Calypte Only Company with Full Menu of Tests.

Over the last two years, 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 its new test products for the rapid detection of antibodies
to HIV-1 and HIV Type 2, a second type of HIV  ("HIV-2"),  in blood,  oral fluid
and urine  samples  using a lateral flow  dipstick  design (the  "HIV-1/2  Rapid
Tests")  and the  commercialization  of the BED  Incidence  Test on a  worldwide
basis.

Rapid tests  provide test  results in less than 20 minutes and are  particularly
suitable for  point-of-care  testing,  especially in lesser developed  countries
which lack the medical  infrastructure to support laboratory based testing.  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 in Uganda and China and is currently  engaged in clinical trials in other
countries in pursuit of regulatory approvals for these tests.

In April 2005 the Company  announced its plans to restructure  its business (the
"Plan") to consolidate its domestic  operations and focus its capital  resources
on the global commercialization of the HIV-1/2 Rapid Tests and the BED Incidence
Test. As part of the Plan, the Company  announced its plans to  discontinue  its
production  of the Legacy  Business  products  manufactured  at its  facility in
Rockville,  Maryland  and to pursue  various  options  ranging  from selling the
Legacy  Business to  discontinuing  manufacturing  operations  at the  Rockville
facility pending a final determination of its disposition.

In  furtherance  of the Plan,  on April 18,  2005,  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 "Agreement") with Maxim pursuant to which
Maxim will  manufacture,  ship and perform  quality  control  procedures for the
Company  in  connection  with  the  Legacy  Business.  Under  the  terms  of the
Agreement,  Maxim has hired some of the Company's  ex-employees  and the Company
transferred its inventory to Maxim for use under the Agreement.  Pursuant to the
Agreement,  Maxim has the right, but not the obligation,  to purchase the assets
of the Legacy  Business  on terms to be  negotiated  between  the  parties.  The
Company  will remain  liable for its  Rockville  facility  and  equipment  lease
obligations;  however,  it expects to reduce its operating expenses through this
arrangement.  The Company  expects that by year-end its Legacy  Business will be
classified as a discontinued operation.

Additionally,  during the third quarter of 2005, the Company expects to complete
the transition of its corporate headquarters to the Portland, Oregon area, where
its research and development  operations are located.  During the second quarter
of 2005, the Company incurred  severance costs for certain personnel  terminated
at Rockville and accrued  severance costs for certain  administrative  personnel
not transitioning to Oregon.  The Company may also be liable for lease costs for
its California  offices  through July 2007 in the event it is unable to sublease
that facility.  The Company accrued approximately $535,000 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 in
the second  quarter of 2005  related to the  transfer of its  inventory to Maxim
under the Agreement.

Upon successful completion of the transition of the Legacy Business, the Company
believes that it will have significantly reduced its monthly operating burn rate
as compared with historical  levels.  If it is unable to complete a sale, it may
incur costs to decommission the Rockville  facilities;  on-going  facility lease
costs at Rockville,  until and unless sub-lease opportunities are available, and
on-going lease or lease termination costs associated with leased equipment.  The
Company cannot currently estimate those costs, but the Company expects that they
would increase its cash burn rate in comparison with the sale alternative. Under
either scenario,  the revenue stream from the Company's Legacy Business products
will have been  eliminated and it will 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.


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