Calypte Biomedical 10Q/A 2002 Q1 Quarterly report (amended)

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q/ A

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-20985

CALYPTE BIOMEDICAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		06-1226727
(State or other jurisdiction of incorporation		(I.R.S. Employer
or organization)		Identification Number)

1265 Harbor Bay Parkway, Alameda, California		94502
(Address of principal executive offices)		(Zip Code)

(510) 749-5100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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

The registrant had 45,111,774 shares of common stock outstanding as of May 17, 2002.

CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

FORM 10-Q/A

INDEX

		Page No.

PART I.	Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 (unaudited)	3

	Consolidated Statements of Operations for the ThreeMonths Ended March 31, 2002 and 2001 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

PART II	Other Information

Item 2.	Changes in Securities and Use of Proceeds	42

Item 4.	Submission of Matters to a Vote of Security Holders	42

Item 5.	Other Information – Subsequent Events	42

Item 6.	Exhibits and Reports on Form 8-K	45

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

ASSETS

	March 31, 2002			December 31, 2001
Current assets:
Cash and cash equivalents	$	119		$	287
Accounts receivable, net of allowance of $191 at March 31, 2002 and December 31, 2001		182			325
Inventory		1,038			1,129
Prepaid expenses		219			304
Deferred offering costs, net of accumulated amortization of $133 at March 31, 2002 and $40 at December 31, 2001		808			901
Other current assets		7			1

Total current assets		2,373			2,947
Property and equipment, net of accumulated depreciation of $4,211 at March 31, 2002 and $4,089 at December 31, 2001		1,134			1,187
Other assets		128			128

	$	3,635		$	4,262


LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,855		$	4,120
Accrued expenses		941			2,118
Note payable — current portion		393			411
Capital lease obligations — current portion		65			87
Deferred revenue		500			500

Total current liabilities		5,754			7,236
Debenture payable, net of discount of $398 at March 31, 2002		27			—
Warrant liability		425			—
Deferred rent obligation		50			48
Capital lease obligations — long-term portion		20			22

Total liabilities		6,276			7,306

Mandatorily redeemable Series A preferred stock, $0.001 par value; no shares authorized, 100,000 shares issued and outstanding; aggregate redemption and liquidation value of $1,000 plus cumulative dividends		2,486			2,456

Commitments and contingencies

Stockholders’ equity:
Preferred Stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding		—			—
Common Stock, $0.001 par value; 200,000,000 shares authorized; 45,077,124 and 37,792,134 shares issued and outstanding as of March 31, 2002 and December 31, 2001, respectively		45			38
Additional paid-in capital		83,629			82,623
Deferred compensation		—			(8	)
Accumulated deficit		(88,801	)		(88,153	)

Total stockholders’ equity		(5,127	)		(5,500	)

	$	3,635		$	4,262

See accompanying notes to financial statements.

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2002			2001
Revenues:
Product sales	$	1,159		$	1,402

Operating expenses:
Product costs		1,630			1,989
Research and development costs		241			497
Selling, general and administrative costs		1,215			1,956

Total expenses		3,086			4,442

Loss from operations		(1,927	)		(3,040	)
Interest income		1			6
Interest expense, non-cash of $33 in 2002 and $494 in 2001		(47	)		(513	)
Other income, net		8			23

Loss before income taxes and extraordinary item		(1,965	)		(3,524	)
Income taxes		(2	)		(2	)

Net loss before extraordinary item		(1,967	)		(3,526	)
Extraordinary gain on extinguishments of debt, net of income taxes		1,319			—

Net loss		(648	)		(3,526	)
Less dividends on mandatorily redeemable
Series A preferred stock		(30	)		(30	)

Net loss attributable to common stockholders	$	(678	)	$	(3,556	)

Net loss per share attributable to common stockholders (basic and diluted)	$	(0.02	)	$	(0.14	)

Weighted average shares used to compute net loss per share attributable to common stockholders (basic and diluted)		40,597			25,814

See accompanying notes to financial statements.

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2002			2001
Cash flows from operating activities:
Net loss	$	(648	)	$	(3,526	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		122			129
Amortization of deferred compensation		8			(34	)
Amortization of debenture discount		27			—
Amortization of charge for beneficial conversion feature		—			494
Expense related to common stock grants		18			112
Gain on sale of equipment		—			(23	)
Changes in operating assets and liabilities:
Accounts receivable		143			(338	)
Inventory		91			(188	)
Prepaid expenses and other current assets		249			241
Other assets		—			18
Accounts payable, accrued expenses and deferred revenue		(1,194	)		1,329
Deferred rent obligation		2			3

Net cash used in operating activities		(1,182	)		(1,783	)

Cash flows from investing activities:
Purchase of equipment		(69	)		(52	)
Proceeds from sales of equipment		—			23

Net cash used in investing activities		(69	)		(29	)

Cash flows from financing activities:
Proceeds from sale of stock		823			862
Expenses related to sale of stock		(66	)		(290	)
Proceeds from issuance of debentures, net of transaction costs		368			925
Repayment of debentures		—			(308	)
Principal payments on notes payable		(18	)		(471	)
Refund of cash pledged to bank pursuant to loan agreement		—			480
Principal payments on capital lease obligations		(24	)		(20	)

Net cash provided by financing activities		1,083			1,178

Net decrease in cash and cash equivalents		(168	)		(634	)
Cash and cash equivalents at beginning of period		287			723

Cash and cash equivalents at end of period	$	119		$	89

Supplemental disclosure of cash flow activities:
Cash paid for interest	$	3		$	11
Cash paid for income taxes		—			—
Supplemental disclosure of non-cash activities:
Acquisition of equipment through capital lease obligations		—			35
Dividends accrued on mandatorily redeemable Series A preferred stock		30			30
Deferred compensation attributable to stock option grants		—			(139	)
Common stock grants to employees, consultants and vendors		238			185
Original issue discount and expense withheld from debenture proceeds		57			175
Fair market value of warrants issued in conjunction with debenture		425			—

See accompanying notes to financial statements.

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002 and 2001

(unaudited)

(1) The Company and Basis of Presentation

Calypte Biomedical Corporation (the Company) is a health care company dedicated to the development and commercialization of urine-based diagnostic products and services for Human Immunodeficiency Virus Type 1 (HIV-1), sexually transmitted diseases and other chronic illnesses. The Company’s tests include the screening enzyme immunoassay (EIA) and supplemental Western Blot tests, the only two FDA-licensed HIV-1 antibody tests that can be used on urine samples. The Company believes that accurate, non-invasive urine-based testing methods for HIV and other chronic diseases make important contributions to public health by helping to foster an environment in which testing may be done safely, economically, and painlessly.

The accompanying unaudited consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), and reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the Company’s financial position as of March 31, 2002 and the results of its operations for the three months ended March 31, 2002 and 2001 and its cash flows for the three months ended March 31, 2002 and 2001. Interim results are not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Company’s audited consolidated financial statements for each of the years in the three year period ended December 31, 2001 included in its Form 10-K/A (No. 2) filed with the SEC on December 20, 2002.

Certain information in footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America has been condensed or omitted pursuant to the rules and regulations of the SEC. The data disclosed in these consolidated financial statements and in the related notes is unaudited.

During the first quarter of 2002, the Company has incurred a net loss of $0.6 million and its accumulated deficit at March 31, 2002 was $88.8 million. For us to successfully implement our business plan, we must overcome certain impediments. Specifically, in April of 2002, we announced the winding down of our business operations because we lacked sufficient capital to continue to successfully implement our business model. Subsequently, in May of 2002, we announced an arrangement for new funding, which allowed for Calypte to resume and recommence regular business operations. Based upon our tenuous financial condition, our independent auditors have issued an opinion that raises substantial doubt about our ability to continue our business operations as a going concern. We continue to reassess our business plan and capital requirements as a result of the wind-down and subsequent restart of our operations. Please see Note 9, Subsequent Events, for a description of our new funding arrangement.

There can be no assurance that subsequent additional financings will be made available to the Company on a timely basis or that the additional capital that the Company requires will be available on acceptable terms, or at all. The terms of a subsequent financing may involve a change of control and/or require stockholder approval, or require the Company to obtain waivers of certain covenants that are contained in existing agreements.

(2) Significant Accounting Policies

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2002 and 2001

(unaudited)

to common stockholders by the weighted average number of shares of common stock outstanding during the period presented. The computation of diluted earnings per common share is similar to the computation of basic loss per share attributable to common stockholders, except that the denominator is increased for the assumed conversion of convertible securities and the exercise of dilutive options using the treasury stock method. The weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders are equivalent for the periods presented. Options and warrants for 30,424,479 and 5,945,496 shares at March 31, 2002 and 2001, respectively, were excluded from the computation of loss per share attributable to common stockholders as their effect was antidilutive.

(3) Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. Actual results could differ materially from those estimates.

(4) Inventory

Inventory is stated at the lower of cost or market and the cost is determined using the first-in, first-out method. Inventory as of March 31, 2002 and December 31, 2001 consisted of the following (in thousands):

	2002		2001
Raw Materials	$	201	$	243

Work-in-Process		742		544

Finished Goods		95		342


Total Inventory	$	1,038	$	1,129

(5) Current Notes Payable

At December 31, 2001, the Company had executed a promissory note in the amount of $411,000 to the parent company of its then-largest stockholder. The note required interest at 8.5% per annum and principal payments were due beginning in February 2002. In February 2002, the Company renegotiated the payment terms to require monthly principal payments of $17,500 in February and March 2002, increasing to $35,000 thereafter unless and until the Company secured at least $2 million in additional financing, excluding the $850,000 of convertible debentures and warrants discussed in Note 6, at which time a $200,000 principal payment would be required. The Company made the payment required on February 28, 2002, but has made no payments subsequently. In March 2002, the Company further renegotiated the repayment terms of this note, suspending any required principal or interest payments until the Company’s registration statement for the 12% convertible debentures described in Note 6 becomes effective, at which time the Company is required to make a $200,000 payment and then to resume making monthly payments of $35,000 until the principal and accrued interest are repaid in full. The Company renegotiated the terms of the note due to a lack of available funds and to avoid a default.

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2002 and 2001

(unaudited)

(6) Debenture Payable

On February 11, 2002, the Company signed a securities purchase agreement with a private investment fund, Bristol Investment Fund, Ltd. (“Bristol”), pursuant to which Bristol agreed to purchase two 12% secured convertible debentures for an aggregate of $850,000, each of which matures two years after its issuance. The first debenture, in the amount of $425,000, was purchased by the Bristol, under an exemption provided by Regulation S, on February 11, 2002 and the Company received net proceeds of $368,000. The closing price for Calypte stock on February 11, 2002 was $0.25. The Company expects to issue the second debenture, also in the amount of $425,000, upon the effectiveness of a registration statement filed by the Company in March 2002. The outstanding debenture bears interest at the annual rate of 12% payable quarterly in common stock or cash at Bristol’s option. Under the terms of the debenture, Bristol can elect at any time prior to maturity to convert the balance outstanding on the debenture into shares of the Company’s common stock. The Conversion Price for both debentures is equal to the lesser of (i) the average of the lowest three trading prices during the 20 trading days immediately prior to the conversion date discounted by 30% and (ii) $0.115.

Under the Security Purchase Agreement, Bristol would be obligated to purchase the remaining debenture no later than ten (10) business days after the effective date of a registration statement for the shares of common stock underlying the debenture, provided that there are no material adverse effects on the business operations, assets, financial conditions or prospects of the Company or its subsidiaries, if any, as of the date of the effectiveness of the registration statement and so long as the shares underlying the debenture (in the amount of $425,000) are included in the registration statement. Bristol is not obligated to purchase the $425,000 of the remaining debenture until such time as the underlying shares are registered. Upon the effectiveness of the registration statement, Bristol is required to convert the debentures at a monthly rate equal to 5% of the aggregate trading volume of the Company’s common stock for the 60 trading days immediately preceding such conversions.

In conjunction with this transaction, the Company issued a Class A warrant to purchase up to 1,700,000 shares of its Common Stock. The Class A warrant is exercisable for a period of seven years after issuance at a price per share equal to the Conversion Price. Bristol fund has sole discretion with respect to when and if it chooses to exercise any or all of the Class A warrant prior to its expiration. The warrant was valued on the date of issue at $0.21 per share using the Black-Scholes option-pricing model with the following assumptions: expected dividend yield of 0.0%; risk free interest rate of 4.7%, the contractual life of 7 years, and volatility of 80%. As additional fees for this transaction, the Company also issued a warrant to purchase 85,000 shares of its common stock. The warrant to purchase the 85,000 shares has the same terms and the same fair market value as the Class A warrant.

The Company also issued the investment fund a Class B warrant to purchase an additional 12,000,000 shares of its Common Stock. Upon the effectiveness of the related registration statement, Bristol is required to exercise the Class B warrant in conjunction with the mandatory monthly conversion of its debentures so that each month the Company will issue to Bristol, pursuant to the Class B warrant, a number of shares equal to 150% of the shares issued to the fund pursuant to the monthly conversion of the debentures. Because Bristol is required to convert the debentures for a minimum number of shares equal to 5% of the Company’s aggregate trading volume for the preceding 60 trading days, this means that Bristol must exercise the Class B warrant during each monthly conversion period for a number of shares equal to 7.5% of such trading volume, provided that more than 2 million shares will not be issued per month pursuant to such conversion and exercise without the Company’s consent. Bristol is not obligated to begin exercising the warrant until such time as the underlying shares are registered. The term of the Class B warrant is 12 months from the effective date of the related registration statement.

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2002 and 2001

(unaudited)

The exercise price for the Class B warrant is the lesser of (i) the average of the lowest three trading prices during the 20 trading days immediately prior to exercise discounted by 25%; and (ii) $0.215 per share. The warrant was valued on the date of issue at $0.14 per share using the Black-Scholes option-pricing model with the following assumptions: expected dividend yield of 0.0%; risk free interest rate of 2.2%, the contractual life of 1 year, and volatility of 80%.

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

In accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company’s Own Stock,” and the terms of the warrants, the fair value of the warrants was accounted for as a liability, with an offsetting discount to the carrying value of the $425,000 debenture, which is being amortized as interest expense over the 24 month term of the debenture. The combined fair values of the Class A warrants and Class B warrants treated as a discount to the debenture exceed the $425,000 amount of the debenture. Accordingly, the aggregate amount of the warrant liability and the offsetting debenture discount recorded attributable to the Class A and Class B warrants is limited to $425,000. The warrant liability will be reclassified to equity at the time the Company has registered sufficient shares to allow for the exercise of the warrants. Until that time, it will be marked to market through earnings. The Company recognized approximately $27,000 in non-cash interest expense related to the amortization of the debenture discount during the first three quarters of 2002.

The Company determined that its debenture 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. Because the Company also issued warrants in conjunction with the debenture, as described above, the value of the beneficial conversion feature was not accorded treatment as a discount to the debenture, since the valuation of the accompanying warrants had reduced the carrying value of the debenture to zero at the time of issuance.

(7) Equity Financing and Deferred Offering Costs

In August 2001, the Company and Townsbury, a private investment fund, signed a Common Stock Purchase Agreement for the future issuance and purchase of the Company’s common stock. The stock purchase agreement established what is sometimes termed an equity line of credit or an equity draw down facility. During the first quarter of 2002, the Company completed five draw downs under the facility, issuing 5.6 million shares of its Common Stock at an average price of $0.167 per share and receiving cash proceeds totaling $939,000 after deducting fees and expenses in settling these draw downs. Since the effectiveness of the related registration statement through March 31, 2002, the Company has completed seven drawdowns under the facility, issuing 7.8 million shares of its common stock and receiving $1.3 million in net proceeds after deducting fees and expenses. Additionally, during

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2002 and 2001

(unaudited)

the first quarter of 2002, the Company recognized as a cost of the financing $0.9 million of the deferred offering cost attributable to a warrant to purchase 4,2 million shares of its Common Stock issued to Townsbury in conjunction with the draw down facility. See Note 9, Subsequent Events, for a description of recent developments regarding the exercise of the warrant.

(8) Gain on Extinguishment of Debt

On February 12, 2002, the Company completed a restructure of approximately $1.7 million of its past due accounts payable and certain obligations with 27 of its trade creditors. Under the restructuring, the Company issued approximately 1.4 million restricted shares of its common stock at various negotiated prices per share to trade creditors in satisfaction of specified debt. The issuance of the shares was pursuant to Regulation D of the Securities Act. The Company agreed to use its best efforts to register the shares within 45 business days of the closing date. As of the current date, the Company has not filed the registration statement, however, the agreement does not provide for any specific penalties on the Company for its failure to file a registration statement within the prescribed period. The creditors accepted the shares plus deferred cash payments of from 0% to 25% of the outstanding balance in satisfaction of $1,699,000 of indebtedness plus certain patent rights for 2002. On the date the shares were issued, the aggregate value of the Company’s common stock issued to trade creditors was $248,000 and the aggregate deferred cash payment yet to be made to the trade creditors totaled $132,000. The Company recognized an extraordinary gain of $1,319,000 during the first quarter of 2002 as a result of restructuring this indebtedness.

(9) Subsequent Events

On April 17, 2002, the Company announced that it would begin winding down its operations as it did not have sufficient working capital or the necessary funds to continue with its business plan or operations. The Company also announced that it might file for bankruptcy protection. At that time, the Company furloughed most of its employees and notified its customers of a likely cessation of operations. On May 9, 2002, the Company entered into a letter agreement with the Cataldo Investment Group (CIG) pursuant to which CIG agreed to commit an aggregate of approximately of $1.5 million to the Company within the following 90 days. It was further agreed that CIG would raise an aggregate of at least $5 million over the next 12 months to fund Calypte’s operations. As a result of the CIG investment commitment, the Company announced on May 13, 2002 that it would not complete the wind down of its business as previously announced. Furthermore, the Company discontinued any plans to file for bankruptcy protection at the current time. The Company recalled many of its furloughed employees and has restarted its business. The Company can give no assurance that its revenues and customer base will not be negatively impacted over the long term by the announcement and commencement of the wind down of its business.

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2002 and 2001

(unaudited)

CIG via certain existing security holders of the Company who were concerned about the Company winding down its business affairs and their investment (holdings) in the Company. Thereafter, Mr. Cataldo arranged for new financings, which were categorized under the acronym CIG. The individual investors that comprise the de facto entity referred as to CIG are not affiliated and Mr. Cataldo has disclaimed any affiliation or beneficial ownership with the individual investors that comprise CIG. To the best of the Company’s knowledge, the individual investors of CIG are not affiliated with each other. Mr. Cataldo was a designee of the investors chosen in light of the tenuous financial condition of the Company at the time of the new financing. He continues to actively pursue raising the necessary capital to fund the Company’s on-going operations. There are no defined terms with respect to investments that can be attributed to CIG and as such all financing arrangements must be negotiated on an individual basis. To date, to the best of the Company’s knowledge, all investors that have been aggregated under the acronym CIG are offshore residents. Additional new investors not a part of the original CIG investment in the Company may be referred to going forward under the acronym CIG.

There can be no assurance that the terms of such capital will be made available to the Company on a timely basis and there can be no assurance that the additional capital that the Company requires will be available on acceptable terms, if at all. Any failure to secure additional financing on a timely basis will place the Company in significant financial jeopardy.

In conjunction with the acceptance of the CIG financing proposal, the Company’s Board of Directors appointed Anthony J. Cataldo as Executive Chairman and further agreed to issue to Mr. Cataldo an aggregate of 7,966,666 stock options pursuant to an employment agreement negotiated between Mr. Cataldo and the independent members of the Board of Directors. Mr. Cataldo was appointed to the Board replacing David E. Collins, who resigned as Chairman of the Board and from the Board of Directors. On May 10, 2002, when the market price of our common stock was $0.03 per share, Mr. Cataldo was granted fully-vested options to purchase 1,966,666 shares of the Company’s common stock at $0.015 per share and options to purchase 6,000,000 shares of the Company’s common stock at $0.03 per share, with the option to purchase 3,000,000 shares vested immediately and the option to purchase the remainder vested on the one-year anniversary of the option grant. The options have a five-year term. As options granted to an employee, Mr. Cataldo’s options were accounted for under the provisions of APB 25 and FIN 44. The Company recognized compensation expense of $29,500 based on the intrinsic value of the below-market grant of 1,966,666 shares and no expense based on the at-market grant of 6,000,000 shares.

As of May 17, 2002, Calypte has received approximately $0.5 million in financing, primarily pursuant to the CIG commitments, and including $100,000 from Bristol as discussed below. As of May 17 and since the restart of operations, we have received no proceeds from draw downs under our equity line with Townsbury, but we did receive $15,000 through the exercise of Townsbury warrants as discussed below. The components of the financing through May 17, 2002 include the following:

On May 14, 2002, Calypte issued a $150,000 10% convertible promissory note pursuant to Regulation S to BNC Bach International Ltd., an investor who is a related party to Townsbury Ltd., the investor that provides the Company’s existing equity line of credit. The closing price for Calypte Common Stock on May 14, 2002 was $0.14. This note is convertible into shares of the Company’s common stock at $0.05 per share and is due on the earlier of July 14, 2002 or the settlement date of Calypte’s next drawdown under the equity line. In conjunction with the issuance of this note, Calypte repriced from $0.27 to $0.015 the 4.2 million-share warrant issued

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CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2002 and 2001

(unaudited)

pursuant to the equity line. Townsbury has exercised a portion of the warrant for the 1 million shares and Calypte received $15,000 in proceeds.

In light of the Company’s precarious financial condition and its being in danger of ceasing operations, the exercise price was modified to serve as an inducement for the investor to exercise the warrant. The Company viewed the modification of the exercise price as fair and reasonable under the circumstances. Townsbury was and is viewed as an unaffiliated party of the Company. The fair value of the warrant had originally been treated as a deferred offering cost associated with the equity line. The fair value of the repriced warrant was less than that of the original warrant and therefore no accounting adjustment attributable to the repricing was required. Upon the exercise of the warrant, the Company reclassified the proportionate share of the unamortized balance of the deferred offering cost to additional paid-in capital.

On May 10, 2002, Calypte issued a second $100,000 12% convertible debenture to the private investment fund Bristol Investment Fund Ltd. under an exemption provided by Regulation S. This debenture has the same terms as those of the initial debenture and reduces the remaining commitment under the agreement to $325,000. The closing price for Calypte stock on May 10, 2002 was $0.03.

Calypte has issued warrants and options to purchase 19,000,000 shares of its Common Stock under agreements with consultants to perform legal, financial, business advisory and other services associated with the restart of its operations. The warrants were issued at $0.015 per share on May 9, 2002 when the market price of our common stock was $0.03 per share. The option was granted at $0.03 per share on May 10, 2002, when the market price of our common stock was $0.03 per share. All of the warrant and option grants were non-forfeitable and fully-vested at the date of issuance and will be registered for resale by the consultants under Form S-8. The aggregate of 18,500,000 warrants were valued on the date of issue at $0.0155 per share using the Black-Scholes option-pricing model with the following assumptions: expected dividend yield of 0.0%; risk free interest rate of 5.2%, the contractual life of 4 months, and volatility of 80%. 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 will recognize approximately $287,000 in expense attributable to these warrants in the second quarter of 2002. The Company valued 500,000 options on the date of issue at $0.0253 per share using the Black-Scholes option-pricing model with the following assumptions: expected dividend yield of 0.0%; risk free interest rate of 5.16%, the contractual life of 10 years, and volatility of 80%. 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 will recognize approximately $13,000 in expense attributable to this option during the second quarter of 2002.

The consultants have exercised warrants and options aggregating 13,333,333 shares as of May 17, 2002 and Calypte has received proceeds of $200,000.

At this time, the Company is in the registration process for the Bristol debentures and has not begun the process for any CIG financings.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that relate to future plans, events or performance are forward-looking statements which involve risks and uncertainties. The forward-looking information set forth in this Quarterly Report on Form 10-Q/A is as of May 17, 2002, and Calypte undertakes no duty to update this information. Should events occur subsequent to May 17, 2002 that make it necessary to update the forward-looking information contained in this Form 10-Q/A, the update forward-looking information will be file with the SEC in a subsequent Quarterly Report on Form 10-Q/A 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. More information about potential factors that could affect Calypte’s business and financial results is included in the section entitled “Risk Factors” beginning on page 19 of this Form 10-Q/A.

Overview

Calypte’s financial condition deteriorated significantly during the first quarter of 2002, primarily due to the lack of cash necessary to permit it to continue its operations at levels possible in previous quarters and necessary to execute its business plan. The situation reached a critical point in mid-April 2002, at which time management began the process of winding down Calypte’s operations with complete cessation of operations a likely possibility. In early May 2002, before the wind-down process was completed, Calypte received commitments for what it deems to be sufficient additional financing to resume its operations and its Board of Directors appointed a new chairman. There can be no assurance that subsequent additional financings will be made available to the Company on a timely basis or that the additional capital that the Company requires will be available on acceptable terms, or at all. The terms of a subsequent financing may involve a change of control and/or require stockholder approval, or require the Company to obtain waivers of certain covenants that are contained in existing agreements. At this time, Calypte is reassessing its business plans and objectives as it resumes it operations. Because of the uncertainties under which Calypte has been operating over the past several months, and the resulting impact on production, there will be some ramping-up costs as we resume normal operations. These temporary costs may affect results in the second and third quarters as we resume full operations. There can, however, be no assurance that Calypte’s products will be successfully commercialized or that we will achieve significant product revenues. In addition, there can be no assurance that Calypte will achieve or sustain profitability in the future.

Critical Accounting Policies and Estimates

Calypte’s discussion and analysis of its financial condition and results of operations are based upon Calypte’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Calypte 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, Calypte evaluates its estimates and judgments, including those related to bad debts, inventories, intangible assets, income taxes, restructuring costs, and contingencies and litigation. Calypte bases its estimates on historical experience and on various other factors that are believed 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.

Calypte believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Calypte recognizes revenue from product sales upon shipment to customers and when all requirements related to the shipments have occurred. Should changes in terms cause Calypte to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected. Calypte maintains an allowance for doubtful accounts on a specific account identification basis for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Calypte’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Calypte adjusts the value of its 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. Further, as the company has continued to incur negative gross profits on an annual basis, with high fixed manufacturing costs, Calypte also reviews its inventories for lower of cost or market valuation. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Calypte records a full valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While Calypte has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event Calypte were to determine that it would be able to realize its 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.

Results of Operations

The following represents selected financial data:

	(in thousands)
	Three Months Ended March 31,
	2002			2001
Total revenue	$	1,159		$	1,402

Product costs		1,630			1,989

Gross Margin		(471	)		(587	)
Operating expenses:

Research and development		241			497
Selling, general and administrative		1,215			1,956

Total operating expenses		1,456			2,453

Loss from operations		(1,927	)		(3,040	)
Interest income		1			6
Interest expense		(47	)		(513	)
Other income (expense)		8			23

Loss before income taxes and extraordinary item	$	(1,965	)	$	(3,524	)

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Customer Trends

HIV-1 Urine Test Sales Sales of our urine HIV-1 screening test accounted for 29% and 46% of our total sales for the year ended December 31, 2001 and the three months ended March 31, 2002, respectively. Sales of our urine Western Blot supplemental test accounted for approximately 2% of calendar year 2001 revenue and approximately 3% of first quarter 2002 revenue.

Domestic Sales Sales of our HIV-1 screening test to domestic life insurance reference labs accounted for 85% of screening test revenue for calendar year 2001 and for 87% of screening test revenue in the first quarter of 2002. These reference lab sales are distributed between five labs in 2001 and three in the first quarter of 2002. LabOne acquired Osborn Laboratories during 2001 and MetLife Laboratory did not purchase from us during the first quarter of 2002 after making large purchases late in 2001, resulting in reduction in the number of reference lab customers. Met Life resumed purchasing in the second quarter of 2002. The individual lab sales as a percentage of total reference lab sales range from 6% to 50% in 2001 and from from 11% to 54% in the first quarter of 2002, with LabOne being the largest of the four in both periods. We market our HIV-1 urine screening test to both the reference labs and to over 100 life insurance companies who have committed to urine testing for HIV screening of at least some of their policy applicants and who employ the labs to conduct their applicant testing. Individual life insurance companies can and do move their business from one lab to another based on a number of considerations, including the availability of urine testing. As the only supplier of an FDA-approved urine based testing algorithm for HIV-1, reference labs must use our testing products to satisfy the demand of insurance companies desiring urine testing. Although Calypte does not expect to lose LabOne or any other reference lab as a customer, should such a loss occur, its impact would be only short-term, while the insurance companies using urine-based testing in their policy underwriting determinations realigned themselves with another lab offering our urine-based testing algorithm. Direct or distributor sales of our screening test to domestic clinics, public health agencies or community-based organizations were not material in 2001 or the first quarter of 2002. Sales of our urine Western Blot test are generally made to the same reference lab customers who purchase the urine based screening test.

International Sales International sales of our urine-based screening test are not currently a material component of our revenue, but we see significant potential for international distribution of our urine-based testing algorithm. Our primary focus is currently on developing distribution relationships in China and Africa and qualifying our products through the World Health Organization (“WHO”). We plan to qualify all of our urine-based testing products for WHO, which serves as both a quasi-regulatory body and a potential funding source for many countries that might not otherwise possess the regulatory infrastructure or financial resources to avail themselves of our products.

Serum Western Blot Sales Sales of our serum based Cambridge Biotech HIV-1 Western Blot supplemental test kit accounted for 42% of our revenues for the year ended December 31, 2001 and 49% for the first quarter of 2002. Sales of this

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product to bioMerieux Inc. accounted for approximately 25% of our total revenues for the year ended December 31, 2001 and approximately 39% for the first quarter of 2002. Subsequent to the restart of our operations in May 2002, we have not sold to bioMerieux. We have, however, signed a new distributor for this product. We believe that the loss of serum Western Blot sales to bioMerieux will only impact revenues on a short-term basis. Since there is limited competition in the supplemental testing market, we anticipate that we will be able to rebuild market share and revenues to previous levels.

Viral Lysate Sales Sales of viral lysate accounted for approximately 20% of our revenue for the year ended December 31, 2001. We made no lysate sales during the first quarter of 2002, although we completed one sale of approximately $220,000 early in the second quarter. The HIV viral lysate which we sell is a component of the production of our urine based screening tests. There is a limited and sporadic demand for our HIV viral lysate. The largest customer for our viral lysate in 2001 and its second quarter customer was the Murex division of Abbott Laboratories, Inc. We believe that the large percentage of 2001 revenue attributed to the sale of our HIV viral lysate may have resulted from Murex’s decision to stockpile larger than normal quantities of viral lysate in light of our tenuous financial condition in an effort to avoid a potential interruption of supply. Their second quarter 2002 purchase may have been motivated by the same considerations. Subsequent to the restart of our operations in May 2002, we have not sold any viral lysate. We expect HIV viral lysate sales to remain low for the balance of 2002. We are seeking new customers for this product but have no expectation of near-term demand for this product. However, as we view our HIV viral lysate as a component material, its sale is not considered to be a major component of our anticipated future revenue but rather a supplemental revenue source.

Three Months Ended March 31, 2002 and 2001

Revenues for the first quarter of 2002 decreased by 17% or $243,000 from $1,402,000 for the first quarter of 2001 to $1,159,000 for the first quarter of 2002. The decrease is primarily attributable to temporary production difficulties at Calypte’s Rockville, Maryland supplemental test manufacturing facility. The processes used in the manufacture of the Company’s Western Blot products at its Maryland facility are largely manual and labor-intensive and, consequently, are subject to sporadic inefficiencies that may result in reduced yields of acceptable product or the failure of product to meet internal quality standards. The processes employed are similar to those used by other manufacturers of similar products, who also encounter periodic disruptions in their production cycles. The FDA requires lot release testing for all HIV-related products and the Company routinely submits samples from all its production lots from both of its manufacturing facilities for FDA inspection. The production difficulties encountered during the first quarter of 2002 were completely unrelated to any FDA or other regulatory review or action. The Compny incurred no material incremental expenses related to the production difficulties and it has no current plans to significantly modify its production processes. Although the production difficulties were resolved prior to the end of the quarter, and the FDA was working closely with Calypte to expedite the lot release process, approximately $300,000 of product slated for sale in the first quarter was not shipped until after quarter-end. In spite of the overall decrease in total sales revenues, sales of Calypte’s urine-based HIV screening test were strong in the first quarter of 2002, increasing by $133,000 or 33% compared with sales in the first quarter of 2001. Sales of Calypte’s urine-based HIV screening test to domestic life insurance reference laboratories more than doubled compared with the comparable period in 2001, demonstrating continued acceptance of urine testing by life insurance underwriters. Calypte reported a modest sale to its Chinese distributor in the first quarter of 2002, but total international sales of this product declined compared with first quarter 2001, when the Company reported a large sale to its distributor in the sub-Saharan Africa territory. Sales of Calypte’s urine supplemental test increased $10,000 or 37%, correlating well with the increase in sales of screening tests. In spite of the serum HIV supplemental test production difficulties,

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revenues from the sale of those tests increased $16,000 or 3% compared with first quarter of 2001, primarily as a result of the continuing impact of the price increase enacted during the third quarter of 2001. Serum supplemental test volume decreased 30% because of the production difficulties. Calypte discontinued production of its research-use-only HTLV diagnostic test during the fourth quarter of 2001; sales of that product had accounted for approximately$117,000 or 8% of first quarter 2001 revenues. Additionally, approximately $305,000 or 22% of Calypte’s first quarter 2001 revenues were derived from the sale of HIV viral lysate, a component Calypte uses in the production of its supplemental test products and which its sells sporadically to another manufacturer who uses that component in its serum-based HIV diagnostic test. Calypte made no sales of viral lysate to that manufacturer during the first quarter of 2002, although it completed a sale early in the second quarter of 2002.

Gross margin on sales was roughly comparable between the periods at –41% for the first quarter of 2002 and –42% for the first quarter of 2001. Materials and product scrapped as a result of the production difficulties at the Rockville plant offset the impact of efficiencies that had been realized previously at that facility as well as the impact of the closure of the Berkeley, California facility during 2001. Calypte maintained its production workforce at the Rockville plant during the period of the production interruption, using those resources to investigate and resolve the issues. The decrease in volume of products manufactured at both the California and Maryland facilities has exacerbated the impact of high fixed infrastructure costs and underutilized facilities in both locations. The Company’s cash flow situation throughout 2002 has continued to necessitate minimizing all controllable expenses. During the first quarter of 2002, Calypte completed the consolidation of its manufacturing operations to a single floor at its Rockville plant, a move which will generate an estimated $200,000 in annualized savings in occupancy costs, while still providing adequate capacity for current and expected increased production volume.

Research and development expense decreased $256,000 or 52% from $497,000 in the first quarter of 2001 to $241,000 in the first quarter of 2002. Calypte’s expenditures for pure research and clinical trials decreased in 2002 in deference to its cash flow situation. Calypte continues to focus its R&D efforts primarily on the development of a urine-based rapid test for the detection of HIV.

Selling, general and administrative expenses decreased by $741,000 or 38%, from $1,956,000 in the first quarter of 2001 to $1,215,000 in the first quarter of 2002. Sales and marketing expenses decreased by 42% as consulting and professional services were severely curtailed and compensation and travel expenses decreased as a result of intentionally unfilled position vacancies. First quarter general and administrative expenses decreased by 36% compared to expenses in the first quarter of 2001. Administrative professional services have been significantly reduced or transitioned from outside service providers to in-house personnel in comparison to first quarter 2001 levels to reduce the Company’s cash burn rate.

In spite of the reduction in sales, Calypte’s cost reduction initiatives reduced the loss from operations by $1.1 million or 37% from a loss of $3.0 million for the first quarter of 2001 to a loss of $1.9 million for the first quarter of 2002.

Interest expense for both the first quarter of 2002 and 2001 is primarily non-cash and relates to the treatment of warrants and beneficial conversion features associated with convertible debenture financing arrangements.

In the first quarter of 2002, Calypte recognized an extraordinary gain of $1,319,000 as a result of restructuring certain of its trade indebtedness. As a result of this restructure, Calypte issued 1,341,493 shares of its common stock valued at $248,000 to 27 of its trade creditors. These creditors have agreed to accept the shares plus deferred cash payments totaling $132,000 in satisfaction of $1,699,000 of indebtedness plus certain patent rights for 2002.

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Liquidity and Capital Resources

Financing Activities

Calypte has generally financed its operations from its inception through the private placement of preferred stock and common stock, its Initial Public Offering (IPO) of common stock and, to a lesser extent, from payments related to research and development agreements, a bank loan facility, and borrowings from short term notes payable. During the first half of 2001, Calypte began drawing funds under an equity line of credit or equity draw down facility that was completed at the end of the second quarter. Calypte also issued short-term convertible debentures in the first quarter of 2001 that were repaid or converted during the second quarter of 2001. In the third quarter of 2001, the Calypte received proceeds upon the exercise of warrants that it had issued in conjunction with the equity line and debentures. In the fourth quarter of 2001 and the first quarter of 2002, Calypte drew funds under a second equity line facility and in the fourth quarter of 2001 completed a small private placement. In the first quarter of 2002, Calypte issued a two-year debenture that remains outstanding.

In January 1999, the Company completed a private placement of 3,102,500 shares of common stock under Regulation D to institutional investors at $1.00 per share. Calypte received net proceeds of approximately $3.1 million after deducting placement agent commissions and additional expenses associated with the private placement.

Also in January 1999, the Company entered into a loan agreement with a bank to borrow up to $2.0 million at an interest rate of prime plus 1 1/4%. The agreement required the company to maintain certain financial covenants and comply with certain reporting and other requirements. In addition, Calypte’s assets secured its borrowings under the agreement. In January 2000, the loan was modified to extend the repayment term through August 2000. In May 2000, the loan was again modified to increase the then outstanding principal balance by $250,000. The $471,000 outstanding balance on this loan as of December 31, 2000 plus accrued interest was repaid in full in January 2001.

In April 1999, Calypte completed a private placement of 3,398,000 shares of its Common Stock at $2.25 per share. The company received net proceeds of approximately $7.0 million after deducting placement agent commissions and additional expenses associated with the private placement.

In April 2000, Calypte completed a private placement of 4,096,000 shares of its Common Stock at $2.05 per share. The company received proceeds of approximately $8.3 million, after deducting expenses associated with the transaction. In connection with a bridge loan of $1 million from one of the investors, Calypte also issued warrants for 100,000 shares of Common Stock with an exercise price of $3.62 per share. The bridge loan was converted to equity upon closing of the private placement.

In January 2001, Calypte signed an agreement to place up to $1.1 million in convertible short-term debentures. Under this arrangement, Calypte issued two convertible debentures to the debentureholder in the principal amount of $550,000 each to the institutional investor pursuant to Regulation S. Each debenture had an interest rate of 6% and was issued at an original issue discount of 9.1%. The Company issued the first debenture on January 26, 2001 and the second on March 13, 2001. Each debenture matured 90 days from the date of issue, or on April 26, 2001 and June 11, 2001, respectively. Under the terms of the debentures, the debenture holder could elect at any time prior to maturity to convert the balance outstanding on the debentures into shares of Calypte’s common stock at a fixed price that represented a 5% discount to the average trading price of the shares for the 10 trading days preceding the issuance of each debenture. If

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the Company chose not to redeem the debentures upon maturity, as in the case of the second debenture, the conversion discount to the debentureholder increased to 15% of the average low bid price for the company’s common stock for any three of the 22 trading days prior to the date of conversion. Concurrent with the issuance of the first debenture, the Company also issued a warrant to the debenture holder for 200,000 shares of common stock at an exercise price of $1.50. The Company received aggregate net proceeds from the issuance of the two debentures of $925,000 during the first quarter of 2001. The Company redeemed the first debenture, plus accrued interest, prior to its contractual maturity using the proceeds from the sales of its common stock. The Company also redeemed a portion of the second debenture prior to its contractual maturity. On June 12, 2001, the debenture holder converted the remaining $168,000 balance on the second debenture plus accrued interest into 1,008,525 shares of the Company’s common stock, in accordance with the conversion provisions of the debenture, in accordance with the conversion provisions of the debenture. On August 2001, the Company modified the warrant that it had issued to the debenture holder pursuant to the terms of the warrant, reducing its exercise price to $0.15 per share, and the debenture holder exercised it for the entire 200,000 shares. Calypte received $28,500 in net proceeds from the exercise of the warrants.

Also in January 2001, Calypte amended a common stock purchase agreement for the issuance and purchase of its common stock. The initial closing of the transaction took place on November 2, 2000. The stock purchase agreement established what is sometimes termed an equity line of credit or an equity draw down facility. The facility generally operated as follows. The investor committed up to $25 million or up to 20% of Calypte’s outstanding shares to purchase Calypte’s common stock over a twelve-month period. Once during each draw down pricing period, Calypte could request a draw, subject to a formula based on its average stock price and average trading volume setting the maximum amount of the request for any given draw. The amount of money that the investor provided to Calypte and the number of shares Calypte issued to the investor in return for that money was settled during a 22 day trading period following the draw down request based on the formula in the stock purchase agreement. The investor received a 5% discount to the market price for the 22 day period and Calypte received the settled amount of the draw down. By June 30, 2001, Calypte had issued 5,085,018 shares of its common stock, the total number registered for the equity line with the Securities and Exchange Commission, at an average price of $0.42 per share and had received net proceeds of approximately $2,014,000 after deducting expenses of the transactions. This equity line transaction has been terminated. The terms of the convertible debentures discussed earlier required that 50% of the net proceeds of any equity sales, including sales under the equity draw down facility, be used to repay the debentures and related accrued interest. Accordingly, approximately $938,000 of the net proceeds from sales under the equity draw down facility was used to pay down the debentures. In conjunction with the agreement, Calypte issued a 3-year warrant to the investor to purchase up to 1,000,000 shares of its stock at an exercise price of $1.55 per share. During August, Calypte modified the exercise price for 300,000 shares each of the warrant to $0.20 per share, when the market price of Calypte’s common stock was $0.30 per share and the investor exercised it for an aggregate of 600,000 shares. Calypte received $114,000 in net proceeds from the exercise of these warrants. On August 21, 2001, Calypte modified the exercise price for the remaining 400,000 shares of the warrant to $0.15 per share, when the market price of Calypte’s common stock was $0.24 per share. The investor exercised the remaining balance of the warrant and Calypte received net proceeds of $57,000 after deducting expenses of the transaction. Calypte could not execute a draw down under the equity line prior to the effectiveness of the registration statement for the resale of the shares and it registered the shares underlying the warrant concurrently with the registration for the equity line draw down shares.

In April 2001, the Company announced that it had concluded negotiations to sell its 29% minority interest in the stock of Pepgen Corporation, a privately held therapeutic company, for $500,000. The Company received the proceeds from the sale in two installments in April and May 2001.

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In August 2001, Calypte executed a promissory note in the amount of $400,000 to the parent company of its then-largest stockholder. The Note bears interest at 8.5% per annum and principal plus accrued interest was due no later than September 14, 2001. The Note was renegotiated in December 2001 to include accrued interest through that date and now bears a face amount of $411,000. In February 2002, the Company renegotiated the payment terms to require monthly principal payments of $17,500 in February and March 2002, increasing to $35,000 thereafter unless and until the Company secured at least $2 million in additional financing, excluding the $850,000 12% convertible debentures and warrants transaction it entered into in February 2002, at which time a $200,000 principal payment would be required. The Company made the payment required on February 28, 2002, but has made no payments subsequently. In March 2002, the Company further renegotiated the repayment terms of this note, suspending any required principal or interest payments until the Company’s registration statement for the 12% convertible debentures becomes effective, at which time the Company is required to resume a $200,000 payment and resume making monthly payments of $35,000 until the remaining principal and accrued interest is repaid in full. The Company renegotiated the terms of the note due to a lack of available funds and to avoid a default.

In August 2001, Calypte and a private investment fund signed a common stock purchase agreement for the future issuance and purchase of up to $10 million of Calypte’s common stock over a twenty-four month period. The initial closing of the transaction occurred in October 2001. Under this arrangement, Calypte, at its sole discretion, may draw down on this facility, sometimes termed an equity line, from time to time, and the investment fund is obligated to purchase shares of Calypte’s common stock. This facility operates similarly to the previous equity line facility employed earlier in 2001. The purchase price of the common stock purchased pursuant to any draw down under this facility is equal to 88% of the daily volume weighted average price of Calypte’s common stock on the applicable date. Through March 2002, Calypte has issued an aggregate of 7,800,711 shares of its common stock at an average price of $0.1825 per share under this facility and has received net proceeds of $1,345,000 after payment of fees and expenses attributable to the draw downs. In conjunction with the signing of the stock purchase agreement, on October 19, 2001, the Company issued a 7-year warrant to the investment fund to purchase up to 4,192,286 shares of common stock at an exercise price of $0.2743 per share.

On February 11, 2002, Calypte signed a securities purchase agreement with a private investment fund, Bristol Investment Fund Ltd (“Bristol”), pursuant to which the fund agreed to purchase two 12% secured convertible debentures for an aggregate of $850,000, each of which matures two years after its issuance. The first debenture, in the amount of $425,000, was purchased by the investment fund on February 11, 2002 and the Company received net proceeds of $368,000. The Company expects to issue the second debenture, also in the amount of $425,000, upon the effectiveness of a registration statement filed by the Company in March 2002. In conjunction with the initial debenture transaction, Calypte issued mandatorily exercisable warrants to purchase shares of its common stock. The mandatory exercise feature will commence upon effectiveness of the registration statement for the shares underlying the warrants.

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New Financing from Cataldo Investment Group (“CIG”)

On April 17, 2002, the Company announced that it would begin winding down its operations as it did not have sufficient working capital or the necessary funds to continue with its business plan or operations. The Company also announced that it might file for bankruptcy protection. At that time, the Company furloughed most of its employees and notified its customers of a likely cessation of operations. On May 9, 2002, the Company entered into a letter agreement with the Cataldo Investment Group (CIG) pursuant to which CIG agreed to provide approximately $1.5 million to the Company within the following 90 days. It was further agreed that CIG would raise an aggregate of at least $5 million over the next 12 months to fund Calypte’s operations. As a result of the CIG investment commitment, the Company announced on May 13, 2002 that it would not complete the wind down of its business as previously announced. Furthermore, the Company discontinued any plans to file for bankruptcy protection at the current time. The Company recalled many of its furloughed employees and has restarted its business. The Company can give no assurance that its revenues and customer base will not be negatively impacted in the long term by the announcement and commencement of the wind down of its business.

CIG is essentially a de facto entity comprised of a number of unaffiliated investors assembled by Mr. Anthony Cataldo, the Company’s executive chairman, to facilitate investments in the Company. Mr. Cataldo does not have an affiliation or any agreements with any of the individual investors that are categorized as CIG. As a condition precedent to the initial investment, it was requested that Mr. Cataldo be appointed Executive Chairman in connection with the restart of the Company’s operation. Additionally, Mr. Cataldo was granted a temporary limited right on behalf of CIG to appoint new directors constituting a majority of the Board of Directors. During the time period of the right, Mr. Cataldo recommended the appointment of one director, as a result of the resignation of a director during the limited time period. The Company initially came into contact with individual investors that comprise CIG via certain existing security holders of the Company who were concerned about the Company winding down its business affairs and their investment (holdings) in the Company. Thereafter, Mr. Cataldo arranged for new financings, which were categorized under the acronym CIG. The individual investors that comprise the de facto entity referred to as CIG are not affiliated and Mr. Cataldo has disclaimed any affiliation or beneficial ownership with the individual investors that comprise CIG. To the best of the Company’s knowledge, the individual investors of CIG are not affiliated with each other. Mr. Cataldo was a designee of the investors chosen in light of the tenuous financial condition of the Company at the time of the new financing. He continues to actively pursue raising the necessary capital to fund the Company’s on-going operations. There are no defined terms with respect to investments that can be attributed to CIG and as such all financing arrangements must be negotiated on an individual basis. To date, to the best of the Company’s knowledge, all investors that have been aggregated under the acronym CIG are offshore residents. Additional new investors not a part of the original CIG investment in the Company may be referred to going forward under the acronym CIG.

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options to purchase 6,000,000 shares of the Company’s common stock at $0.03 per share, with the option to purchase 3,000,000 shares vested immediately and the option to purchase the remainder vested on the one-year anniversary of the option grant. The options have a five-year term.

May 14, 2002, Calypte issued a $150,000 10% convertible promissory note pursuant to Regulation S to BNC Bach International Ltd., an investor who is a related party to Townsbury Ltd., the investor that provides the Company’s existing equity line of credit. The closing price for Calypte Common Stock on May 14, 2002 was $0.14. This note is convertible into shares of the Company’s common stock at $0.05 per share and is due on the earlier of July 14, 2002 or the settlement date of Calypte’s next drawdown under the equity line. In conjunction with the issuance of this note, Calypte repriced from $0.27 to $0.015 the 4.2 million-share warrant issued pursuant to the equity line. Townsbury has exercised a portion of the warrant for the 1 million shares and Calypte received $15,000 in proceeds.

In May, Calypte issued warrants and options to purchase 19,000,000 shares of its Common Stock under agreements with consultants to perform legal, financial, business advisory and other services associated with the restart of its operations. The warrants were issued at $0.015 per share on May 9, 2002 when the market price of our common stock was $0.03 per share. The option was granted at $0.03 per share on May 10, 2002, when the market price of our common stock was $0.03 per share. All of the warrant and option grants were non-forfeitable and fully-vested at the date of issuance and were

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registered for resale by the consultants under Form S-8. The consultants have exercised warrants and options aggregating 13,333,333 shares as of May 17, 2002 and Calypte has received proceeds of $200,000.

At this time, the Company is in the registration process for the Bristol debentures and has not begun the process for any CIG financings.

Calypte has previously implemented steps to reduce its costs in areas that are not vital to its ability to generate revenues or that would adversely impact its manufacture of quality products. Calypte’s future liquidity and capital requirements will depend on numerous factors in addition to the ability to draw on recent capital commitments or potential future sources in a timely manner, including expanded market acceptance of its current products, improvements in the costs and efficiency of its manufacturing processes, its ability to develop and commercialize new products, regulatory actions by the FDA and other international regulatory bodies, and intellectual property protection. There can be no assurance that the Company will be able to achieve improvements in its manufacturing processes or that it will achieve significant product revenues from its current or potential new products. In addition, there can be no assurance that the Company will achieve or sustain profitability in the future.

The report of KPMG LLP dated February 8, 2002 covering the Company’s December 31, 2001 consolidated financial statements contains an explanatory paragraph that states that the Company’s recurring losses from operations and accumulated deficit raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.

Operating Activities

In the three month periods ended March 31, 2002 and 2001, the Company used cash of $1.2 million and $1.8 million, respectively, in its operations. The cash used in operations was primarily for promoting and marketing the Company’s complete urine-based HIV-1 testing method, for manufacturing, and for research, selling, and general and administrative expenses of the Company.

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New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets.”

SFAS No. 141 addresses the accounting for and reporting of business combinations and requires that all business combinations be accounted for using the purchase method of accounting for acquisitions and eliminates the use of the pooling method. This Statement applies to all business combinations initiated after June 30, 2001. Implementation of this Standard had no effect on our consolidated financial statements.

SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. This Statement changes the accounting for goodwill from an amortization method to an impairment-only method. The amortization of goodwill, including goodwill recorded in past business combinations will cease upon adoption of this Statement, which will begin with the Company’s fiscal year beginning January 1, 2002. However, goodwill and intangible assets acquired after June 30, 2001 will be subject to immediate adoption of the Statement. The adoption of SFAS No. 142 had no effect on our consolidated financial statements.

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires liability recognition for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is required to adopt the provisions of SFAS No. 143 beginning with its fiscal year that starts January 1, 2003. The Company does not expect that adoption of SFAS 143 will have a material effect on its consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, in that it removes goodwill from its impairment scope and allows for different approaches in cash flow estimation. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of. SFAS No. 144 also supersedes the business segment concept in APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” in that it permits presentation of a component of an entity, whether classified as held for sale or disposed of, as a discontinued operation. However, SFAS No.144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations. The Company is required to adopt the provision of SFAS No. 144 beginning with its fiscal year that starts January 1, 2002. The Company does not believe that adoption of SFAS 144 will have a material effect on its consolidated financial statements.

Factors That May Affect Future Results, Events or Performance

Calypte has identified a number of risk factors and uncertainties that it faces. These factors, among others, may cause actual results, events or performance to differ materially from those expressed in any forward-looking statements made in this Form 10-Q or in press releases or other public disclosures. Investors should be aware of the existence of these factors.

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Risks Related to Our Financial Condition

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

We do not believe that our currently available financing will be adequate to sustain operations at current levels through the second quarter of 2002, or to permit us to achieve the revenue and profitability guidance provided previously. We must achieve profitability for our business model to succeed. Prior to accomplishing this goal, we will need to raise additional funds, from equity or debt sources. We believe that we will need to arrange additional financing of approximately $5 million in the next twelve months because amounts available under our October 2001 equity line of credit with Townsbury Investments Limited and upon the conversion of the convertible debentures and warrants issued to Bristol may not be sufficient to meet our cash needs in the future. In addition, business and economic conditions may make it unfeasible or undesirable to draw down under the equity line of credit at every opportunity, and only one draw down may occur at a time. If additional financing is not available when required or is not available on acceptable terms, we may be unable to continue our operations at current levels.

As of March 31, 2002, our cash on-hand was $119,000. During the first quarter of 2002, our cash expenditures exceeded our cash receipts expenditures by $168,000. We are actively engaged in seeking additional financing in a variety of venues and formats and we continue to impose actions designed to minimize our operating losses. We would consider strategic opportunities, including investment in the Company, a merger or other comparable transaction, to sustain our operations. We do not currently have any agreements in place with respect to any such strategic opportunity, and there can be no assurance that additional capital will be available to us on acceptable terms, or at all. If we are unable to obtain additional financing or to arrange a suitable strategic opportunity, our business will be placed in significant financial jeopardy.

For subsequent events related to this risk factor, see “Item 5. Other Information — Subsequent Events”.

Our Independent Auditors have Stated that Our Recurring Losses from Operations and Our Accumulated Deficit Raise Substantial Doubt about Our Ability to Continue as a Going Concern.

The report of KPMG LLP dated February 8, 2002 covering the December 31, 2001 consolidated financial statements contains an explanatory paragraph that states that our recurring losses from operations and accumulated deficit raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. We will need to raise more money to continue to finance our operations. We may not be able to obtain additional financing on acceptable terms, or at all. Any failure to raise additional financing will likely place us in significant financial jeopardy.

Our April 2002 Announcement that We Would be Winding Down Our Business Operations May Have A Detrimental Effect on Our Business.

During the first quarter of fiscal year 2002, our financial condition and availability of operating funds deteriorated significantly to the point that in early April 2002, it was determined that we would need to curtail our business operations and possibly consider filing for bankruptcy protection. We announced that our financial condition had reached a critical point in mid April 2002 at which time we publicly announced

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and began the process of furloughing employees as a part of the winding down of our business operations. We had announced that the complete cessation of our business operations was a likely possibility at that time. Subsequently, in May of 2002, before we finalized the winding down process, we received a commitment for sufficient additional financing to allow us to resume our full operations. The winding down of operations and our subsequent recommencement of our business did not have an adverse effect on the majority of our relationships with suppliers and customers, however, we did encounter certain non-recurring costs associated with the re-start of operations in our second quarter and expect that these costs will continue through the remainder of 2002. Although, to date we have not seen a significant adverse effect from our prior announcement of winding down and our subsequent recommencement of our business, there can be no assurances that it will not have an adverse effect on our future revenues and customer base in the long term. If we are unable to re-establish our manufacturing efficiency, including the ability to procure an orderly flow of manufacturing materials and supplies, we may subsequently have difficulty fulfilling orders and maintaining customers.

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

We have been engaged in negotiations with our creditors to restructure and reschedule our payments. On February 12, 2002, we closed a restructuring of approximately $1.7 million of our trade debt, including approximately $1.0 million of royalty obligations, pursuant to which 27 creditors agreed to discharge such debt and minimum royalty obligations in exchange for a total of 1.4 million shares of our common stock. As of March 31, 2002, our accounts payable totaled $3.9 million, of which $3.2 million was over 60 days old. As of March 31, 2002 we have accrued an aggregate of approximately $1,052,000 in past due royalty obligations to our key patent licensors. If we are unable to obtain additional financing on acceptable terms, our ability to make timely payments to our critical suppliers, service providers and to licensors of intellectual property used in our products will be jeopardized and we may be unable to obtain critical supplies and services and to maintain licenses necessary for us to continue to manufacture, ship and sell our products. For subsequent events related to this risk factor, see “Item 5. Other Information — Subsequent Events”.

The Company and the Price of Our Shares May be Adversely Affected By the Public Sale of a Significant Number of the Shares Eligible for Future Sale.

At March 31, 2002, approximately 40.2 million or 89%, of the outstanding shares of our common stock are freely tradable. Sales of common stock in the public market could materially adversely affect the market price of our common stock. Such sales also may inhibit our ability to obtain future equity or equity-related financing on acceptable terms.

From inception through March 31, 2002, we have issued approximately 45 million shares and raised $83 million. At our Annual Meeting of Stockholders on September 20, 2001, our stockholders approved an increase in the number of authorized shares of the Company’s common stock from 50 million to 200 million shares. The continuing need to raise funds through the sale of equity in the Company will likely result in the issuance of a significant number of shares of common stock in relation to the number of shares currently outstanding. In the past, we have raised money through the sale of shares of our common stock at a discount to the current market price. Such arrangements have included the private sale of shares to accredited investors on the condition that we register such shares for resale by the investors to the public. These arrangements have taken various forms including private investments in public equities or “PIPE” transactions, equity lines of credit, and other transactions summarized in the table included in the “Liquidity and Capital Resources” section of MD&A in this document.

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We will continue to seek financing on an as needed basis on terms that are negotiated in arms length transactions. Moreover, the perceived risk of dilution may cause holders of our common to sell shares, which would contribute to a decrease in our stock price. In this regard, significant downward pressure on the trading price of our stock may also cause investors to engage in short sales, which would further contribute to significant downward pressure on the trading price of our stock.

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

We have incurred losses in each year since our inception. Our net loss for the quarter ended March 31, 2002 was $0.6 million and our accumulated deficit as of March 31, 2002 was $88.8 million. We expect operating losses to continue for the next several quarters as we continue our marketing and sales activities for our FDA-approved products and conduct additional research and development for product and process improvements and new products.

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Risks Related to Our Recent Financings — Our Equity Line of Credit with Townsbury and the

Convertible Debentures and Warrants Agreement with Bristol

If the Price or the Trading Volume of Our Common Stock Does Not Reach Certain Levels, We Will be Unable to Raise All or Substantially All of the Expected Proceeds Under Our Recent Financings, Which May Force Us to Significantly Curtail the Scope of Our Operations and Alter Our Business Plan.

The maximum amount of a draw down under the Townsbury equity line facility is equal to a formula based upon the weighted average price for our common stock and its trading volume during the 60 calendar day period immediately prior to the date that we deliver notice to Townsbury of our intention to exercise a draw down, multiplied by the number of days in the draw down period. We are allowed to exceed the maximum draw down amount only if we agree to set the minimum threshold price of the draw down, which is the stock price below which we will not draw down on the equity line, at 80% of the average of the five daily volume weighted average prices immediately prior to the issuance of the draw down notice. Days on which the price of our common stock is less than the minimum threshold price will be excluded from the calculation of the draw down amount and will therefore reduce the amount of funds that we may draw down.

As a result, if our stock price and trading volume fall below certain levels, then either the maximum draw down amount formula or the mandatory threshold price will probably prevent us from being able to draw down all $10 million pursuant to the Townsbury equity line facility. For example, during the 60 calendar day period ended October 19, 2001, our weighted average stock price was $0.24 per share and our total trading volume was approximately 10.28 million shares. Based on those stock price and trading volume levels during such period, the maximum draw down amount available to us over the two-year term of the equity line facility would be approximately $4.4 million.

Similarly, the amount of funds that we may receive upon exercise of the warrants issued to Bristol in conjunction with the convertible debentures is likewise limited by our trading volume. We issued two types of warrants to Bristol — Class A and Class B warrants. Bristol has sole discretion over the exercise of the Class A warrants. However, Bristol is obligated to exercise the Class B warrants whenever it converts the debentures and it is obligated to convert the debentures each month at a rate that will result in the exercise of a number of warrants equal to at least 7.5% of the trading volume of our shares for the 60 days immediately preceding the conversion. The exercise price of the Class B warrants is in turn set at the lesser of 75% of the average of the three lowest trading prices for our common stock for the twenty trading days immediately preceding the conversion and exercise and $0.215 per share. Accordingly, if the trading volume of our shares does not reach certain levels and our stock price declines significantly, the number of warrant shares that Bristol will exercise upon conversion of the debentures and the price that Bristol pays for such shares will decrease and reduce the amount of funds that we will receive upon exercise of the Class B warrants.

Therefore, if our trading volume and stock price decline, Bristol may not completely convert the debentures and the warrants, and, at current prices, we may not receive the approximately $2.1 million in expected proceeds from the conversions. If we are unable to draw down the full $10 million under the equity line and/or realize the expected proceeds from the debentures and warrants on a timely basis, we may have to curtail the scope of our operations as contemplated by our business plan.

A Delay in the Effectiveness of the Registration Statement Will Delay Our Access to the Additional Financing Committed Under the Agreement.

The SEC is currently reviewing the registration statement and there can be no assurance when or if it will be declared effective. As a result, the timing of approximately $1.7 million of these expected proceeds is

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uncertain. Any undue delay in receipt of these proceeds could place us in significant financial jeopardy.

Our Recent Financings and the Issuance of Shares to Townsbury and Bristol Pursuant to the Recent Financings May Cause Significant Dilution to Our Stockholders and May Have a Negative Impact on the Market Price of Our Common Stock.

The resale by Townsbury and Bristol of the common stock that they purchase from us has increased and will continue to increase the number of our publicly traded shares, which could put downward pressure on the market price of our common stock, which could put downward pressure on the market price of our common stock. Moreover, as all the shares we sell to Townsbury will be available for immediate resale, the mere prospect of our sales to the investors could depress the market price for our common stock. The shares of our common stock issuable to Townsbury under the equity line facility will be sold at 88% of the daily volume weighted average price of our common stock on the date of purchase subject to adjustment if our market capitalization increases significantly. If we were to require Townsbury to purchase our common stock at a time when our stock price is low, our existing stockholders would experience substantial dilution.

Similarly, the shares of our common stock issuable to the Bristol upon conversion of the debenture and upon exercise of the Class A warrant will be issued at a price equal to the lesser of 70% of the average of the 3 lowest trading prices of our common stock during the 20 trading days immediately preceding the conversion or exercise or at $0.115 per share. The shares issuable pursuant to the exercise of the Class B warrants will be issued at an exercise price equal to the lesser of 75% of the average of the 3 lowest trading prices of our common stock during the same period or $0.215 per share. We are registering 16.0 million shares for resale upon debenture conversions.

Consequently, the issuance of shares to Townsbury pursuant to the equity line facility and to Bristol upon conversion and exercise of the debentures and warrants will dilute the equity interest of existing stockholders and could have an adverse effect on the market price of our common stock. In addition, depending on the price per share of our common stock during the life of these financings, we may need to register additional shares for resale to access the full amount of financing available, which could have a further dilutive effect on the value of our common stock.

The perceived risk of dilution may cause our stockholders to sell their shares, which would contribute to a downward movement in the stock price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

We Cannot Determine the Precise Amount by Which the Interests of Our Stockholders Will Be Diluted by Draw Downs and Conversions Under the Recent Financings Because the Number, Size and the Timing of Draw Downs, Debenture and Warrant Conversions, and the Minimum Threshold Price for Each Depends Upon a Number of Factors.

We have substantial discretion and are also subject to mandatory requirements regarding the number, size and timing of the draw downs and debt and warrant conversions that will occur under the Recent Financings. In addition, when we are not subject to mandatory draw downs under the equity line, at the time we make a draw down request, we have the right to limit the amount of dilution that will occur by setting a minimum threshold price below which shares may not be sold in that draw down. However, if we set the minimum threshold price at a level high enough to limit the sale of our shares, the amount of funds we can raise in that draw down will also be reduced. Some of the factors that we will consider in determining the size and amount of each draw down and the minimum threshold price are:

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•

our short-term and long-term operating capital requirements;

•

our actual and projected revenues and expenses;

•

our assessment of general market and economic conditions;

•

our assessment of risks and opportunities in our targeted markets;

•

the availability and cost of alternative sources of financing; and

•

the trading price of our common stock and our expectations with respect to its future trading price.

Our discretion with respect to the number, size and timing of each draw down request is also subject to a number of contractual limitations.

We Cannot Determine the Precise Amount by Which the Interests of Other Stockholders Will be Diluted by Sales of Our Common Stock Under the Recent Financings Because the Number of Shares We Will Issue Depends Upon the Trading Price of the Shares During each Equity Line Draw Down and Debenture Conversion Period.

The number of shares that we will issue is directly related to the trading price and volume of our common stock preceding and during each draw down and debt conversion period. If the price of our common stock decreases, and if we decide to or are required to draw down on the equity line of credit, we will be required to issue more shares of our common stock for any given dollar amount invested by Townsbury. Similarly, the number of shares issuable pursuant to conversions of the debenture and the exercise of the Class B warrants increases as the trading price of our common stock decreases, although such number of shares is subject to a minimum equal to 12.5% of the trading volume for the 60 trading days immediately preceding the date of conversion up to a maximum of 2 million shares per month, which maximum may be waived by the Company. Accordingly, investors may find it difficult to predict the number of shares of our common stock that will be sold on the public market and which may adversely affect the market price of our common stock.

The Sale of Material Amounts of Our Common Stock Could Reduce the Price of Our Common Stock and Encourage Short Sales.

As we issue shares of our common stock to Townsbury and Bristol pursuant to the Recent Financings and the investors then resell the common stock, our common stock price may decrease due to the additional shares in the market. As the price of our common stock decreases, and if we or as we decide to draw down on the equity line of credit, and as we are required to issue shares upon conversions of the debentures and Class B warrants, we will be required to issue more shares of our common stock for any given dollar amount invested by Townsbury and Bristol. This may encourage short sales, which could place further downward pressure on the price of our common stock.

Because the Investors in the Recent Financings are Residents of Foreign Countries, It May be Difficult or Impossible to Obtain or Enforce Judgments Against Them and the Investors are also Subject to United States and Foreign Laws that Could Affect Our Ability to Access the Funds.

Both Townsbury and Bristol are off-shore residents and a substantial portion of their assets are located

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outside of the United States. As a result, it may be difficult or impossible to effect service of process on the investors within the United States. It may also be difficult or impossible to enforce judgments entered against the investors in courts in the United States based on civil liability provisions of the securities laws of the United States. In addition, judgments obtained in the United States, especially those awarding punitive damages, may not be enforceable in foreign countries.

As overseas investment funds, the investors are also subject to United States and foreign laws regulating the international flow of currency over which we have no control and which could affect the availability of the funds. Any delay in our ability to receive funds under the Recent Financings when expected could prevent us from receiving necessary capital and place us in significant financial jeopardy.

We Have Recently Reduced the Exercise Price of Certain Warrants Issued to Investors Which In Turn May Result in Dilution to Existing Shareholders As Well As a Downward Pressure on the Trading Price of Our Common Stock.

In accordance with the terms of previously negotiated warrants, we had the ability to reduce the exercise price of certain outstanding warrants, which may induce the warrant holder to exercise the warrants. We re-priced from $0.27 to $0.015 a 4.2 million share warrant issued pursuant to our equity line to Townsbury. The investor has exercised the warrant for 1.0 million shares of our common stock and we received $15,000 in net proceeds. The reduction in exercise price served as a stimulus for the exercise and issuance of underlying shares of our common stock, which may have a dilutive effect on existing shareholders and place downward pressure on the trading price of our common stock otherwise known as a market overhang. We do not intend to issue securities that allow for reduction in the negotiated exercise price in the future unless the Company has no alternative with respect to raising financing for its continued operations

Under the Terms of Our Recent Financings We Have or May Have to Grant Partial or Complete Liens On Substantially All of Our Assets

In the event of a default under the terms of securities purchase agreements obtained as part our Recent Financings to date and in the future, the security holders can typically foreclose on the security interest in our assets. If this were to happen, we may be required to file a petition under Chapter 11 of the Bankruptcy Code seeking protection, or file Chapter 7 and liquidate.

Risks Related to the Market for Our Common Stock

We Have Been Removed From the NASDAQ SmallCap Market and We Are Uncertain How Trading on the Over the Counter Bulletin Board Will Affect the Liquidity and Share Value of Our Stock.

On July 13, 2001 our stock was removed from trading on the NASDAQ Small Cap Market as a result of the failure to comply with the NASDAQ Stock Market rules that required the minimum bid price for our common stock to exceed $1.00 per share and that we meet at least one of the following criteria:

•

Have net tangible assets equal at least $2.0 million;

•

Have market capitalization is equal to $35.0 million in public float; or

•

recognize net income of at least $500,000 in our most recent fiscal year or in two of our three previous fiscal years.

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Since July 13, 2001, our stock has traded on the Over-the-Counter Bulletin Board. Although the per share price of our common stock has declined since it was delisted from the NASDAQ Small Cap Market, trading volume in our stock has remained fairly constant. We are uncertain, however, about the long-term impact, if any, on trading volume and share value as a result of trading on the Over-the-Counter Bulletin Board.

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

Our common stock has traded as low as $0.09 per share and as high as $0.69 per share in the twelve months ended March 31, 2002. Some of the factors leading to the volatility include:

•

concerns about our ability to finance our continuing operations, including the impact of the April 17, 2002 announcement of our wind down;

•

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

•

fluctuations in our operating results;

•

financing arrangements, including the Recent Financings, and other financings, including but not limited to the investment commitment from the private investment group which may require the issuance of a significant number of shares in relation to the number of shares currently outstanding;

•

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

•

FDA and international regulatory actions;

•

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

•

developments with respect to patents or proprietary rights;

•

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

•

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

•

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

•

fluctuations in market demand for and supply of our products.

An Investor’s Ability to Trade Our Common Stock May Be Limited By Trading Volume.

The trading volume in our common shares has been relatively limited. A consistently active trading market

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for our common stock may not continue on the Over the Counter Bulletin Board. The average daily trading volume in our common stock on the Over the Counter Bulletin Board from the start of trading on July 13, 2001 through March 30, 2002 was approximately 485,000 shares. Daily volume during that period ranged from 13,200 shares to 1,578,200 shares. The average daily trading volume in our common stock on the NASDAQ SmallCap Market was approximately 386,000 shares for the twelve months ended July 12, 2001. Our daily volume during that period ranged from 33,800 to 22,257,600 shares.

Our Issuance of Warrants and Options to Consultants for Services May Have a Negative Effect on the Trading Price of Our Common Stock.

In May, 2002, we issued as consideration to several individual unaffiliated consultants performing legal, financial and advisory services in connection with the recommencement of our business operations a total of 18.5 million warrants exercisable at $0.015 per warrant share and 500,000 options exercisable at $0.03 per option share. At the time the respective options and warrants were granted, the trading price of Calypte’s common stock was $0.03. The Company plans to register the underlying shares. As we continue to look for ways to minimize our use of cash while obtaining required services, we plan to issue additional warrants and options at or below the current market price. Any such offerings will be disclosed in a subsequent registration statement. In addition to the potential dilutive effect of such a large number of shares and the low exercise price of the warrants and options, there is the potential that a large number of the underlying shares may be sold on the open market at any given time, which could place downward pressure on the trading price of our common stock.

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

Shares of our common stock are “penny stocks” as defined in the Exchange Act, which are traded in the Over-The-Counter Market on the OTC Bulletin Board. As a result, investors may find it more difficult to dispose of or obtain accurate quotations as to the price of the shares of the common stock being registered hereby. In addition, the “penny stock” rules adopted by the Commission under the Exchange Act subject the sale of the shares of our common stock to certain regulations which impose sales practice requirements on broker/dealers. For example, brokers/dealers selling such securities must, prior to effecting the transaction, provide their customers with a document that discloses the risks of investing in such securities. Included in this document are the following:

•

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

•

The brokerage firm’s compensation for the trade.

•

The compensation received by the brokerage firm’s sales person for the trade.

In addition, the brokerage firm must send the investor:

•

A monthly account statement that gives an estimate of the value of each “penny stock” in the investor’s account.

•

A written statement of the investor’s financial situation and investment goals.

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

•

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

•

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

•

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

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

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

Risks Related to Our Business

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

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

•

Actions taken by the FDA or foreign regulatory bodies relating to our products;

•

the extent to which our products and our HIV and STD testing service gain market acceptance;

•

the timing and size of distributor purchases;

•

introductions of alternative means for testing for HIV by competitors, and.

•

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

We Have Limited Experience Selling and Marketing Our HIV-1 Urine-Based Screening Test.

Our urine-based products incorporate a unique method of determining the presence of HIV antibodies and we have limited experience marketing and selling them either directly or through our distributors. Calypte’s success depends upon the ability of domestic marketing efforts to penetrate expanded markets and upon

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alliances with third-party international distributors. There can be no assurance that:

•

our direct selling efforts will be effective;

•

we will obtain any expanded degree of market acceptance among physicians, patients or health care payors; or others in the medical or public health community which are essential for expanded market acceptance of the products;

•

our international distributors will successfully market our products; or

•

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

We have had FDA approval to market our urine HIV-1 screening and supplemental tests in the United States and have been marketing these products since July 1998. We have achieved significant market penetration within the domestic life insurance industry. Based upon our internal estimates, we believe that as of the end of 2001, out of approximately 7 million HIV-1 tests given by the domestic life insurance industry in 2001, approximately 0.7 million were administered with our urine based tests. However, we have not achieved significant marketing penetration in domestic public health agencies or international markets. A disruption in our distribution, sales or marketing network could reduce our sales revenues and cause us to either cease operations or expend more resources on market penetration.

Our Distribution and Sales Network for U.S. Hospitals, Public Health and Reference Laboratory Markets Has Thus Far Failed to Yield Significant Sales and Revenues.

Domestic health agencies are a fragmented market place with many small outlets which makes achieving market acceptance difficult. In that we lack sufficient working capital, we have experienced difficulty in penetrating independent public health markets and agencies, as sales to public agencies require direct selling efforts. As a result, we entered into distribution agreements with distributors of medical products to domestic healthcare markets including the distribution agreement announced in September 1999 with Carter Wallace Inc. and the SENTINEL HIV and STD Testing Service announced in May 2000. Due to the fragmented nature of the domestic health care market place, among other factors that may have been encountered by the distributor, these agreements did not yield significant sales and revenues and we terminated the agreement with Carter-Wallace effective March 31, 2001. We have expanded our own direct sales force to penetrate the domestic healthcare markets and in conjunction with other business partners, have re-launched Sentinel. If our efforts to market our products to domestic hospitals, public health and reference laboratories fail to yield significant amounts of revenue, we may have to cease operations.

We Depend Upon the Viability of Three Primary Products — Our HIV-1 Urine-Based Screening Test and Our Urine and Blood Based Supplemental Tests.

Our HIV-1 urine-based screening test and urine and blood-based supplemental tests are our only products. In addition, we have from time to time been able to make significant sales of our HIV viral lysate or antigen stock (a protein or carbohydrate substance capable of stimulating an immune response) that we use in producing our Western Blot tests. Our HIV viral lysate is an inactivated and disrupted HIV virus preparation used in, and is a byproduct of, the manufacture of our Western Blot supplemental test. Accordingly, we may have to cease operations if our screening and supplemental tests fail to achieve market acceptance or generate significant revenues.

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

We plan to develop other urine-based diagnostic products including a rapid HIV screening test and tests for other infectious diseases or health conditions. There are numerous developmental and regulatory issues that may preclude the introduction of these products into commercial sale. If we are unable to demonstrate the feasibility of these products or meet regulatory requirements with respect to their marketing, we may have to abandon them and alter our business plan. Such modifications to our business plan will likely delay achievement of milestones related to revenue increases and achievement of profitability.

Our Products Depend Upon Rights to Technology That We Have Licensed From Third Party Patent Holders and There Can be No Assurance That the Rights We Have Under These Licensing Agreements are Sufficient or That We Can Adequately Protect Those Rights.

We currently have the right to use patent and proprietary rights which are material to the manufacture and sale of our HIV-1 urine-based screening test under licensing agreements with New York University, Cambridge Biotech Corporation, Repligen Corporation, and the Texas A&M University System. We also have the right to use patent and proprietary rights material to the manufacture and sale of our HIV-1 serum-based supplemental test under a licensing agreement with National Institutes of Health. In the event that our financial condition reduces our ability to pay royalty payments due under our license agreements, our rights to use those licenses could be jeopardized. Specifically, in the past fiscal year, revenues subject to New York University, Cambridge Biotech, Repligen and Texas A&M license agreements were $2.0 million and revenues subject to the National Institutes of Health agreement were $4.3 million. The loss of any of the foregoing license could have a materially adverse effect of our ability to continue to produce our products in that the license agreements provide necessary proprietary processes or components for the manufacture of our products. As of March 31, 2002 we had accrued an aggregate of approximately $536,000 in past due royalty obligations to our patent licensors.

In addition, we have received correspondence from the National Institutes of Health alleging that our HIV-1 urine-based test products are also subject to the patent under which we license our serum-based supplemental test and requesting the payment of additional license fees for past shipments plus a royalty on future shipment of our urine-based products. We informed the National Institutes of Health that we do not agree with their analysis of the patent in question. In March 2002, NIH agreed that our Western Blot supplemental urine-based test, but not our EIA urine-based HIV-1 screening test, would be subject to the patent and we amended our license with NIH accordingly.

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 sole qualified source suppliers are various conjugates, fetal bovine serum, and HIV-positive and HIV-negative urine samples. Any delay or interruption in the supply of these sole source components could have a material adverse effect on us by significantly impairing our ability to manufacture products in sufficient quantities, particularly as we increase our manufacturing activities in support of commercial sales. In addition, if our financial condition reduces our ability to pay for critical components on a timely basis, it may cause suppliers to delay or cease selling critical components to us, which could also impair our ability to manufacture. We typically do not have long-term supply agreements with these suppliers, instead using purchase orders to arrange for our purchases of material.

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

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Our lack of working capital has resulted in material production difficulties in the past including problems involving:

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Scaling up production of new products;

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Developing market acceptance for new products;

•

Production yields;

•

Quality control and assurance;

•

Raw material supply; and

•

Shortages of qualified personnel.

These difficulties that we have had and may experience in the future could affect our ability to meet increases in demand should our products gain market acceptance and reduce growth in our sales revenues. Any such difficulty would affect our ability to meet increases in demand should our products gain market acceptance and reduce growth in our sales revenues.

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 Us and Our Distributors.

We anticipate that international distributor sales will generate a significant portion of our revenues for the next several years. We believe that our urine-based test can provide significant benefits in countries that do not have the facilities or personnel to safely and effectively collect and test blood or other bodily fluid samples. However, sales to international customers in the first quarter of 2002 accounted for 4% of our revenue. A majority of the companies we compete with in the sale of HIV screening test actively market their diagnostic products outside of the U.S. In addition, as regulatory requirements for HIV screening tests outside the United States are less demanding than those of the FDA, we compete with our EIA products against a much wider range of competitors that may not be FDA approved. Manufacturers from Japan, Canada, Europe, and Australia offer a number of HIV screening tests in those markets including HIV-1/HIV-2 tests, rapid tests and other non-EIA format tests, which are not approved for sale in the US market. There can be no assurances that our products will compete effectively against these products in foreign markets, or that these competing products will not achieve FDA approval. The following risks may limit or disrupt our international sales:

•

the imposition of government controls (regulatory approval);

•

export license requirements;

•

political instability;

•

trade restrictions;

•

changes in tariffs;

•

difficulties in managing international operations (difficulty in establishing a relationship

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with a foreign distributor with the financial and logistical ability to maintain quality control of product);

•

fluctuations in foreign currency exchanges rates;

•

the financial stability of our distributors;

•

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

•

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

•

Establishing market awareness.

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 the Company’s 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. The marketplace where we sell our products is divided into two segments: (i) screening and (ii) confirmatory testing. Within the United States, our competitors for screening tests are a number of well-established manufacturers of HIV tests using blood samples, plus at least one system for the detection of HIV antibodies using oral fluid samples sold by Orasure Technologies, Inc. With the confirmatory segment on the market, we offer the only FDA approved urine-based test in conjunction with a blood-based test. Bio-RAD Laboratories, Inc. is the only other company that offers a confirmatory blood test. In addition to our urine and blood-based confirmation test, Orasure also offers a saliva based confirmatory test that competes with our test. 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. These developments could render our technologies or products obsolete or noncompetitive or otherwise affect our ability to increase or maintain our products’ market share.

Our Ability to Market Our Product Depends Upon Obtaining and Maintaining FDA and Foreign Regulatory Approvals.

Numerous governmental authorities in the United States and other countries regulate our products. The FDA regulates our products under federal statutes and regulations related to pre-clinical and clinical testing, manufacturing, labeling, distribution, sale and promotion of medical devices in the United States. In addition, our facilities are inspected periodically by the FDA with regard to the sufficiency of our manufacturing records and production procedures and we must continue to satisfy the FDA’s concerns in order to avoid regulatory action against us.

If we fail to comply with FDA regulations, or if the FDA believes that we are not in compliance with such regulations, the FDA can:

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•

detain or seize our products;

•

issue a recall of our products;

•

prohibit marketing and sales of our products; and

•

assess civil and criminal penalties against us, our officers or our employees.

We also plan to sell our products in certain foreign countries where they may be subject to similar local regulatory requirements. The imposition of any of the sanctions described above could have a material adverse effect on us by delaying or reducing the growth in our sales revenue or causing us to expend more resources to penetrate our target markets. The regulatory approval process in the United States and other countries is expensive, lengthy and uncertain. We may not obtain necessary regulatory approvals or clearances in a timely manner, if at all. We may lose previously obtained approvals or clearances or fail to comply with regulatory requirements. The occurrence of any of these events would be likely to have a material adverse effect on Calypte by disrupting our marketing and sales efforts.

Our Research and Development of HIV Urine Tests Involves the Controlled Use of Hazardous Materials.

There can be no assurance that the Company’s safety procedures for handling and disposing of hazardous materials such as azide (a chemical added to some of the liquid Calypte kit components to act as a preservative. If present in high concentrations, there is a possibility of an explosive reaction if not diluted with water) will comply with applicable regulations. In addition, we cannot eliminate the risk of accidental contamination or injury from these materials. We may be held liable for damages from such an accident and that liability could have a material adverse effect on the Company.

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

As a small company, our success depends on the services of key employees in executive and research and development positions. The loss of the services of one or more of such employees could have a material adverse effect on us. For subsequent events related to this risk factor, see “Item 5. Other Information – Subsequent Events”.

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

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

Our Charter Documents May Inhibit a Takeover.

Certain provisions of our Certificate of Incorporation and Bylaws could:

•

discourage potential acquisition proposals (i.e. shareholder rights plan also known as a “poison

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pill”;

•

delay or prevent a change in control of Calypte;

•

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

•

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

•

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

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 common stock of the Company. 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 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, which is approved by the Company because the Rights do not become exercisable in the event of an offer or other acquisition exempted by Calypte’s Board of Directors.

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

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

•

restricting dividends;

•

dilution of voting power;

•

impairment of liquidation rights; and

•

delay or preventing a change in control of the Company.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We have exposure to changes in the price of our common stock, as it relates to the conversion price of the convertible debenture and the exercise price of the related exercisable Class A and mandatorily exercisable Class B warrants issued to a private investment fund in February 2002 as disclosed in Note 5 to the condensed consolidated financial statements and in the “Financing Activites” subheading of Liquidity and Capital Resources in Part I, Item 2.

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The 12% debenture issued to Bristol is convertible at a price (the Conversion Price) equal to the lesser of (i) the average of the lowest three trading prices during the 20 days immediately prior to the conversion date discounted by 30%, and (ii) $0.115. The Class A warrant for up to 1,700,000 shares of common stock is exercisable at a price per share equal to the Conversion Price. The Class B warrant for up to 12,000,000 shares of common stock is exercisable at a price equal to the lesser of (i) the average of the lowest three trading prices during the 20 days immediately prior to the exercise price discounted by 25%; and $0.215 per share.

In addition, until such time that a registration statement covering the shares related to the Class A and Class B warrants described above is declared effective, the fair value of these warrants will be marked to market through earnings.

There have been no other material changes in the Company’s market risk exposure since December 31, 2001.

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PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

During the three years ended March 31, 2002, the Company completed private placements of shares of its Common Stock in January 1999, April 1999, April 2000, and November 2001, issued $1.1 million face value of convertible debentures in January 2001; and $425,000 face value of 12% convertible debentures in February 2002. Earlier, in January 2001 the Company entered in a stock sale and purchase agreement in a form generally referred to as an equity line of credit or equity draw down facility. Upon termination of that facility, the Company entered into a second equity line facility in August 2001. These transactions are discussed in greater detail in “Financing Activities” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of Part I, Item 2.

The shares sold in each of the private placements and pursuant to the equity line of credit facility were exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) or Rule 506 of Regulation D of the Securities Act of 1933 as amended (“Securities Act”). Shares were sold only to accredited investors as defined in Rule 501 of the Securities Act and, with the exception of shares in the most recent private placement in November 2001, were registered for resale by such investors on Forms S-3 filed on March 30, 1999, and March 13, 2000 for the private placements and on Form S-2 filed on January 25, 2001 and subsequently amended on February 9, 2001 and March 5, 2001 for the first equity line of credit. Shares sold pursuant to the second equity line were registered for resale by the investor on a Form S-2 filed on October 26, 2001. Shares issued in the November 2001 private placement were also sold to accredited investors but the transfer of the securities did not include registration rights; pursuant to Rule 144 of the Securities Act the transfer of these securities will be restricted for twelve months from the date of purchase. The debenture holder in the $1.1 million transaction was also an accredited investor as defined by Rule 501 of the Securities Act and the Company registered for resale shares that were converted pursuant to the debenture agreements on Form S-3 filed on April 13, 2001. The proceeds from each private placement, from each of the debentures, and from the equity lines of credit have been used to finance operations.

In February 2002, the Company entered into an agreement to issue up to $850,000 face value of 12% secured convertible debentures. The Company issued one debenture in the face amount of $425,000 concurrent with signing the agreement. The Company also issued warrants to purchase up to 13,700,000 shares of its common stock in conjunction with the convertible debenture agreement. No warrants have been exercised as of March 31, 2002. The Company filed a registration statement on Form S-2 for resale of the shares by the investor pursuant to conversion of the debentures or exercise of the warrants on March 20, 2002. The registration statement is not yet effective. The proceeds from the debenture were used to finance operations.

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

No items were submitted to a vote of security holders during the first quarter of 2002.

Item 5. Other Information — Subsequent Events

On April 17, 2002, the Company announced that it would begin winding down its operations as it did not

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have sufficient working capital or the necessary funds to continue with its business plan or operations. The Company also announced that it might file for bankruptcy protection. At that time, the Company furloughed most of its employees and notified its customers of a likely cessation of operations. On May 9, 2002, the Company entered into a letter agreement with the Cataldo Investment Group (CIG) pursuant to which CIG agreed to commit an aggregate of approximately of $1.5 million to the Company within the following 90 days. It was further agreed that CIG would raise an aggregate of at least $5 million over the next 12 months to fund Calypte’s operations. As a result of the CIG investment commitment, the Company announced on May 13, 2002 that it would not complete the wind down of its business as previously announced. Furthermore, the Company discontinued any plans to file for bankruptcy protection at the current time. The Company recalled many of its furloughed employees and has restarted its business. The Company can give no assurance that its revenues and customer base will not be negatively impacted over the long term by the announcement and commencement of the wind down of its business.

CIG is essentially a de facto entity comprised of a number of unaffiliated investors assembled by Mr. Anthony Cataldo, the Company’s executive chairman, to facilitate investments in the Company. Mr. Cataldo does not have an affiliation or any agreements with any of the individual investors that are categorized as CIG. As a condition precedent to the initial investment, it was requested that Mr. Cataldo be appointed Executive Chairman in connection with the restart of the Company’s operation. Additionally, Mr. Cataldo was granted a temporary limited right on behalf of CIG to appoint new directors constituting a majority of the Board of Directors. During the time period of the right, Mr. Cataldo recommended the appointment of one director, as a result of the resignation of a director during the limited time period. The Company initially came into contact with individual investors that comprise CIG via certain existing security holders of the Company who were concerned about the Company winding down its business affairs and their investment (holdings) in the Company. Thereafter, Mr. Cataldo arranged for new financings, which were categorized under the acronym CIG. The individual investors that comprise the de facto entity referred as to CIG are not affiliated and Mr. Cataldo has disclaimed any affiliation or beneficial ownership with the individual investors that comprise CIG. To the best of the Company’s knowledge, the individual investors of CIG are not affiliated with each other. Mr. Cataldo was a designee of the investors chosen in light of the tenuous financial condition of the Company at the time of the new financing. He continues to actively pursue raising the necessary capital to fund the Company’s on-going operations. There are no defined terms with respect to investments that can be attributed to CIG and as such all financing arrangements must be negotiated on an individual basis. To date, to the best of the Company’s knowledge, all investors that have been aggregated under the acronym CIG are offshore residents. Additional new investors not a part of the original CIG investment in the Company may be referred to going forward under the acronym CIG.

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per share, with the option to purchase 3,000,000 shares vested immediately and the option to purchase the remainder vested on the one-year anniversary of the option grant. The options have a five-year term.

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issuance and will be registered for resale by the consultants under Form S-8.

The consultants have exercised warrants and options aggregating 13,333,333 shares as of May 17, 2002 and Calypte has received proceeds of $200,000.

At this time, the Company is in the registration process for the Bristol debentures and has not begun the process for any CIG financings.

Item 6. Exhibits and Reports on Form 8-K

Exhibits

Exhibit 99.1 Certification Pursuant to the Sarbanes-Oxley Act of 2002 by Anthony J. Cataldo, Executive Chairman

Exhibit 99.2 Certification Pursuant to the Sarbanes-Oxley Act of 2002 by Nancy E. Katz, President and Chief Executive Officer

Exhibit 99.3 Certification Pursuant to the Sarbanes-Oxley Act of 2002 by Richard D. Brounstein, Executive Vice President and Chief Financial Officer

Reports on Form 8-K

Form 8-K regarding Other Material Events, filed February 15, 2002 — Announcement of Completion of a Private Placement of Convertible Debentures and Warrants including related transaction documents filed as exhibits.

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SIGNATURES

Pursuant to the requirements 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)

Date: December 20, 2002	By:	/s/ RICHARD D. BROUNSTEIN
	Richard D. Brounstein Chief Financial Officer (Principal Accounting Officer)

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Calypte Biomedical (CBMC) Inactive 10-Q/A2002 Q1 Quarterly report (amended)