightly-controlled patents.

Further, there are currently no FDA-approved over-the-counter ("OTC") HIV tests,
at least one of our  competitors has expressed its intent to develop such a test
and the FDA is  considering  the 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 one acquired from Ani is appropriate  for
use in an FDA-approved OTC application, potentially coupled with tests for other
STD's or  conditions.  We are attending the FDA advisory  committee  meetings on
this subject and are formulating  our plans to commence the regulatory  approval
process for an OTC test in the United States.


                                       10
<PAGE>

Rapid Incidence Test

In April  2004,  the  Company  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 in a "me-too  marketplace" by providing a test having
a more  complete  diagnostic  protocol.  We believe that the test will provide a
simplified  rapid  format that can be performed  in resource  poor  settings and
remote outreach locations for both diagnostic and surveillance purposes.

We plan to initially  release this product for  international use on the current
Aware(TM) platform and manufacture it overseas. We subsequently plan to transfer
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.

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 to be developed
either in house or in partnership  with the CDC. 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 US 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.

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.

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.  On an individual basis,  agreement terms are
typically set at 1, 2, or 3 years, and with a few exceptions, all purchases must
be 100% prepaid.

The following table lists our current distributors.

------------------------------------------ ------------------------------------
Distributor                                Territory
------------------------------------------ ------------------------------------
PCN Healthcare Co. Ltd.                    Thailand
------------------------------------------ ------------------------------------
Enfield Medical Co. Ltd.                   Taiwan
------------------------------------------ ------------------------------------
Wisma BST                                  Malaysia
------------------------------------------ ------------------------------------
Marsman Drysdale Medical Products, Inc.    Philippines
------------------------------------------ ------------------------------------
Sumit Exports & Trades Pvt. Ltd.           India
------------------------------------------ ------------------------------------
Daison Development & Investment Company    Vietnam
------------------------------------------ ------------------------------------
Impex Speedways                            Nepal
------------------------------------------ ------------------------------------
Joseph & Gionis LLC                        United Arab Emirates, Saudi Arabia,
                                           Bahrain, Kuwait, Oman, Qatar, Egypt,
                                           Libya, Algeria, Iran, Jordan,
                                           Lebanon, Morocco, Syria, Tunisia,
                                           Pakistan, Sudan, Turkey
------------------------------------------ ------------------------------------
Adcock Ingram Scientific                   South Africa
------------------------------------------ ------------------------------------
Lily-Max (PTY) Ltd.                        Uganda, DRC, Rwanda, Burundi
------------------------------------------ ------------------------------------
Bioweb (PTY) Ltd.                          Kenya, Tanzania, Cameroon, Chad
------------------------------------------ ------------------------------------
Mistaire                                   Botswana
------------------------------------------ ------------------------------------
National Diagnostics (PVT) Ltd.            Zimbabwe
------------------------------------------ ------------------------------------
Gestlab LDA                                Mozambique
------------------------------------------ ------------------------------------
Golden Technologies Inc.                   Ghana, Mali
------------------------------------------ ------------------------------------
Diagnostic Ventures Ltd.                   Nigeria
------------------------------------------ ------------------------------------


                                       11
<PAGE>

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. In China, for example,
there were 31 domestic  EIA tests and 12  domestic  rapid tests on the market in
2004.  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%.

The following  table  indicates the companies that we consider to be our primary
competitors.

<TABLE>
<CAPTION>
--------------------------- --------------------- ---------------------------------------------------------
Manufacturer                Products              Comments
--------------------------- --------------------- ---------------------------------------------------------
<S>                         <C>                   <C>
Inverness Medical           o Determine           o Determine is believed to be the number one
Innovations Inc.            o Double Check Gold     HIV rapid test in the world (based on revenue)
                                                  o Inverness holds critical lateral flow
                                                    intellectual property.  Its stated strategy is to use
                                                    those patents  as barrier to limit competition
--------------------------- --------------------- ---------------------------------------------------------
Trinity Biotech plc         o Uni-Gold            o Uni-Gold is the number two selling HIV rapid test
                                                    behind Determine in Africa
--------------------------- --------------------- ---------------------------------------------------------
OraSure Technologies Inc.   o OraQuick            o Only other company to offer alternative fluid
                            o OraQuick Advance      rapid tests
--------------------------- --------------------- ---------------------------------------------------------
ChemBio Diagnostics, Inc.   o Sure Check HIV      o Established sales offices in Tanzania and Nigeria
                            o HIV 1/2 Stat Pak    o Offers quality "western products" at low price
                                                    point
--------------------------- --------------------- ---------------------------------------------------------
</TABLE>


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  blood or oral
fluid.  Second,  we believe our alternative  fluid tests have unique  advantages
compared with blood based tests, as indicated in the following table.


                                       12
<PAGE>

--------------------------------------------------------------------------------
                       Advantages of Alternative Fluids over Blood
--------------------------------------------------------------------------------
NON-INVASIVE     o Studies  show  greater  acceptance  of  HIV testing without
                   blood
                 o Painless sampling
                 o Expect higher testing rates - the key to controlling AIDS
--------------------------------------------------------------------------------
                 o Perfect for over-the-counter (home-based) testing
EASIER TO USE    o Lab technician not required
                 o No needles or lancets required
--------------------------------------------------------------------------------
SAFER            o No infectious agent (blood)
                 o No accidental needle/lancet sticks among healthcare workers
                 o No risk of needle re-use (no needles)
                 o No disposal issues
--------------------------------------------------------------------------------


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.  To a
lesser extent, we are also exploring the potential for other new diagnostic test
products.  Our product  research and  development  spending  increased from $2.1
million  in 2004 to $2.2  million in 2005 in spite of a  reduction  in R&D staff
resulting from the closure of our Rockville, Maryland R&D Operation. The expense
involved  in various  international  clinical  trials and the effort and expense
required in transferring and maintaining our production  technology in China and
Thailand  more than offset the reduction in personnel  costs.  We expect our R&D
costs to remain steady,  or, depending on the timing of certain clinical trials,
to  increase  in 2006 as we  continue  the  commercialization  of our  Aware(TM)
dipstick-format  HIV-1/2 Rapid Tests and continue to develop tests using the Ani
Platform or other new products.

Component Supply

Our manufacturing  operations employ a number of components,  including antigens
and recombinants  that we purchase from various suppliers for our various tests.
We also use some  single-source  components.  Any delay or  interruption  in 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.  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.

Recombinant Antigen (Adaltis, Inc.):
In April 2004, we entered into a license and supply agreement with Adaltis, Inc.
under which  Adaltis  will supply us with key  HIV-1/2  peptides  for use in our
HIV-1/2 Rapid Tests.


                                       13
<PAGE>

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):
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.

The following table summarizes the license acquired for the manufacture and sale
of the Aware(TM) rapid tests.

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


                                       14
<PAGE>

Incidence Tests

We initiated a technology  transfer of the Incidence Test in April 2004 from the
laboratories at the National  Center for HIV, STD and TB Prevention,  a division
of the  Public  Health  Service  (PHS).  By October  2004,  the first lot of the
Calypte(R)HIV-1  BED Incidence EIA was ready for sale. We have  manufactured and
sold subsequent lots throughout 2005 and beyond.

The following  table  summarizes  the licenses  granted in  connection  with the
Incidence Test.

<TABLE>
<CAPTION>
-------------------------------- ----------------------------------- ----------------------------------- --------------
Issuer of License                Description                         Additional provisions               Expiration
-------------------------------- ----------------------------------- ----------------------------------- --------------
<S>                              <C>                                 <C>                                 <C>
PHS National Center for HIV,     Non-exclusive license for using     Right to make, use and sell         2014
STD and TB Prevention            the BED-biotin peptide, Controls    products utilizing the technology
                                 and Calibrator and instructions     described in the License Agreement
                                 for their use
-------------------------------- ----------------------------------- ----------------------------------- --------------
</TABLE>


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

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

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


Manufacturing
To meet the  challenges  of testing  for HIV in the  developing  world,  we have
adopted a  manufacturing  strategy for our rapid tests that  capitalizes  on the
reduced  labor and overhead  rates typical of the regions in which we expect the
tests will be sold. We have established manufacturing capabilities in the United
States and  Thailand  and are in the process of  establishing  manufacturing  in
China through a joint venture.  A key  consideration in selecting  manufacturing
locations for the current  Aware(TM) product is that the design of the tests may
infringe on certain lateral flow patents discussed previously.  Accordingly,  we
plan to produce  Aware(TM) in countries  that offer both low cost  manufacturing
and where we have  technological  freedom to  operate.  Thailand  and China meet
these criteria.

        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. Materials
sourced  by  Pacific  Biotech  charges  back to us at cost  materials  that they
source.  Product  produced at Pacific  Biotech is available  for  shipment  into
Africa and parts of Southeast Asia.


                                       15
<PAGE>

        MML
We have outsourced  production of the Incidence Test to MML in Troutdale Oregon.
The terms of the MML agreement are similar to the Pacific Biotech agreement. MML
charges the company a flat price per test for assembly of  Incidence  test kits.
We supply all materials to MML.

       Beijing Marr
Our subsidiary,  Beijing Marr, is in the process of completing an acquisition of
assets,  renovating the  manufacturing  facilities,  transferring  technology in
connection with the acquired  assets,  and obtaining the necessary  governmental
approvals  for the  production of our AwareTM line of HIV rapid test products in
China.  The  manufacturing  facilities  are located in the  Huairou  district of
Beijing. The manufacturing  facilities currently house about 2,100 square meters
of  manufacturing  space with ample room to  expand.  We must  complete  certain
renovations  and upgrades to the facility before we can complete the transfer of
technology  and  commence  manufacturing  operations.  We plan to  evaluate  the
marketability  of the 17 GMP and  Chinese  FDA  approved  products  acquired  by
Beijing Marr as part of its acquisition of assets, especially the rapid HIV test
for blood, before making any decisions regarding their production and sale.

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 World Health  Organization (WHO) or the United States
Agency for  International  Development  (USAID)  "approval" as a proxy for their
own.

Though few in  number,  countries  in  Category  1  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, fall
into Category 2 or 3 for their 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.  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 2006.


                                       16
<PAGE>

<TABLE>
<CAPTION>
------------------- ------------------------------ --------------------------------------------------------------
     Country               Aware(TM) Products                             Comments/Status
------------------- ------------------------------ --------------------------------------------------------------
                       BSP      OMT PRO   OMT OTC
------------------- ---------- --------- --------- --------------------------------------------------------------
<S>                     <C>       <C>       <C>    <C>
Malaysia                X
------------------- ---------- --------- --------- --------------------------------------------------------------
S. Africa X
------------------- ---------- --------- --------- --------------------------------------------------------------
UAE                                         X
------------------- ---------- --------- --------- --------------------------------------------------------------
Uganda                  X         X                Approval to import and sell into private sector
------------------- ---------- --------- --------- --------------------------------------------------------------
Zimbabwe                X                          Sales on hold due to political issues within the country.
------------------- ---------- --------- --------- --------------------------------------------------------------
Kenya                   X         X
------------------- ---------- --------- --------- --------------------------------------------------------------
</TABLE>


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,  we 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,  which is
expected to facilitate  approvals in several  additional  target venues.  We are
currently conducting clinical trials in Russia, South Africa, Uganda,  Cameroon,
and Tanzania for one or more of our rapid test products,  are attempting to have
our HIV-1/2 oral OTC product registered in several countries in the Middle East,
and have studies planned in several additional countries later in 2006.

           WHO Approval

The WHO serves as both a  quasi-regulatory  body and a potential  funding source
for many  developing  countries that might not otherwise  possess the regulatory
infrastructure  or financial  resources to avail  themselves of products for the
diagnosis  and  treatment  of HIV and AIDS.  While  the WHO is not a  regulatory
agency,  even countries like Malaysia or Zimbabwe with local approval mechanisms
may  defer  to the WHO as an  additional  standard.  However,  unlike  statutory
regulatory agencies, WHO does not evaluate every product offered to it and makes
no effort to evaluate the quality systems of suppliers.

Companies  whose  products  have  been  favorably   evaluated  by  the  WHO  may
participate  in the WHO's Bulk  Procurement  Program--a  program  through  which
participating countries can order products at a published price through the WHO.
Our Aware(TM)  tests have not yet been  evaluated by the WHO. We have,  however,
advised  the WHO that we wish to  participate  in the WHO's  next round of rapid
test  evaluations.  In December 2005, we received a letter from WHO stating that
it is  reorganizing  the division  responsible for evaluating new tests and that
new reviews will be suspended for a period of time.

           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 United States' FDA may be used, provided they have a waiver issued by the
USAID  and  CDC.  We do not  currently  have a USAID  waiver  nor do we have the
requisite  data at this time to  complete  all the  product  applications  for a
waiver. However, we expect to file for a waiver for each Aware(TM) product as we
obtain  sufficient  data.  With the completion of certain of the pending African
product trials  scheduled for early 2006, we expect to be able to pursue a USAID
waiver for our Aware products,  initially for the oral fluid rapid test,  during
the first half of 2006.

BED Incidence Test
Calypte's 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 in the United  States and "for  research
use" internationally,  simplifying its availability for use by both domestic and
foreign public health organizations.


                                       17
<PAGE>

           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 $10,000,000  claims-made  products
liability insurance policy.  However,  our insurance coverage may not adequately
protect us from  liability that we incur in connection  with clinical  trials or
sales of our products.

Employees

As of March 17,  2006,  we had an  aggregate  of 12 full time  employees  in the
United States, 9 of whom were engaged in or directly  supported our research and
development  activities and three of whom were in administration.  Our employees
are not represented by a union or collective  bargaining  entity. We believe our
relations with our employees are good.

Where to get more information

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

Item 2. Properties

We lease approximately 2,000 square feet of office space in Lake Oswego,  Oregon
on a month-to-month basis that houses our corporate administrative offices.

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

Our  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 is currently expanding and renovating the
primary  manufacturing  facilities to bring them into  compliance  with recently
upgraded  Chinese  GMP  requirements  and  to  ensure  their  adequacy  for  the
manufacture of both our rapid  tests and the  17 SFDA-approved  products Beijing
Marr acquired as a part of the Yaohua Assets.

We believe our existing  facilities  are suitable;  however,  we plan to acquire
facilities  in the  Portland,  Oregon  vicinity  in  which  we can  combine  our
administrative and research and development  functions and provide manufacturing
capacity for our planned Aware II line of products. We believe that our property
is adequately covered by insurance.

We have  sublet our two former  manufacturing  sites in  Rockville,  Maryland to
Maxim - a 26,000 square foot manufacturing, research and office site and a 3,000
square foot site which houses a BSL-3 virus  laboratory.  In connection with our
disposition of our Legacy Business,  Maxim has assumed our obligations as lessee
under these leases.  The lease on the virus lab site expires in October 2006 and
the lease on the larger site expires in February  2009. We have 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 expires
in June 2007.  Should the  sub-tenants in any of these lease  agreements fail to
fulfill  their  monthly  payment  or other  obligations  under  the terms of the
subleases,  the primary landlord has the right to look to us for satisfaction of
the obligations under the primary leases.


                                       18
<PAGE>

Item 3. Legal Proceedings

A complaint was filed 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  against us
and certain of our current and former officers  seeking damages in the amount of
approximately $1,100,000, plus interest, trading penalties of $5,000 per day and
other  damages.  In September  2002, we entered into a purchase  agreement  with
Mercator  Momentum Fund  ("Mercator")  pursuant to which  Mercator  committed to
purchase debentures convertible into our common stock in a number of tranches in
the  aggregate  face value amount of  $2,000,000  (the  "Debentures").  Mercator
assigned  certain of its rights to purchase the Debentures to the  Complainants,
among  others.  The  Complainants  were  entitled to purchase  Debentures  in an
aggregate  face value  amount of $60,000  according to the terms of an agreement
among Mercator,  the  Complainants  and other parties  purchasing  rights to the
Debentures (the "Transaction").  On August 25, 2003, prior to the closing of the
Transaction,   the  Complainants   delivered  Notices  of  Conversion  of  their
Debentures.  We have  attempted to honor the  conversion of the Debentures as of
the closing  date of the  Transaction,  but the  Complainants  have  refused to
accept such conversion.  We believe that the claims made by the Complainants and
the  Complainants'  request for money are  unmeritorious and that the outcome of
the lawsuit will not have a material  adverse effect on our business,  financial
condition or results of operations.

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

We did not  submit  any  matters to a vote of our  security  holders  during the
fourth quarter of 2005.


                                       19
<PAGE>

                                     PART II

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

Trading Market and Stock Split

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

Fiscal Year  (reflects stock split)                  Quarter    High      Low
--------------------------------------------------   -------    ----      ---

2005                                                   4th    $  0.24   $  0.16
2005                                                   3rd       0.35      0.13
2005                                                   2nd       0.28      0.15
2005                                                   1st       0.49      0.25

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

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

On March 29, 2006, there were  approximately 230 holders of record of our common
stock.  The  closing  price of our common  stock on March 29, 2006 was $0.24 per
share.  We have never paid any cash  dividends,  and our Board of Directors does
not anticipate  paying cash dividends in the  foreseeable  future.  We intend to
retain any future  earnings to provide  funds for the operation and expansion of
our business.


                                       20
<PAGE>

The following  tables  summarize our issuance of securities  for the most recent
three years. All proceeds have been used for general  corporate  purposes and to
facilitate the  development  and  commercialization  of our rapid HIV diagnostic
tests.

         SUMMARY OF RECENT FINANCINGS - SEPTEMBER 2002 TO MARCH 29, 2006

                                                                        Total
                                       Gross               Net          Shares
Financing Source                    Proceeds          Proceeds          Issued
----------------                    --------          --------          ------

Mercator 12% and 10%
  Debentures                         $ 4,550           $ 3,650         37,529.5
Marr 2003 Private Placements          12,500            11,900         28,333.3
May 2004 PIPE (1)                      9,300             8,769         29,353.1
July 2004 PIPE (2)                     1,488             1,384          4,696.5
April 2005 8% Convertible
  Notes and Warrants (3)               8,000             7,667          2,646.3
                                    --------          --------        ---------
   Total                            $ 35,838          $ 33,370        102,558.7
                                    ========          ========        =========

(1)   Shares issued  includes  6,103,125  shares issued in June 2005 pursuant to
      anti-dilution provisions triggered by the April 2005 Convertible Notes and
      Warrants transaction.

(2)   Shares  issued  includes  976,501  shares  issued in June 2005 pursuant to
      anti-dilution provisions triggered by the April 2005 Convertible Notes and
      Warrants transaction.

(3)   We have issued  2,500,000  shares  upon the  conversion  of $750,000  face
      amount of the 8% Convertible notes, excluding interest, and no shares upon
      the  exercise  of  the   warrants.   The  remaining   notes,   subject  to
      anti-dilution  provisions  through April 3, 2006, are convertible at $0.30
      per share into an  aggregate of  24,166,667  shares of common  stock;  the
      Series A  warrants  are  currently  exercisable  at  $0.325  per  share to
      purchase an aggregate of 26,666,667  shares of common stock and the Series
      B  warrants  are now  exercisable  at  $0.325  per  share to  purchase  an
      aggregate  of  12,000,000  shares  of  common  stock.  We have  issued  an
      aggregate of $502,000  face amount of 8%  Convertible  Notes in payment of
      interest  in July and  October  2005 and  January  2006.  These  notes are
      convertible  into  approximately  1,673,600 shares of our common stock, of
      which approximately 146,200 shares have been converted.


                                       21
<PAGE>

        DETAIL OF RECENT FINANCINGS - SEPTEMBER 2002 TO MARCH 29, 2006

<TABLE>
<CAPTION>
                                                                                                       Calypte           Shares
Financing Type and                          Conversion          Gross        Net       Transaction     Closing          Issued/ $
Investor (1)                                  Feature         Proceeds     Proceeds        Date         Price         Redeemed (2)
------------                                  -------         --------     --------        ----         -----         ------------
<S>                                       <C>                   <C>        <C>             <C>           <C>        <C>
Mercator 12% and 10%
   Debentures (3)

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

                                                                    40           40         10/2/03      $1.310                    -
                                                                ------       ------                                 ----------------
                                                                $2,000       $1,795                                 18,199.8/ $1,940
                                                                ------       ------                                 ----------------

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

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

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


                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                                                       Calypte           Shares
Financing Type and                          Conversion          Gross        Net       Transaction     Closing          Issued/ $
Investor (1)                                  Feature         Proceeds     Proceeds        Date         Price         Redeemed (2)
------------                                  -------         --------     --------        ----         -----         ------------
<S>                                       <C>                   <C>        <C>             <C>           <C>      <C>

10% Convertible Debentures
--------------------------

Mercator Focus Fund, L.P. (9)                   80% of the      $1,000     $510 (6)        1/14/03        $1.92   7,941.1/ $1,000
                                          average of the 3
                                            lowest trading
                                            prices for the
                                           20 trading days
                                                 preceding
                                           conversion, but
                                             not more than
                                                     $3.00

Mercator Momentum Fund, L.P. (9)                80% of the        $450         $440        1/30/03        $1.86     2,857.7/ $450
                                          average of the 3
                                            lowest trading
                                            prices for the
                                           20 trading days
                                                 preceding
                                           conversion, but
                                             not more than
                                                     $3.00
Mercator Focus Fund, L.P. (9)                                     $400                     3/13/03        $1.47     3,428.9/ $400
  Mercator Momentum Fund III, L.P.              65% of the         100                                              1,626.3/ $100
                                                                   ---                                              -------------
                                          average of the 3        $500         $400                                 5,055.2/ $500
                                                                  ----         ----                                 -------------
                                            lowest trading
                                            prices for the
                                           20 trading days
                                                 preceding
                                           conversion, but
                                             not more than
                                                     $2.10
   Total Mercator Debentures                                    $4,550       $3,650                                 37,529.5/ $4,490
                                                                ======       ======                                 ================

Marr Private Placements
-----------------------

PIPE at $0.30 per share
Marr Technologies B.V. (8)(10)           $0.30 per share         $2,500      $2,300        8/1/03        $0.152           8,333.3

PIPE at $0.50 per share
Marr Technologies B.V. (8)(10)           $0.50 per share        $10,000      $9,600        9/1/03        $0.498          20,000.0
                                                                -------      ------                                      --------
  Total Marr Private Placements                                 $12,500     $11,900                                      28,333.3
                                                                =======     =======                                      ========
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                                                                       Calypte           Shares
Financing Type and                          Conversion          Gross        Net       Transaction     Closing          Issued/ $
Investor (1)                                  Feature         Proceeds     Proceeds        Date         Price         Redeemed (2)
------------                                  -------         --------     --------        ----         -----         ------------
<S>                                       <C>                   <C>        <C>             <C>           <C>        <C>

May 2004 Private Placement

  PIPE at $0.40 per share (11)(13)                 Units
    SF Capital Partners LP                     issued at         $4,000         $3,720      5/28/04       $0.50          12,625.0
    Marr Technologies BV                          $0.40,          3,000          2,910      5/28/04       $0.50           9,468.8
    Proximity Fund LP                          including            500            465      5/28/04       $0.50           1,578.1
    Proximity Partners LP                         shares            500            465      5/28/04       $0.50           1,578.1
    MTB Small Cap Growth Fund                 and 5 year            500            465      5/28/04       $0.50           1,578.1
    MTB Multi Cap Growth Fund                    warrant            500            465      5/28/04       $0.50           1,578.1
    Bridges & PIPES LLC                      exercisable            300            279      5/28/04       $0.50             946.9
                                                                 ------        -------                                   --------
                                            at $0.50 per
        Total May 2004 PIPE                        share         $9,300        $ 8,769                                   29,353.1
                                                                 ======        =======                                   ========

July 2004 Private Placement

  PIPE at $0.40 per share (11)(13)                 Units
    Sunrise Equity Partners, L.P.              issued at          $ 750           $698       7/9/04      $0.615           2,367.2
    Amnon Mandelbaum                              $0.40,             80             74       7/9/04      $0.615             252.5
    David I. Goodfriend                        including              8              7       7/9/04      $0.615              25.3
    TCMP3 Partners                                shares            150            140       7/9/04      $0.615             473.4
    United Capital Partners, LLC              and 5 year            500            465       7/9/04      $0.615           1,578.1
                                                 warrant        -------        -------                                    -------
        Total July 2004 PIPE              exercisable at        $ 1,488        $ 1,384                                    4,696.5
                                         $0.50 per share        =======        =======                                    =======

April 2005 Secured 8% Convertible
Notes and Warrants (12)
    SF Capital Partners Ltd.                       Notes        $ 4,000         $3,720       4/4/05       $0.27         - /     -
    Marr Technologies BV                     convertible          2,800          2,800       4/4/05       $0.27         - /     -
    Morningtown Limited                     at $0.30 per            450            450       4/4/05       $0.27         - /     -
    Smithfield Fiduciary LLC                  share plus            500            465       4/4/05       $0.27      1,759.7/$500
    Iroquois Master Fund Ltd.                     5 year            250            232       4/4/05       $0.27        886.5/$250
                                                                -------        -------                               ------------
                                                warrants
                                          exercisable at        $ 8,000        $ 7,667                               2,646.2/$750
                                                                =======        =======                               ============
                                              $0.325 per
                                                   share
</TABLE>

---------------------
       (1) The Mercator 12% and 10%  Debentures  and warrants,  the Common Stock
underlying  the 2003 PIPEs  with Marr,  the May 2004 and the July 2004 PIPEs and
the April 2005  Secured 8%  Convertible  Notes and  Warrants  were issued  under
exemptions  provided by Regulation S or Regulation D. With the exception of Marr
Technologies  B.V.  ("MTBV"  or  "Marr"),  which  has  identified  itself  as an
affiliate of the Company in public  filings  with the SEC,  none of the entities
listed above is or has been an affiliate of the Company. Other than MTBV, all of
the listed  investors were subject to ownership  limitations  restricting  their
ownership  of our stock to a maximum of 4.9% or 9.9%,  depending on the specific
agreement.


                                       24
<PAGE>

      (2) On July 18, 2003, the registration statement for shares underlying the
$1,300,000  of the  Mercator  12% and 10%  Convertible  Debentures  and  certain
previous  financings  became effective (File No.  333-106862).  As a result of a
decline in the market price of our stock subsequent to the effective date of the
July  2003  registration   statement,   the  number  of  shares  registered  was
insufficient to permit the complete  conversion of the notes and debentures into
registered shares. The shares underlying the convertible  securities have become
eligible  for  resale  under  Rule  144,  and  certain  investors  have  availed
themselves of that eligibility to convert  restricted  shares issued pursuant to
conversions  into  free-trading  shares.  On  July  8,  2004,  the  registration
statement for 83,056,050 shares underlying Marr Private Placements, the May 2004
PIPE,  certain of the Mercator 12% Convertible  Debentures,  approximately  12.2
million additional shares  attributable to financings  included in the July 2003
registration  statement and  approximately 3.3 million shares issued or issuable
to vendors  consultants  and other  parties  who agreed to accept  shares of our
Common Stock in lieu of cash became effective (File No. 333-116491). On July 28,
2004,  the  registration  statement  for  6,472,800  shares of our Common  Stock
underlying the July 2004 PIPE and related  warrants  became  effective (File No.
333-117439).  On July 1, 2005, the registration  statement for 73,198,583 shares
of our Common Stock  underlying  the April 2005  Convertible  Notes and Warrants
transaction  and the 2005  Marr  Credit  Facility  warrants  and  other  related
warrants  became  effective  (File  No.  333-125051).  On  July  22,  2005,  the
registration  statement for 8,332,803  shares of our Common Stock underlying the
anti-dilution  entitlements  (both Common Stock and additional  warrants) of our
May 2004 and July 2004 PIPEs  triggered  by the April  2005  Notes and  Warrants
transaction became effective (File No. 333-126460).

      (3) At November 11, 2005,  the holders have  converted  all but $60,000 of
principal  of the  convertible  debentures  issued to Mercator or its  assignees
since September 2002. Based on current market prices,  we estimate that we would
be required to issue  approximately 0.5 million  additional shares of our common
stock if the holders  elected to convert  the  remaining  principal  and accrued
interest  of their  debentures  at this  time.  The  holders  claim  an  earlier
transaction  date with  respect  to a  conversion  of the  debentures,  which we
dispute.  Assuming  immediate  conversion at the earlier,  disputed  transaction
date,  the number of shares of common  stock  issuable  would be an aggregate of
approximately 0.6 million. While reserving our rights with respect to the number
of shares  calculated  as issuable  based on the disputed  transaction  date, we
registered  that  number  of  shares  of  Common  Stock  in our  June  15,  2004
registration statement pending resolution of the dispute.

      (4) Includes fee shares.

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

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


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

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

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

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


                                       25
<PAGE>

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

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

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

      (12) Under the terms of the purchase agreements, we issued an aggregate of
$8.0 million of Secured 8% Senior  Convertible  Notes having a term of two years
and  convertible  into  26,666,667  shares of common  stock at $0.30 per  share;
Series A warrants to purchase an aggregate of 26,666,667  Warrant  Shares,  with
each Series A warrant  exercisable after October 4, 2005 at an exercise price of
$0.325 per share and having a 5 year term;  and Series B warrants to purchase an
aggregate of 12,000,000 Warrant Shares,  with each Series B warrant  exercisable
after October 4, 2005 at an exercise price of $0.325 per share and having a term
of 5 years. After October 4, 2006 and if the daily volume weighted average price
of our common  stock is greater than $0.60 for 20  consecutive  trading days and
subject to certain trading volume  restrictions,  we have the right to force the
conversion  of any  unconverted  Notes into  shares of our common  stock.  After
October 4, 2005 and if the daily  volume  weighted  average  price of our common
stock is greater than approximately  $0.542 for 20 consecutive  trading days and
subject to certain trading volume  restrictions,  we have the right to force the
exercise  of the Series B  Warrants,  which  would  result in  proceeds to us of
approximately $3.9 million.

As approved by our  stockholders  and under specified  conditions,  the Purchase
Agreement  and Series A Warrant  provide for  anti-dilution  adjustments  in the
conversion  price of the Notes and the exercise price of the Series A Warrant in
the event we issue  shares  of common  stock or  common  stock  equivalents,  as
defined in the  agreements,  within one year of the closing date at a price less
than  $0.30 per share  with  respect  to the Notes or at less than  $0.325  with
respect to the Series A Warrant.  These adjustment provisions terminate (i) upon
the earlier of one year or upon  conversion of an investor's  Note and (ii) upon
the earlier of one year or upon exercise of an investor's Series A Warrant.


                                       26
<PAGE>

      (13) On April 4, 2005, when the market price of our common stock was $0.27
per  share,  we and  the  investors  who  are  parties  to  securities  purchase
agreements  and  warrants  dated as of May 28,  2004 or July 9,  2004  (the 2004
PIPEs)  agreed to amend the 2004 PIPES  with  respect  to  anti-dilution  rights
granted therein so that they did not become effective unless and until they were
approved by our  stockholders,  which approval we received at our annual meeting
of stockholders  held on June 30, 2005. In  consideration  of the amendment,  we
have issued to each investor in the 2004 PIPES additional shares of common stock
and a warrant to purchase  additional  shares of common stock for no  additional
consideration  from  the  investor.  Additionally,  the  exercise  price  of the
aggregate of  approximately  10.7 million  warrants issued in the 2004 PIPEs was
reduced  from $0.50 per share to $0.45 per share.  On June 30,  2005,  we issued
approximately  7.1  million  additional  shares of common  stock and  additional
warrants to purchase  approximately 1.3 million  additional shares of our Common
Stock at an exercise price of $0.325 per share under the terms of the amendment.

Marr Credit Facilities

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

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

      On May 26,  2004,  when the market price of our Common Stock was $0.46 per
share, we and Marr again agreed to amend the Marr Credit  Facility  whereby Marr
committed to subscribe for up to  $5,000,000  of Promissory  Notes that we might
issue  through  December  31, 2004,  should our Board of  Directors  unanimously
approve the  issuance  of one or more such notes  before the  expiration  of the
commitment period. At that time, Marr had two designated representatives serving
on our Board of Directors.  Any Notes issued  pursuant to this second  amendment
would bear  interest at 9% per annum and have a maturity  date of May 31,  2005.
The $5,000,000 amount available under the amended Marr Credit Facility was to be
reduced by the amount of any equity  financing we might obtain after the May 26,
2004  effective  date of the second  amendment and through the December 31, 2004
commitment  period,  exclusive  of  the  proceeds  from  the  May  2004  Private
Placement. Accordingly, the commitment was reduced to approximately $3.6 million
as a result of the  closing  of the July 2004  PIPE.  As  consideration  for the
extension of the commitment period reflected in the second amendment of the Marr
Credit  Facility,  we issued to Marr a warrant to purchase 500,000 shares of our
Common  Stock  at an  exercise  price of  $0.40  per  share.  This  warrant  was
immediately  exercisable and expires two years from its date of issuance, on May
26,  2006.  It has not yet been  exercised.  The shares  underlying  these three
warrants were included in our June 15, 2004 registration statement. We issued no
Notes under the Marr Credit Facility prior to its expiration.

      On April 4, 2005,  when the market price of our common stock was $0.27 per
share,  we entered  into a 2005  Credit  Facility  Agreement  (the "2005  Credit
Facility") with Marr,  pursuant to which we have access to $5.5 million from the
issuance of 9% promissory  notes that we might issue through  December 31, 2005,
should our Board of  Directors  unanimously  approve the issuance of one or more
such  notes  before the  commitment  period  ends.  Marr  continues  to have two
representatives  serving on our Board of Directors.  Any notes issued under this
facility  would become due and payable on the earlier of twelve  months from the
date of issue or May 31, 2006.  Any proceeds  received  from the exercise of the
Series B  Warrants  issued in April  2005 or any other  financing  we might have
completed  prior to December  31, 2005 would  reduce the  availability  of funds
dollar for dollar under the 2005 Credit Facility.


                                       27
<PAGE>

      In connection with the 2005 Credit  Facility,  on April 4, 2005, we issued
to Marr a 5-year warrant, exercisable after October 4, 2005, to purchase 500,000
shares  of our  common  stock at an  exercise  price of $0.40 per  share.  Under
certain conditions, the warrant provides for anti-dilution and other adjustments
to the  exercise  price of the  warrant  in the event we issue  shares of common
stock or common stock equivalents, as defined in the warrant, within one year of
the  issue  date at a  price  less  than  the  exercise  price.  This  provision
terminates onApril 3, 2006. We also granted Marr a right of participation in any
future offerings we may undertake within one year of the warrant issue date.

      On November 30, 2005, when the market price of our common stock was $0.16,
we and Marr  amended the 2005 Credit  Facility to extend the term under which we
may 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 will 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  now
requires  approval by a majority of a quorum of our Board of Directors,  instead
of the entire Board of  Directors.  We granted to a 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 may use the
proceeds from the issuance of promissory  notes under the amended  agreement for
general  corporate   purposes,   including   investments  in  our  international
subsidiaries.  Through March 29, 2006, we have issued promissory notes having an
aggregate  face value of $4 million  under the amended  terms of the 2005 Credit
Facility.

Warrants, Options and Stock Grants

Since January 2003, we have entered into and/or extended  various  contracts and
agreements  with  consultants  and others who have agreed to accept  payment for
their  services in the form of warrants,  options  and/or stock grants.  We have
obtained various services under these arrangements,  including legal, financial,
business advisory,  and other services. We have, from January 2003 through March
29, 2006,  issued  approximately  14.9  million  shares of our common stock as a
result  of  warrant  or  option  exercises  and stock  grants  related  to these
consulting  agreements,  of which  approximately  7.9 million shares were issued
during 2003,  1.7 million  shares were issued in 2004,  3.9 million  shares were
issued in 2005 and 1.4 million shares were issued in the first quarter of 2006.

In January and February 2003, we entered into new contracts and extended certain
other  contracts  with  existing  consultants  to perform  various  services  as
described  above.  On February 14, 2003,  when the market price of our stock was
$2.01, we issued warrants exercisable at $1.50 per share and stock grants for an
aggregate  of  975,216  shares of our  common  stock as  compensation  for these
services.  The warrants  were  non-cancelable  and  fully-vested  at the date of
issuance.  By May 31, 2003, the consultants  had exercised  warrants to purchase
all of the shares granted to them and we had received proceeds of $0.8 million.

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

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


                                       28
<PAGE>

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

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

On August 20, 2003,  when the price of our stock was $0.18 per share,  we issued
consulting contracts to two new consultants pursuant to which we issued warrants
for 100,000  shares each,  exercisable  at $0.18 per share.  The  warrants  were
non-cancelable  and fully-vested at the date of issuance.  In December 2004, one
of the  consultants  exercised  warrants to purchase  100,000  shares our common
stock. The remaining warrants expired unexercised in Augut 2005.

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

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

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

In May  2004,  when the  price of our  stock was  $0.465  per  share,  we issued
warrants to purchase  150,000 shares of our common stock at an exercise price of
$0.50 as a portion of the compensation under a consulting contract. The warrants
were immediately exercisable, have a five year term, and, at March 29 2006, have
not been exercised.

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

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

During 2005,  we issued an  aggregate  of 695,972  shares of our common stock at
prices ranging from $0.13 to $0.31 per share to four consultants under the terms
of their agreements.  Additionally,  we issued options to consultants  providing
legal, investor relations and manufacturing services to purchase an aggregate of
1,629,365 shares of our common stock at prices between $0.14 and $0.34 per share
as partial  compensation  for these  services.  In  September  2005,  one of the
consultants exercised its options to purchase 857,143 shares of our common stock
and we received proceeds of $120,000. Additionally, in February 2005, we granted
options to purchase  850,000  shares of our common stock at an exercise price of
$0.35  per  share to our  Chairman  of the  Board  of  Directors  pursuant  to a
consulting  contract  under which he provided  certain  strategic  and  advisory
services through July 31, 2005. Under the terms of the severance  agreement with
our former executive chairman, in January 2005 we issued 1,625,000 shares of our
common stock in lieu of $520,000 in cash payments.


                                       29
<PAGE>

On October 3, 2005, our Board of Directors appointed its Chairman as our interim
Chief  Executive  Officer,  effective  immediately,  upon the resignation of our
former  President  and Chief  Executive  Officer.  On January 4, 2006,  when the
market price of our common stock was $0.17 per share, 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  contract,  we granted the  Chairman  1,000,000
shares of our common  stock as partial  compensation  for service as the interim
Chief  Executive  Officer.   Additionally,  the  Chairman  is  to  receive  cash
compensation of $15,000 per month,  beginning October 3, 2005. In February 2006,
as approved  by the  Compensation  Committee,  we issued  311,736  shares of our
common  stock in lieu of cash  payments  for the  period  October  2005  through
January 2006.

During the first  quarter of 2006,  we issued an aggregate of 120,089  shares of
our common stock as compensation  under a consulting  contract at prices ranging
from $0.16 to $0.21 per share,  based on the  then-current  market  price of our
stock.

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

Capital Lease

In September  2004,  when the price of our stock was $0.38 per share, we entered
into a lease for  $500,000 of equipment  to be used in our  Rockville,  Maryland
manufacturing  facility.  The  lease  has a  minimum  term  of 3  years  with an
extension  option of 3 months,  and requires  monthly payments of $17,250 during
the initial term and extension periods. In conjunction with the lease, we issued
to the lessor a three-year warrant to purchase 55,000 shares of our common stock
at a price of $0.406 per share.

Intellectual Property and Equipment Purchase Using Stock

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


                                       30
<PAGE>

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Information  we provide in this Annual Report on Form 10-KSB 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-KSB,  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:

      o   fluctuations in our operating results;
      o   announcements of technological innovations or new products which we or
          our competitors make;
      o   FDA and international regulatory actions;
      o   developments with respect to patents or proprietary rights;
      o   changes in stock market analysts'  recommendations  regarding Calypte,
          other  medical  products  companies  or the medical  product  industry
          generally;
      o   changes in domestic  or  international  conditions  beyond our control
          that may disrupt our or our  customers'  or  distributors'  ability to
          meet contractual obligations;
      o   changes in health care policy in the United States or abroad;
      o   our ability to obtain  additional  financing as necessary to fund both
          our long- and short-term business plans;
      o   fluctuations in market demand for and supply of our products;
      o   public concern as to the safety and reliability of products that we or
          others develop and public concern regarding HIV and AIDS;
      o   availability  of  reimbursement  for use of our products  from private
          health insurers,  governmental health  administration  authorities and
          other third-party payors; and
      o   price and volume  fluctuations  in the stock  market at large which do
          not relate to our operating performance.

The  forward-looking  information set forth in this Annual Report on Form 10-KSB
is as of March 29, 2006,  and we  undertake no duty to update this  information.
Should  events  occur  subsequent  to March 29, 2006 that make it  necessary  to
update  the  forward-looking  information  contained  in this Form  10-KSB,  the
updated  forward-looking  information  will be filed with the SEC in a Quarterly
Report on Form  10-QSB,  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 the section
entitled  "Additional  Factors That May Affect Future Results" beginning on page
43 of this Form 10-KSB.

Overview and Outlook

Our current focus is on the  commercialization  of our diagnostic  test products
for the rapid  detection of antibodies to HIV-1 and HIV Type 2, a second type of
HIV  ("HIV-2"),  in blood and oral fluid  samples  using a lateral flow dipstick
design (the "HIV-1/2 Rapid Tests") and the global commercialization of the HIV-1
BED  Incidence  EIA test (the  "Incidence  Test").  Our  longer-term  plans also
include the  development of a second lateral flow platform  design  suitable for
over-the-counter  applications,  entry  into the HIV  rapid  test  market in the
United  States and  expansion of our product line beyond HIV to a broader set of
diagnostic tests for other sexually transmitted diseases.

In April 2005 we announced  plans to restructure our business (the "Plan") under
which we have  consolidated our operations and focused our capital  resources on
commercializing  these  tests.  As  part  of  the  Plan,  we  have  discontinued
manufacturing our HIV-1 urine EIA and supplemental  HIV-1 Western Blot serum and
urine diagnostic tests (the "Legacy Business").


                                       31
<PAGE>

In  furtherance  of  the  Plan,  effective  May  1,  2005,  we  entered  into  a
manufacturing  services and management  agreement (the  "Manufacturing  Services
Agreement")  with Maxim  Biomedical,  Inc.  ("Maxim")  pursuant  to which  Maxim
manufactured,  shipped  and  performed  quality  control  procedures  for  us in
connection  with the  Legacy  Business.  Under  the  terms of the  Manufacturing
Services Agreement,  Maxim hired some of our ex-employees and we transferred our
inventory  to Maxim for use under the  agreement.  Effective  November 15, 2005,
under the terms of an Asset Purchase and License Agreement (the "Agreement"), we
sold our Legacy Business - our  FDA-approved EIA and Western Blot HIV diagnostic
test product lines - to Maxim. We have classified our Legacy Business operations
as a discontinued  operation in the financial  statements  included in Item 7 in
this Form 10-KSB.

During  the  third  quarter  of  2005,  we  also   transitioned   our  corporate
administrative  offices  from  California  to Lake Oswego,  Oregon,  a suburb of
Portland, near where our research and development operations are located. During
the second quarter of 2005, we incurred severance costs for personnel terminated
at Rockville  and for certain  administrative  personnel  not  transitioning  to
Oregon.  During the third  quarter  of 2005,  we entered  into an  agreement  to
sublease our California offices through the July 2007 expiration of the lease on
that facility. We recorded  approximately $535,000 in the second quarter of 2005
for  transition-related  costs resulting from our restructuring  activities.  We
also  incurred  approximately  $1.2 million of expense in the second  quarter of
2005 related to the transfer of our  inventory to Maxim under the  Manufacturing
Services Agreement.

Having completed the above  restructuring,  we were able to significantly reduce
our monthly  operating  burn rate as compared  with  historical  levels.  As the
revenue stream from our Legacy Business products has been eliminated we now rely
solely on revenues  from the sale of the BED  Incidence  Test and, as we receive
regulatory  approvals,  from the sale of our HIV-1/2 Rapid Tests internationally
to pursue our business milestones and achieve profitability. We believe that the
geographic  consolidation of our domestic  operations and the termination of our
Legacy Business improves our operational efficiency, decreases our cash burn and
permits  us  to  concentrate   on  expediting   the   procedures   necessary  to
commercialize  our  HIV-1/2  Rapid  Tests  and  developing  a  broader  range of
diagnostic  tests.  We believe we have begun the process of building the revenue
stream  necessary to support our operations and achieve our financial  objective
of sustained profitable operations and increased stockholder value.

Trends, Events and Uncertainties

Legacy  Business During 2005, we recorded an aggregate of $2,532,000 in revenue,
of which  $2,105,000  or 83% was  attributable  to sales of our Legacy  Business
products that we have now classified as a discontinued operation. Effective with
the sale of the Legacy  Business to Maxim on November 15,  2005,  we have phased
out sales of these  products for our own account,  eliminating  both the revenue
stream  from  and  the  costs  associated  with  the  manufacturing   facilities
supporting those products.

BED Incidence Test In April 2004, the United States Centers for Disease  Control
and  Prevention  ("CDC")  granted us a worldwide,  non-exclusive  license to use
technologies  it had developed to manufacture  and  commercialize a serum enzyme
immunoassay  (HIV  1-EIA)  that can be used to estimate  the  proportion  of HIV
infections  that  have  occurred  within  approximately  the last 6 months  in a
subject  population.  Sales of the Incidence Test began in the fourth quarter of
2004.  Demand for and sales of this  product  had been  increasing,  through the
third  quarter of 2005,  both  domestically  from the CDC, and  internationally,
primarily  from  countries  where  the CDC has  conducted  "train  the  trainer"
workshops  in the  applications  for this  unique  epidemiological  surveillance
product.  In the fourth  quarter of 2005, we introduced a new version of the BED
incidence test that permits the use of dried blood spot samples,  an alternative
to the whole blood  samples  initially  required for the test.  Dried blood spot
sampling has a long history in HIV testing and has  advantages  over whole blood
samples,  including ease of collection through fingersticks,  no requirement for
refrigerated  sample  shipping,  and the ability to archive the sample on filter
paper. We believe that this alternative  sample will further increase the market
for our BED incidence test.


                                       32
<PAGE>

Third  quarter  2005  revenue from the sale of this test grew by 86% compared to
sales in the second quarter, but sales decreased by 30% in the fourth quarter of
2005  compared  with the third  quarter.  In  February  2006,  the 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.  addressing a December
2005 UNAIDS report regarding studies in Africa and Thailand  indicating that the
Incidence Test  apparently  over-estimated  the incidence  rate. The Information
Sheet  acknowledges  that the  assay  may cause  over-estimation  under  certain
conditions and suggests  expanding current  protocols.  We see the test's design
and use and the interpretation of its results evolving as public health agencies
and the CDC gains  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 expect that
the process of refining its applications will continue as its use expands.

Further,  we have begun the research on a blood-based  rapid HIV incidence  test
for  diagnostic  and  surveillance  purposes  under the  terms of a  Cooperative
Research  and  Development  Agreement  (CRADA) with the CDC. We plan to file the
appropriate  IDE  applications  with the US FDA for  diagnostic  versions of the
incidence test.

Rapid Tests We expect that our future  revenues will be derived  primarily  from
the sale of our HIV-1/2  rapid  diagnostic  tests both to the  professional  and
over-the-counter  (OTC) markets,  and  potentially  from the sales of diagnostic
tests for other STDs. Our focus for 2006 is concentrated on commercializing  the
HIV-1/2 rapid tests,  initially in a  dipstick-format  and produced in Thailand,
from which we believe we can source certain African and southeast Asian markets.
We plan to supply the Chinese market with product manufactured locally,  through
our Chinese subsidiary, Beijing Marr. In all markets, commencement of rapid test
sales is contingent  upon the successful  completion of clinical trials followed
by  the  required  regulatory  approvals,  coupled  with  successful  technology
transfer and scale-up of manufacturing  operations. We do not expect significant
revenues  from the sale of our rapid tests in 2006 as we are in the early stages
of the regulatory  process with many of our initial target markets in Africa and
Asia.

In China, we have completed the clinical trials on our HIV rapid tests that were
conducted by the  National  Center for AIDS/STD  Control and  Prevention  of the
Chinese CDC. The trials  involved  approximately  1,500  subjects.  Based on the
results of the trials,  we believe  that the  performance  of both our blood and
oral fluid rapid tests was sufficient to make them approvable.

Since the SFDA expressed an interest in alternative fluid testing, we decided to
initially submit only our oral fluid HIV-1/2 test for approval. We submitted our
application  for  approval  in late  2005  and  were  informed  that it had been
formally  accepted for  evaluation  in early 2006.  Like the U.S.  Food and Drug
Administration,  the  SFDA  has a  statutory  limitation  on  responding  to our
submission.  We do not know at this time whether the initial response will be an
approval  or a request  for more  information.  In the  United  States,  this is
usually an iterative process.

Beijing Marr will manage the Chinese oral fluid test product  launch.  There are
several large markets in China,  such as those created by new laws requiring the
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 1.36 billion person  population.  With
trained  non-professionals  and a safe,  non-invasive oral fluid test, we expect
strong demand for our initial test.

Beijing  Marr's  acquisition  of the  Yaohua  Assets  provides  us not only with
manufacturing  facilities  to produce  our rapid  tests in China,  but also with
certain rights to technology and governmental  approvals and certifications that
we  expect  will  significantly   reduce  our  projected  time  to  market.  Our
manufacturing  equipment  and personnel are on-site and we are in the process of
transferring  our  technology,  renovating  and  preparing  the  facilities  for
production and completing the transfer of the Yaohua Assets in  anticipation  of
the approval of our AwareTM  HIV-1/2 rapid oral fluid (OMT)  diagnostic  test by
the SFDA. The renovations we are making to the facilities are required for us to
renew our GMP  certification,  which  will  otherwise  expire in June  2006.  We
anticipate  completion of these  renovations in sufficient time to meet the June
renewal date of our GMP certificate.

Because of the long and  uncertain  process of SFDA  evaluation of our products,
and because the Yaohua Assets include a blood rapid HIV-1/2 test that is already
approved by the SFDA,  we elected not to proceed with a submission  of our Aware
BSP HIV-1/2  test at this time.  If we determine  to  manufacture  a blood rapid
HIV-1/2  test,  we will  consider  manufacturing  the blood rapid  HIV-1/2  test
acquired as part of the Yaohua Assets.


                                       33
<PAGE>

We also  developed  a urine  rapid test that was  designed  to provide  the same
functionality  as the oral fluid  test and that was  subjected  to the  clinical
trial  evaluation.  Although  the results of the Chinese  trial on that test may
have been  sufficient to make it  approvable,  it did not  demonstrate  the same
level of  accuracy  as either the  blood/serum/plasma  (BSP) or oral fluid (OMT)
tests in that or other recent evaluations. Accordingly, we have decided to place
the urine test back into development to further  optimize its performance.  As a
result of current  resource  constraints,  the optimization of the urine test is
not an active project.

We have completed the regulatory approval process for our Aware HIV-1/2 BSP test
in  South  Africa  and  Kenya,  as well as other  clinical  trials  and  product
registrations. We are in the process of evaluating registration requirements for
our rapid tests in India with the  objective of commencing  product  evaluations
for certain  markets there. We have begun to develop  distribution  channels and
plan to conduct  additional  trials in several African  countries.  The clinical
trial  and  regulatory  approval  process  will be  on-going  as we  attempt  to
introduce the Aware HIV-1/2 tests  internationally.  We are primarily  targeting
countries  which have been  selected  for  funding by  PEPFAR,  the $15  billion
President's Emergency Plan for AIDS Relief, and currently have representation in
more than half of them.  While there are  different  regulations  and customs in
each  foreign  country,  we believe  that the  regulatory  process in the PEPFAR
countries can generally be completed within a few months.

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 and CDC. It is our intention to
pursue a USAID waiver shortly,  initially for our Aware HIV-1/2 OMT test. We are
compiling the required data in terms of "manufacturer's  claims" and independent
trials for the blood,  serum and plasma tests. We believe that obtaining a USAID
waiver is an important  milestone  in  facilitating  international  sales of our
rapid tests.

Financial Considerations

Our  operating  cash burn rate for the years  ended  December  31, 2005 and 2004
averaged approximately $0.7 million and $1.1 million,  respectively,  per month.
The reduction is  attributable to the  consolidation  and  restructuring  of our
business,  including the  discontinuation of our Legacy Business.  Our operating
cash burn rate for the fourth quarter of 2005 was approximately $0.5 million per
month.

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


                                       34
<PAGE>

Based upon our financial condition,  which includes $3.0 million working capital
and $7.2 million stockholders' deficits,  respectively,  recurring losses and an
accumulated  deficit of $154  million at  December  31,  2005,  our  independent
accountants  have issued an opinion on our  financial  statements as of December
31, 2005 that cites substantial doubt about our ability to continue our business
operations  as a  going  concern.  Although  we  have  issued  an  aggregate  of
$2,500,000 of 7% Promissory Notes to Marr in January through March 2006 and have
the right to issue an additional $1.5 million of such Promissory  Notes,  all of
which  are or would be due in April  2007  under  the  terms of the 2005  Credit
Facility with Marr,  the proceeds of such notes are  insufficient  to provide us
with the  liquidity  required to fully attain our business  milestones,  achieve
positive cash flow and meet our obligations when due. We do not believe that our
current cash  resources are  sufficient to sustain our  operations  through 2006
without  obtaining  additional  financing.   There  can  be  no  assurance  that
additional financing will be available,  or if it is available,  that it will be
on  acceptable  terms.  Our  pledge of the  rights to our  assets as  collateral
security  for the 8%  Convertible  Notes issued in April 2005 and under the 2005
Credit  Facility  with Marr may inhibit our ability to secure  financing  in the
future.  Further,  there  can be no  assurance  that we will be able to  achieve
expanded acceptance of or realize significant  revenues from our new products or
that we will achieve and sustain  profitability  and positive  cash flows in the
future.

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 2006. In the absence of adequate  resources from current  working capital
and  existing  financing  arrangements,  we may be required to raise  additional
capital to sustain our  operations.  There can be no assurance  that  additional
financing would be available,  or if it is available, be on acceptable terms. We
would,  or might be required to,  consider  strategic  opportunities,  including
merger,  consolidation,  sale or other  comparable  transaction,  to sustain our
operations. We do not currently have any agreements in place with respect to any
such  additional  financing  or  strategic  opportunity,  and  there  can  be no
assurance that any such opportunity will be available to us on acceptable terms,
or at all. If additional financing is not available to us if and when 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 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.

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

Critical Accounting Policies and Estimates

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations is based upon Calypte's consolidated financial statements, which have
been prepared in accordance with 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.

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


                                       35
<PAGE>

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

    o   Inventory  Valuation We adjust the value of our  inventory for estimated
        obsolescence or unmarketable  inventory equal to the difference  between
        the  cost of  inventory  and  the  estimated  market  value  based  upon
        assumptions about future demand and market conditions and development of
        new products by our  competitors.  Further,  since we have  historically
        incurred  negative  gross profit on an annual  basis,  and have had high
        fixed  manufacturing  costs, we also review our inventories for lower of
        cost or market valuation.  As a result of our 2005 restructuring and our
        obligations  under the Manufacturing  Services  Agreement with Maxim, we
        incurred approximately $1.2 million in expense during the second quarter
        of 2005 related to the transfer of Legacy  Business  inventory to Maxim.
        At December 31, 2005,  our  inventories  consisted of only BED Incidence
        Test and HIV-1/2 rapid test raw materials and finished products.

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

    o   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
        dates  and may  engage  the  services  of  valuation  experts  and other
        professionals  to  assist  us in our  detemination  of  the  appropriate
        classification.


                                       36
<PAGE>

Results of Operations

The following represents selected financial data (in thousands):

<TABLE>
<CAPTION>
                                                                                    Years ended
                                                                                   December 31,
                                                                         ----------------------------------
                                                                                  2005              2004
                                                                                  ----              ----
<S>                                                                          <C>               <C>

Total revenue                                                                $     427         $     531
Product costs                                                                      133                35
                                                                             ---------         ---------

   Gross Margin                                                                    294               496

Operating expenses:
   Research and development                                                      2,211             2,140
   Selling, general and administrative                                           5,363             8,437
                                                                             ---------         ---------
      Total operating expenses                                                   7,574            10,577
                                                                             ---------         ---------

   Loss from operations                                                         (7,280)          (10,081)

Interest income (expense), net                                                   1,952            (2,126)

Other expense, net                                                                (335)               33
                                                                             ---------         ---------

   Loss from continuing operations before income taxes                          (5,663)          (12,174)
Income Taxes                                                                         2                 2
                                                                             ---------         ---------

   Net loss from continuing operations                                          (5,665)          (12,176)
                                                                             ---------         ---------

Discontinued operations
   Loss from operations of Legacy Business, including loss
   on disposal of $425 in 2005, net of income taxes                             (3,098)           (5,090)
                                                                             ---------         ---------
Net loss                                                                     $  (8,763)        $ (17,266)
                                                                             =========         =========
</TABLE>

Years ended December 31, 2005 and 2004

Our aggregate product sales revenues for 2005 totaled  $2,532,000  compared with
$2,797,000  for 2004, a decrease of $265,000 or 9%.  Product sales revenues from
our continuing  operations  totaled $427,000  compared with $31,000 for 2004, an
increase of $396,000  or 1,277%.  Our 2004  revenue  also  included  $500,000 of
deferred  revenue  related  to a 1994  distribution  agreement  with a  Japanese
distributor.  We completed the sale of our Legacy Business  products line, which
is classified as a discontinued operation, on November 15, 2005.

Continuing Operations

Sales of our BED incidence test began in the fourth quarter of 2004 and revenues
from both domestic and international  sales of that test totaled $406,000 during
2005 and  $31,000 in 2004,  accounting  for 95% and 100%,  respectively,  of our
revenues from continuing  operations.  International  sales of our HIV-1/2 rapid
tests, primarily to our distributor in South Africa, were insignificant in 2005.

The  following  table  summarizes  the  Company's  product  sales  revenues from
continuing operations by product for 2005 and 2004.

                                                 2005       2004
                                                 ----       ----

      BED Incidence test                           95%      100%
      HIV-1/2 rapid tests                           5%        -%
                                                  ----      ----

      Total                                       100%      100%
                                                  ----      ----


                                       37
<PAGE>

Sales to three  customers  accounted  for  approximately  36% and 89% of product
sales from continuing operations in 2005 and 2004, respectively.  Sales to those
customers  accounted for approximately  13%, 13% and 10% of our product sales in
2005 and 49%, 28% and 12% of product sales in 2004.

Gross margin from our continuing operations was $294,000 or 69% in 2005 compared
with $(4,000) or -13% (excluding  deferred revenue  recognized in 2004) in 2004.
Product costs attributable to our continuing  operations primarily represent the
costs charged to us by the contract  manufacturers of the BED Incidence Test and
our HIV-1/2 rapid tests plus the related royalty expense (including the pro-rata
portion of annual minimum royalty payments,  where  applicable).  The production
costs charged by our contract  manufacturers  are  negotiated  rates,  typically
decreasing  inversely  with  increases  in  production  volume.  Overhead  costs
incurred by the contract manufacturers are included in the production rates they
charge to us.

Research and  development  costs  increased by $71,000 or 3%, from $2,140,000 in
2004 to  $2,211,000  in 2005.  The  increase  is due  primarily  to the costs of
various  international  clinical  trials  and with  transferring  technology  in
Thailand  and China for the  development  and  commercialization  of our HIV-1/2
rapid tests,  including  personnel-related  costs,  travel expenses,  consultant
expenses,  and costs to acquire specimens and provide product prototypes for the
clinical  trials.  These costs are offset by decreased  compensation and related
expenses in the second half of 2005 resulting  from the  termination of research
and development personnel and activities when we closed our legacy operations at
our Rockville, Maryland facility.

Selling,  general and administrative costs attributable to continuing operations
decreased by $3,074,000  or 36%, from  $8,437,000 in 2004 to $5,363,000 in 2005.
The primary  components of the decrease include the following:

    o   a reduction of over $2.5 million in expense including approximately $1.4
        million of severance  and stock option  compensation  expense,  of which
        approximately  $0.7  million was  non-cash,  related to the January 2004
        resignation  of the  company's  former  president  and the November 2004
        resignation of the Company's  former Executive  Chairman,  including the
        elimination of salary and travel and entertainment expense paid to or on
        behalf of the former Executive  Chairman of the company,  whose position
        was  not  replaced  upon  his  resignation.  This  reduction  is  net of
        approximately  $535,000  of  severance  and  other  restructuring  costs
        incurred  in  2005  and  recorded  in  conformity   with  SFAS  No  146,
        "Accounting for the Costs Associated with Exit or Disposal Activities."
    o   a  decrease  of   approximately   $600,000  in  costs   associated  with
        consultants and other service providers, of which over half is non-cash,
        recorded in connection with the issuance of warrants,  options and stock
        grants.

Our loss from  operations  from  continuing  operations for 2005, at $7,280,000,
reflects a 28% decrease compared with the $10,081,000 loss reported for 2004.

We recorded net interest  income of $1,952,000 for 2005 compared with $2,126,000
of  interest  expense  for  2004  principally  due to  the  accounting  for  the
derivative  and  anti-dilution  obligations of our recent  financings  which are
required to be adjusted to their fair value at each balance  sheet date with the
change in value being recognized in interest expense. The table below summarizes
the components of interest expense (in thousands):


                                       38
<PAGE>

<TABLE>
<CAPTION>
                                                                                          2005            2004        Change
                                                                                          ----            ----        ------
<S>                                                                                   <C>               <C>           <C>
Interest on debt instruments paid or payable in cash                                  $    123          $     88      $      35
                                                                                      --------          --------      ---------
Non-cash interest (income) expense composed of:
   Accrued interest on 8% Senior Convertible Notes (paid by issuing
      additional Notes)                                                                    498                 -            498
   Amortization and proportional write-off upon conversion of note and
      debenture discounts and deferred offering costs                                    1,502                81          1,421
   Liquidated damages due to delayed registration of shares underlying
      convertible notes and debentures and other securities                                  -              (205)           205
   Expense attributable to warrants issued in conjunction with modifying the
      2003/2004 Marr Credit Facility                                                         -               402           (402)
   Expense attributable to warrants issued in conjunction with the 2005 Marr
      Credit Facility                                                                       71                 -             71
   Expense attributable to warrants issued in conjunction with the 2004
      Anti-dilution obligation                                                              82                 -             82
   Expense attributable to warrants issued in conjunction with the $0.5
      million capital lease agreement                                                        -                20            (20)
   Mark-to-market adjustment of derivative and anti-dilution obligations
      arising from the April 2005 financing                                             (3,803)                -         (3,803)
   Mark-to-market adjustment of anti-dilution obligation arising from May and
      July 2004 equity financing                                                          (506)            1,638         (2,144)
   Maturity extension fee payable in stock on convertible debentures issued
      to Mercator group                                                                      -                20            (20)
   Expense attributable to dividends on mandatorily redeemable Series A
      preferred stock                                                                      120               120              -
                                                                                      --------          --------      ---------
Total non-cash interest (income) expense                                                (2,036)            2,076         (4,112)
                                                                                      --------          --------      ----------

  Gross interest (income) expense                                                       (1,913)            2,164         (4,077)

  Interest income                                                                          (39)              (38)            (1)
                                                                                      --------          --------      ---------

  Net interest (income) expense                                                       $ (1,952)         $  2,126      $  (4,078)
                                                                                      ========          ========      ==========
</TABLE>


Legacy Business (Discontinued Operations)

As discussed in Note 3 to the Financial  Statements  furnished in Item 7 of this
Annual Report on Form 10-KSB,  we completed  the sale of our Legacy  Business on
November 15, 2005. All comparisons reflect ten and one-half months of operations
in 2005 compared with a full twelve months of operations in 2004.  Product sales
revenues from our Legacy Business  decreased by $661,000 or 24%, from $2,766,000
in 2004 to $2,105,000 in 2005.  Revenue from the sale of our urine EIA screening
tests  decreased  by  $410,000  or 28%  to  $1,071,000  in  2005  compared  with
$1,481,000  in 2004.  Sales of our urine  Western  Blot  supplemental  test were
insignificant in both periods, but indicated a sales decrease similar to that of
the  screening  test.  Sales of our urine EIA  screening  test to domestic  life
insurance  reference  laboratories  accounted for 97% and 96% of screening  test
revenues for 2005 and 2004,  respectively.  We sold our screening tests to three
life insurance reference  laboratories during each of those periods.  Individual
laboratory sales as a percentage of total reference laboratory sales ranged from
20% to 60% during 2005 and from 23% to 50% during  2004,  with LabOne  being the
largest  customer in each period.  Sales of the screening tests to the reference
labs for 2005  decreased by $382,000 or 27% compared with sales in 2004.  All of
our reference lab customers increased their EIA screening test purchases in 2004
in  anticipation  of the mid-2004  closure of our Alameda,  California  EIA test
manufacturing  facility  and  transfer of EIA  manufacturing  to our  Rockville,
Maryland  facility.  Purchases by the labs  continued  to lag behind  historical
levels through the third quarter of 2005.  With the late-third  quarter 2005 FDA
approval of the  Rockville  facility as the EIA  manufacturing  facility and the
availability of longer-dated product,  sales returned to more normal levels late
in the third quarter of 2005 and through the disposition of the Legacy Business.

Domestic urine  screening and urine  supplemental  test sales through the direct
diagnostic  channel,  as well as  international  sales  of both  products,  were
insignificant during both 2005 and 2004.


                                       39
<PAGE>

Sales  of the  serum  Western  Blot  supplemental  test for  2005  decreased  by
approximately 26% or $291,000 compared with 2004 levels, from $1,114,000 in 2004
to $843,000 in 2005. We sold this product  primarily to  individual  blood banks
and similar testing  entities,  whose order patterns varied based on third party
utilization  of  their  services,   project  funding   considerations  or  other
variables.  Other than Maxim, which purchased the Legacy Business from us, there
is only one other domestic  manufacturer of an  FDA-approved  serum Western Blot
supplemental  HIV-1  test.  During  2005,  we also sold  $45,000 of HIV-1  viral
lysate, a component we used in manufacturing  the Western Blot tests. Such sales
occurred only  sporadically  and there were no similar sales of  significance in
2004.

The  following   table   summarizes  the  Company's   sales  revenues  from  its
discontinued operations by product for 2005 and 2004.

                                                        2005           2004
                                                        ----           ----

      Urine EIA screening and supplemental test           53%           56%
      Serum Western Blot supplemental test                40%           41%
      All other                                            7%            3%
                                                         ----          ----

      Total                                              100%          100%
                                                         ----          ----


Gross margin  attributable to discontinued  operations  decreased from a loss of
$4,477,000  (-162% of sales) in 2004 to a loss of $2,692,000  (-128 of sales) in
2005. The  difference in gross margin for the Legacy  Business  between  periods
relates primarily to the consolidation of our Alameda,  California manufacturing
facility into  Rockville in mid-2004 and the  manufacturing  services  agreement
with Maxim which became  effective on May 1, 2005,  both of which  reduced fixed
overhead costs related to the Legacy Business.

Approximately 20% of our marketing expenses in 2004, or approximately  $600,000,
were to provide promotion and customer support for our Legacy Business products.
Essentially  all of our  marketing  expenses  in  2005  were in  support  of our
continuing business.

We  incurred  a net loss of  $425,000  in 2005  upon the  disposition  of Legacy
Business assets. In total, the net loss from discontinued  operations  decreased
by $1,992,000 or 39% from ($5,090,000) in 2004 to ($3,098,000) in 2005.

Restructuring and Severance

Restructuring-related  costs to date have been charged as incurred in accordance
with SFAS No. 146,  "Accounting  for the Costs  Associated with Exit or Disposal
Activities." Severance charges associated with the elimination of positions were
recognized  ratably over the future service  period,  if any, in accordance with
SFAS No. 146. We measured the total  termination  benefits at the  communication
date based on the fair value of the liability as of the  termination  date.  Any
change resulting from a revision to either the timing or the amount of estimated
cash over the future service  period will be measured using the  credit-adjusted
risk-free rate that was used to initially measure the liability.  The cumulative
effect of the change will be recognized as an adjustment to the liability in the
period of the change.


Liquidity and Capital Resources

Financing Activities

We have financed our operations from our inception primarily through the private
placements of preferred  stock and common  stock,  our Initial  Public  Offering
(IPO) and the issuance of convertible notes and debentures. On May 20, 2003, our
stockholders  approved a 1:30 reverse  split of our common  stock,  which became
effective on May 28, 2003.  All references to the number of shares issued or the
issue,  exercise or conversion price of any transaction described in this Annual
Report on form 10-KSB reflect the $0.03 par value post-split basis of our common
stock.


                                       40
<PAGE>

Please refer to the tables  entitled  "Summary of Recent  Financings - September
2002 through March 29, 2006" and "Detail of Recent  Financings - September  2002
through March 29, 2006" in Part II, Item 5. Market for the  Registrant's  Common
Equity and Related  Stockholder  Matters for a summary of our financings for the
most recent three years and our current financing arrangements.

Operating Activities

During,  2005  and  2004,  we used  cash  of $8.1  million  and  $12.8  million,
respectively,  in our operations.  In both periods,  the cash used in operations
was primarily for  manufacturing  our Legacy  Business  products,  for research,
development  and  commercialization  of our  rapid  tests  and for our  selling,
general and administrative expenses.

Recent Accounting Pronouncements

In February  2006,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement No. 155 "Accounting  for Certain Hybrid  Financial  Instruments  ("FAS
155). This Statement amends FASB Statements No. 133,  "Accounting for Derivative
Instruments and Hedging  Activities," and No. 140, "Accounting for Transfers and
Servicing  of  Financial  Assets  and   Extinguishments  of  Liabilities."  This
Statement  resolves issues addressed in Statement 133  Implementation  Issue No.
D1,  "Application  of  Statement  133 to  Beneficial  Interests  in  Securitized
Financial Assets." FAS 155: (i) permits fair value  remeasurement for any hybrid
financial  instrument that contains an embedded  derivative that otherwise would
require   bifurcation;   (ii)   clarifies   which   interest-only   strips   and
principal-only  strips are not subject to the  requirements  of  Statement  133,
(iii) establishes a requirement to evaluate  interests in securitized  financial
assets to  identify  interests  that are  freestanding  derivatives  or that are
hybrid  financial  instruments  that  contain an embedded  derivative  requiring
bifurcation;  (iv) clarifies that  concentrations  of credit risk in the form of
subordination  are not embedded  derivatives;  and (v) amends  Statement  140 to
eliminate the prohibition on a qualifying  special-purpose entity from holding a
derivative  financial  instrument  that pertains to a beneficial  interest other
than another derivative  financial  instrument.  This statement is effective for
years  beginning  after  September 15, 2006.  The Company has not yet determined
what impact this  statement  will have on its results of operations or financial
position.

In June 2005, the FASB issued Statement No. 154,  "Accounting  Changes and Error
Corrections"  ("FAS 154"), a replacement of APB No. 20,  Accounting  Changes and
FASB  Statement  No.  3,  Reporting  Accounting  Changes  in  Interim  Financial
Statements. FAS 154 applies to all voluntary changes in accounting principle and
changes  the  requirements  for  accounting  for and  reporting  of a change  in
accounting  principle.  This statement  establishes  that unless  impracticable,
retrospective  application  is the  required  method for  reporting  a change in
accounting principle in the absence of explicit transition requirements specific
to the newly adopted accounting principle.  It also requires the reporting of an
error  correction  which  involves  adjustments to  previously-issued  financial
statements  similar to those  generally  applicable  to reporting an  accounting
change  retrospectively.  FAS  154  is  effective  for  accounting  changes  and
corrections of errors made in fiscal years beginning after December 15, 2005. We
do not expect that the  adoption  of FAS 154 will have a material  impact on our
results of operations or financial condition.

In  March  2005,  the  FASB  issued   Interpretation  No.  47,  "Accounting  for
Conditional Asset Retirement Obligations."  Interpretation No. 47 clarifies that
an  entity  must  record  a  liability  for  a  "conditional"  asset  retirement
obligation  if the fair value of the  obligation  can be  reasonably  estimated.
Interpretation  No. 47 also  clarifies  when an  entity  would  have  sufficient
information  to  reasonably  estimate  the fair  value  of an  asset  retirement
obligation.  Interpretation  No. 47 is  effective  no later  than the end of the
fiscal year ending after December 15, 2005. We adopted  Interpretation No. 47 in
the fourth quarter of 2005. Its implementation did not have a material impact on
our results of operations or financial condition.


                                       41
<PAGE>

In  December  2004,  the FASB issued SFAS No. 123  (revised  2004),  Share-Based
Payments  ("SFAS 123R").  SFAS 123R  addresses the  accounting  for  share-based
payments to employees, including grants of employee stock options. Under the new
standard,   companies  will  no  longer  be  able  to  account  for  share-based
compensation  transactions  using the intrinsic  method in  accordance  with APB
Opinion No. 25,  Accounting  For Stock Issued To Employees.  Instead,  companies
will be required to account for such transactions  using a fair-value method and
recognize  the  expense in the  consolidated  statement  of  income.  As a small
business issuer,  SFAS 123R will become effective for us in the first quarter of
2006.  We have not yet  determined  which  fair-value  method  and  transitional
provision we will follow;  however, we expect that the adoption of SFAS 123R may
have a  significant  impact on our results of  operations.  We do not expect the
adoption of SFAS 123R to materially  impact our overall financial  position.  On
the fair  value  basis  currently  required  by SFAS  123,  we  expect to record
approximately  $175,000 in stock-based  compensation expense during 2006 related
to the unvested options  outstanding at December 31, 2005. The  determination of
compensation cost for share-based payment  transactions after the effective date
of SFAS 123R may be different from the  determination of compensation cost under
SFAS 123; however, we have not yet quantified such differences.

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

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, An Amendment Of
ARB No.  43,  Chapter 4 ("SFAS  151").  SFAS 151  amends  ARB 43,  Chapter 4, to
clarify that abnormal amounts of idle facility expense,  freight, handling costs
and wasted materials (spoilage) be recognized as current period charges. It also
requires  that  allocation  of  fixed  production  overheads  to  the  costs  of
conversion be based on the normal  capacity of the production  facilities.  SFAS
151 will become effective for us for inventory costs incurred beginning in 2006.
We do not believe that the  adoption of SFAS 151 will have a material  impact on
our results of operations or financial position.


                                       42
<PAGE>

Additional Factors That May Affect Future Results

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


                    Risks Related to Our Financial Condition

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

There can be no assurance that our cash on hand at December 31, 2005 of $492,000
and the availability of an additional $4,000,000 under the terms of the existing
2005 Marr Credit  Facility  Agreement will be adequate to sustain our operations
at  expected  levels  through  2006.  Furthermore,  the notes we have  issued at
December  31,  2005 and any  subsequent  notes we may issue  under the 2005 Marr
Credit  Facility  Agreement  during 2006, as well as any  unconverted  8% Senior
Convertible  Notes totaling  $8,253,000 at December 31, 2005,  must be repaid on
April 3,  2007.  We  believe  we will need to  arrange  additional  equity-based
financing to fund our operations and make the investments  necessary to continue
to execute our business  plan in 2006.  In  addition,  there can be no assurance
that we will  achieve or sustain  profitability  or  positive  cash flows in the
future.

In the absence of adequate  resources from current  working capital and existing
financing  arrangements,  we may be  required  to raise  additional  capital  to
sustain our  operations.  There can be no assurance  that  additional  financing
would be available,  or if it is available,  be on acceptable terms. We would or
might  be  required  to  consider  strategic  opportunities,  including  merger,
consolidation,  sale or other comparable transaction, to sustain our operations.
We do not  currently  have any  agreements  in place  with  respect  to any such
additional  financing  or strategic  opportunity,  and there can be no assurance
that any such  opportunity  will be available to us on acceptable  terms,  or at
all. If  additional  financing is not available to us if and when required or is
not available to us on acceptable  terms, or we are unable to arrange a suitable
strategic  opportunity,  we will be in significant financial jeopardy and we may
be unable to continue our operations at current levels,  or at all. The terms of
a subsequent  financing  may involve a change of control or require  stockholder
approval and could result in substantial dilution to our existing  stockholders.
Further,  our  outstanding  pledges of the  rights to our  assets as  collateral
security for our Notes and other  indebtedness may inhibit our ability to secure
financing in the future.  There can be no assurance that we will enter into such
agreements or secure such financing,  or that our stockholders  will approve the
terms of such financing,  if so required.  If such  additional  financing is not
available to us when required or is not available to us on acceptable  terms, or
we are  unable  to  arrange  a  suitable  strategic  opportunity,  we will be in
significant  financial  jeopardy and we may be unable to continue our operations
at current levels, or at all.

Our Financial  Condition has  Adversely  Affected Our Ability to Pay  Suppliers,
Service  Providers  and  Licensors  on a Timely Basis Which May  Jeopardize  Our
Ability to Continue Our Operations and to Maintain  License Rights  Necessary to
Continue Shipments and Sales of Our Products.

As of December 31, 2005 our trade  accounts  payable  totaled $1.4  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 will enable us to make the required
payments  is not  available  when  required,  we will be placed  in  significant
financial  jeopardy and we may be unable to continue our  operations  at current
levels, or at all.


                                       43
<PAGE>

We Have Incurred Losses in the Past and We Expect to Incur Losses in the Future.

We have incurred  losses in each year since our inception.  Our net loss for the
year ended  December  31,  2005 and the year ended  December  31,  2004 was $8.8
million and $17.3 million; respectively, and our accumulated deficit at December
31, 2005 was $154 million. We expect operating losses to continue in 2006, as we
complete the  commercialization  of our rapid tests,  complete our international
technology  transfers,  and conduct  additional  research  and  development  and
clinical trials for current and potential new products.

                Risks Related to the Market for Our Common Stock

We May Be Removed From Listing on the American Stock Exchange if We Fail to Meet
Continuing Listing Standards.

On June 22, 2005,  we received a letter from the American  Stock  Exchange  (the
"Amex"  or the  "Exchange")  notifying  us that we are  not in  compliance  with
certain  of the Amex's  continued  listing  standards.  We  submitted  a plan of
compliance to the Exchange which was accepted.  On February 2, 2006 the Exchange
notified us that we had not made  satisfactory  progress  with our plan and that
the Exchange was initiating  immediate procedures to delist our common stock. We
have been  granted  until July 31,  2006 to  demonstrate  that we have  regained
compliance  with  the  Exchange's   continued  listing  standards.   Failure  to
demonstrate  that  we  have  regained  compliance  with  the  continued  listing
standards  based on our financial  position as reported in our SEC filings as of
the end of the second quarter of 2006 will result in our being delisted from the
Amex. There can be no assurance that we will achieve the objectives  required to
comply with the continued  listing  standards.  The public trading of our common
stock  and the  ability  of our  stockholders  to sell  their  shares  could  be
significantly  impaired  if we are  delisted  from the Amex.  In that case,  our
common  stock  would  trade  either on the OTC  Bulletin  board,  on a  regional
exchange,  or in the pink sheets,  which could have a detrimental  impact on our
trading volume and/or share value. Further, delisting from a major exchange such
as the Amex may  constitute a default  under the terms of the April 2005 Private
Placement.


                                       44
<PAGE>

Our  Registration of a Significant  Amount of Our Stock Issuable upon Conversion
of Notes or  Exercise  of  Warrants  and  Eligible  for  Future  Sale May Have a
Negative Effect on the Trading Price of Our Stock.

Under the terms of our outstanding 8% Senior Convertible Notes and warrants (the
"April 2005  Private  Placement")  and in  connection  with the 2005 Marr Credit
Facility,  we have registered for resale  approximately 73 million shares of our
common  stock,  of which  approximately  2.6 million  shares have been issued at
March 29, 2006 and an  additional  24 million  shares may be issued  immediately
upon the conversion of our 8% Convertible Notes, approximately 39 million shares
may be issued upon the  exercise of our Series A Warrants and Series B Warrants,
and the  remaining 7 million  shares may be issued  under fee  agreements  or as
interest  on the Notes.  Upon the  conversion  of the notes or  exercise  of the
warrants,  the investors will hold freely tradable shares.  The issuance of such
shares  would  increase  by  approximately  40% the  number of shares  currently
outstanding,  essentially all of which are also registered and freely  tradable.
If investors in the April 2005 Private  Placement or other  investors  holding a
significant  number of freely  tradable  shares  decided to sell them in a short
period of time, such sales could contribute significant downward pressure on the
trading price of our stock.  Such sales might also inhibit our ability to obtain
future equity or equity-related  financing on acceptable terms, if and when that
becomes necessary.

From  inception  through  March 29,  2006,  we have issued  approximately  184.6
million shares of our common stock and raised  approximately $147 million.  At a
Special Meeting of Stockholders on February 14, 2003, our stockholders  approved
an  increase  in the number of  authorized  shares of our common  stock from 200
million to 800 million.  After  considering the share reserves  required for the
April  2005  Private  Placement,  we have the  ability to issue in excess of 400
million  shares of our common  stock for  financing or for other  purposes.  The
perceived risk of dilution from this amount of authorized but unissued stock may
cause our existing stockholders and other holders to sell their shares of stock,
which  would  contribute  to a  decrease  in our stock  price.  In this  regard,
significant  downward  pressure on the trading price of our stock may also cause
investors  to  engage  in  short  sales,   which  would  further  contribute  to
significant downward pressure on the trading price of our stock.


Our Issuance of Warrants,  Options and Stock Grants to Consultants  for Services
and the  Granting of  Registration  Rights for the  Underlying  Shares of Common
Stock May Have a Negative Effect on the Trading Price of Our Common Stock.

As we  continue  to look for ways to  minimize  our use of cash while  obtaining
required  services,  we expect to continue to issue  warrants  and options at or
below the current  market price or make  additional  stock bonus grants.  During
2004,  we issued  approximately  2.1 million  shares in payment  for  consulting
services and for the acquisition of intellectual property and equipment.  During
2005, we issued  approximately  0.7 million shares and approximately 1.6 million
options  at market  in  payment  of  consulting  services.  In  addition  to the
potential dilutive effect of issuing a large number of shares or options,  there
is the  potential  that a large  number  of the  shares  may be sold on the open
market at any given time, which could place additional  downward pressure on the
trading price of our common stock.


                                       45
<PAGE>

The Price of Our Common Stock Has Been Highly  Volatile  Due to Several  Factors
Which Will Continue to Affect the Price of Our Stock.

Our  common  stock has traded as low as $0.13 per share and as high as $0.49 per
share in the twelve months ended  December 31, 2005. We believe that some of the
factors leading to the volatility include:

    o   price and volume  fluctuations in the stock market at large which do not
        relate to our operating performance;

    o   fluctuations in our operating results;

    o   concerns about our ability to finance our continuing operations;

    o   financing  arrangements  which may require the issuance of a significant
        number  of  shares  in  relation  to  the  number  of  shares  currently
        outstanding, including anti-dilution provisions;

    o   Announcements of  technological  innovations or new products which we or
        our competitors make;

    o   FDA, SEC and international regulatory actions;

    o   availability  of  reimbursement  for use of our  products  from  private
        health  insurers,  governmental  health  administration  authorities and
        other third-party payors;

    o   developments with respect to patents or proprietary rights;

    o   Public concern as to the safety of products that we or others develop;

    o   changes in health care policy in the United States or abroad;

    o   changes in stock market  analysts'  recommendations  regarding  Calypte,
        other  medical  products  companies  or  the  medical  product  industry
        generally;

    o   fluctuations in market demand for and supply of our products;

    o   certain  world  conditions,   such  as  an  economic  downturn,  natural
        disasters or terrorist attacks; and

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


We Are  Subject to  Governmental  and Stock  Exchange  Regulations  That  Impose
Operational and Reporting Requirements.

The  Sarbanes-Oxley  Act of 2002 and our listing on the American  Stock Exchange
(Amex) in August 2004 required us to modify or supplement  some of our corporate
governance and securities  disclosure and compliance  practices.  The Securities
and Exchange Commission and the Amex have revised, and continue to revise, their
regulations and policies. These developments have increased, and are expected to
increase, our legal, compliance and financial reporting costs. Failure to comply
with present or future laws,  rules and  regulations of any kind that govern our
business  could  result in  suspension  or  cessation of all or a portion of our
operations, or the imposition of significant  administrative,  civil or criminal
penalties, any of which could harm our business.


Failure to Achieve and Maintain  Internal  Controls in Accordance  With Sections
302 and 404 of the  Sarbanes-Oxley  Act of 2002 Could  Have A  Material  Adverse
Effect on Our Business and Stock Price.

We have begun  examining  and  evaluating  our internal  control  procedures  to
satisfy the requirements of Section 404 of the  Sarbanes-Oxley  Act ("SOA"),  as
required for our Annual  Report on Form 10-KSB for the year ending  December 31,
2007, or other deadline for compliance, if extended. While we expect to meet the
requirements of the SEC's  Guidelines  under SOA, there can be no assurance that
we will do so. In addition,  if we fail to maintain the adequacy of our internal
controls or fail to implement required new or improved controls, as such control
standards are modified, supplemented or amended from time to time, we may not be
able to assert that we can conclude on an ongoing  basis that we have  effective
internal  controls over financial  reporting.  Effective  internal  controls are
necessary for us to produce reliable  financial reports and are important in the
prevention of financial fraud. If we cannot produce reliable  financial  reports
or prevent fraud, our business and operating results could be harmed,  investors
could lose confidence in our reported financial information,  and there could be
a material adverse effect on our stock price.


                                       46
<PAGE>

Our Charter Documents May Inhibit a Takeover.

Certain provisions of our Certificate of Incorporation and Bylaws could:

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

    o   delay or prevent a change in control;

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

    o   inhibit  increases  in the market  price of our common  stock that could
        result from takeover attempts; or

    o   grant to the Board of  Directors  the  discretionary  right to designate
        specific rights and preferences of preferred stock greater than those of
        our common stock.

Furthermore,  we are  subject to the  provisions  of Section  203 of the General
Corporation Law of the State of Delaware (DGCL). In general,  the DGCL prohibits
a publicly-held  Delaware corporation from engaging in a "business  combination"
with an "interested  stockholder"  for a period of three years after the date of
the  transaction in which the person becomes an interested  stockholder,  unless
the business  combination  is approved in a prescribed  manner.  An  "interested
stockholder" is a person who, together with affiliates and associates,  owns, or
within the prior three years did own,  15% or more of the  corporation's  voting
stock.   This  provision  could  make  it  more  difficult  for  an  "interested
stockholder"  to obtain  control  of us  without  the  approval  of the Board of
Directors.


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

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

The Rights have certain anti-takeover effects. The Rights will cause substantial
dilution to a person or group that  attempts to acquire us without  conditioning
the offer on the Rights being  redeemed or a substantial  number of Rights being
acquired.  However,  the Rights should not interfere  with any tender offer,  or
merger,  which we approve  because the Rights do not become  exercisable  in the
event of an offer or other acquisition exempted by our Board of Directors.


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

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


                                       47
<PAGE>

    o   restricting dividends;

    o   dilution of voting power;

    o   impairment of liquidation rights; and

    o   delaying or preventing a change in control of the Company.

Additionally,  as a result of the 1:30  reverse  split of our common  stock that
became  effective  in May 2003,  we  currently  have over 400 million  shares of
common  stock that could be issued for  financing  or other  purposes.  Dilution
resulting  from such  issuance  could  also  adversely  affect the rights of our
current common stockholders.


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

Shares of our common stock are "penny  stocks" as defined in the  Exchange  Act.
The "penny stock" rules adopted by the Commission under the Exchange Act subject
the sale of the shares of our common stock to certain  regulations  which impose
sales practice  requirements  on  broker/dealers.  For example,  brokers/dealers
selling such securities must, prior to effecting the transaction,  provide their
customers  with a  document  that  discloses  the  risks  of  investing  in such
securities. Included in this documents are the following:

   o  the bid and offer  price  quotes  in and for the  "penny  stock",  and the
      number of shares to which the quoted prices apply.

   o  the brokerage firm's compensation for the trade.

   o  the  compensation  received by the  brokerage  firm's sales person for the
      trade.

In addition, the brokerage firm must send the investor:

   o  a monthly  account  statement  that gives an estimate of the value of each
      "penny stock" in the investor's account.

   o  a written statement of the investor's  financial  situation and investment
      goals.

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

   o  if "penny  stock" is sold to you in violation of your rights listed above,
      or other federal or states securities laws, you may be able to cancel your
      purchase and get your money back.

   o  if the stocks are sold in a fraudulent  manner, you may be able to sue the
      persons and firms that caused the fraud for damages.

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

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

Resale restrictions on transferring "penny stocks" are sometimes imposed by some
states,  which may make  transaction  in our stock more difficult and may reduce
the value of the investment.  Various state securities laws impose  restrictions
on  transferring  "penny stocks" and as a result,  investors in our common stock
may have the ability to sell their shares of our common stock impaired.


                                       48
<PAGE>

                          Risks Related to Our Business

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

As a result of the  restructuring  plan we  implemented in 2005, a number of our
key  executives  and  senior  administrative,  marketing,  quality  systems  and
research  and  development  personel  and staff  left the  company  rather  than
transition  to the new  operation  in Oregon  when we closed our  Rockville  and
Pleasanton  facilities.  Further, two of our senior executives recently resigned
and the Chairman of our Board of Directors is currently serving as interim Chief
Executive  Officer.  As a small company,  our success depends on the services of
key  employees  in these  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.


We Have  Historically  Depended for Our Revenues Upon the Viability of Our ELISA
Products -- Our HIV-1  Urine-Based  Screening Test and Our Urine and Blood Based
Supplemental Tests - Which We Have Sold.

We  sold  our  HIV-1  urine-based  screening  test  and  urine  and  blood-based
supplemental  tests as a part of our restructuring  plan and will not derive any
revenue from the sale of these  products in the future.  We have  completed  the
technology  transfer  for our HIV-1  BED  Incidence  Test and have that  product
available for sale,  but we have little  experience  marketing  that test and no
experience  marketing our rapid tests that are currently  being  commercialized.
Further,  there has been recent concern that the BED Incidence  Test  apparently
over-estimates  the  incidence  rate based on studies  conducted in Thailand and
Africa. The CDC has issued an Information Sheet acknowledging that the assay may
cause  over-estimation  under certain  conditions and suggests expanding current
protocols.  The Information Sheet notes,  "[T]he [Incidence Test] in combination
with  the  appropriate  estimator  is  the  preferred  approach  to  calculating
incidence  of  HIV  infection  in  the  U.S...in  the  context  of a  case-based
surveillance system where additional clinical and epidemiological information is
available for  interpretation  and  estimation.  It may be less  successful in a
specimen-based system where these critical data cannot be ascertained." 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  United  States  or
internationally.

If we cannot profitably introduce significant new products on a timely basis and
if these  products fail to achieve  market  acceptance  or generate  significant
revenues, we may have to seek additional  financing,  which may not be available
on the timetable  required or on acceptable terms, or we may have to curtail our
operations, or both.


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  currently  have the right to use patent  and  proprietary  rights  which are
material  to the  manufacture  and sale of our  urine-based  rapid  test under a
licensing agreement with New York University. We have recently acquired licenses
to  technologies  that we believe are  critical to our ability to sell our rapid
tests currently being  commercialized  and other rapid tests that we may plan to
develop and/or  commercialize  in the future.  There are numerous patents in the
United  States and other  countries  which claim  lateral flow assay methods and
related  devices,  some of which  cover the  technology  used in our rapid  test
products  and are in force in the  United  States  and other  countries.  In the
second  quarter of 2004, we entered into a  non-exclusive  sublicense  agreement
with Abbott  Laboratories that grants us worldwide rights related to patents for
lateral flow assay methods and related devices.  We believe that the acquisition
of these  rights  will  enable us to make or sell our  rapid  test  products  in
countries  where these  patents are in force.  In the third  quarter of 2004, we
acquired a sublicense from Bio-Rad  Laboratories and Bio-Rad Pasteur for patents
related to the  detection of the HIV-2  virus.  HIV-2 is a type of the HIV virus
estimated  to  represent  a small  fraction  of the known  HIV cases  worldwide.
Nevertheless,  HIV-2 is considered  to be an important  component in the testing
regimen for HIV in many  markets.  We believe  that this  sub-license  agreement
makes it possible for us to sell HIV-2 tests in countries where such patents are
in force,  or to  manufacture  in countries  where such patents are in force and
then sell into  non-patent  markets.  Additionally,  late in 2003 we licensed an
antigen necessary for certain of our rapid HIV-1/2 products from Adaltis,  Inc.,
and in the third  quarter of 2004,  we acquired  rights from Ani Biotech for its
rapid test  diagnostic  platform  and sample  applicator,  which we believe is a
viable  alternative to current lateral flow  technologies  and with  potentially
worldwide applicability.  The loss of any one of these licenses or challenges to
the patents would be detrimental to the  commercialization of our rapid tests by
delaying or limiting  our ability to sell our rapid test  products,  which would
adversely affect our results of operations, cash flows and business.


                                       49
<PAGE>

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


We May Not be Able to Successfully  Develop and Market New Products That We Plan
to Introduce.

We plan to develop and/or  commercialize other diagnostic products including our
rapid HIV-1/2 screening tests and tests for other infectious  diseases or health
conditions.  We also plan to develop,  along with the United States  Centers for
Disease Control and Prevention,  a blood-based rapid HIV test for diagnostic and
surveillance  purposes.  There are numerous  developmental and regulatory issues
that may preclude the introduction of these products into commercial sale. If we
are  unable to  demonstrate  the  feasibility  of these  products,  successfully
transfer the technology for  commercial-scale  manufacturing to either internal,
joint venture or outsourced  manufacturers  or meet  regulatory  requirements or
resolve  potential  patent  licensing or  government  distribution  or licensing
requirements  with respect to their  marketing,  we may have to abandon them and
alter our business  plan.  Such  modifications  to our business plan will likely
delay achievement of sustainable cash flow from product sales and profitability.
As a  result,  we may  have  to  seek  additional  financing,  which  may not be
available on the timetable  required or on acceptable  terms,  or we may have to
curtail our operations, or both.


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

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

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

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

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


                                       50
<PAGE>

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

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

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


We Have No Experience Marketing a Rapid Test.

We have no experience  marketing and selling  rapid test  products.  Our success
depends upon alliances with  third-party  international  distributors  and joint
venture  partners  and upon our ability with such  distributors  and partners to
penetrate expanded markets. There can be no assurance that:

   o  our international distributors and joint ventures will successfully market
      our products;

   o  our  future  selling  efforts  will  be  effective,  as we  have  not  yet
      introduced  either an HIV-1/2  product or a rapid point of care test, both
      of which are necessary in many areas of the world;

   o  we  will  obtain  market  acceptance  in  the  medical  or  public  health
      community, including governments and humanitarian funding sources critical
      in many international  markets,  which are essential for acceptance of our
      products; or

   o  if our  relationships  with  distributors  terminate,  we  will be able to
      establish  relationships with other distributors on satisfactory terms, if
      at all.


We May Need to Establish  Additional  Collaborative  Agreements,  and this Could
Have a Negative  Effect on Our Freedom to Operate Our  Business or Profit  Fully
from Sales of Our Products.

We may seek to collaborate with other companies to gain access to their research
and development,  manufacturing,  marketing and financial resources. However, we
may not be able to negotiate  arrangements  with any  collaborative  partners on
acceptable terms. Any collaborative relationships that we enter into may include
restrictions  on our freedom to operate our business or to profit fully from the
sales of our products.

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

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


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.


                                       51
<PAGE>

The research and development  process  generally  takes a significant  amount of
time and money from  inception to  commercial  product  launch.  This process is
conducted in various stages.  During each stage there is a substantial risk that
we will not achieve our goals on a timely  basis,  or at all, and we may have to
abandon a product in which we have invested substantial amounts of money.

During the years ended  December 31, 2005 and 2004, we incurred $2.2 million and
$2.1 million,  respectively,  in research and development expenses. We expect to
continue to incur  significant costs as a result of our research and development
activities in the future.

A primary  focus of our  efforts  has been,  and is  expected to continue to be,
rapid HIV tests that we are  commercializing or that are in the process of being
developed.  However,  there  can be no  assurance  that we will  succeed  in our
commercialization of these tests or in our research and development efforts with
respect to rapid tests or other technologies or products.

Successful  products require significant  development and investment,  including
testing,  to  demonstrate  their  cost-effectiveness  or other benefits prior to
commercialization. In addition, regulatory approval must be obtained before most
products may be sold. Regulatory  authorities may not approve these products for
commercial sale. In addition,  even if a product is developed and all applicable
regulatory  approvals  are  obtained,  there may be little or no market  for the
product at a price that will allow us to earn a reasonable  profit, or we may be
unable to obtain the requisite  licenses to sell the product or to qualify for a
government  tender,  which are often requirements in third world countries where
the  greatest  need  and  largest  market  for HIV  diagnostic  testing  exists.
Accordingly,  if we fail to  develop  commercially  successful  products,  or if
competitors  develop more  effective  products or a greater number of successful
new products,  or there are  governmental  limitations  affecting our ability to
sell our  products,  customers  may  decide  to use  products  developed  by our
competitors.  This  would  result in a loss of  current  or  anticipated  future
revenues  and  adversely  affect  our  results  of  operations,  cash  flows and
business.


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

Competition  in our  diagnostic  market is intense and we expect it to increase.
Many of our competitors  have  significantly  greater  financial,  marketing and
distribution  resources than we do. Our competitors may succeed in developing or
marketing  technologies  and  products  that are more  effective  than ours.  In
addition,  if  acceptance  for  oral  fluid  or urine  testing  expands,  we may
experience  competition  from  companies  in areas where  intellectual  property
rights may not be as stringent as in the United States. These developments could
render our  technologies  or products  obsolete or  noncompetitive  or otherwise
affect our ability to increase or maintain our products' market share.  Further,
the greater  resources of our competitors could enable them to develop competing
products  more quickly so as to make it  difficult  for us to develop a share of
the market for these products. By having greater resources,  our competitors may
also be able to respond more quickly to  technology  changes in the  marketplace
and may be able to obtain regulatory  approval for products more quickly than we
can. Our future  success will depend on our ability to remain  competitive  with
other developers of medical devices and therapies.


A Viable Market for Our Products May Not Develop.

Our future  success  will depend,  in part,  on the market  acceptance,  and the
timing of such acceptance, of new products such as our rapid HIV tests currently
being  commercialized,  rapid HIV tests that we expect to develop  and other new
products or  technologies  that may be developed or acquired.  To achieve market
acceptance,  we must make substantial  marketing  efforts and spend  significant
funds to inform potential  customers and the public of the perceived benefits of
these  products.  We currently  have limited  resources  with which to stimulate
market interest in and demand for our products and limited  evidence on which to
evaluate the market's reaction to products that may be developed.  Consequently,
there can be no assurance that any of our products will obtain market acceptance
and fill the market need that is perceived to exist.


                                       52
<PAGE>

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.


Our Quarterly  Results May Fluctuate  Due to Certain  Regulatory,  Marketing and
Competitive Factors Over Which We Have Little or No Control.

The  factors  listed  below,  some of which we  cannot  control,  may  cause our
revenues and results of operations to fluctuate significantly:

   o  actions taken by the FDA or foreign regulatory bodies relating to products
      we are commercializing or seeking to develop;

   o  the extent to which our  current or  proposed  new  products  gain  market
      acceptance;

   o  the timing and size of purchases by our customers,  distributors  or joint
      venture partners;

   o  introductions of alternative means for testing for HIV by competitors;

   o  Changes in the way regulatory authorities evaluate HIV testing,  including
      supplemental testing of the results of a rapid HIV screening test; and


                                       53
<PAGE>

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


We Rely on Sole  Source  Suppliers  that We Cannot  Quickly  Replace for Certain
Components Critical to the Manufacture of Our Products.

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


We Engage Contract Manufacturers 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  another in  Thailand  to  produce  our rapid HIV tests and we plan to
establish manufacturing  operations in China through our affiliate. We intend to
subsequently  introduce a new line of products  using the recently  acquired Ani
technology  platform,  and  again  expect  to rely  on  outsourced  or  overseas
manufacturing  organizations.  Initially,  none of these entities will have more
than limited experience,  if any, in manufacturing our products and will have no
experience in manufacturing them in commercial quantities. While outsourcing our
manufacturing  processes to contract  manufacturers  may permit us to expand our
manufacturing  capacity more quickly, it may also subject us to problems in such
areas as:

   o  transferring  the technology from the laboratory or pilot operation to the
      contract manufacturer on a commercial scale;

   o  lack of technical knowledge regarding regulated procedures;

   o  uncertain or unreliable production yields;

   o  maintaining quality control and assurance;

   o  regulatory compliance,  since most rapid test manufacturers do not produce
      products that are as stringently controlled as HIV diagnostics;

   o  misappropriation  of  intellectual   property,   particularly  in  foreign
      countries where patent protection is less stringent,  and depending on the
      extent of manufacturing processes that are outsourced;

   o  developing market acceptance for new product;

   o  production yields;

   o  quality control and assurance;

   o  raw material supply;

   o  shortages of qualified personnel; and

   o  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.


                                       54
<PAGE>

The  Success  of Our Plans to Enter  International  Markets  May Be  Limited  or
Disrupted  Due to Risks  Related to  International  Trade and  Marketing and the
Capabilities of Our Distributors, Manufacturers and Joint Venture Partners.

As a result of implementing our restructuring plan, we will now 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:

   o  the imposition of government controls (regulatory approval);

   o  export license requirements;

   o  political and economic instability;

   o  trade restrictions;

   o  changes in tariffs;

   o  difficulties   in  managing   international   operations   (difficulty  in
      establishing  a  relationship  with a foreign  distributor,  joint venture
      partner,  or  contract  manufacturer  with the  financial  and  logistical
      ability to maintain quality control of product);

   o  the ability to secure  licenses for  intellectual  property or  technology
      that are  necessary  to  manufacture  or sell our products in the selected
      countries;

   o  fluctuations in foreign currency exchanges rates;

   o  the  financial  stability of our  distributors  and/or their  expertise in
      obtaining local country regulatory approvals;

   o  the  financial  capabilities  of potential  customers in  lesser-developed
      countries or, alternatively, our inability to obtain approvals which would
      enable such countries access to outside financing, such as the World Bank;

   o  the  ability  of  our   distributors  to  successfully   sell  into  their
      contractual  market  territory  or  to  successfully  cover  their  entire
      territory;

   o  the  possibility  that  a  distributor  may  be  unable  to  meet  minimum
      contractual commitments;

   o  establishing market awareness; and

   o  external conditions such as regional  conflicts,  health crises or natural
      disasters.

Some of our distributors have limited international marketing experience.  There
can be no assurance that these distributors will be able to successfully  market
our  products in foreign  markets.  Any such  failure  will delay or disrupt our
plans to expand our business.


The Chinese  Government Could Change Its Policies Toward Private  Enterprises or
Even  Nationalize or Expropriate  Them,  Which Could Result in the Total Loss of
Business in That Country.

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


                                       55
<PAGE>

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 and subsequent  governmental  responses to these attacks could
cause further  economic  instability or lead to further acts of terrorism in the
United  States and  elsewhere.  These actions could  adversely  affect  economic
conditions  outside  the  United  States  and  reduce  demand  for our  products
internationally. Terrorist attacks could also cause regulatory agencies, such as
the FDA or agencies that perform similar functions outside the United States, to
focus their  resources  on vaccines  or other  products  intended to address the
threat of  biological or chemical  warfare.  This  diversion of resources  could
delay our ability to obtain regulatory approvals required to manufacture, market
or sell our products in the United States and other countries.

Our business model and future revenue forecasts call for a significant expansion
of sales in the People's  Republic of China as well as in Africa upon successful
commercialization  of our rapid  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,  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 $10,000,000  claims made policy of
product liability insurance.  However, product liability insurance is expensive.
In the future we may not be able to obtain  coverage on acceptable  terms, if at
all.  Moreover,  our  insurance  coverage  may not  adequately  protect  us from
liability  that we incur in  connection  with  clinical  trials  or sales of our
products.


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<PAGE>

Item 7. Financial Statements and Supplementary Data

The  Company's  Consolidated  Financial  Statements  are  included  on pages F-1
through F-40 of this Annual Report on Form 10-KSB.

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

None.

Item 8A.  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 Chief Financial  Officer ("CFO"),  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-KSB,  as of
December 31, 2005, an evaluation was performed  under the  supervision  and with
the  participation  of  our  management,  including  our  CEO  and  CFO,  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).
This  evaluation   identified   deficiencies  in  our  disclosure  controls  and
procedures.  The  first  deficiency  was the  failure  to  timely  disclose  our
acquisition  of a 51% equity  interest in Beijing Marr  Bio-Pharmaceutical  Co.,
Ltd., a wholly  foreign-owned  enterprise organized and existing in the People's
Republic of China (the "Equity  Transfer  Agreement"),  and agreement  with Marr
Technologies Asia Limited ("Marr  Technologies  Asia"), a company existing under
the laws of the  Republic of  Seychelles,  entered into in  connection  with the
Equity  Transfer  Agreement,  governing  the  relationship  between  us and Marr
Technologies   Asia,  as  shareholders   of  Beijing  Marr  (the   "Shareholders
Agreement"),  which became  reportable events on December 21, 2005, the date the
Equity Transfer Agreement and Shareholders  Agreement were executed.  The Equity
Transfer  Agreement and  Shareholders  Agreement  should have been reported on a
Current  Report on Form 8-K by December  27, 2005,  but were not reported  until
March 30,  2006.  The second  was a  deficiency  in our  internal  control  over
financial  reporting and is discussed below in  Management's  Report on Internal
Control over  Financial  Reporting.  Based on this  evaluation,  our CEO and CFO
concluded that our disclosure  controls and procedures  were not effective as of
December 31, 2005.

(2)  Management's  Report on Internal  Control over Financial  Reporting - Under
Section  13(b)(2) of the  Exchange  Act, we are  required to access  whether our
internal  accounting  controls are  sufficient to meet  applicable  requirements
under federal securities laws. We have evaluated,  with the participation of our
CEO and CFO, our internal  control over  financial  reporting as of December 31,
2005, as required under Section 13(b)(2) and the applicable  provisions of Rules
13a-15 and  15d-15.  In  performing  our  evaluation  of internal  control  over
financial reporting,  management used the criteria set forth by the Committee of
Sponsoring  Organization ("COSO") of the Treadway Commission in Internal Control
- Integrated  Framework.  Based on our evaluation of our internal  controls over
financial  reporting,  we concluded  that, as of December 31, 2005, our internal
control over financial reporting is not effective.

We recorded a significant adjustment to our financial statements for the quarter
and year ended  December 31, 2005,  related to inventory  values and  quantities
reported by a contract  manufacturer in Thailand.  Based on our  evaluation,  we
determined  that this  adjustment  was  caused by the  following:  the  contract
manufacturer's  inventory control system is not automated, its staff responsible
for reporting inventory is inexperienced and we have insufficient and improperly
trained  resources for inventory  control and  reporting.  We concluded that our
lack of properly trained resources resulted in an ineffective review, monitoring
and  analysis  of  inventory  reports  from this  contract  manufacturer,  which
resulted in the adjustment to our current financial statements.


                                       57
<PAGE>

(3)  Remediation  Steps -- We are in the  process of creating  and  implementing
appropriate  disclosure  controls  and  procedures  and internal  controls  over
financial  reporting,  which include clearly defining roles and responsibilities
in our  accounting  and finance  organization;  training  both our staff and our
contract  manufacturer to use our computerized  inventory accounting and control
system; and hiring additional resources.

(4) Change in  Internal  Control  Over  Financial  Reporting - There has been no
change in our internal  control over financial  reporting during our last fiscal
quarter that has  materially  affected,  or is  reasonably  likely to materially
affect, our internal control over financial reporting.


                                       58
<PAGE>

                                    PART III

Item 9.  Executive Officers and Directors of the Registrant

       Following is a list of our Directors  and Executive  Officers as of March
29, 2006.


<TABLE>
<CAPTION>
                                                                                                                     Director
Name                          Age                     Calypte Position; Principal Occupation                          Since
----                          ---                     --------------------------------------                          -----

<S>                           <C>    <C>                                                                              <C>
Roger I. Gale                 53     Chairman and interim Chief Executive Officer; Chairman, Wavecrest Group
                                     Enterprises Limited                                                              11/04

John J. DiPietro              47     Director; Chief Financial Officer, Chronix Biomedical, Inc.                      10/99

Paul E. Freiman               71     Director; President and Chief Executive Officer, Neurobiological
                                     Technologies, Inc.                                                               12/97

Julius R. Krevans, M.D.       81     Director; Retired Chancellor Emeritus, Director of International Medical          3/95
                                     Services University of California, San Francisco

Maxim A. Soulimov             33     Director; Director of Legal Affairs, Global Corporate Ventures, Limited           4/04

Richard D. Brounstein         56     Executive Vice President, Calypte Biomedical Corporation                           N/A

Theodore R. Gwin              57     Chief Financial Officer, Calypte Biomedical Corporation                            N/A
</TABLE>


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

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

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


                                       59
<PAGE>

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

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

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


      Theodore R. Gwin was promoted to the position of Chief  Financial  Officer
effective October 3, 2005, replacing Richard D. Brounstein.  Mr. Gwin had served
as the Company's Controller since April 2005. Prior to joining the Company, from
January 2001 through April 2005, Mr. Gwin had worked as an independent financial
and  business   consultant  to  companies  in  various   industries,   including
biotechnology,  in the Portland,  Oregon area. From April 1998 through  December
2000, Mr. Gwin was the Controller  and Principal  Accounting  Officer at OraSure
Technologies,  Inc. (formerly Epitope, Inc.). Mr. Gwin is a CPA; he received his
Bachelor of Accounting degree from Utah State University.


Board Committees

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

       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 401(e) of Regulation
S-B of the  Securities  Exchange  Act of  1934  (the  "Exchange  Act")  and  are
independent  within  the  meeting of Item  7(d)(3)(iv)  of  Schedule  14A of the
Exchange Act.


                                       60
<PAGE>

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

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


Compliance with Section 16(a) of the Exchange Act

       Section  16(a)  of  the  Exchange  Act  ("Section  16(a)")  requires  the
Company's  executive officers,  directors,  and persons who own more than 10% of
the Company's common stock  (collectively,  "Reporting Persons") to file initial
reports of ownership and reports on changes in ownership with the Securities and
Exchange Commission (the "Commission"). Such Reporting Persons are also required
by  Commission  rules to furnish  the Company  with copies of all Section  16(a)
forms that they file. To the Company's knowledge,  based solely on the review of
copies of such reports furnished to the Company and written representations that
no other reports were required  during the fiscal year ended  December 31, 2005,
all of the Company's  Reporting  Persons  complied with all  applicable  Section
16(a) filing requirements.


Code of Business Conduct

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


                                       61
<PAGE>

Item 10.  Executive Compensation

EXECUTIVE COMPENSATION

       The following  table sets forth certain  compensation  awarded or paid by
the  Company to persons  who served as its Chief  Executive  Officer  and as its
other most highly  compensated  executive  officers in 2005  (collectively,  the
"Named  Executive  Officers")  for the years ended  December 31, 2005,  2004 and
2003.  The  compensation  table  excludes  other  compensation  in the  form  of
perquisites and other personal benefits that constitute the lesser of $50,000 or
10% of the total salary and bonus earned by each of the named Executive Officers
in each fiscal year.

<TABLE>
<CAPTION>
                           Summary Compensation Table
                                                                               Long-Term
                                                                              Compensation
                                                                               Securities
                                                                               Underlying
                                                                                 Options             All Other
      Name and Principal Position         Year    Salary ($)   Bonus ($)        Granted (1)      Compensation ($)
      ---------------------------         ----    ----------   ---------        -----------      ----------------

<S>                                       <C>       <C>                 <C>    <C>       <C>          <C>
Roger I. Gale (2)                         2005            0             0      1,050,000 (3)          45,000 (4)
   Chairman of the Board and              2004            0             0              0                   0
       Interim Chief Executive Officer                                                                     0

J. Richard George (5)                     2005      251,906             0              0              42,000 (6)
    Former Chief Executive                2004      251,478             0      5,000,000 (7)               0
         Officer and President            2003      135,692             0        103,494 (8)               0

Richard D. Brounstein (9)                 2005      204,800             0              0                   0
    Executive Vice President;             2004      212,677             0      1,500,000 (7)               0
       Former Chief Financial Officer;    2003      201,792             0        757,371(10)               0
       former Member of the Board

Theodore R. Gwin (11)                     2005      116,154             0        500,000(12)               0
    Chief Financial Officer

Richard R. VanMaanen (13)                 2005      182,759             0              0              30,750(14)
    Former Vice President-                2004      203,630             0      2,000,000 (7)               0
       Operations and International       2003      148,236             0        131,636(15)          98,248(16)
       Business Development
</TABLE>

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

  (2)  Mr. Gale has served as Chairman of the Board since his appointment to the
       Board in November  2004. In October 2005 he was  appointed  interim Chief
       Executive Officer upon the resignation of Dr. George.

  (3)  Represents an option to purchase  200,000  shares at an exercise price of
       $0.31 per share,  the market price of the  Company's  common stock on the
       January  6, 2005 grant  date.  The grant was made in  recognition  of Mr.
       Gale's  service as a member of the Board under the terms of the Company's
       1995 Director  Option Plan.  The option has a ten-year life. It vested at
       the rate of 16,667 shares on each monthly  anniversary of the grant until
       June  30,  2005,  the  date  of the  Company's  2005  Annual  Meeting  of
       Stockholders, when it became fully-vested. Also represents an immediately
       exercisable  option to purchase  850,000  shares at an exercise  price of
       $0.35 per share,  the market price of the  Company's  common stock on the
       February  9,  2005 date of  grant.  The  grant  was made as  compensation
       pursuant to a consulting contract under which Mr. Gale provided strategic
       and advisory  services to the Company  through  July 2005.  The grant was
       made under the terms of the Company's 2004 Incentive Plan and the options
       have a ten-year life.


                                       62
<PAGE>

(4)   Represents  cash  compensation  accrued  for the  period  October  through
      December 2005 under the terms of a January 2006 letter agreement  pursuant
      to which Mr.  Gale has served as the  Company's  interim  Chief  Executive
      Officer.  In January  2006,  the Company also  granted Mr. Gale  1,000,000
      shares of its common stock under the terms of the letter agreement.

(5)   Dr. George served as President  and Chief  Executive  Officer from January
      2004 until his  resignation  in September  2005.  He joined the Company in
      January 2003 as Vice President of Government Affairs.

(6)   Represents  compensation  paid or accrued  under the terms of a consulting
      agreement  between  the  Company  and Dr.  George  for  services  rendered
      subsequent to his resignation as Chief Executive Officer.

(7)   Represents  an option to  purchase  the number of shares  indicated  at an
      exercise  price of $0.585 per share,  the  market  price of the  Company's
      common stock on the February 24, 2004  conditional  grant date.  The grant
      was made on that date,  subject to  stockholder  approval of the Company's
      2004 Incentive Plan,  which was approved by the Company's  stockholders on
      June 22,  2004,  the  effective  grant date,  when the market price of the
      Company's common stock was $0.52 per share. The grant,  from the Company's
      2004  Incentive  Plan,  was  exercisable  for 50% of the  shares  upon the
      effective grant date, with the remainder of the grant  exercisable on June
      22, 2005.  The options remain  exercisable  for a period of six months and
      one day following the  termination of the grantee's  affiliation  with the
      Company.

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

(9)   Mr.  Brounstein  served as Executive  Vice  President and Chief  Financial
      Officer since joining the Company in December 2001 through September 2005.
      He has served as Executive  Vice  President  since  October  2005.  He had
      served  the  Company  as a  financial  consultant  from July 2001  through
      December 2001. He served as a member of the Board from December 2001 until
      May 2003, when he did not stand for re-election.

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

(11)  Mr. Gwin has served as Chief  Financial  Officer  since  October  2005. He
      joined the Company as Controller in April 2005.

(12)  Represents an option to purchase  200,000  shares at an exercise  price of
      $0.21 per share,  the market  price of the  Company's  common stock on the
      April 26, 2005 grant date and an option to purchase  300,000  shares at an
      exercise  price of $0.20 per  share,  the  market  price of the  Company's
      common  stock on the October 6, 2005 grant  date.  Each option was granted
      under the terms of the Company's  2004  Incentive  Plan and has a ten-year
      life. The April 2005 option vests ratably over a 36 month vesting  period,
      with 33,333  shares  cliff-vested  on October 26,  2005.  The October 2005
      options are exercisable 50% upon grant and 50% on the one year anniversary
      of the grant.

(13)  Mr. Van Maanen  served as Vice  President - Operations  and  International
      Business  Development  from January 2004 until his  resignation in October
      2005.  He joined the Company in March 1993 and served in various sales and
      marketing  management  positions prior to his January 2004  appointment as
      Vice President.


                                       63
<PAGE>

(14)  Represents  compensation  paid under the terms of a  consulting  agreement
      between the Company and Mr. Van Maanen for services rendered subsequent to
      his resignation as Vice President - Operations.

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

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


                     Stock Option Grants in Last Fiscal Year
                                Individual Grants

       The  following  table sets forth  information  concerning  stock  options
granted to the Named  Executive  Officers  during the fiscal year ended December
31, 2005:

<TABLE>
<CAPTION>
                                                    Percent of Total
                           Number of Securities      Options Granted     Exercise
                            Underlying Options       to Employees in       Price      Expiration
Name                              Granted            Fiscal Year(1)      ($/sh)(2)       Date
----                       --------------------     ----------------     ---------    ----------
<S>                        <C>                      <C>                  <C>          <C>

Roger I. Gale                       200,000                                 0.31       1/6/2015
                                    850,000                 20.69 %         0.35       2/9/2015
J. Richard George                         0                     0 %
Richard D. Brounstein                     0                     0 %
Theodore R. Gwin                    200,000                                 0.21      4/26/2015
                                    300,000                  9.85 %         0.20      10/6/2015
Richard R. Van Maanen                     0                     0 %
</TABLE>

----------
  (1)  Percentage  reported  represents the aggregate of the options  granted to
       the Named  Executive  Officer in 2005.  Based on the aggregate of options
       granted to  employees  of and  consultants  to the  Company  to  purchase
       4,874,365  shares under the 2004  Incentive  Plan and options to purchase
       200,000 shares granted to non-employee  Directors under the 1995 Director
       Option Plan during the year ended December 31, 2005,  including grants to
       the Named Executive Officers.

  (2)  The  exercise  price for all  option  grants is the  market  price of the
       Company's common stock on the date of grant.


                                       64
<PAGE>

The following table sets forth  information  concerning option exercises for the
year ended  December  31,  2005,  with  respect  to each of the Named  Executive
Officers.

     Aggregated Option Exercises in 2005 and December 31, 2005 Option Values

<TABLE>
<CAPTION>
                                                                                                    Value of Unexercised
                                                                Number of Securities Underlying    In-the-Money Options at
                               Shares                            Unexercised Options at Fiscal      Fiscal Year End ($)
                             Acquired on           Value               Year End (#)                    (Exercisable/
           Name             Exercise (#)      Realized ($)(2)    (Exercisable/Unexercisable)(1)     Unexercisable)(1)(3)
           ----             ------------      ---------------    ------------------------------     --------------------

<S>                                  <C>                    <C>                     <C>                         <C>
Roger I. Gale                        0                      0                            0 / 0                      0 / 0
J Richard George                     0                      0                       16,827 / 0                  2,524 / 0
Richard D. Brounstein                0                      0                       24,038 / 0                  3,822 / 0
Theodore R. Gwin                     0                      0                            0 / 0                      0 / 0
Richard R. Van Maanen                0                      0                            0 / 0                      0 / 0
</TABLE>

(1)   Reflects  in-the-money  options  granted under the  Company's  2000 Equity
      Incentive  Plan.  None of the options  granted in 2005 from the  Company's
      2004 Incentive Plan or the 1995 Director  Option Plan is  in-the-money  at
      December 31, 2005.

(2)   Value realized is based on the fair market value of the shares on the date
      of exercise as reported on the American  Stock Exchange minus the exercise
      price multiplied by the number of shares acquired on exercise.

(3)   Value of unexercised in-the-money options is based on a value of $0.16 per
      share for the Company's  common  stock,  the closing price on December 30,
      2005 as quoted on the American Stock Exchange. Amounts reflect such market
      value minus the exercise  price  multiplied  by the number of shares to be
      acquired on exercise and do not indicate  that the optionee  actually sold
      such stock.


                              Employment Contracts

In January 2004, the Company entered into a three year employment agreement with
Dr. Richard  George that included an annual salary of $250,000.  On February 24,
2004,  subject to the approval of our  stockholders  of the 2004 Incentive Plan,
Dr. George was also  conditionally  granted options to purchase 5,000,000 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.  The  options  remain  exercisable  for a
period of six months plus one day  following  the  termination  of Dr.  George's
affiliation with the Company as either an employee or consultant. In April 2005,
the  Compensation  Committee of the Board authorized an increase in Dr. George's
annual  salary to $350,000  plus an annual  housing  allowance  of $30,000.  Dr.
George resigned  effective  September 29, 2005, but remains  affiliated with the
Company under the terms of a consulting  agreement  pursuant to which he is paid
$14,000 per month for services to the Company.

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


                                       65
<PAGE>

DIRECTOR COMPENSATION

The  Company's  directors  are  reimbursed  for  out-of-pocket  travel  expenses
associated  with  their  attendance  at Board  meetings.  None of the  Company's
Directors  received cash compensation from the Company during 2005 or thereafter
for their service as a member of the Board. Mr. Gale received a grant of options
in January 2005 pursuant to a consulting agreement in which he provided services
to the Company unrelated to his Board service. Under the terms of a January 2006
letter  agreement,  Mr. Gale was also entitled to receive cash  compensation for
his service as the Company's interim Chief Executive Officer since October 2005,
but has elected to take the portion  representing  compensation for October 2005
through January 2006 in shares of our common stock.

The  Compensation  Committee of the Board  recommends and the Board approves the
number of  non-qualified  stock  options to purchase  shares of common  stock or
other equity  incentive  awards that will be granted each year to  newly-elected
and re-elected directors.  Under the terms of the 1995 Director Option Plan (the
"Director Plan"), non-employee directors of the Company were eligible to receive
grants of options to purchase shares of the Company's common stock.  Each option
granted under the Director Plan was exercisable at 100% of the fair market value
of the  Company's  common  stock on the date such option is granted.  Each grant
vested monthly over the twelve month period  commencing with the director's date
of  election  or  re-election;  however,  the  option  became  vested  and fully
exercisable  on the date of the next  annual  meeting  of  stockholders  if such
meeting  occurred less than twelve months after the date of the grant.  The 1995
Director  Option Plan  expired in 2005 and was  replaced by the  Company's  2005
Director  Incentive  Plan,  which was  approved  in June  2005 by the  Company's
stockholders at the 2005 Annual Meeting of Stockholders.  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  greaterthan  10%
stockholder, directly or beneficially, of the Company or any affiliate.

       The following  table shows the number of shares of common stock  issuable
upon  exercise  of options  granted  to  non-employee  Directors  under the 1995
Director  Plan during the fiscal year ended  December 31, 2005.  The Company has
not granted any awards form the 2005 Director  Incentive  Plan through March 29,
2006.

                                                                   Number of
        Name and Position                                         Options(1)
        -----------------                                         ----------
Roger I. Gale, Director (2)                                          200,000
John J. DiPietro, Director                                                 0
Paul E. Freiman, Director                                                  0
Julius Krevans M.D., Director                                              0
Maxim A. Soulimov, Director                                                0


(1)  All options were granted at fair market value on the date of grant.

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


                                       66
<PAGE>

Compensation Committee Interlocks and Insider Participation

       During 2005, the Compensation  Committee consisted of Dr. Krevans and Mr.
Freiman,  each  of  whom  is a  non-employee  director.  Neither  member  of the
Compensation  Committee has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.

Item 11.  Security  Ownership of Certain  fBeneficial  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 29, 2006 for (i) all persons  known by
the Company to own  beneficially  more than 5% of its outstanding  Common Stock,
(ii) each of the Company's  directors,  (iii) each Named  Executive  Officer and
(iv) all directors and executive officers of the Company as a group.

                                                       Shares         % of
                                                    Beneficially      Total
     5% Stockholders, Directors and Officers (1)        Owned          (2)
     -------------------------------------------    ------------      -----

Marr Technologies BV (3)                              75,763,885      35.74
    Strawinskylaan 1431
    1077XX, Amsterdam
    The Netherlands
SF Capital Partners Ltd. (4)                          20,379,775       9.99
    3600 South Lake Drive
    St. Francis, WI 53235
Roger I. Gale (5)                                      2,526,736       1.36
J. Richard George (6)                                  5,103,494       2.69
Richard D. Brounstein  (7)                             2,257,371       1.21
John J. DiPietro (8)                                     307,977          *
Paul E. Freiman (9)                                      309,901          *
Theodore R. Gwin (10)                                    222,224          *
Julius Krevans, M.D.(11)                                 308,468          *
Maxim A. Soulimov (12)                                   200,000          *
Richard R. Van Maanen (13)                             2,131,636       1.14

All current directors and executive
 officers as a group (7 persons)                       6,132,677       3.24

----------
 * 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,  Five Centerpointe  Drive, Suite 400,
     Lake Oswego, OR 97035.

(2)  Based on 184,628,399 shares outstanding as of March 29, 2006.

(3)  Based on holdings  reported in Amendment No. 4 to Schedule 13D dated August
     9, 2004 filed with the  Securities and Exchange  Commission  plus 9,915,401
     shares subject to the Secured 8% Convertible  Notes issued on April 4, 2005
     and three  related  Notes issued in payment of  interest,  all of which are
     immediately  convertible;  14,033,333  shares  underlying  the Series A and
     Series B warrants  issued on April 4, 2005 that are currently  exercisable;
     1,968,750  shares and 306,250  shares  underlying  immediately  exercisable
     warrants issued in connection with  anti-dilution  entitlements of the 2004
     PIPE;  and  3,125,000   shares  subject  to  warrants  that  are  currently
     exercisable.  Marr  Technologies  BV  is  not  subject  to  any  percentage
     ownership  limitations.  Marat Safin has voting and investment control over
     shares held by Marr Technologies BV.


                                       67
<PAGE>

(4)  Based on holdings  reported  in  Amendment  No. 3 to Schedule  13G filed on
     March 9, 2006 with the  Securities and Exchange  Commission  plus 7,900,000
     shares  subject  to  Secured  8%  Convertible  Notes  that are  immediately
     convertible.   Excludes  an   additional   14,708,249   shares   underlying
     immediately   exercisable  warrants  which  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 of 1934) in excess of
     9.999% of the Company's common stock, giving effect to such exercise.  Also
     excludes 3,500,000 shares underlying  warrants that are subject to exercise
     caps that preclude SF Capital  Partners  Ltd.  from  utilizing its exercise
     rights  within  60  days  to the  extent  that it  would  beneficially  own
     (determined in accordance with Section 13(d) of the Securities Act of 1934)
     in excess of 4.999% of the Company's  common  stock,  giving effect to such
     exercise. Michael A. Roth and Brian J. Stark possess voting and dispositive
     power over all of the shares owned by SF Capital Partners Ltd.

(5)  Includes  1,050,000 shares subject to options  exercisable  within 60 days.
     Marr Technologies BV ("Marr"), the beneficial owner of 75,763,885 shares of
     Calypte  Common  stock  (the "Marr  Holdings"),  was  granted  the right to
     nominate  two (2)  mutually-agreeable  candidates  for  appointment  to the
     Calypte Board of Directors  pursuant to an August 2003 agreement.  Mr. Gale
     was nominated by Marr and subsequently  appointed as a Director on November
     15,  2004  upon the  recommendation  of the  Nominating  Committee  and the
     approval of the Calypte Board of Directors. He was re-elected as a director
     at the Annual Meeting of  Stockholders on June 30, 2005. Mr. Gale disclaims
     any direct or indirect  beneficial  ownership of Marr Holdings and does not
     exercise  any  control  nor does he take part in any  investment  decisions
     undertaken  by Marr  and  does not  have a  direct  or  indirect  pecuniary
     interest in Marr Holdings.

(6)  Includes 5,103,494 shares subject to options exercisable within 60 days.

(7)  Includes 2,257,371 shares subject to options exercisable within 60 days.

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

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

(10) Includes 222,224 shares subject to options exercisable within 60 days.

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

(12) Includes 200,000 shares subject to options exercisable within 60 days. Marr
     Technologies  BV ("Marr"),  the  beneficial  owner of 75,763,885  shares of
     Calypte  Common  stock  (the  "Marr  Holdings")  was  granted  the right to
     nominate two (2)  mutually  agreeable  candidates  for  appointment  to the
     Calypte  Board of  Directors  pursuant  to an August  2003  agreement.  Mr.
     Soulimov was nominated by Marr and subsequently  appointed as a director on
     April 2, 2004 upon the  recommendation of the Nominating  Committee and the
     approval of the Calypte Board of Directors. He was re-elected as a Director
     at the annual  Meeting of  Stockholders  on June 22,  2004 and again at the
     Annual  Meeting on June 30,  2005.  Mr.  Soulimov  disclaims  any direct or
     indirect  beneficial  ownership of Marr  Holdings and does not exercise any
     control nor does he take part in any  investment  decisions  undertaken  by
     Marr and does not have a direct  or  indirect  pecuniary  interest  in Marr
     Holdings.

(13) Includes 2,131,636 shares subject to options exercisable within 60 days.


                                       68
<PAGE>

Item 12.  Certain Relationships and Related Transactions

We entered into a Note Purchase Agreement with Marr  Technologies,  BV ("Marr"),
our largest  stockholder,  in November 2003 that we subsequently  modifed during
2004.  We issued no notes under this  facility  prior to its  December  31, 2004
expiration. We issued a Promissory Note in the face amount of $2,000,000 to Marr
in January 2005 and entered into a Credit Facility  Agreement with Marr in April
2005 that was  subsequently  modified in November 2005. At December 31, 2005, we
had issued  Promissory  Notes to Marr in the face amount of $1,500,000 under the
amended  terms of the Credit  Facility.  In January 2006, we issued a $1,500,000
promissory note to Marr under the amended terms of the 2005 Credit Facility.  In
February and March 2006, we issued two additional promissory notes to Marr, each
in the face amount of $500,000. Each promissory note bears interest at a rate of
7% per annum and is payable in full on April 3, 2007.

In December 2005, we entered into an Equity  Transfer  Agreement with Marr Asia,
an  affiliate  of Marr.  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 USD  $1,764,000.  At March 29, 2006, we have
contributed  $918,000 and Marr Asia has contributed  $882,000.  We and Marr Asia
must make our remaining  capital  contributions  in proportion to our respective
equity  interests in Beijing Marr before November 17, 2006. The business purpose
of Beijing Marr is to pursue the manufacture,  distribution,  marketing and sale
of our products in China.

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 Marr's  purchase of $2.5 million of our common stock during
2003,  we signed a Memorandum  Of  Understanding  to create a joint venture with
Marr 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,  Roger I. Gale and  Maxim A.  Soulimov,  who were  both  initially
nominated by Marr, were added to our Board of Directors.

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


                                       69
<PAGE>

Item 13.  Exhibits and Reports on Form 8-K

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

     1.  The Company's  Consolidated  Financial Statements are included on pages
         F-1 through F-40 of this Annual Report on Form 10-KSB.

     2.  Exhibits


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

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

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

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

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

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

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

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

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

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

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

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

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


                                       70
<PAGE>

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.

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

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

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

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

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

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

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

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

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

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

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

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


                                       71
<PAGE>

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.

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

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

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

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

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

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

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

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

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

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

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

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


                                       72
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       73
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       74
<PAGE>

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       75
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       76
<PAGE>

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.

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.


                                       77
<PAGE>

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 the Company's Current
          Report on Form 8-K filed on March 30, 2006.

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

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

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

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

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

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


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


(b) Reports on Form 8-K filed during the fourth quarter of 2005.

       Form 8-K  regarding   Item  5.02  Departure  of  Directors  or  Principal
            Officers; Election of Directors; Appointment of Principal Officers -
            filed October 6, 2005 - Announcing  the  appointment of Roger I Gale
            as the  Company's  interim Chief  Executive  Officer and Theodore R.
            Gwin as  Chief  Financial  Officer  and  other  management  changes,
            including the Company's press release dated October 6, 2005.

       Form 8-K regarding  Item 1.01 Entry into a Material  Definitive  Contract
            and Item 2.01  Completion of  Acquisition  or Disposition of Assets,
            filed  November 21, 2005 - Announcing the Asset Purchase and License
            Agreement  dated  November  15,  2005  between the Company and Maxim
            Biomedical, Inc.

       Form 8-K regarding  Item 1.01 Entry into a Material  Definitive  Contract
            and Item  2.03  Creation  of a  Direct  Financial  Obligation  or an
            Obligation under an Off-Balance  Sheet  Arrangement of a Registrant,
            filed December 6, 2005 - Announcing the Amendment to the 2005 Credit
            Facility  Agreement  dated November 30, 2005 between the Company and
            Marr  Technologies,  BV and the  Company's  issuance of a promissory
            note pursuant to the amended Credit Facility.


                                       78
<PAGE>

Item 14.  Principal Accountant Fees and Services

      Odenberg Ullakko Muranishi & Co. LLP ("OUM") is the independent accounting
firm that  audited  the  Company's  financial  statements  for the  years  ended
December 31, 2005 and 2004.  The Audit  Committee  first engaged OUM in December
2003.  OUM  performed  no services for the Company  during  calendar  2003,  but
performed audit and review services for 2003 during calendar 2004. The aggregate
fees  billed  during  2005  and 2004 for  each of the  following  categories  of
services are set forth below:

                                              2005               2004
                                              ------             ----
      Audit fees                           $ 211,242        $ 220,727
      Audit-related fees                           -                -
      Tax fees                                     -                -
      All other fees                               -                -

      "Audit fees"  include fees invoiced in 2005 and 2004 for the audits of the
Company's  annual  financial  statements for 2005, 2004, 2003 and 2002; fees for
the quarterly review of the statements for the quarters ended March 31, June 30,
and September 30, 2005 and 2004, and for the quarter ended September 30, 2003 as
well as fees for consultation regarding accounting issues and their impact on or
presentation  in the Company's financial  statements; and fees for the review of
registration  statements and the issuance of related  consents.  OUM provided no
"Audit-related services" to the Company. "Tax fees" include tax planning and the
preparation  of the  Company's  tax  returns.  OUM does not  provide  any tax or
financial information systems design or implementation services to the Company.


                                       79
<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm                  F-2
---------------------------------------------------------

Consolidated Balance Sheets                                              F-3
---------------------------

Consolidated Statements of Operations                                    F-4
--------------------------------------

Consolidated Statements of Stockholders' Deficit                         F-5
-------------------------------------------------

Consolidated Statements of Cash Flows                                    F-6
--------------------------------------

Notes to Consolidated Financial Statements                               F-8
-------------------------------------------



                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
  Calypte Biomedical Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Calypte
Biomedical  Corporation  as of  December  31,  2005 and  2004,  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
consolidated financial statements based on our audits.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  We were not engaged to perform an
audit of the Company's  internal  control over financial  reporting.  Our audits
include  consideration of internal  control over financial  reporting as a basis
for designing audit  procedures that are appropriate in the  circumstances,  but
not for the  purpose  of  expressing  an  opinion  on the  effectiveness  of the
Company's internal control over financial reporting.  Accordingly, we express no
such  opinion.  An audit also  includes  examining,  on a test  basis,  evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, 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, 2005 and 2004, 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  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 2006 without additional financing. This raises
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters are also described in Note 1. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


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

San Francisco, California
March 3, 2006, except for Note 19,
   which is as of March 31, 2006



                                      F-2
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                      (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                                               December 31,
                                                                                                          ----------------------
                                                                                                             2005        2004
                                                                                                          ---------    ---------
                                                 ASSETS
<S>                                                                                                       <C>          <C>
Current assets:
       Cash and cash equivalents                                                                          $     492    $   1,075
       Accounts receivable, net of allowance of $17 and $0 at December 31, 2005 and 2004, respectively           53           12
       Inventory, net                                                                                           147           15
       Prepaid expenses                                                                                         233          385
       Deferred offering costs, net of accumulated amortization of $391 at December 31, 2005                    620           --
       Other current assets                                                                                       5           32
       Current assets of discontinued operations                                                                 --        1,759
                                                                                                          ---------    ---------

              Total current assets                                                                            1,550        3,278

Property and equipment, net                                                                                     136          170
Intangible assets                                                                                             2,934        2,886
Other assets                                                                                                    970          541
Property and equipment, net, of discontinued operations                                                          --        1,055
                                                                                                          ---------    ---------

                                                                                                          $   5,590    $   7,930
                                                                                                          =========    =========
                                 LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
       Accounts payable and accrued expenses                                                              $   4,029    $   5,584
       Debentures payable, net of $0 and $23 discount at December 31, 2005 and 2004, respectively                60           37
       Capital lease obligations - current portion                                                              174          157
       Anti-dilution obligation                                                                                  --        1,638
       Current liabilities of discontinued operations                                                           321          634
                                                                                                          ---------    ---------

              Total current liabilities                                                                       4,584        8,050

Notes payable, net of discount of $6,257 at December 31, 2005, including $1,500 to a related party            3,496           --
Note derivative liability                                                                                     1,594           --
Capital lease obligations - non-current portion                                                                 131          304
Other long term liabilities                                                                                      --           35
Mandatorily redeemable Series A preferred stock, $0.001 par value; no shares authorized at December 31,
    2005 and 2004; 100,000 shares issued and outstanding at December 31, 2005 and 2004; aggregate
    redemption and liquidation value of $1,000 plus cumulative dividends                                      2,936        2,816
Non-current liabilities of discontinued operations                                                               --           18
                                                                                                          ---------    ---------

              Total liabilities                                                                              12,741       11,223
                                                                                                          ---------    ---------


Commitments and contingencies

Stockholders' 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, 2005 and 2004;
           181,060,394 and 169,456,112 shares issued and outstanding as of December 31, 2005 and 2004,
           respectively                                                                                       5,432        5,084
       Additional paid-in capital                                                                           141,319      136,757
       Deferred compensation                                                                                     (9)          (4)
       Accumulated deficit                                                                                 (153,893)    (145,130)
                                                                                                          ---------    ---------

              Total stockholders' deficit                                                                    (7,151)      (3,293)
                                                                                                          ---------    ---------

                                                                                                          $   5,590    $   7,930
                                                                                                          =========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                        Year Ended December 31,
                                                                                                       -------------------------
                                                                                                         2005              2004
                                                                                                       ---------        ---------
<S>                                                                                                    <C>              <C>
Revenues:
   Product sales                                                                                       $     427        $      31
   Other revenue                                                                                              --              500
                                                                                                       ---------        ---------
      Total revenues                                                                                         427              531
                                                                                                       ---------        ---------


Operating expenses:
   Product costs                                                                                             133               35
   Research and development costs                                                                          2,211            2,140
   Selling, general and administrative costs (non-cash of $540 and $733 in 2005 and 2004,
     respectively)                                                                                         5,363            8,437
                                                                                                       ---------        ---------

      Total operating expenses                                                                             7,707           10,612
                                                                                                       ---------        ---------

        Loss from operations                                                                              (7,280)         (10,081)
Interest income (expense), net (non-cash of $2,036 and $(2,076) in 2005 and 2004,
  respectively)
                                                                                                           1,952           (2,126)
Other income (expense), net                                                                                 (335)              33
                                                                                                       ---------        ---------

        Loss from continuing operations before income taxes                                               (5,663)         (12,174)

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

        Net loss from continuing operations                                                               (5,665)         (12,176)

Discontinued operations:

        Loss from discontinued operations, including loss on disposal of $425 in 2005, net of
           income taxes                                                                                   (3,098)          (5,090)
                                                                                                       ---------        ---------

Net loss                                                                                               $  (8,763)       $ (17,266)
                                                                                                       =========        =========

Net loss per share from continuing operations (basic and diluted)                                      $   (0.03)       $   (0.08)
                                                                                                       =========        =========

Net loss per share (basic and diluted)                                                                 $   (0.05)       $   (0.11)
                                                                                                       =========        =========

Weighted average shares used to compute net loss per share (basic and diluted)                           175,842          155,575
                                                                                                       =========        =========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

                     Years Ended December 31, 2004 and 2005

                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                                       Total
                                    Number of Common    Common       Additional        Deferred       Accumulated   Stockholders'
                                     Common Shares      Stock      Paid--in Capital   Compensation       Deficit       Deficit
                                     -------------      -----      ----------------   ------------       -------       -------

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

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

Balances at December 31, 2004          169,456,112         5,084         136,757                (4)     (145,130)       (3,293)

Shares issued upon exercise of
   warrants and options                  3,238,684            97             612                --            --           709
Shares and warrants issued
   pursuant to anti--dilution
   provisions of 2004 PIPE, net
   of expenses                           7,079,626           212             992                --            --         1,204
Shares issued upon conversion of
   8% convertible notes and
   proportional share of note
   derivative liability                    590,000            18             237                --            --           255
Fair value of warrants and note
   proceeds allocated to warrants
   issued in connection with 8%
   convertible notes financing                  --            --           2,179                --            --         2,179
Fair value of warrants issued in
   conjunction with 2005 Marr
   Credit Facility                              --            --              71                --            --            71
Shares issued in lieu of cash to
   vendors and consultants                 695,972            21             173                --            --           194
Compensation related to stock
   option grants                                --            --             298               (22)           --           276
Amortization of deferred
   compensation                                 --            --              --                17            --            17
Net loss                                        --            --              --                --        (8,763)       (8,763)
                                     -------------     ---------    ------------      ------------    ----------    ----------
Balances at December 31, 2005          181,060,394     $   5,432    $    141,319      $         (9)   $ (153,893)   $   (7,151)
                                     =============     =========    ============      ============    ==========    ==========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                             Year Ended
                                                                                                            December 31,
                                                                                                     --------------------------
                                                                                                        2005            2004
                                                                                                     -----------     ----------
<S>                                                                                                   <C>             <C>
Cash flows from operating activities:
Net loss                                                                                              $ (8,763)       $(17,266)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization                                                                           368             406
   Amortization of deferred compensation                                                                    17               1
   Non-cash interest expense attributable to:
      Amortization of note and debenture discounts and charge for beneficial conversion feature          1,111              67
      Amortization of deferred offering costs                                                              391              14
      Liquidated damages due to delayed registration of stock underlying convertible debentures             --            (205)
      Dividends on mandatorily redeemable Series A preferred stock                                         120             120
      Note derivative liability and anti-dilution obligation                                            (4,308)          1,638
   Fair market value of common stock, warrants, options and bonuses granted                                591           1,461
   Loss on disposition of assets from discontinue operations                                               425              --
   Loss on sale of equipment                                                                                20               2
   Changes in operating assets and liabilities:
      Accounts receivable                                                                                  206             107
      Inventory                                                                                          1,377             629
      Prepaid expenses and other current assets                                                            226              78
      Deferred offering costs and other assets                                                            (515)           (120)
      Accounts payable, accrued expenses and deferred revenue                                              733             396
      Other long-term liabilities                                                                          (52)           (152)
                                                                                                      --------        --------

        Net cash used in operating activities                                                           (8,085)        (12,824)
                                                                                                      --------        --------

Cash flows from investing activities:
   Proceeds from the sale of equipment                                                                      50              16
   Investment in joint venture                                                                             198            (244)
   Investment in intangibles                                                                            (1,565)           (576)
   Purchase of equipment                                                                                   (93)           (922)
                                                                                                      --------        --------

        Net cash used in investing activities                                                           (1,410)         (1,726)
                                                                                                      --------        --------

Cash flows from financing activities:
   Proceeds from sale of stock                                                                             183          10,861
   Expenses related to sale of stock                                                                        (9)           (764)
   Proceeds from related party loans                                                                     3,500              --
   Net proceeds from issuance of convertible notes                                                       7,394              --
   Proceeds from capital lease financing                                                                    --             500
   Repayment of related party loans                                                                     (2,000)             --
   Principal payments on capital leases                                                                   (155)            (56)
                                                                                                      --------        --------

        Net cash provided by financing activities                                                        8,912          10,541
                                                                                                      --------        --------

Net decrease in cash and cash equivalents                                                                 (583)         (4,009)

Cash and cash equivalents at beginning of period                                                         1,075           5,084
                                                                                                      --------        --------

Cash and cash equivalents at end of period                                                            $    492        $  1,075
                                                                                                      ========        ========
</TABLE>

                                   (continued)


                                      F-6
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                                           Year Ended
                                                                                                          December 31,
                                                                                                   --------------------------
                                                                                                      2005            2004
                                                                                                   -----------      ---------

<S>                                                                                                 <C>             <C>
Supplemental disclosure of cash flow activities:
   Cash paid for interest                                                                           $      114      $      82
   Cash paid for income taxes                                                                                2              2

Supplemental disclosure of non-cash activities:
   Common stock issued in payment of accrued compensation                                                  520              -
   Common stock issued for intellectual property and equipment                                               -            469
   Conversion of notes and debentures payable and accrued interest to common stock and
      proportional share of note derivative liability                                                      255          1,047
   Fair market value of notes and warrants issued to placement agents in conjunction with 8%
      notes payable financing                                                                              405              -
   2004 PIPE anti-dilution obligation transferred to equity                                              1,214              -
   Accrued interest converted to note payable                                                              332              -
</TABLE>


          See accompanying notes to consolidated financial statements.



                                      F-7
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


(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.   Historically,   the  Company  has
manufactured and marketed urine-based HIV-1 diagnostic screening tests and urine
and serum-based  Western Blot supplemental tests for use in laboratories,  which
it refers to as its "Legacy  Business."  Since the Company  began  marketing its
urine  diagnostic  testing  products  following  their  approval  by the FDA and
through  the  mid-fourth   quarter  of  2005,  its  revenues  have  been  almost
exclusively  generated  from  sales  of these  products.  The  Company's  Legacy
Business  tests have been  designed in formats that make them most  suitable for
high-volume laboratory settings.

During 2004 and 2005,  however,  the Company has been  broadening its historical
focus to  include  other HIV tests,  such as a  blood-based  incidence  test and
various  rapid tests using other  specimens.  In the last  quarter of 2004,  the
Company  introduced its 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.   The  Company  is   currently   focusing  on  the   development   and
commercialization  of new test products for the rapid detection of antibodies to
HIV-1 and HIV Type 2, a second  type of HIV  ("HIV-2"),  in blood and oral fluid
samples using a lateral flow dipstick design (the "HIV-1/2 Rapid Tests") and the
commercialization  of the BED  Incidence  Test on a worldwide  basis.  While the
Company retains its interest in a urine-based  diagnostic test, urine has proven
to be a  particularly  difficult  sample  in a rapid  test  environment  and the
Company has determined to delay further development or commercialization efforts
at this time.

Rapid  tests  provide  diagnostic  results  in  less  than  20  minutes  and are
particularly  suitable  for  point-of-care  testing,  especially  in  developing
countries  that lack the  medical  infrastructure  to support  laboratory  based
testing.  The Company has completed field trials of its HIV-1/2 Rapid Tests that
have  validated  its  prototype  products.  The Company has  recently  completed
clinical  trials or  product  evaluations  in China,  Uganda,  South  Africa and
Cameroon  for certain of its blood or oral fluid  rapid  tests and is  currently
engaged in and or plans to conduct additional clinical trials in other countries
in pursuit of regulatory approvals for these tests.

In June 2004, the Company closed its  manufacturing  facility for certain of its
"Legacy  Business" - its  FDA-approved  EIA and Western Blot HIV diagnostic test
product  lines - products in Alameda,  California  and  consolidated  all of its
manufacturing  operations at its facility in Rockville,  Maryland. In April 2005
it announced  plans to  restructure  its business by further  consolidating  its
domestic   operations   and  focusing  its  capital   resources  on  the  global
commercialization of the HIV-1/2 Rapid Tests and the BED Incidence Test. As part
of the restructuring  initiative,  the Company announced its intention to pursue
various options ranging from selling the Legacy Business to discontinuing Legacy
Business  products  manufacturing   operations  at  Rockville  pending  a  final
determination of its disposition.

On April 18, 2005,  the Company  entered into a non-binding  letter of intent to
sell the Legacy Business to Maxim Biomedical,  Inc. ("Maxim").  Effective May 1,
2005, the Company entered into a manufacturing services and management agreement
(the  "Manufacturing  Services  Agreement")  with Maxim  pursuant to which Maxim
manufactured,  shipped and performed quality control  procedures for the Company
in connection  with the Legacy  Business.  Under the terms of the  Manufacturing
Services  Agreement,  Maxim  hired some of the  Company's  ex-employees  and the
Company  transferred  its  inventory  to  Maxim  for use  under  the  Agreement.
Effective  November 15, 2005,  under the terms of an Asset  Purchase and License
Agreement (the "Agreement"),  the Company sold its Legacy Business to Maxim. The
Company  has  classified  its  Legacy  Business  operations  as  a  discontinued
operation  in  the  accompanying   financial   statements   (refer  to  Note  3,
Discontinued Operations).

During the third quarter of 2005,  the Company also  transitioned  its corporate
administrative  offices  from  California  to Lake Oswego,  Oregon,  a suburb of
Portland, near where its research and development operations are located. During
the second quarter of 2005, the Company  incurred  severance costs for personnel
terminated at Rockville and recorded severance costs for certain  administrative
personnel not  transitioning  to Oregon.  During the third quarter,  the Company
entered into an agreement to sublease its  California  offices  through the July
2007 expiration of the lease on that facility. The Company accrued approximately
$535,000  that is included in selling,  general and  administrative  expenses of
continuing operations in the second quarter of 2005 for transition-related costs
resulting  from  its  restructuring   activities.   The  Company  also  incurred
approximately  $1.2  million of expense  that is  included  in product  costs of
discontinued operations in the second quarter of 2005 related to the transfer of
its   inventory   to  Maxim   under  the   Manufacturing   Services   Agreement.
Restructuring-related  costs have been  determined in  accordance  with SFAS No.
146, "Accounting for the Costs Associated with Exit or Disposal Activities."


                                      F-8
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


Having completed the restructuring described above, the Company believes that it
has  significantly  reduced its  monthly  operating  burn rate as compared  with
historical  levels.  However,  the  revenue  stream  from the  Company's  Legacy
Business  products  has also been  eliminated,  requiring it to rely on revenues
from the sale of its BED Incidence  Test and,  following  regulatory  approvals,
from the sale of its HIV-1/2 Rapid Tests  internationally to pursue its business
milestones and achieve  profitability.  The Company believes that the geographic
consolidation  of its  domestic  operations  and the  termination  of its Legacy
Business   resulting  from  this  restructuring  will  improve  its  operational
efficiency,  decrease its cash burn and permit it to  concentrate  on expediting
the procedures  necessary to  commercialize  the HIV-1/2 Rapid Tests and thereby
begin the  process of  building  the  revenue  stream  necessary  to support its
operations  and  achieve  its  financial   objective  of  sustained   profitable
operations and increased stockholder value.

The Company  commenced its operations in 1989 and was incorporated as a Delaware
corporation in June 1996,  concurrent  with the initial  public  offering of its
stock.

The Company  incurred net losses of $8.8  million and $17.3  million in 2005 and
2004,  respectively.  The  accumulated  deficit at  December  31,  2005 was $154
million.  Based upon its  financial  condition,  which  included a $3.0  million
working  capital  and  $7.2  million  stockholders'  deficit,  respectively,  at
December  31,  2005,  its  recurring  losses and its  accumulated  deficit,  the
Company's  independent  accountants  have  issued an opinion on these  financial
statements that cites  substantial doubt about the Company's ability to continue
its business  operations as a going concern.  Although the Company has issued an
aggregate  of  $2,500,000   of  7%  Promissory   Notes  (the  "Notes")  to  Marr
Technologies BV ("Marr"), its largest stockholder, in January through March 2006
(refer to Note 19, Subsequent Events),  and has the right to issue an additional
$1.5 million of notes, all of which are due in April 2007 under the terms of the
2005 Credit Facility with Marr (refer to Note 8, Notes and Debentures  Payable),
the  proceeds of such notes are  insufficient  to provide  the Company  with the
liquidity  required to fully attain its business  milestones,  achieve  positive
cash flow and repay all of its outstanding  notes when due. The Company does not
believe that its cash resources are sufficient to sustain its operations through
2006 without  obtaining  additional  financing.  There can be no assurance  that
additional financing will be available,  or if it is available,  that it will be
on  acceptable  terms.  The Company  would,  or might be required  to,  consider
strategic  opportunities,   including  merger,  consolidation,   sale  or  other
comparable  transaction,  to  sustain  its  operations.  The  Company  does  not
currently  have any  agreements  in place with  respect  to any such  additional
financing or strategic opportunity,  and there can be no assurance that any such
opportunity  will  be  available  to it on  acceptable  terms,  or  at  all.  If
additional  financing is not available or is not available on acceptable  terms,
or the Company is unable to arrange a suitable strategic opportunity, it will be
in significant  financial  jeopardy and may be unable to continue its operations
at current levels, or at all. The terms of a subsequent  financing may involve a
change of control and/or require stockholder  approval.  Further,  the Company's
pledge of the  rights  to its  assets as  collateral  security  for the 8% Notes
issued in April 2005 may inhibit its ability to secure  financing in the future.
Although management expects to be able to raise additional capital, there can be
no  assurance  that the Company  will secure such  financing  or enter into such
strategic  agreements,  or that its stockholders would approve the terms of such
agreements or financing, if so required.


(2)  Significant Accounting Policies

Principles of Consolidation

The  accompanying  consolidated  financial  statements  include  the  results of
operations of the Company, and its wholly-owned  subsidiary,  Calypte,  Inc. All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.  Because the entity has been in its  organizational  stage during
2005 and 2004,  the  Company has  accounted  for its 51%  ownership  interest in
Beijing Calypte Biomedical  Technology Ltd. ("Beijing Calypte") using the equity
method. The results of operations of Beijing Calypte were not material in either
2005 or 2004.

Cash and Cash Equivalents

Cash equivalents consist of investments in money market accounts.

Allowance for Doubtful Accounts

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


                                      F-9
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


Inventories

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

Property and Equipment

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

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

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

Long-Lived Assets

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

Fair Value of Financial Instruments

Financial  assets  and  short-term  liabilities,   with  the  exception  of  the
convertible  notes and debentures,  have carrying values which approximate their
fair values for all periods presented.  The carrying amounts of cash equivalents
approximate  fair value  because of their  short-term  nature and  because  such
amounts are invested in accounts earning market rates of interest.  The 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 the  unamortized  portion  of the  beneficial
conversion  and/or  anti-dilution  features,  if any, embedded in the notes. The
Company  records  any  related  anti-dilution  obligation  and  note  derivative
liability at their fair value at the end of each reporting period.

Revenue Recognition

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

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

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

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

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

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


                                      F-10
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


The Company provides no price protection. Subject to the conditions noted above,
the Company recognizes revenue upon shipment of product.

Deferred Revenue

The Company's  current  sales  practices do not require the deferral of revenues
and, except as described in Note 7, no entries to record  deferred  revenue have
been made during the period included in the accompanying  consolidated financial
statements.

Income Taxes

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

Classification of Financial  Instruments with  Characteristics of both Liability
and Equity

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

Stock-Based Compensation

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

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

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


                                      F-11
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


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

<TABLE>
<CAPTION>
                                                                                      2005            2004
                                                                                 --------------  --------------

                                                                                 (in thousands)  (in thousands)

<S>                                                                                 <C>             <C>
Net loss, as reported                                                               $ (8,763)       $(17,266)
Add: Stock-based employee compensation expense included in reported net loss,
   net of related tax effects                                                            294             267
Less: Stock-based employee compensation expense determined under fair value
   based method for all awards, net of related tax effects                            (2,744)         (9,709)
                                                                                    --------        --------

Pro forma net loss                                                                  $(11,213)       $(26,708)
                                                                                    ========        ========
Net loss per share:
    As reported                                                                     $  (0.05)       $  (0.11)
    Pro forma                                                                       $  (0.06)       $  (0.17)
</TABLE>

Net Loss Per Share

Basic net loss per share is computed by  dividing  the net loss by the  weighted
average  number of  shares of common  stock  outstanding  during  the year.  The
computation of diluted  earnings per common share is similar to the  computation
of basic net loss per share,  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
were the same for the two years ended  December  31, 2005 and 2004.  Options and
warrants for  82,890,889  shares and  40,607,429  shares were  excluded from the
computation  of loss per share at December 31, 2005 and 2004,  respectively,  as
their effect is anti-dilutive. The computation of loss per share at December 31,
2005  also  excludes  27,508,060  shares  issuable  upon  the  conversion  of 8%
Convertible Notes as their effect is also anti-dilutive.

Concentrations of Credit Risk

Financial  instruments,  which potentially subject the Company to concentrations
of credit  risk,  consist  principally  of cash and cash  equivalents  and trade
accounts receivable.  The Company has investment policies that limit investments
to short-term,  low-risk investments.  Concentration of credit risk with respect
to trade accounts  receivable are limited due to the fact that the Company sells
its products  primarily to established  distributors or requires  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 management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities,  the  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Risks and Uncertainties

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

Comprehensive Loss

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


                                      F-12
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


Segment and Geographic Information

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

The  following  table  summarizes  the  Company's  product  sales  revenues from
continuing  operations by product for the years ended December 31, 2005 and 2004
(in thousands).

                                                          2005            2004
                                                          ----            ----

          BED Incidence test                              $406         $    31
          Aware(TM) Rapid HIV diagnostic test               21               -
                                                       -------         -------
          Revenue from product sales                   $   427         $    31
                                                       =======         =======

Sales to international  customers accounted for approximately 75% and 27% of the
Company's revenues from continuing operations in 2005 and 2004, respectively. At
December 31, 2005  approximately  $78,000 or 53% of the Company's  inventory was
held in international locations.

Sales to three customers  accounted for  approximately  36% and 89% of total net
sales from continuing operations for the years ended December 31, 2005 and 2004,
respectively.  Sales to those customers accounted for approximately 13%, 13% and
10% of the Company's net sales from  continuing  operations in 2005 and 49%, 28%
and 12%, respectively,  of the Company's net sales from continuing operations in
2004.

Reclassifications

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

Recent Accounting Pronouncements

In February  2006,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement No. 155 "Accounting  for Certain Hybrid  Financial  Instruments  ("FAS
155). This Statement amends FASB Statements No. 133,  "Accounting for Derivative
Instruments and Hedging  Activities," and No. 140, "Accounting for Transfers and
Servicing  of  Financial  Assets  and   Extinguishments  of  Liabilities."  This
Statement  resolves issues addressed in Statement 133  Implementation  Issue No.
D1,  "Application  of  Statement  133 to  Beneficial  Interests  in  Securitized
Financial Assets." FAS 155: (i) permits fair value  remeasurement for any hybrid
financial  instrument that contains an embedded  derivative that otherwise would
require   bifurcation;   (ii)   clarifies   which   interest-only   strips   and
principal-only  strips are not subject to the  requirements  of  Statement  133,
(iii) establishes a requirement to evaluate  interests in securitized  financial
assets to  identify  interests  that are  freestanding  derivatives  or that are
hybrid  financial  instruments  that  contain an embedded  derivative  requiring
bifurcation;  (iv) clarifies that  concentrations  of credit risk in the form of
subordination  are not embedded  derivatives;  and (v) amends  Statement  140 to
eliminate the prohibition on a qualifying  special-purpose entity from holding a
derivative  financial  instrument  that pertains to a beneficial  interest other
than another derivative  financial  instrument.  This statement is effective for
years  beginning  after  September 15, 2006.  The Company has not yet determined
what impact this  statement  will have on its results of operations or financial
position.

In June 2005, the FASB issued Statement No. 154,  "Accounting  Changes and Error
Corrections" ("FAS 154"), a replacement of APB No. 20, "Accounting  Changes" and
FASB  Statement  No. 3,  "Reporting  Accounting  Changes  in  Interim  Financial
Statements".  FAS 154 applies to all voluntary  changes in accounting  principle
and changes the  requirements  for  accounting  for and reporting of a change in
accounting  principle.  This statement  establishes  that unless  impracticable,
retrospective  application  is the  required  method for  reporting  a change in
accounting principle in the absence of explicit transition requirements specific
to the newly adopted accounting principle.  It also requires the reporting of an
error  correction  which  involves  adjustments to  previously-issued  financial
statements  similar to those  generally  applicable  to reporting an  accounting
change  retrospectively.  FAS  154  is  effective  for  accounting  changes  and
corrections  of errors made in fiscal years  beginning  after December 15, 2005.
The Company  does not expect  that the  adoption of FAS 154 will have a material
impact on its results of operations or financial condition.


                                      F-13
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


In  March  2005,  the  FASB  issued   Interpretation  No.  47,  "Accounting  for
Conditional Asset Retirement Obligations."  Interpretation No. 47 clarifies that
an  entity  must  record  a  liability  for  a  "conditional"  asset  retirement
obligation  if the fair value of the  obligation  can be  reasonably  estimated.
Interpretation  No. 47 also  clarifies  when an  entity  would  have  sufficient
information  to  reasonably  estimate  the fair  value  of an  asset  retirement
obligation.  Interpretation  No. 47 is  effective  no later  than the end of the
fiscal year ending after December 15, 2005. The Company  adopted  Interpretation
No. 47 in the fourth quarter of 2005. Its implementation did not have a material
impact on its results of operations or financial condition.

In  December  2004,  the FASB issued SFAS No. 123  (revised  2004),  Share-Based
Payments  ("SFAS 123R").  SFAS 123R  addresses the  accounting  for  share-based
payments to employees, including grants of employee stock options. Under the new
standard,   companies  will  no  longer  be  able  to  account  for  share-based
compensation  transactions  using the intrinsic  method in  accordance  with APB
Opinion No. 25,  Accounting  For Stock Issued To Employees.  Instead,  companies
will be required to account for such transactions  using a fair-value method and
recognize the expense in the  consolidated  statement of income.  SFAS 123R will
become  effective for the Company in the first quarter of 2006.  The Company has
not yet determined  which fair-value  method and transitional  provision it will
follow;  however,  it  expects  that  the  adoption  of  SFAS  123R  may  have a
significant impact on its results of operations. The Company does not expect the
adoption of SFAS 123R to materially impact its overall financial  position.  See
Stock-Based  Compensation earlier in this Note 2 for the pro-forma impact on net
income and net income per share from calculating stock-based  compensation costs
under the fair value alternative of SFAS 123. On that basis, the Company expects
to record approximately $175,000 in stock-based compensation expense during 2006
related  to  the  unvested  options   outstanding  at  December  31,  2005.  The
determination of compensation cost for share-based  payment  transactions  after
the  effective  date of SFAS 123R may be  different  from the  determination  of
compensation  cost under SFAS 123;  however,  the Company has not yet quantified
such differences.

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

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, An Amendment Of
ARB No.  43,  Chapter 4 ("SFAS  151").  SFAS 151  amends  ARB 43,  Chapter 4, to
clarify that abnormal amounts of idle facility expense,  freight, handling costs
and wasted materials (spoilage) be recognized as current period charges. It also
requires  that  allocation  of  fixed  production  overheads  to  the  costs  of
conversion be based on the normal  capacity of the production  facilities.  SFAS
151 will become effective for the Company for inventory costs incurred beginning
in 2006.  The Company does not believe that the adoption of SFAS 151 will have a
material impact on its results of operations or financial position.


(3)    Discontinued Operations

On November 15, 2005, under the terms of an Asset Purchase and License Agreement
(the  Agreement),  the Company  sold its  FDA-approved  EIA and Western Blot HIV
diagnostic test product lines, which included the following products:  (i) urine
EIA HIV-1 diagnostic test, (ii) serum/blood  Western Blot HIV-1 diagnostic test,
and (iii) urine Western Blot HIV-1  diagnostic test (the Product Lines) to Maxim
Biomedical,  Inc.  (Maxim).  Under the  terms of the  Agreement,  Maxim  assumed
certain  liabilities  related to the Product Lines,  including two real property
subleases in Rockville,  Maryland,  and lease  obligations of certain  equipment
that is subject to a lease  agreement  between  the  Company  and a  third-party
equipment lessor.  (Refer to Note 9, Lease  Commitments.) The Company received a
20% equity  interest in Maxim and will receive 10% of the gross  proceeds in the
event (i) Maxim  consummates a sale to a third party,  including the acquisition
of Maxim through reorganization,  merger or consolidation, or the sale of all or
substantially  all of its  assets;  or (ii) Maxim  merges with or into an entity
controlling,  controlled  by or under  common  control  with Maxim.  The Company
agreed to provide certain  consulting  services at no cost to Maxim for a twenty
four month period from the date of the Agreement and  covenanted  not to compete
with the Product Lines, on a worldwide  basis, for a period of 10 years from the
date of the  Agreement.  The  Company  has  reclassified  the 2004  consolidated
financial statements to reflect the Product Lines as a discontinued operation.


                                      F-14
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


Summarized  financial  information of the discontinued  operations is as follows
for the years ended December 31, 2005 and 2004 (in thousands).

<TABLE>
<CAPTION>
                                                                   2005         2004
                                                                   ----         ----

<S>                                                              <C>          <C>
Product sales                                                    $ 2,105      $ 2,766

Product costs                                                      4,797        7,243
Selling, general and administrative costs and other expenses         (19)         613
                                                                 -------      -------

Loss before income taxes                                          (2,673)      (5,090)

Income taxes                                                          --           --
                                                                 -------      -------

Loss from operations before loss on disposal                      (2,673)      (5,090)

Loss on disposal, net of income taxes of $0                         (425)          --
                                                                 -------      -------

Loss from discontinued operations                                $(3,098)     $(5,090)
                                                                 =======      =======
</TABLE>

Assets and  liabilities  of the  discontinued  operations are as follows for the
years ended December 31, 2005 and 2004 (in thousands):

                                                            2005           2004
                                                            ----           ----

Accounts receivable, net                                   $   --         $  250
Inventories                                                    --          1,509
Property and equipment, net                                    --          1,055
                                                           ------         ------
   Assets of discontinued operations                       $   --         $2,814
                                                           ======         ======

Accounts payable and accrued expenses                      $  321         $  634
Deferred rent obligation                                       --             18
                                                           ------         ------
   Liabilities of discontinued operations                  $  321         $  652
                                                           ======         ======


(4) Inventory
Inventory of continuing operations as of December 31, 2005 and 2004 consisted of
the following (in thousands):

                                                               2005         2004
                                                               ----         ----

Raw materials                                                  $ 74         $ --
Work-in-process                                                  --           --
Finished goods                                                   73           15
                                                               ----         ----

Total Inventory                                                $147         $ 15
                                                               ====         ====


(5)    Property and Equipment

Property and equipment of continuing operations as of December 31, 2005 and 2004
consisted of the following (in thousands):

                                                              2005         2004
                                                              ----         ----

Computer equipment                                           $ 369        $ 364
Machinery and equipment                                        149           20
Furniture and fixtures                                           3           58
Leasehold improvements                                          --            9
                                                             -----        -----

                                                               521          451
Accumulated depreciation and amortization                     (385)        (281)
                                                             -----        -----

Property and equipment, net                                  $ 136        $ 170
                                                             =====        =====


                                      F-15
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


The Company  recognized  aggregate  depreciation  expense  attributable  to both
continuing  and  discontinued  operations of $368,000 and $406,000 for the years
ended  December  31,  2005 and  2004,  respectively.  See  Note 3,  Discontinued
Operations,   regarding  property  and  equipment   applicable  to  discontinued
operations.   During  2004,   the  Company   closed  its   Alameda,   California
manufacturing  facility,  which had  manufactured  products  from certain of the
discontinued  Product  Lines.  In  conjunction  with the  closure,  the  Company
transferred  all usable  machinery  and  equipment to its other  facilities  and
disposed  of any  remaining  unusable  or  redundant  equipment,  furniture  and
leasehold improvements, nearly all of which was fully depreciated.


(6)    Intangible assets

During 2004,  the Company  entered into various  license  agreements and similar
arrangements  under which it committed  to invest  approximately  $2,700,000  to
acquire the technology and materials necessary for the  commercialization of its
rapid  tests.  These  licenses  provide  the  Company  with  access to the HIV-2
antigen, to certain lateral flow technologies and to certain HIV-1/2 peptides to
be used in its rapid tests.  The Company  recorded  the license  amount for each
license  agreement as an intangible asset and, at December 31, 2004, had accrued
amounts  not yet  paid in cash or  settled  in  stock  as a  current  liability.
Essentially all of the required payments were made during 2005. The Company will
begin  amortizing  these  intangible  assets in 2006,  when it expects  material
commercial sales of the products employing the licensed  technology or materials
to commence.  Each of the license  agreements  also  contains a royalty on sales
component  that takes into  consideration  the  different  pricing  realities of
markets around the world.


 (7)    Accounts payable, accrued expenses and deferred revenue

Accounts  payable and accrued  expenses of continuing  operations as of December
31, 2005 and 2004 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                    2005       2004
                                                                                    ----       ----

<S>                                                                                <C>        <C>
Trade accounts payable                                                             $1,404     $1,388
Accrued royalties                                                                      48         22
Accrued salary, severance and vacation pay                                            463      1,192
Accrued interest                                                                      184          9
Accrued restructuring expense                                                         141         --
Accrued consulting contract expenses                                                1,045        803
Accrued liabilities under intellectual property license and equipment purchase
  agreements                                                                          275      1,686
Other                                                                                 469        484
                                                                                   ------     ------

Total accounts payable and accrued expenses                                        $4,029     $5,584
                                                                                   ======     ======
</TABLE>


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


                                      F-16
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


 (8)     Notes and Debentures Payable

During  2002 and  through  the first  half of 2003,  the  Company  financed  its
operations primarily through the issuance of notes and debentures, nearly all of
which were  convertible  into shares of its common stock.  By December 31, 2004,
essentially  all of these notes and  debentures  had been  converted into common
stock or repaid.  The Company again issued  promissory and convertible  notes to
finance its operations  during 2005. The following tables summarize the note and
debenture  activity  for  the  years  ended  December  31,  2004  and  2005  (in
thousands).

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

Total current portion                      $   958     $    --     $     --      $   (898)     $     60      $  (23)    $     37
                                           =======     =======     ========      ========      ========      ======     ========

<CAPTION>
                                                                                                           Discount       Net
                                          Balance                                              Balance        at       Balance at
                                          12/31/04    Additions     Payments    Conversions    12/31/05    12/31/05     12/31/05
                                          --------    ---------     --------    -----------    --------    --------     --------
12% Convertible Debenture -
<S>                                       <C>          <C>         <C>          <C>            <C>          <C>         <C>
  Mercator                                $     60     $     --    $     --     $      --      $     60     $    --     $     60
7% Promissory Note - Marr                       --        2,000      (2,000)           --            --          --           --
8% Secured Senior Convertible Notes
   - April 4, 2005                              --        8,098          --          (177)        7,921      (6,136)       1,185
8% Secured Senior Convertible Notes
   - July 4, 2005 Interest                      --          164          --            --           164         (61)         103
8% Secured Senior Convertible Notes
   - October 4, 2005 Interest
                                                --          168          --            --           168         (60)         108
7% Promissory Note  - Marr Credit
   Facility                                     --        1,500          --            --         1,500          --        1,500
                                          --------     --------    --------     ---------      --------     -------     --------
Total                                     $     60     $ 11,930    $ (2,000)    $    (177)        9,813      (6,257)       3,556
                                          ========     ========    ========     =========

   Less current portion                                                                             (60)         --          (60)
                                                                                               --------    --------     --------

Non-current notes payable                                                                      $  9,753    $ (6.257)    $  3,496
                                                                                               ========    ========     ========
</TABLE>

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


                                      F-17
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


On January 30, 2003,  when the market price of its stock was $1.86,  the Company
issued a $450,000 10%  convertible  debenture to Mercator  Momentum Fund ("MMF")
pursuant to Regulation S and received net proceeds of $440,000,  net of fees and
expenses.  The  debenture  had a one  year  term  and was  convertible  into the
Company's  common stock at 80% of the average of the three lowest trades for the
20 days preceding  conversion,  but not more than $3.00.  Under the terms of the
debenture agreement, the Company agreed to file a registration statement for the
shares of common stock  underlying  the debenture  within 30 days of the closing
date and use its reasonable  best commercial  efforts to cause the  registration
statement  to be  declared  effective  within 120 days of the closing  date.  On
February 14, 2003, when the price of the Company's  common stock was $2.01,  the
Company  and MMF  agreed to extend  the  registration  period of the  underlying
common stock as required in the  Registration  Rights  Agreement  until April 4,
2003.  On March 31, 2003,  when the market price of its common stock was $0.885,
MMF granted the Company an additional extension,  until May 5, 2003, in which to
register the shares of common stock  underlying this financing.  On May 1, 2003,
when the market  price of its common  stock was $0.711,  the Company  received a
further  extension until July 1, 2003. On June 26, 2003, when the market for the
Company's stock was $0.36 per share,  MMF agreed to extend the period for filing
the  registration  statement  through  July 15,  2003.  A portion  of the shares
underlying  this  debenture  was  included  in the  Company's  S-2  registration
statement that was filed with the SEC on July 8, 2003 and which became effective
on July 18,  2003.  The market  price of the  Company's  common  stock  declined
significantly  following the effectiveness of the registration statement and, as
a result,  the Company did not have sufficient  registered  shares to effect the
conversion of the entire outstanding balance of the debenture.  During the third
and fourth  quarters of 2003,  MMF  converted  $358,000  face value plus accrued
interest  and $29,000 of  liquidated  damages due to delayed  registration  into
approximately  2.6 million  registered  shares of the Company's  common stock at
conversion  prices  ranging from $0.11 to $0.14 per share.  On January 14, 2004,
the  Company  and MMF  agreed  to  extend  the  maturity  date of this and other
debentures  until July 14,  2004.  See the  subsection  entitled  "Extension  of
Maturity  Dates" at the end of this section for a description of agreements made
with regard to the  extension of the maturity of these  debentures.  On July 12,
2004,  when the market price of the Company's  common stock was $0.58 per share,
MMF  converted  the  remaining  $92,000  face value plus  accrued  interest  and
extension  fees into  approximately  0.3 million  shares of common stock.  Those
shares were  included in the  Company's  June 15, 2004  registration  statement,
which was declared effective on July 8, 2004.

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


                                      F-18
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


The Company  determined that each of the 10%  convertible  debentures was issued
with a beneficial  conversion feature. The intrinsic value was calculated at the
date of issue as the difference  between the  conversion  price of the debenture
and the fair value of the  Company's  common stock into which the  debenture was
convertible,  multiplied by the number of common shares into which the debenture
was  convertible,  limited  by the face  amount of the  debenture.  The  Company
treated the beneficial  conversion  features as a discount to the face amount of
the debentures  and amortized  them over the term of the respective  debentures.
Upon conversion of all or a portion of the debenture, the proportionate share of
unamortized  discount was charged to interest  expense.  The effective  interest
rate on these debentures ranged from approximately  60.0% to approximately 97.2%
based on the stated interest rate, the amount of amortized discount attributable
to the  beneficial  conversion  feature,  the amount of deferred  offering costs
attributable to the debentures and the extended term of the debentures, as noted
in the section below.

Extension of Maturity Dates

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

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

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

12% Convertible Debentures-Mercator Momentum Fund
On September  12, 2002,  when the market price of its common stock was $3.00 per
share,  the Company entered into an agreement under which MMF agreed to purchase
$2.0 million of the Company's 12% convertible  debentures in multiple  tranches.
Each  debenture had a term of two years and was  convertible  into shares of the
Company's  common stock at 85% of the average of the three lowest trading prices
for the 20 trading  days  preceding  conversion.  The Company  issued a $550,000
convertible  debenture to MMF on September 12, 2002, an aggregate of $750,000 of
debentures to three  assignees of MMF on July 24, 2003, when the market price of
its common  stock was $0.115 per share,  and a $570,000  debenture  to Marr,  an
assignee of MMF, on September 1, 2003, when the market price of its common stock
was $0.498.  By December 31, 2003,  the  investors  had  converted  all of these
debentures  into an  aggregate  of  approximately  18.0  million  shares  of the
Company's stock.

On October 2, 2003,  when the market price for the Company's stock was $1.31 per
share,  the Company  issued the final  $130,000  tranche of two-year  debentures
under the $2 million September 2002 12% convertible debenture commitment to four
assignees of MMF and received net proceeds of $130,000. During October 2003, two
of these investors converted $70,000 of principal of these debentures at a price
of $0.59 per share and the Company  issued  approximately  118,400 shares of its
common stock. At December 31, 2005 and 2004, two debentures  having an aggregate
face value of $60,000  remained  outstanding.  The holders of the two  remaining
debentures claim a conversion date which the Company  disputes.  The Company has
not issued any shares with respect to these debentures. See Note 18, Commitments
and  Contingencies,  regarding a lawsuit  brought against the Company by the two
holders of these debentures.

The  Company  determined  that  each  of the  MMF  12%  convertible  debentures,
including  those  issued  to  MMF  assignees,  were  issued  with  a  beneficial
conversion  feature.  The Company  calculated the intrinsic value at the date of
the  debentures'  issuance as the  difference  between the debenture  conversion
price and the fair value of the Company's  common stock into which the debenture
was  convertible,  multiplied  by the  number of common  shares  into  which the
debenture  was  convertible,  limited by the face amount of the  debenture.  The
Company  treated  the  beneficial  conversion  feature as a discount to the face
amount  of the  debenture  and  amortized  it over the  respective  terms of the
debentures.  Upon  conversion of all or a portion of the debenture,  the Company
charged the proportionate share of unamortized discount to interest expense. The
effective interest rate on these debentures ranged from  approximately  16.5% to
approximately  119.5% based on the stated interest rate, the amount of amortized
discount  attributable  to the  beneficial  conversion  feature,  the  amount of
deferred  offering  costs  attributable  to the  debentures  and the term of the
debentures.


                                      F-19
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


January 2005 7% Promissory Note
On January 14,  2005,  when the market price of the  Company's  common stock was
$0.25 per share, the Company issued an unsecured  $2,000,000  promissory note to
Marr,  which was  funded on January  18,  2005.  The  promissory  note  required
interest  at a rate of 7% per annum and was  payable in full no later than March
31, 2005. On March 30, 2005,  the Company and Marr agreed to extend the maturity
date of the note until April 30,  2005.  The Company  used  $2,000,000  from the
proceeds of the April 2005 Secured 8% Senior Convertible Notes, described below,
to repay the promissory  note on April 4, 2005.  The effective  interest rate on
this note approximated the 7% stated rate.

April 2005 Secured 8% Senior Convertible Notes
On April 4, 2005, when the market price of the Company's  common stock was $0.27
per  share,  the  Company   concluded  a  private  placement  (the  "April  2005
Placement") to five institutional investors (the "2005 Investors") of $8,000,000
of  Secured 8% Senior  Convertible  Notes due April 3, 2007 (the  "Notes").  The
Notes  are  convertible  at  $0.30  per  share  (the  "Conversion  Price")  into
26,666,667  shares of the  Company's  common  stock,  subject  to  anti-dilution
adjustments  should the Company  issue common stock or common stock  equivalents
for a price less than the Conversion Price, within one year of the issue date of
the Notes.  The Company also issued to the 2005 Investors  Series A common stock
purchase  warrants (the "Series A Warrants")  and Series B common stock purchase
warrants  (the  "Series B  Warrants),  each  exercisable  after six  months  and
expiring on April 3, 2010.  The Series A Warrants  are  exercisable  to purchase
26,666,667  shares of the  Company's  common  stock at $0.325  per share and the
Series B Warrants are exercisable to purchase 12,000,000 shares of the Company's
common  stock  at  $0.325  per  share.   The  Series  A  Warrants   provide  for
anti-dilution  and other  adjustments  of the  issuable  shares and the exercise
prices thereof should the Company issue common stock or common stock equivalents
for a price less than the  exercise  price of the Series A Warrants,  within one
year of the  issue  date of the  Series A  Warrants.  The  effectiveness  of the
anti-dilution  adjustments  of the Notes and of the Series A  Warrants  required
stockholder  approval,  which the  Company  obtained  at its  Annual  Meeting of
Stockholders  held on June 30,  2005.  After  October  18, 2006 and if the daily
volume  weighted  average price of its common stock is greater than $0.60 for 20
consecutive trading days and subject to certain trading volume restrictions, the
Company has the right to require the  conversion of any  unconverted  Notes into
shares of common stock.  After October 4, 2005, and if the daily volume weighted
average  price of its common stock is greater than  approximately  $0.542 for 20
consecutive  trading days and subject to certain  trading  volume and  ownership
restrictions,  the Company has the right to require the exercise of the Series B
Warrants,  which would result in gross proceeds to the Company of  approximately
$3.9 million.

The Notes  provide  for  quarterly  interest  to be paid in cash,  or subject to
certain conditions,  by accreting the interest to principal,  thereby increasing
the  number  of shares of common  stock  into  which the Notes are  convertible.
Effective  July 4,  2005,  the  Company  issued an  aggregate  of  approximately
$164,000  of  Secured 8% Senior  Convertible  Notes  that are  convertible  into
545,831 shares of common stock, in payment of quarterly interest (the "July 2005
Interest  Notes") on the  outstanding  principal  balance of  $8,097,500  of the
Notes,  including a Note issued to a placement  agent,  issued on April 4, 2005.
The July 2005  Interest  Notes  have the same  terms and  conditions,  including
maturity  date and  anti-dilution  provisions,  as the Notes  issued on April 4,
2005.   Effective   October  4,  2005,   the  Company  issued  an  aggregate  of
approximately   $168,000  of  Secured  8%  Senior  Convertible  Notes  that  are
convertible into 560,562 shares of common stock in payment of quarterly interest
(the "October  2005 Interest  Notes") on the  outstanding  principal  balance of
$8,084,000 of the Notes,  including the Note issued to a placement agent and the
July 2005 Interest  Notes.  The October 2005 Interest  Notes have the same terms
and conditions, including anti-dilution provisions, as the Notes issued on April
4, 2005 and the July 2005 Interest Notes.  The Company did not issue  additional
warrants in conjunction  with either the July 2005 Interest Notes or the October
2005 Interest Notes.  Refer to Note 19, Subsequent  Events, for additional notes
issued in payment of interest in January 2006.

On September 15 and September 16, 2005, one of the 2005  Investors  converted an
aggregate of $177,000  principal  amount of Notes into 590,000  shares of common
stock.  Upon  conversion,   the  Company  wrote  off  to  interest  expense  the
proportional share of deferred offering costs and note discount  attributable to
the amount of the Notes converted.

In addition to repaying the January 2005 7% Promissory Note described above, the
Company has used the proceeds from the issuance of the Notes for general working
capital  purposes  as well as for the  commercialization  of its rapid tests for
HIV-1/2 diagnosis.  On June 27, 2005, the Company filed a registration statement
for the resale of the shares of common stock  underlying the Notes, the Series A
Warrants,  the Series B Warrants  and  additional  Notes  which may be issued in
payment of interest.  The  registration  statement  became  effective on July 1,
2005.

If the Company issues additional common stock or common stock equivalents within
one year of the issue date of the Notes, the 2005 Investors will have the right,
but not the obligation,  to participate in such issuance, upon the same terms as
those offered, so that each 2005 Investor's  percentage ownership of the Company
remains the same.



                                      F-20
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


The Company paid  finders' fees and/or  placement  agent fees of up to 7% of the
related  investment  amount in cash and issued $97,500 principal amount of Notes
and  related  Series A  Warrants  and Series B Warrants  and other  warrants  to
purchase common stock of up to 7% of the related investment  amount.  These cash
fees, the Notes and the value of the warrants issued,  plus legal fees and other
expenses  incurred with respect to the April 2005 placement,  have been recorded
as Deferred Offering Costs and are being amortized over the life of the Notes.

The  Company  determined  that,  in  addition  to the  anti-dilution  provisions
contained in the Notes, the Notes include a beneficial  conversion feature. As a
result of the anti-dilution  provisions,  however,  the Notes are not considered
conventional convertible debt under the provisions of 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.  The Company  further
determined that the conversion  feature is subject to the provisions of SFAS No.
133,  Accounting for  Derivative  Instruments  and Hedging  Activities and is an
embedded  derivative  which should be bifurcated  and accounted for  separately.
Accordingly,  the fair value of the derivative was accounted for at inception as
a discount  to the face value of the Notes and a  corresponding  liability,  and
will be marked to market at each balance  sheet date with the change in the fair
value of the derivative  being recorded as interest  expense.  At April 4, 2005,
the  date  the  Notes  were  issued,   the  Company  valued  the  derivative  at
approximately $5,330,000 using a binomial pricing model to estimate future stock
prices,  assuming  historical  stock price  volatility  of 101.57%,  a risk-free
interest  rate  of  3.74%,  an  expected  dividend  rate  of  0.00%,  and  a 90%
probability  of completing an additional  round of equity  financing  during the
one-year term of the  derivative.  As a result of changes in the market price of
the Company's stock between April 4, 2005 and December 31, 2005, the decrease in
the remaining  life of the  derivative,  and changes in other  assumptions,  the
Company's  valuation of the derivative  decreased to  approximately  $1,547,000,
with the change in valuation being recorded as a credit to interest expense. The
value of the  derivative  at  December  31,  2005 was again  determined  using a
binomial  pricing  model to estimate  future stock prices,  assuming  historical
stock price  volatility  of  101.28%,  a risk-free  interest  rate of 4.38%,  an
expected  dividend  rate  of  0.00%,  and a 25%  probability  of  completing  an
additional   round  of  equity  financing  during  the  remaining  term  of  the
derivative.

At April 4, 2005, the Company  allocated the Note proceeds  attributable  to the
fair value of the derivative  described  above to the  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,  the Company  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  Company  valued both the
Series A Warrants  and  Series B  Warrants  at April 4, 2005 at $0.151 per share
using the  Black-Scholes  option  pricing model with the following  assumptions:
risk free interest rate of 3.90%; expected dividend rate of 0.00%; volatility of
103.16%; and expected term of 2.5 years. The relative fair value of the Series A
Warrants  and Series B Warrants at April 4, 2005 was  approximately  $1,773,000,
which the  Company  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 reduces the exercise price but does
not increase the number of shares issuable to the warrant holders.  Accordingly,
the Series A 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,  the Company  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  the  Company  is
amortizing to interest expense 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 these notes is approximately 142% based on
the stated  interest  rate,  the  amount of  amortized  discount,  the amount of
deferred offering costs attributable to the notes and the term of the notes.

The July 2005 Interest  Notes and October 2005  Interest  Notes each contain 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
2005 Interest  Notes and October 2005 Notes  derivatives  were  accounted for at
inception  as a discount to the face value of the July 2005  Interest  Notes and
the October 2005 Interest Notes,  respectively,  and a corresponding  liability,
and will be marked to market at each  balance  sheet date with the change in the
fair value of the  derivative  being  recorded as interest  expense.  At July 4,
2005, the date the July 2005 Interest Notes were issued, the Company valued that
derivative at  approximately  $77,000 using a binomial pricing model to estimate
future stock prices,  assuming  historical stock price volatility of 101.08%,  a
risk-free  interest rate of 3.79%, an expected dividend rate of 0.00%, and a 90%
probability  of completing an additional  round of equity  financing  during the
remaining term of the derivative.  At October 4, 2005, the date the October 2005
Interest Notes were issued,  the Company valued that derivative at approximately
$68,000 using a binomial pricing model to estimate future stock prices, assuming
historical  stock price  volatility  of 105.57%,  a risk-free  interest  rate of
4.09%, an expected  dividend rate of 0.00%,  and a 50% probability of completing
an  additional  round of  equity  financing  during  the  remaining  term of the
derivative.  As a result of changes in the market price of the  Company's  stock
between July 4, 2005 or October,  4, 2005 and December 31, 2005, the decrease in
the remaining  life of the  derivative,  and changes in other  assumptions,  the
Company's  aggregate  valuation of the  derivatives  decreased to  approximately
$47,000,  with the change in  valuation  being  recorded as a credit to interest
expense.  The value of the derivatives at December 31, 2005 was again determined
using a  binomial  pricing  model to  estimate  future  stock  prices,  assuming
historical  stock price  volatility  of 101.28%,  a risk-free  interest  rate of
4.38%, an expected  dividend rate of 0.00%,  and a 25% probability of completing
an  additional  round of  equity  financing  during  the  remaining  term of the
derivative.  The  effective  interest  rate on the  interest  notes  ranges from
approximately  45% to 48%  based on the  stated  interest  rate,  the  amount of
amortized  discount,  the amount of deferred offering costs  attributable to the
notes and the term of the notes.


                                      F-21
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


5% Note Purchase Agreement
On November 13, 2003,  when the market price of the  Company's  common stock was
$0.88 per share, the Company and Marr  Technologies BV entered into an agreement
in which Marr agreed to provide the Company up to an  aggregate  of  $10,000,000
(the "Marr Credit Facility") pursuant to promissory notes issuable to Marr on an
as-needed  basis by the  Company  (the  "Notes").  Each Note  issued was to bear
interest at the rate of 5% per annum and have a 12-month  term.  The Marr Credit
Facility  was  available  during the period  beginning  on February 28, 2004 and
ending on May 31, 2004.  The aggregate  amount  available  under the Marr Credit
Facility was to be proportionally  reduced by the amount of any equity financing
the  Company  obtained  during the term of the Marr  Credit  Facility.  Marr was
granted  participation  rights in any such equity financing on the same terms as
the other investors.  The Marr Credit Facility provided for earlier  termination
as of March 31, 2004,  if the Company  failed to have its common stock listed on
an established stock exchange by that date. Moreover, upon the failure to obtain
such stock exchange  listing,  any outstanding Notes would be due and payable on
April 30,  2004.  As  consideration  for the Marr Credit  Facility,  the Company
issued to a party designated by Marr a warrant to purchase 375,000 shares of its
common  stock  at an  exercise  price  of  $0.80  per  share.  The  warrant  was
immediately  exercisable  and expired on November 12, 2005,  two years after its
issuance.  The warrant was valued at $0.859 per share on the date of grant using
the Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 1.93%; expected dividend rate of 0.00%;  volatility of 316.42%;
and expected term of 2 years. The calculated value of the warrant was charged to
interest expense with a corresponding  credit to equity, in accordance with EITF
-00-19.

On March 19,  2004,  when the market  price of the  Company's  common  stock was
$0.575 per share,  the  Company and Marr  amended  the Marr  Credit  Facility to
increase  the  aggregate  amount  available  under the Marr  Credit  Facility to
$15,000,000 and to eliminate the termination  provision upon failure to have the
common  stock listed on an  established  stock  exchange by March 31,  2004.  As
consideration for the amendment of the Marr Credit Facility,  the Company issued
to a party designated by Marr a warrant to purchase 400,000 shares of its common
stock at an  exercise  price of $0.46 per share.  The  warrant  was  immediately
exercisable  and expires on March 18, 2006,  two years after its  issuance.  The
warrant  was  valued  at  $0.56  per  share  on the  date  of  grant  using  the
Black-Scholes  option  pricing model with the following  assumptions:  risk free
interest rate of 1.54%; expected dividend rate of 0.00%;  volatility of 316.37%;
and expected term of 2 years.  The calculated  value of the warrant was recorded
as interest  expense with a corresponding  credit to equity,  in accordance with
EITF -00-19.

On May 26, 2004,  when the market price of the Company's  common stock was $0.46
per share,  the Company and Marr again amended the Marr Credit Facility  whereby
Marr  committed to subscribe for up to  $5,000,000 of Promissory  Notes that the
Company might issue through December 31, 2004. Any Notes issued pursuant to this
second amendment would bear interest at 9% per annum and have a maturity date of
May 31, 2005.  The  $5,000,000  amount  available  under the amended Marr Credit
Facility  would be reduced by the amount of any  equity  financing  the  Company
obtained  after the May 26,  2004  effective  date of the second  amendment  and
through the December 31, 2004  commitment  period,  exclusive of the proceeds of
the May 2004 Private  Placement.  In July 2004,  the  commitment  was reduced to
approximately  $3.6  million as a result of the closing of the July 2004 Private
Placement.  Refer to Note 11,  Stockholders'  Deficit,  for a description of the
subsequent  equity  financing.   As  consideration  for  the  extension  of  the
commitment  period,  the Company  issued to Marr a warrant to  purchase  500,000
shares of its common stock at an exercise price of $0.40 per share. This warrant
was  immediately  exercisable  and expires on May 26, 2006,  two years after its
issuance.  The  warrant was valued at $0.35 per share on the date of grant using
the Black-Scholes option pricing model with the following assumptions: risk free
interest rate of 2.53%; expected dividend rate of 0.00%;  volatility of 161.78%;
and expected term of 2 years.  The calculated  value of the warrant was recorded
as interest  expense with a corresponding  credit to equity,  in accordance with
EITF -00-19.

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

$5.5 Million 2005 Credit Facility
On April 4,  2005,  the  Company  entered  into a new line of credit  (the "2005
Credit  Facility")  with Marr,  pursuant to which, at any time prior to December
31, 2005,  the Company  could  borrow up to $5.5  million by issuing  promissory
notes bearing interest at the rate of 9% per annum (each, a "Promissory  Note").
The Company 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
the Company's Board of Directors. Marr has two representatives currently serving
on the Company's  Board of Directors.  The maximum amount the Company may borrow
under the 2005  Credit  Facility  will be  reduced  dollar for dollar by the net
amount of any funds received from equity  financings  consummated after April 4,
2005.  Each  Promissory  Note has a 12-month  term, at which time  principal and
accrued  interest will be due in full;  however,  any outstanding  principal and
accrued  interest  shall be payable in full upon the May 31, 2006  expiration of
the 2005 Credit Facility.


                                      F-22
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


As  consideration  for the 2005 Credit  Facility,  on April 4, 2005, the Company
issued to Marr a common stock purchase warrant (the "Marr Warrant"), expiring on
April 3, 2010,  exercisable to purchase  500,000 shares of the Company's  common
stock at $0.40 per share.  The  Company  valued the Marr  Warrant on the date of
grant at $0.141 per share using the Black-Scholes  option pricing model with the
following assumptions:  risk free interest rate of 3.90%; expected dividend rate
of 0.00%;  volatility of 103.16%; and expected term of 2.5 years. The calculated
value of the warrant was recorded as an immediate charge to interest expense and
a corresponding  credit to additional paid-in capital. The Marr Warrant provides
for  anti-dilution and other adjustments of the issuable shares and the exercise
price thereof in the event that the Company  issues common stock or common stock
equivalents  for a price less than the exercise price of the Marr Warrant within
one year of its issue date.  If the Company  issues  additional  common stock or
common stock equivalents  within one year of the issue date of the Marr Warrant,
Marr  will  have the  right,  but not the  obligation,  to  participate  in such
issuance,  upon the same terms as those  offered.  The  Company  registered  for
resale the shares of common stock  underlying  the Marr  Warrant in  conjunction
with its registration of the shares  underlying the common stock issuable in the
April 2005 Placement.


On November 30, 2005,  the Company and Marr amended the 2005 Credit  Facility to
extend the term under which the Company may 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  will  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 now requires  approval by a majority of a
quorum of the  Company's  Board of  Directors,  instead of the  entire  Board of
Directors.  The Company granted to a Marr a security  interest in its assets, up
to an  aggregate  maximum  of  $6,000,000,  to secure  the  repayment  of monies
borrowed under the terms of the amended agreement. Proceeds from the issuance of
promissory notes under the amended  agreement may be used for general  corporate
purposes, including investments in the Company's international subsidiaries.  At
December  31,  2005,  the  Company had  outstanding  Promissory  Notes  totaling
$1,500,000  under the amended terms of the 2005 Credit  Facility.  The effective
interest rate on these notes approximate the 7% stated rate.


The  following  table  summarizes  the  components  of net  interest  income and
(expense)  related  to the  notes  and  debentures  described  above  and  other
financing instruments reported in the consolidated  statements of operations (in
thousands).


                                      F-23
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


<TABLE>
<CAPTION>
                                                                                              2005        2004
                                                                                              ----        ----

<S>                                                                                         <C>          <C>
Interest on debt instruments paid or payable in cash                                        $  (123)     $   (88)
                                                                                            -------      -------

Non-cash interest expense composed of:
   Accrued interest on 8% Senior Convertible Notes (paid by issuing additional Notes)          (498)          --
   Amortization and proportional write-off upon conversion of note and debenture
      discounts and deferred offering costs                                                  (1,502)         (81)
   Liquidated damages due to delayed registration of shares underlying convertible
      notes and debentures and other securities                                                  --          205
   Expense attributable to warrants issued in conjunction with modifying the 2003/2004
      Marr Credit Facility                                                                       --         (402)
   Expense attributable to warrants issued in conjunction with the 2005 Marr Credit
      Facility                                                                                  (71)          --
   Expense attributable to warrants issued in conjunction with the 2004 Anti-dilution
      obligation                                                                                (82)          --
   Expense attributable to warrants issued in conjunction with the $0.5 million
      capital lease agreement                                                                    --          (20)
   Mark-to-market adjustment of derivative and anti-dilution obligations arising from
      the April 2005 financing                                                                3,803           --
   Mark-to-market adjustment of anti-dilution obligation arising from May and July
      2004 equity financing (see Note 11, Stockholders' Deficit)                                506       (1,638)
   Maturity extension fee payable in stock on convertible debentures issued to
      Mercator group                                                                             --          (20)
   Expense attributable to dividends on mandatorily redeemable Series A preferred stock
                                                                                               (120)        (120)
                                                                                            -------      -------
Total non-cash interest income (expense)                                                      2,036       (2,076)
                                                                                            -------      -------

  Total interest income (expense)                                                             1,913       (2,164)

  Interest income                                                                                39           38
                                                                                            -------      -------

  Net interest income (expense)                                                             $ 1,952      $(2,126)
                                                                                            =======      =======
</TABLE>


(9)    Lease Commitments

Capital Leases

The Company has acquired  equipment  under  capital  lease  agreements  that are
collateralized  by the related  equipment.  The lease agreements carry effective
interest rates of approximately 18% per annum.  During 2004, the Company entered
into a 36 month capital lease secured by machinery and equipment  located at its
Rockville,  Maryland  location and having an agreed fair value of  $500,000.  In
conjunction  with the sale of the  discontinued  Product Lines, the Company sold
all of the assets subject to the capital lease to Maxim,  but remains liable for
its  payment  obligation  under the lease,  for which the monthly  payments  are
reimbursed by Maxim.  The Company has recorded a non-current  asset for the fair
value of the aggregate lease payments receivable from Maxim.

Equipment acquired under capital leases included in property and equipment as of
December 31, 2005 and 2004 consisted of the following (in thousands):

                                                             2005          2004
                                                             ----          ----

Machinery and equipment                                     $  --         $ 500
Other                                                          --            --
                                                            -----         -----

                                                               --           500
Accumulated depreciation and amortization                      --           (25)
                                                            -----         -----

                                                            $  --         $ 475
                                                            =====         =====


                                      F-24
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


Future minimum lease payments under capital leases as of December 31, 2005 were
(in thousands):

Year ended December 31,
2006                                                                  $   207
2007                                                                      138
                                                                      -------

                                                                          345
Less amount representing interest                                         (40)
                                                                      -------

Present value of capital lease obligation                                 305
Capital lease obligations - current portion                              (174)
                                                                     --------

Capital lease obligations - long-term portion                        $    131
                                                                     ========


Operating Leases

The  Company  rents  its Lake  Oswego,  Oregon  administrative  offices  under a
month-to-month  agreement.  It leases  office and research  laboratory  space in
Vancouver,  Washington under a noncancelable operating sublease which expires in
May 2007.  The  Company  previously  leased  manufacturing  space in  Rockville,
Maryland under two operating  subleases.  In connection  with the disposition of
the discontinued  Product Lines,  the Company entered into a sublease  agreement
with Maxim under which Maxim has  assumed the  Company's  obligations  under the
Rockville  premises  subleases.  In March 2004,  the Company  entered into a new
lease  agreement  with the  primary  landlord of its  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  the
Company's consolidation of its manufacturing  operations at this facility in the
amount of  approximately  $250,000.  Prior to the August 2005  relocation of its
administrative  offices to Lake Oswego,  Oregon, the Company leased office space
in Pleasanton, California beginning in July 2004 under a noncancelable operating
lease which expires in June 2007. In October  2005,  the Company  entered into a
sublease of the  Pleasanton  office  space.  The Company had  previously  leased
office and  manufacturing  space in Alameda,  California,  under a noncancelable
operating lease which expired in June 2004.

Total rent  expense  under these  leases was $566,000 and $804,000 for the years
ended December 31, 2005 and 2004,  respectively.  Future minimum rental payments
under all noncancelable operating leases,  including the Rockville subleases, as
of December 31, 2005 were (in thousands):

                                    Gross            Sublease        Net Rental
                                   Payments          Payments         Payments
                                   --------          --------         --------
Year ended December 31,
2006                                $   705          $   (664)         $   41
2007                                    620              (602)             18
2008                                    574              (574)              -
2009                                     96               (96)              -
2010                                      -                 -               -
Thereafter                                -                 -               -
                                    -------          --------          ------

Total                               $ 1,995          $ (1,936)         $   59
                                    =======          =========         ======


(10)    Mandatorily Redeemable Preferred Stock

At the time of its original incorporation,  the Company issued both common stock
and $1,000,000 of mandatorily  redeemable  Series A preferred stock. The Company
is required to redeem all shares of  mandatorily  redeemable  Series A preferred
stock  within  60 days of any  fiscal  year-end  in which  the  Company  attains
$3,000,000  in  retained  earnings,  and funds are legally  available.  Based on
losses  accumulated   through  December  31,  2005,  the  Company  must  achieve
approximately  of $157,000,000 in future retained  earnings before any repayment
is required.  The mandatorily  redeemable  Series A preferred stock is nonvoting
and holders of these shares are entitled to receive cumulative  dividends at the
rate of $1.20 per share per annum.  Through June 30, 2003,  cumulative preferred
dividends  totaling  $1,636,000  had been  charged to  stockholders'  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. During each of the years ended December 31,
2005 and 2004, the Company has charged cumulative  preferred  dividends totaling
$120,000 to interest expense to accrete for the mandatorily  redeemable Series A
preferred stock redemption  value with a corresponding  increase in the recorded
amount of the mandatorily redeemable Series A preferred stock.


                                      F-25
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


In  anticipation  of using a portion of the  proceeds  from its  Initial  Public
Offering to redeem the Series A preferred  stock,  the  Company  eliminated  the
Series A preferred stock from its articles of incorporation upon reincorporation
of the Company in Delaware in June 1996. However,  management subsequently chose
not to redeem  the  Series A  preferred  stock and as of  December  31,  2005 it
remains outstanding. The holders of such shares maintain the same rights as held
before the reincorporation.


(11)  Stockholders' Deficit

Private Placements
As detailed in the Consolidated Statements of Stockholders' Equity (Deficit) and
as discussed  below, the Company raised net proceeds of $10.0 million in private
placement transactions with accredited investors who purchased 26,970,000 shares
of its common stock during 2004.

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

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

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

The securities  purchase  agreements for both the May 2004 and July 2004 private
placements   (the  "2004  PIPEs")   provided  the   respective   investors  with
participation  rights on the same terms and conditions as other investors in any
subsequent  financing  transactions the Company completed within one year of the
closing of these placements. Two of the investors participated in the April 2005
Placement.  With the exception of warrants acquired by Marr, the exercise of the
warrants  issued in the 2004  PIPEs is  subject to an  ownership  limitation  of
9.99%.

Anti-dilution provisions in 2004 PIPEs

The  securities  purchase  agreements  in each  of the  2004  PIPE  transactions
contained anti-dilution provisions that required the Company to issue additional
shares of common stock to the investors if the Company raised  additional equity
financing at a price below $0.40 per share in the year  following the closing of
the  transactions,   except  under  the  provisions  of  previously  outstanding
convertible  debt,  option  or  warrant  agreements.   The  securities  purchase
agreements  required  the Company to issue to the  investors  for no  additional
consideration  an additional  25,000 shares per each million shares purchased in
the 2004  PIPEs for each  $0.01  decrease  below the $0.40  trigger  price.  The
Company determined that the anti-dilution  provisions of the securities purchase
agreements  were,  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.  Accordingly,  the anti-dilution
obligation was required to be classified as a liability and  marked-to-market at
each balance sheet date, with the change in liability being recorded as interest
expense. The Company determined that the value of the anti-dilution  obligations
under the securities purchase agreements was not significant at the inception of
the  agreements in May and July 2004 because the  obligations  were limited to a
one-year  period,  and, as of May and July 2004, the Company  determined that it
was unlikely that the Company  would need to seek  additional  financing  during
that  period  at  an  offering   price  that  would   require  the  issuance  of
anti-dilution shares.


                                      F-26
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


At December 31, 2004, however, the Company was contemplating an additional round
of financing to be completed prior to the expiration of the anti-dilution rights
in the 2004 PIPEs.  Accordingly,  the anti-dilution obligations were revalued at
$1.638  million at  December  31,  2004,  and  recorded as a  liability,  with a
corresponding   charge  to  non-cash   interest   expense.   The  value  of  the
anti-dilution obligations was based on the market value of the shares that would
be issuable to investors using the offering price of the then-contemplated  2005
financing.

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

The Company  determined  that the value of the warrants at the  inception of the
warrant agreements was not predominantly based on its anti-dilution  rights. Had
the Company  raised an  additional  $5 to $10 million  financing at December 31,
2004,  when the  market  price of its  common  stock was $0.39  per  share,  the
required warrant anti-dilution adjustments would not have been significant.  The
Company  would have been  obligated  to reprice  the shares  issuable  under the
warrants from $.50 per share to $.49 per share, and to issue additional warrants
for an aggregate of 219,200 common shares at $.49 per share.

Amendment of  Anti-Dilution  Provisions  of 2004 PIPEs The April 2005  Placement
described in Note 8, Notes and  Debentures  Payable,  would have  triggered  the
anti-dilution  rights (the "2004  Anti-dilution  Rights") of the investors  (the
"2004  Investors")  in the 2004  PIPEs,  which,  if given  effect  before  being
approved by the Company's  stockholders,  would have caused the Company to be in
breach of its listing  agreement  with the American Stock Exchange (the "AMEX").
To satisfy the Company's need to obtain additional working capital in early 2005
while remaining in compliance with the applicable AMEX requirements, on April 4,
2005,  when the market price of the Company's  common stock was $0.27 per share,
the Company and the 2004  Investors  entered  into an amendment  agreement  (the
"Amendment")  to  revise  the  2004  Anti-dilution  Rights  and  grant  the 2004
Investors  additional rights.  Further, the 2004 Investors agreed to subject the
applicability  of the 2004  Anti-dilution  Rights and the  effectiveness  of the
Amendment to approval by the Company's stockholders.  The Company's stockholders
approved  the   applicability   of  the  2004   Anti-dilution   Rights  and  the
effectiveness  of the Amendment at the Annual  Meeting of  Stockholders  held on
June 30, 2005.  The  Amendment  modified the terms of the 2004  Transactions  to
provide for the following  cumulative  changes in the  securities  issued to the
2004 Investors:  (i) an increase to 7,079,625 (from  6,742,500) in the number of
shares of common  stock to be issued,  as a result of the April 2005  Placement,
pursuant to the 2004 Anti-dilution  Rights; (ii) an increase, as a result of the
April 2005  Placement,  in the number of shares  issuable  upon  exercise of the
warrants  issued in the 2004  Transactions  (the "2004  Warrants")  to  purchase
1,253,177  (from  1,193,501)  shares of common  stock,  at an exercise  price of
$0.325 (reduced from $0.45) per share of common stock;  and (iii) an adjustment,
as a result of the April 2005  Placement,  of the $0.50 per share exercise price
of the  original  warrants  issued  in the 2004  PIPEs to $0.45 per  share.  The
Company issued the additional  shares of common stock and warrants and re-priced
the 2004 Warrants on June 30, 2005 following stockholder approval.  The issuance
of  the   additional   anti-dilution   shares  and  warrants   resulted  in  the
reclassification  of  the  2004  Anti-dilution  Obligation  of an  aggregate  of
approximately  $1,214,000  from liability to equity on the balance sheet at June
30, 2005.  The Company  valued the 2004  Warrants on June 30, 2005 at $0.065 per
share  using  the   Black-Scholes   option  pricing  model  with  the  following
assumptions:  risk free interest rate of 3.69%; expected dividend rate of 0.00%;
volatility of 95.077%;  and expected term of 2.5 years.  The calculated value of
the 2004 Warrants was recorded as an immediate  charge to interest expense and a
corresponding  credit  to  additional  paid-in  capital.  The  repricing  of the
original warrants did not have a material effect on their fair value. On July 8,
2005,  the Company filed a  registration  statement for the resale of the common
stock and warrants issued to the 2004 Investors on June 30, 2005.

Other warrants, options and stock grants
During 2004 and 2005, the Company was a party to contracts with  consultants who
performed  various  legal,   business   advisory,   marketing  and  distribution
functions.  During 2004, the Company granted approximately  1,186,000 registered
shares of its  common  stock from its option  plans and other  registered  share
reserves to certain  consultants and other vendors under various  agreements and
recorded non-cash selling,  general and administrative expense of $679,000. Also
during 2004,  consultants exercised warrants granted in 2003 to purchase 100,000
shares of the  Company's  common  stock and the  Company  received  proceeds  of
$18,000.


                                      F-27
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


During  2005,  the  Company  issued  stock  grants  for  approximately   696,000
registered shares of its common stock from its option plans and other registered
share reserves to certain consultants and other vendors under various agreements
and  recorded  non-cash   selling,   general  and   administrative   expense  of
approximately $194,000.

During 2005, the Company issued options to consultants providing legal, investor
relations  and  manufacturing  services to purchase an  aggregate  of  1,629,365
shares of its common stock as partial  compensation  for these  services.  These
options were  non-forfeitable  and fully vested at the date of issuance and were
valued using the Black-Scholes option pricing model using the following range of
assumptions:

                                                              Low          High
                                                              ---          ----

    Exercise price per share                                  $0.14        $0.34
    Market price of Calypte's stock on date of issuance       $0.14        $0.34
    Assumptions:
       Expected dividend yield                                 0.0%         0.0%
       Risk free rate of return                               3.65%        4.34%
       Contractual life                                     5 years     10 years
       Volatility                                           204.94%      245.07%
    Fair Market Value                                         $0.14        $0.34

Pursuant to the requirements of FASB Statement No. 123 and EITFs 96-18 and 00-18
related to accounting for stock-based  compensation,  the Company has recognized
non-cash  selling,   general  and  administrative   expense  in  the  amount  of
approximately  $298,000  attributable  to these  options at the date of grant in
2005. In September 2005, one of the consultants  exercised an option to purchase
857,143  shares  of the  Company's  stock at $0.14  per  share  and the  Company
received proceeds of $120,000.

On  February 9, 2005,  the  Compensation  Committee  of the  Company's  Board of
Directors  approved a consulting  contract under which the Chairman of the Board
of Directors  provided  certain  strategic and advisory  services to the Company
through  July 31,  2005  (the  "Consulting  Contract").  Under  the terms of the
Consulting  Contract  and  concurrent  with  its  approval  by the  Compensation
Committee,  the Company granted to its Chairman immediately  exercisable options
to purchase 850,000 shares of its common stock at an exercise price of $0.35 per
share,  which was the market price of the Company's common stock on the date the
option  was  granted.  The  options  have a life of ten years  and were  granted
pursuant  to  the  Company's   2004   Incentive   Plan.  As  permitted  by  FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  involving Stock
Compensation," the Company recognized no expense in connection with the grant of
this option.

At December  31,  2005,  the Company had  warrants to purchase an  aggregate  of
55,500,010  shares  of  its  common  stock  outstanding,  as  summarized  in the
following table.

<TABLE>
<CAPTION>
                                                                            Number of     Exercise Price
                                                                               Shares          per share          Expiration Date
<S>                                                                        <C>           <C>                  <C>
Series A and Series B warrants issued in connection with April 2005
   Placement, including warrants issued to placement agents                41,004,583             $0.325            April 3, 2010
                                                                                                                  May 28, 2009 or
Warrants issued to investors in connection with the 2004 PIPEs             10,741,500             $0.450             July 9, 2009
                                                                                                                  May 28, 2009 or
Anti-dilution warrants issued to investors in 2004 PIPEs                    1,253,177             $0.325             July 9, 2009
Warrants issued to placement agents in connection with the 2004                                                   May 28, 2009 or
   PIPEs                                                                      778,800             $0.500             July 9, 2009
Warrants issued to Marr or its designees in connection with Credit                             $0.400 to          May 19, 2006 to
   Facility agreements or amendments                                        1,400,000             $0.460            April 3, 2010
                                                                                         $0.500 to $3.00      October 31, 2006 to
All other                                                                     321,950                                 May 6, 2009
                                                                           ----------
                                                                           55,500,010
                                                                           ==========
</TABLE>


                                      F-28
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


Intellectual Property and Equipment Purchase Using Stock
On September 30, 2004,  when the market price of the Company's  common stock was
$0.39 per  share and  pursuant  to  Regulation  S, the  Company  entered  into a
licensing,   technology  transfer  and  equipment  purchase  agreement  (License
Agreement)  pursuant to which the Company was required to pay to the licensor an
aggregate of 1,232,840  Euros  (approximately  US $1,500,000) to acquire certain
licenses and manufacturing  equipment. On September 30, 2004, the Company issued
1,172,205  restricted shares of its common stock having a value of approximately
$469,000 to the licensor,  representing  approximately  $373,000 attributable to
the technology license and $96,000  attributable to the equipment purchase.  The
Company  included  the shares  issued in a  registration  statement  that became
effective on December 29, 2004. The Company has recorded the contractual  amount
attributable to the technology  license as an intangible  asset and the value of
the stock issued for the equipment as Other Assets  pending final  acceptance of
the equipment.  The Company paid the subsequent  installments  under the License
Agreement in cash.

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

(12)    Incentive and Stock Options Plans

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

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

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

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.

2004 Incentive Plan
At the annual  stockholders'  meeting in June 2004,  the Company's  stockholders
approved the adoption of the Company's  2004  Incentive  Plan (the 2004 Plan) to
replace the Company's 2000 Equity  Incentive Plan (the 2000 Incentive Plan), for
which only a small number of authorized shares remained available for grant. The
stockholders  authorized 30,000,000 shares for awards from the 2004 Plan. At the
annual  meeting  of  stockholders  in  June  2005,  the  Company's  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
the Company's common stock which may be issued as restricted share or restricted
share  unit  awards  under the 2004  Plan.  The  Compensation  Committee  of the
Company's  Board of Directors  administers  the Plan. The Board of Directors may
amend or modify the 2004 Plan at any time.  It will expire in June 2014,  unless
terminated earlier by the Board of Directors.

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


                                      F-29
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


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

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

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

The 2004 Plan permits the granting of or offering for sale restricted  shares of
common  stock and  restricted  stock  units in such  amounts and subject to such
terms and conditions as the Compensation  Committee may determine.  Upon receipt
of  restricted  shares of common  stock,  the  participant  has the  rights of a
shareholder  with respect to the restricted  stock,  subject to any restrictions
and conditions that the Compensation  Committee may impose. On the delivery date
of a restricted  stock unit, the participant  receives one share of common stock
or cash equal in value to a share of common stock or a combination  thereof,  as
specified  by the  Compensation  Committee.  No more than a total of  20,000,000
shares of common  stock are  available  for  delivery  as  restricted  stock and
restricted stock units.

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

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

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

The  Company  records  deferred  compensation  related  to  options  granted  to
non-employees  when the  option is not  immediately  exercisable  and on options
granted to employees  when the exercise  price is below the fair market value of
the underlying  common stock, if any. The  Compensation  Committee  granted only
nonstatutory  and  incentive  stock  options at market from the 2004 Plan during
2004 and only to  employees.  Accordingly,  the  Company  recorded  no  deferred
compensation  in 2004 with respect to awards granted from the 2004 Plan. For the
year ended  December  31, 2005,  the Company  recorded  compensation  expense of
approximately  $298,000  related to approximately  1,629,000  options granted to
non-employees, of which 200,000 were not granted as immediately exercisable. The
Company recorded deferred  compensation of approximately $22,000 for the options
granted under the 2004 Plan that were not immediately  exercisable.  This amount
is amortized  over the relevant  period of service.  The amortized  compensation
expense  attributable  to options  granted from the 2004 Plan for the year ended
December 31, 2005 was $11,000. The Company granted no stock bonus or other forms
of equity  awards  from the 2004  Plan  during  2005 or 2004  and,  accordingly,
recorded  no   compensation   expense   attributable   to  stock  bonus  awards.
Compensation expense attributable to stock bonuses,  when granted, is determined
by  multiplying  the closing  market price of the Company's  common stock on the
date of grant by the number of shares granted.


                                      F-30
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


The following table summarizes 2004 and 2005 option activity for the 2004 Plan:

                                                                 Weighted
                                                                 Average
                                                   Options     Exercise Price
                                                  ---------    --------------

Outstanding at December 31, 2003                         --         $   --
Granted                                          18,468,000          0.580
Cancelled                                           (60,000)         0.390
                                                 ----------

Outstanding as of December 31, 2004              18,408,000         $0.580
Granted                                           4,874,365          0.239
Exercised                                          (857,143)         0.140
Cancelled                                          (491,222)         0.360
                                                 ----------

Outstanding as of December 31, 2005              21,934,000         $0.527
                                                 ==========

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

Exercisable as of December 31, 2005              20,672,621         $0.545
                                                 ==========

At December 31, 2005, there were 24,208,857 shares of the Company's common stock
available for grant under the 2004 Plan.


The following  table  summarizes  the per share  weighted-average  fair value of
stock  options  granted  during  2005 and 2004,  on the date of grant  using the
Black-Scholes   option-pricing   model  with  the   indicated   weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                               2005               2004
                                                            ------------      ------------

<S>                                                          <C>              <C>
Per share weighted-average fair value of options granted         $0.239            $0.516
Expected dividend yield                                           0.00%             0.00%
Risk-free interest rate                                           4.24%             4.72%
Volatility                                                      209.57%           210.79%
Expected life                                                8.86 years       10.00 years
</TABLE>

2005 Director Incentive Plan

At the annual  stockholders'  meeting in June 2005,  the Company's  stockholders
approved the adoption of the Company's  2005 Director  Incentive  Plan (the 2005
Director  Plan) to replace the  Company's  1995  Director  Option Plan (the 1995
Director Plan), which was scheduled to expire in December 2005. The stockholders
authorized  18,000,000  shares  for  awards  from the 2005  Director  Plan.  The
Compensation  Committee of the Company's 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.

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 2005 Director Plan permits the granting of stock options whose terms will be
solely determined 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.  Any  taxes  required  to be  withheld  must  be  paid by the
participant at the time of exercise. The Company may deduct or withhold from any
payment  or  distribution  an amount  sufficient  to  satisfy  such  withholding
obligation.  The grantee may elect to have the Company withhold shares of Common
Stock or may tender  previously  owned  shares of Common  Stock to  satisfy  the
withholding  obligation.  The period of any  option  will be  determined  by the
Compensation  Committee,  but no option may be exercised after the expiration of
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.


                                      F-31
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


The 2005  Director  Plan  permits the granting of stock  appreciation  rights in
conjunction  with all or part of a stock option  granted under the 2005 Director
Plan.  Such  rights may be granted  either at or after 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 2005  Director  Plan  permits the  Compensation  Committee to include in any
award a dividend  equivalent  right entitling the participant to receive amounts
equal to all or any portion of the dividends that would be paid on the shares of
Common Stock covered by the Award if such shares had been delivered  pursuant to
the Award.  The  Compensation  Committee will  determine  whether the payment of
dividend equivalent rights will be made in cash, in shares of Common Stock or in
another form,  whether they shall be conditioned  upon the exercise of the Award
to which they relate, the time at which they shall be made, and such other terms
and conditions as the Committee considers appropriate.

The 2005 Director  Plan permits the granting of or offering for sale  restricted
shares of Common Stock and restricted stock units in such amounts and subject to
such terms and  conditions as the  Compensation  Committee may  determine.  Upon
receipt of restricted  shares of Common Stock, the participant has the rights of
a shareholder with respect to the restricted stock,  subject to any restrictions
and conditions that the Compensation  Committee may impose. On the delivery date
of a restricted  stock unit, the participant  receives one share of Common Stock
or cash equal in value to a share of Common Stock or a combination  thereof,  as
specified by the Compensation Committee.

The 2005 Director Plan permits the  Compensation  Committee to grant other types
of equity-based or equity-related  awards (including the grant or offer for sale
of  unrestricted  shares of Common  Stock) in such  amounts  and subject to such
terms and conditions as the  Compensation  Committee may determine.  Such awards
may entail the  transfer of actual  shares of Common  Stock to  participants  or
payment in cash or otherwise  of amounts  based on the value of shares of Common
Stock.

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

Through  December  31, 2005,  the Company has not granted any options  under the
2005  Director  Plan and at that date,  options to  purchase  18,000,000  shares
remain available for grant.

2000 Equity Incentive Plan
In June 2000,  the Company's  Board of Directors and  stockholders  approved the
adoption of the Company's 2000 Equity Incentive Plan (the "2000 Incentive Plan")
to replace the Company's 1991 Incentive Stock Plan, which expired in April 2001.
The Compensation  Committee of the Company's Board of Directors  administers the
Plan.  The Board of Directors may amend or modify the 2000 Incentive Plan at any
time.  It has  been  replaced  by the  2004  Plan,  but  has not  been  formally
terminated by the Board of Directors.

Under  the  terms  of the  2000  Incentive  Plan,  nonstatutory  stock  options,
restricted  stock and stock  bonuses  may be  granted  to  employees,  including
directors who are employees, non-employee directors, and consultants.  Incentive
stock options may be granted only to employees. During 2005, the Company granted
only stock bonus  awards from the 2000  Incentive  Plan and does not  anticipate
making additional option grants from the plan.

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

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


                                      F-32
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


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

The  Company  records  deferred  compensation  related  to  options  granted  to
non-employees  and to options  granted to employees  when the exercise  price is
below the fair market value of the underlying  common stock, if any. The Company
recorded  no  deferred  compensation  for the year ended  December  31, 2005 and
$(2,000)  for the year ended  December  31,  2004 for  certain of the  Company's
common stock  options  granted  under the 2000  Incentive  Plan.  This amount is
amortized  over the  relevant  period of  service.  The  amortized  compensation
expense for the years ended  December  31, 2005 and December 31, 2004 was $6,000
and $1,000, respectively.  The Company recorded compensation expense of $140,000
and $148,000, respectively, attributable to stock bonus awards of 629,305 shares
of common stock granted to consultants in lieu of cash compensation  during 2005
and 295,006  shares of common stock granted  during 2004.  Compensation  expense
attributable  to stock bonuses is determined by  multiplying  the closing market
price of the Company's common stock on the date of grant by the number of shares
granted.  The weighted average price of shares issued as stock bonuses was $0.22
in 2005 and $0.50 in 2004.

The following table summarizes  option activity for 2004 and 2005 under the 2000
Incentive Plan:
                                                                     Weighted
                                                                     Average
                                                    Options       Exercise Price
                                                  ==========      ==============


Outstanding as of December 31, 2003                6,596,749         $  0.35
Granted                                            1,454,080            0.48
Exercised                                           (418,622)           0.10
Cancelled                                           (321,924)           0.47
                                                   ---------

Outstanding as of December 31, 2004                7,310,283           $0.38
Granted                                                   --              --
Exercised                                         (2,169,414)           0.27
Cancelled                                         (1,019,659)           0.52
                                                  ----------           -----

Outstanding as of December 31, 2005                4,121,210           $0.41
                                                   =========

Exercisable as of December 31, 2004                6,132,719           $0.35
                                                   =========

Exercisable as of December 31, 2005                3,847,325           $0.40
                                                   =========


As of December 31, 2005, 543,076 shares of common stock were available for grant
under the 2000 Incentive Plan.

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

                                                                      2004
                                                                ===============
Per share weighted average fair value of options granted             $0.672
Expected dividend yield                                               0.00%
Risk-free interest rate                                               2.91%
Volatility                                                           268.4%
Expected life                                                     5.9 years


1991 Incentive Stock Plan
In April 1991,  the  Company's  Board of Directors  approved the adoption of the
Company's  Incentive  Stock Plan (the Stock Plan).  A total of 141,366 shares of
common stock were reserved for issuance under the Stock Plan. Since the adoption
of the 2000 Equity  Incentive Plan in June 2000, no additional  shares have been
granted from the Stock Plan. There was no activity in the Stock Plan during 2005
or 2004.  At December  31, 2005 and 2004,  there were no shares of common  stock
available for grant under the Stock Plan.  At December 31, 2005 and 2004,  there
were  outstanding  and  exercisable  options  to  purchase  6,256  shares of the
Company's common stock at an average price of $103.42 per share.


                                      F-33
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


1995 Director Option Plan
In December 1995, the Company's  Board of Directors  approved the Company's 1995
Director  Option  Plan (the  Director  Option  Plan).  At the annual  meeting of
stockholders in June 2005, the Company's 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 Company's
Board of Directors  determined  the number of options to purchase  shares of the
Company's  stock that were  granted  each year to  newly-elected  or  re-elected
directors.  Options were granted under this plan to  non-employee  directors or,
pursuant to an  agreement  between the  Company  and another  person,  entity or
affiliate  with whom a non-employee  director is associated,  that other person,
entity,  or affiliate.  Each option  granted under the Director  Option Plan was
exercisable  at 100% of the fair market value of the  Company's  common stock on
the date the option was granted.  Each grant under the plan 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.

The Company has not recorded any deferred  compensation for the Company's common
stock  options  granted  under the Director  Option Plan.  The  following  table
summarizes 2004 and 2005 option activity under the Director Option Plan:

                                                               Weighted Average
                                                    Options     Exercise Price
                                                   --------   ------------------


Outstanding as of December 31, 2003                 437,680         $1.93
Granted                                           1,000,000          0.58
Exercised                                                --            --
Cancelled                                                --            --
                                                  ---------

Outstanding as of December 31, 2004               1,437,680         $0.99
Granted                                             200,000          0.31
Exercised                                                --            --
Cancelled                                          (308,267)         0.91
                                                  ---------

Outstanding as of December 31, 2005               1,329,413         $0.91
                                                  =========

Exercisable as of December 31, 2004               1,437,680         $0.99
                                                  =========

Exercisable as of December 31, 2005               1,329,413         $0.91
                                                  =========


As of December 31,  2005,  there were no shares of common  stock  available  for
grant under the Director Option Plan.

The following  table  summarizes  the per share  weighted-average  fair value of
stock  options  granted  during  2005 and 2004,  on the date of grant  using the
Black-Scholes   option-pricing   model  with  the   indicated   weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                                  2005        2004
                                                              ----------    ----------
<S>                                                               <C>           <C>
Per share weighted-average fair value of options granted          $0.310        $0.580
Expected dividend yield                                            0.00%         0.00%
Risk-free interest rate                                            4.22%         4.13%
Volatility                                                       207.85%       213.95%
Expected life                                                 10.0 years    10.0 years
</TABLE>


2003 Non-Qualified Stock Option Plan
In June 2003,  the  Company's  Board of  Directors  authorized  and the  Company
registered  a total of  10,000,000  shares of its common  stock under a Form S-8
Registration Statement for issuance under the Company's 2003 Non-Qualified Stock
Option Plan (the "2003  Plan").  Under the 2003 Plan,  at the  discretion of the
Board of  Directors,  the Company was  permitted to grant options or stock bonus
awards  only to  non-officer  employees  and  consultants  in  consideration  of
services  rendered to the Company.  At December  31, 2004,  the 2003 Plan was no
longer  active as all  authorized  shares  had been  granted as options or stock
bonus awards,  and all options had been exercised.  The Company granted no stock
options from the 2003 Plan in 2004.


                                      F-34
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


The Company  granted  stock bonus  awards from the 2003 Plan for an aggregate of
82,978 shares of its common stock during 2004 and recorded  compensation expense
of $45,000.  Compensation expense attributable to stock awards was determined by
multiplying  the closing market price of the Company's  common stock on the date
of grant by the number of shares granted.  The weighted  average price of shares
issued as stock awards was $0.50 in 2004.

The following table summarizes  information  about stock options  outstanding at
December 31, 2005 under the 2004  Incentive  Plan,  the 2005 Director  Incentive
Plan, the 2000 Equity  Incentive  Plan,  the 1991 Incentive  Stock Plan, and the
1995 Director Option Plan.

<TABLE>
<CAPTION>
                                                Options Outstanding                      Options Exercisable
                              ---------------------------------------------------   --------------------------
                                                   Weighted-                                         Weighted-
                                  Number            Average           Weighted-         Number        Average
                              Outstanding at    Remaining Years        Average      Exercisable at    Exercise
   Range of Exercise Prices      12/31/05        to Expiration     Exercise Price      12/31/05        Price
   ------------------------   --------------    ---------------    --------------   --------------   ---------

<S>                              <C>                    <C>         <C>             <C>              <C>
$0.010 -   $0.200                   745,865             9.07        $      0.165       451,421       $   1.055
$0.210 -   $0.560                 7,324,904             6.73        $      0.303     6,263,526       $   0.313
$0.585 -   $0.585                18,600,000             8.46        $      0.585    18,600,000       $   0.585
$0.060 - $210.00                    720,110             7.36        $      2.580       540,668       $   3.194
                                 ----------                                         ----------
$0.010 - $210.00                 27,390,879             7.99        $      0.551    25,855,615       $   0.566
                                 ==========                                         ==========
</TABLE>


1995 Employee Stock Purchase Plan
In April  2005,  the  Company's  Board of  Directors  terminated  the  Company's
Employee Stock Purchase Plan (ESPP), which it had approved in December 1995. The
ESPP was a qualifying plan under Section 423 of the Internal Revenue Code. Under
the ESPP, an eligible  employee could  purchase  shares of common stock from the
Company through payroll deductions of up to 10% of his or her compensation, at a
price per share  equal to 85% of the lower of (i) the fair  market  value of the
Company's  common stock on the first day of an offering period under the ESPP or
(ii) the fair market  value of the common stock on the last day of the six month
purchase  period during the offering  period.  Each  offering  period lasted for
twenty four months; stock purchases occurred on June 30 and December 31 in 2004.
There were no stock  purchases  during 2005.  During the year ended December 31,
2004,  employees  purchased 35,931 shares under the ESPP.  Cumulative  purchases
under the ESPP through December 31, 2004, the last purchase date, totaled 64,311
shares.


(13)    Section 401(k) Plan

Effective  January  1,  1995,  the  Company  adopted a  Retirement  Savings  and
Investment  Plan (the 401(k) Plan)  covering the Company's  full-time  employees
located in the United  States.  The 401(k)  Plan is  intended  to qualify  under
Section 401(k) of the Internal Revenue Code. Under the terms of the 401(k) Plan,
employees  may  elect  to  reduce  their  current  compensation  by  up  to  the
statutorily  prescribed  annual  limit and to have the amount of such  reduction
contributed  to the 401(k) Plan. The Company  contributed  $11,000 to the 401(k)
Plan during 2004,  which was  allocated to  participants  in proportion to their
participation during 2004. The Company made no such contributions in 2005.


                                      F-35
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004

(14)    Income Taxes

The  provision  for income taxes for all periods  presented in the  consolidated
statements of operations  represents minimum California  franchise taxes. Income
tax expense  differed  from the amounts  computed by applying  the U.S.  federal
income tax rate of 34% to pretax losses as a result of the following:

<TABLE>
<CAPTION>
                                                                      2005       2004
                                                                    -------    -------
<S>                                                                 <C>        <C>
Computed expected tax expense                                       $(2,979)   $(5,871)
Losses and credits for which no benefits have been recognized         2,925      5,815
Other                                                                    56         58
                                                                    -------    -------
                                                                    $     2    $     2
                                                                    =======    =======
</TABLE>


The tax effect of temporary  differences that give rise to significant  portions
of the deferred tax asset is presented below:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                             ------------
                                                                          2005        2004
                                                                        --------    --------
<S>                                                                     <C>         <C>
Deferred tax assets:
    Net operating loss carryovers                                       $ 49,639    $ 48,479
    Research and development credits                                       2,207       1,850
    Other                                                                  3,599       1,857
                                                                        --------    --------

Total gross deferred tax assets                                           55,445      52,186
Valuation allowance                                                      (55,445)    (52,186)
                                                                        --------    --------

Net deferred tax assets                                                 $     --    $     --
                                                                        ========    ========
</TABLE>


The net change in the valuation  allowance for the years ended December 31, 2005
and 2004 was an increase of $3,259,000  and  $4,817,000,  respectively.  Because
there is uncertainty regarding the Company's ability to realize its deferred tax
assets,  a  100%  valuation  allowance  has  been  established.  When  realized,
approximately  $171,000 of deferred tax assets will be  creditable to additional
paid-in capital.

As of  December  31,  2005,  the Company  had  federal  tax net  operating  loss
carryforwards of approximately  $142,647,000 which will expire in the years 2006
through  2025.  The Company  also has federal  research and  development  credit
carryforwards  as of December 31, 2005 of approximately  $1,515,000,  which will
expire in the years 2006 through 2025.

State tax net operating loss carryforwards  were  approximately  $33,893,000 and
state  research and  development  credit  carryforwards  were  $1,033,000  as of
December 31, 2005. The state net operating loss carryforwards will expire in the
years 2006 through  2015 and the state  research  and  development  credits will
carryforward indefinitely.

The  Company's  ability to  utilize  its net  operating  loss and  research  and
development  tax  credit  carryforwards  may be  limited  in the future if it is
determined  that the Company  experienced  an  ownership  change,  as defined in
Section 382 of the Internal Revenue Code.


(15)    Royalty and License Agreements


                                      F-36
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004

The Company has entered into arrangements with various  organizations to receive
the right to utilize  certain  patents and  proprietary  rights under  licensing
agreements in exchange for the Company making certain royalty  payments based on
its sales of certain products. The royalty obligations are based on a percentage
of net sales of licensed  products and include  minimum annual royalty  payments
under some  agreements.  The Company had paid  royalties to five entities on its
urine-based  screening  test and to one  entity on its  serum-  and  urine-based
Western  Blot  supplemental  tests  which were sold  during 2005 and are part of
discontinued operations. The patents underlying the royalties would have expired
between 2004 and 2009.  At December 31, 2005,  while the Company is  essentially
current  under the terms of its contracts or negotiated  payment  plans,  it was
approximately  $231,000 in arrears on the payment of royalties  under certain of
the licensing agreements covering its ELISA tests.

As discussed in Note 6, Intangible Assets,  during 2004 the Company entered into
license  agreements for technology and materials  required to commercialize  its
rapid tests and its BED Incidence test which are part of continuing  operations.
In addition to the initial or base license payments, the agreements also contain
a  royalty  on  sales  component  based on sales  of the  Company's  rapid  test
products. Those patents expire between 2006 and 2017. There are minimum payments
required by certain of the  agreements  that apply  regardless  of the amount of
actual sales.

Under certain of the Company's licensing agreements,  the patent holder or other
organization  granting rights to the Company has the right to revoke the license
for  non-payment  of  royalties.  Should  the  patent  holder or other  granting
organization  take that step,  the Company could find it necessary to modify its
manufacturing practices or change its business plan.

In September  2003, the Company issued 500,000 shares of its common stock valued
at the date of issuance at  approximately  $610,000 to one of its  licensors  to
maintain its  exclusivity  under a license  agreement  covering one of its ELISA
tests for the years 2003 and 2004. The portion  applicable to exclusivity during
2004 was recorded as a prepaid  expense at December 31, 2003 and  amortized as a
royalty expense during 2004.

(16)    Employment and Consulting Agreements

In February 2005, the Compensation Committee of the Company's Board of Directors
approved  a  consulting  contract  under  which  the  Chairman  of the  Board of
Directors  provided  certain  strategic  and  advisory  services  to the Company
through  July 31,  2005  (the  "Consulting  Contract").  Under  the terms of the
Consulting  Contract  and  concurrent  with  its  approval  by the  Compensation
Committee,  the Company granted to its Chairman immediately  exercisable options
to purchase 850,000 shares of its common stock at an exercise price of $0.35 per
share,  which was the market price of the Company's common stock on the date the
option  was  granted.  The  options  have a life of ten years  and were  granted
pursuant to the  Company's  2004  Incentive  Plan.  As indicated in Note 11, the
Company recorded no expense in conjunction with this option grant. 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.  As indicated in Note 19, Subsequent
Events, 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 contract,  the Chairman is to receive cash  compensation of $15,000
per month,  beginning  October 3, 2005,  which the Company  has accrued  through
December 31, 2005.

In January 2004, the Company entered into a three year employment agreement with
an officer that  included an annual  salary of  $250,000.  On February 24, 2004,
subject to the  approval of the  Company's  stockholders  of the 2004  Incentive
Plan, the officer was also  conditionally  granted options to purchase 5,000,000
shares of the Company's  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 the  Company's
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 April
2005,  the  Compensation  Committee of the Board  authorized  an increase in the
officer's annual salary to $350,000 plus an annual housing allowance of $30,000.
The officer resigned  effective  September 29, 2005, but remains associated with
the Company  under a consulting  agreement  pursuant to which he is paid $14,000
per month for services to the Company.

In June 2003, the Company entered into a five year  employment  agreement with a
director  and  officer of the  Company  that  included a base  annual  salary of
$350,000. On January 20, 2004 the officer resigned as an officer and as a member
of the  Company's  Board of  Directors.  The Company  entered  into a Separation
Agreement and Release with the officer  wherein he was paid a severance equal to
one year's  salary and was vested in options to purchase  750,000  shares of the
Company's common stock  exercisable at $0.32 granted to him in January 2004 from
the Company's 2000 Equity Incentive Plan.

In January 2003, the Company entered into a twelve month  employment  agreement,
with automatic  renewal options,  with an officer of the Company that included a
base salary of $200,000 and fully vested  options to purchase  108,333 shares of
the Company's 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 the Company's  stock at $0.01 per share,  in  recognition of an
earlier salary deferral  arrangement,  and options to purchase 625,000 shares of
the Company's stock at $0.32 per share.  The latter options were exercisable 50%
upon grant and 50% on the one year  anniversary  of the grant.  On February  24,
2004,  subject  to  the  approval  of the  Company's  stockholders  of the  2004
Incentive  Plan,  the  officer  was  conditionally  granted  options to purchase
1,500,000  shares of the Company's  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
the Company's common stock was $0.52 per share, the grant became effective, with
an exercise  price of $0.585 per share.  The options  are  exercisable  50% upon
grant and 50% on the one year anniversary of the grant and have a ten year term.


                                      F-37
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004

In May 2002, in conjunction with a financing  proposal,  the independent members
of the  Company's  Board of  Directors  appointed a new  Executive  Chairman and
entered into a five year employment agreement with him. The employment agreement
specified an annual salary of $400,000 and allowed for annual increases  subject
to the Company's  performance and approval of the Compensation  Committee of the
Board of  Directors.  On  February  24,  2004,  subject to the  approval  of the
Company's  stockholders of the 2004 Incentive  Plan, the Executive  Chairman was
conditionally  granted  options to purchase  5,000,000  shares of the  Company's
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 the Company's  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 had a ten  year  term.  The  Executive  Chairman
resigned effective November 15, 2004 as the Company's  Executive Chairman and as
a member of the Company's  Board of  Directors.  Under the terms of a Separation
and  Consulting  Agreement  and Release of Claims,  the Company  entered  into a
consulting  arrangement  that extends  through  November 15, 2006 under which it
agreed to pay  approximately  $1 million  and to  accelerate  vesting of all his
then-unvested  options.  At  December  31,  2004,  the  Company  had accrued the
liability  under the terms of the  Separation  Agreement.  In January 2005,  the
Executive  Chairman  exercised  previously issued and vested options to purchase
1,625,000 shares of the Company's common stock in the amount of $520,000. During
2005, the Company paid the amounts due under the Separation Agreement.

In April 2003, the Company  entered into a three-year  consulting  agreement for
advisory and other services  related to the marketing,  distribution and sale of
its  products.  The  agreement  obligated  the Company to pay the  consultant an
aggregate of $3,000,000 in cash as follows: $750,000 in 2003, $1,000,000 in both
2004 and 2005,  and  $250,000  in 2006;  and issue him an  aggregate  of 200,000
shares of its common  stock.  At  December  31,  2004,  the  Company had paid an
aggregate of $1,000,000 and issued 66,666 shares of its common stock pursuant to
the  contract.  During 2005,  the Company and the  consultant  renegotiated  the
contract to reduce the Company's  obligation and extend the payment period.  The
Company  paid the  consultant  $250,000 and issued  66,667  shares of its common
stock to him during 2005.  Under the terms of the  renegotiated  agreement,  the
Company is required to pay the  consultant  $500,000 in cash in each of 2006 and
2007, which obligation the Company has accrued at December 31, 2005.

(17)    Related Party Transactions

As described in Note 8, Notes and Debentures Payable, the Company entered into a
Note  Purchase   Agreement  with  its  largest   stockholder  in  2003  that  it
subsequently  modifed  during  2004.  The  Company  issued no notes  under  this
facility prior to its December 31, 2004 expiration. As also described in Note 8,
the Company  issued a Promissory  Note in the face amount of  $2,000,000  to its
largest stockholder in January 2005 and entered into a Credit Facility Agreement
in April 2005 that was  subsequently  modified in November 2005. The Company has
outstanding  Promissory  Notes in the face amount of $1,500,000 under the credit
facility at December 31, 2005. See Note 19, Subsequent Events, for a description
of additional borrowings under the amended 2005 Credit Facility in 2006.

In December 2005,  the Company  entered into an Equity  Transfer  Agreement with
Marr Asia, an affiliate of Marr  Technologies  BV. Under the terms of the Equity
Transfer Agreement, the Company 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,  the Company will contribute $1,836,000 to the
registered capital of Beijing Marr and Marr Asia will contribute USD $1,764,000.
Refer to Note 19, Subsequent  Events,  for equity  contributions made during the
first quarter of 2006. The Company and Marr Asia must make the required  capital
contributions in proportion to their respective equity interests in Beijing Marr
before November 17, 2006. The business  purpose of Beijing Marr is to pursue the
manufacture,  distribution,  marketing  and sale of the  Company's  products  in
China.

In December  2005,  the Company also entered into an agreement with Marr Asia in
connection  with the Equity  Transfer  Agreement  that governs the  relationship
between Marr Asia and the Company 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,  the Company  signed a Memorandum Of  Understanding  to create a
joint  venture in China to market the  Company's  current  and future  products.
Additionally,  the  Nominating  Committee  of the  Company's  Board of Directors
agreed   to  grant   Marr  the   right  to   nominate   two   mutually-agreeable
representatives to the Company's Board of Directors.  During 2004, two directors
initially nominated by Marr were added to the Company's Board of Directors.

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

(18)    Commitments and Contingencies

The Company does not, in the normal course of business,  enter into  significant
purchase  contracts  for  materials  or  supplies.  As  discussed  in  Note  11,
Stockholders'  Deficit, in September 2004, the Company entered into a licensing,
technology transfer and equipment purchase agreement pursuant to which it issued
stock valued at approximately $96,000 as a deposit for the purchase of specified
manufacturing  equipment  to be  acquired  for an  aggregate  purchase  price of
233,000 Euros  (approximately  $300,000).  At December 31, 2005, the Company has
not formally accepted the equipment.


                                      F-38
<PAGE>

                 CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004

The Company and certain of its current and former officers are the defendants in
a  lawsuit  which has  arisen in  connection  with two  complainants'  rights to
certain debentures convertible into the Company's common stock. The complainants
are seeking damages in the amount of  approximately  $1,100,000,  plus interest,
trading  penalties of $5,000 per day and other damages.  In September  2002, the
Company  entered  into  a  purchase   agreement  with  Mercator   Momentum  Fund
("Mercator")  pursuant  to  which  Mercator  committed  to  purchase  debentures
convertible  into the  Company's  common  stock in a number of  tranches  in the
aggregate  face  amount of  $2,000,000  (the  "Debentures").  Mercator  assigned
certain of its rights to purchase  the  Debentures  to the  complainants,  among
others.  The complainants  were entitled to purchase  Debentures in an aggregate
face amount of $60,000  according to the terms of an agreement  among  Mercator,
the  complainants  and other parties  purchasing  rights to the debentures  (the
"Transaction"). On August 25, 2003, prior to the closing of the Transaction, the
complainants  delivered notices of conversion of their  debentures.  The Company
has attempted to honor the  conversion of the  debentures as of the closing date
of the Transaction, but the complainants have refused to accept such conversion.
The  Company  believes  that  the  claims  made  by  the  complainants  and  the
complainants'  request for money are  unmeritorious  and that the outcome of the
lawsuit  will not have a  material  adverse  effect on its  business,  financial
condition or results of operations.

As indicated in Note 3, Discontinued  Operations and Note 9. Lease  Commitments,
the Company has entered into  subleases  with third  parties as the sublessor of
its two former  manufacturing  facilities in Rockville,  Maryland and its former
administrative offices in Pleasanton,  California. Should the sub-tenants in any
of these agreements not fulfill their monthly payment or other obligations under
the terms of the  subleases,  the primary  landlord has the right to look to the
Company for satisfaction of the obligations under the primary leases.

The Company has product  liability and general liability  insurance  policies in
amounts that it believes to be  reasonable  given its current level of business.
Although  historically the Company has not paid any product liability claims, it
is conceivable that it could incur claims for which it is not insured.

(19)    Subsequent Events (Unaudited)

Consulting Agreement

On October 3, 2005, the Company's  Board of Directors  appointed its Chairman as
interim Chief Executive Officer, effective immediately,  upon the resignation of
the former  President  and Chief  Executive  Officer.  On  January 4, 2006,  the
Compensation  Committee of the  Company's  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 contract, the
Chairman will receive cash compensation of $15,000 per month,  beginning October
3, 2005.  Additionally,  on January 4, 2006,  the Company  awarded the  Chairman
1,000,000 shares of its common stock, $0.03 par value, pursuant to the Company's
2004 Incentive Plan.

Financing Activities

Issuance of 8% Convertible Notes in payment of interest and conversion of Notes
The terms of the April 2005 Placement  permit interest  payments on the Notes to
be made in cash or by issuing  additional Notes.  Effective January 4, 2006, the
Company  issued an  aggregate  of  approximately  $169,000  of Secured 8% Senior
Convertible  Notes that are  convertible  into 562,387 shares of common stock in
payment  of  quarterly  interest  (the  "January  2006  Interest  Notes") on the
outstanding  principal balance of approximately $7.9 million of the Notes issued
on April 4, 2005 plus the July 2005 Interest Notes and the October 2005 Interest
Notes.  The  January  2006  Interest  Notes have the same terms and  conditions,
including  anti-dilution  provisions,  as the Notes issued on April 4, 2005, the
July 2005 Interest  Notes and the October 2006 Interest  Notes.  The Company did
not issue  additional  warrants in  conjunction  with the January 2006  Interest
Notes.

During  January 2006, two investors  converted 8% Convertible  Notes in the face
amount of $573,000  original  principal plus  approximately  $37,000 in interest
into an aggregate of  approximately  2,056,000  shares of the  Company's  common
stock.  Upon  conversion,   the  Company  wrote  off  to  interest  expense  the
proportional share of deferred offering costs and note discount  attributable to
the amount of the Notes converted.

Issuance of Promissory Notes under Marr 2005 Credit Facility

On January 19, 2006,  the Company  issued a $1,500,000  promissory  note to Marr
Technologies BV (Marr) under the amended terms of the 2005 Credit  Facility.  On
February  23,  2006,  the Company  issued a second  promissory  note in the face
amount of  $500,000  to Marr.  On March 31,  2006,  the  Company  issued a third
promissory  note in the face amount of $500,000 to Marr.  Each  promissory  note
bears  interest  at a rate of 7% per  annum and is  payable  in full on April 3,
2007.

Investment in Chinese subsidiary

During the first  quarter  of 2006,  the  Company  contributed  $918,000  to the
registered capital of Beijing Marr, the Company's Chinese  subsidiary  described
in Note 17, Related Party  Transactions.  Marr Asia has contributed  $882,000 to
the registered capital of Beijing Marr through March 29, 2006.


                                      F-39
<PAGE>

 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
  Act of 1934, the Registrant has duly caused this report to be signed on its
              behalf by the undersigned thereunto duly authorized.

                         CALYPTE BIOMEDICAL CORPORATION
                                  (Registrant)

                              By: /s/ Roger I. Gale
                                 ------------------
                                  Roger I. Gale
                             Chief Executive Officer
Date: March 31, 2006

                                POWER OF ATTORNEY

Each Director of the Registrant whose signature  appears below,  hereby appoints
Roger I. Gale and Theodore R. Gwin as his  attorney-in-fact  to sign in his name
and on his  behalf  as a  Director  of the  Registrant,  and to  file  with  the
Securities and Exchange Commission any and all Amendments to this report on Form
10-KSB to the same extent and with the same effect as if done personally.

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

<TABLE>
<CAPTION>
                 Signature                                        Title                                 Date
===========================================    ============================================   ==========================

<S>                                            <C>                                                  <C>
             /s/ Roger I. Gale                 Chairman of the Board of Directors, Interim          March 31, 2006
===========================================    Chief Executive Officer
               Roger I. Gale


           /s/ Theodore R. Gwin                Chief Financial Officer                              March 31, 2006
===========================================    (Principal Financial and Accounting Officer)
             Theodore R. Gwin


           /s/ John J. DiPietro                Director                                             March 31, 2006
===========================================
             John J. DiPietro


             /s/ Paul Freiman                  Director                                             March 31, 2006
===========================================
               Paul Freiman


        /s/ Julius R. Krevans, M.D.            Director                                             March 31, 2006
===========================================
          Julius R. Krevans, M.D.


           /s/ Maxim A. Soulimov               Director                                             March 31, 2006
===========================================
             Maxim A. Soulimov
</TABLE>