Calypte Biomedical 10K 2011 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011 or

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _________________ Commission file number: 000–20985

CALYPTE BIOMEDICAL CORPORATION

(Name of small business issuer in its charter)

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

15875 SW 72nd Ave, Portland, OR		97224
(Address of principal executive offices)		(Zip Code)

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

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

None

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

Common Stock, $.03 par value per share

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained in this form and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o Accelerated Filer o

Non-accelerated filer o Smaller reporting company x

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

The aggregate market value of the voting and non-voting common equity held by non–affiliates of the registrant as of June 30, 2011 was approximately $11,964,077 based on the $0.022 per share closing price reported for such date on the OTC Bulletin Board.

The number of shares of the registrant’s common stock outstanding as of March 22, 2012 was 700,168,157.

CALYPTE BIOMEDICAL CORPORATION

FORM 10-K

INDEX

		Page No.
PART I.
Item 1.	Business	1
Item 1A.	Risk Factors	9
Item 2.	Properties	19

PART II.
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 8.	Financial Statements and Supplementary Data	26
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	26
Item 9A	Controls and Procedures	26

PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	27
Item 11.	Executive Compensation	29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	29
Item 13.	Certain Relationships and Related Transactions, and Director Independence	30
Item 14.	Principal Accountant Fees and Services	30

PART IV.
Item 15.	Exhibits, Financial Statement Schedules	31

	Signatures	S-1
	Certifications	IV-1

PART I

Item 1. Business.

The Company

Calypte Biomedical Corporation (the “Company”) develops, manufactures, and distributes in vitro diagnostic tests, primarily for the diagnosis of Human Immunodeficiency Virus (“HIV”) infection. Until late 2005, we manufactured and marketed urine-based HIV-1 diagnostic screening tests and urine and blood-based Western Blot supplemental (sometimes called “confirmatory”) tests for use in high-volume laboratories, which we call our “Legacy Business.” In November 2005, we sold our Legacy Business and began to concentrate primarily on our rapid test platform products which we began developing in 2003. Our emphasis has been the development and commercialization of our AwareTM HIV-1/2 rapid tests. We have completed field trials and product evaluations of our AwareTM HIV-1/2 OMT (oral fluid) rapid test covering an aggregate of over 9,000 samples in China, India, South Africa and elsewhere and believe that the results of these studies and evaluations have validated the test. In our studies, AwareTM HIV-1/2 OMT averaged 99.7% accuracy. We have obtained regulatory approvals in Russia, India and China as well as a number of key countries in Africa, Southeast Asia and the Middle East. Sales of our rapid test products have so far been primarily through the efforts of our distributors in South Africa and the United Arab Emirates (“U.A.E”).

Since late 2004, we have been manufacturing and selling an HIV-1 BED Incidence EIA test, our AwareTM BED Incidence Test, through an arrangement with the U.S. Centers for Disease Control and Prevention (the “CDC”).

In the first quarter of 2008, we introduced Aware MessengerTM, our oral fluid sample collection device. Although we do not currently have approval to sell this device for diagnostic purposes, we can sell it for “research use only” in situations where assay developers and test laboratories can qualify the product for use with their own assays.

Until July 2010, we were the 51% owner of each of two joint ventures in China, Beijing Calypte Biomedical Technology Ltd. (“Beijing Calypte”) and Beijing Marr Bio-Pharmaceuticals Co., Ltd. (“Beijing Marr”). In July 2010 we entered into a series of agreements providing for (i) the restructuring of our outstanding indebtedness to Marr and SF Capital (the “Debt Agreement”) and (ii) the transfer of our interests in the two Chinese joint ventures, Beijing Marr and Beijing Calypte, to Kangplus (the “Equity Agreement”). Under the Debt Agreement, the parties agreed to convert $6,393,353 in outstanding indebtedness to 152,341,741 shares of our common stock (the “Shares”), and our remaining indebtedness to Marr, totaling $3,000,000 was cancelled. In consideration for such debt restructuring, we transferred our equity interests in Beijing Marr to Kangplus pursuant to the Equity Transfer Agreement and transferred certain related technology to Beijing Marr. We have also agreed to transfer our equity interests in Beijing Calypte to Marr or a designate of its choosing. The transactions contemplated by the Debt Agreement and the Equity Transfer Agreement were subject to Chinese government registration of the transfer of the equity interests; this registration has now been approved, and the Shares were issued in March 2012. Under the debt agreement with SF Capital, $2,008,259 in outstanding indebtedness was converted to 47,815,698 shares of our common stock.

As announced in March 2011, we successfully completed internal trials of our new AwareTM 2 HIV-1/2 oral fluid rapid test, which showed an accuracy of 100%. Based on these results, we have contacted the Food and Drug Administration (FDA) and started the process to conduct clinical trials and apply for Premarket Approval.

Requirements of Additional Capital and Business Plan

In October 2011, we entered into a memorandum of understanding (“MoU”) with a private investor to secure funding needed to initiate the FDA approval procedures for the new AwareTM 2 product. The MoU contemplates an initial investment of at least $1,000,000 through 2012, contingent upon the Company following an agreed upon budget plan, and potentially up to $4,000,000 from additional investors. Although the MoU expresses the expectation of the parties that the investor will assist us in raising an additional $4 million from other investors, no party is under a contractual obligation to invest any funds beyond the $1 million to be invested pursuant to the MoU, and there can be no assurance that we will be able to raise the additional funds. Based on our revised revenue and expense forecasts, we anticipate that we will be required to raise additional financing beyond the initial $1 million from the MOU in order to fully fund our efforts to obtain FDA approval of our AwareTM 2 product.

We currently have 800,000,000 shares of common stock authorized, of which approximately 770,053,463 shares are issued and outstanding or reserved for issuance under current financing arrangements and our incentive plans. At the current market price of our common stock, we do not have sufficient authorized common stock to raise the capital necessary to execute our long-term business plan and achieve self-sustaining cash flow. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We believe the demand for fast, easy-to-use HIV tests is strong and growing. By many accounts, governments are requiring more testing for HIV and allocating more funds to such testing, and non-governmental organizations and charities have increased their funding for HIV testing too. Although we believe that we will be able to increase market acceptance of our products and our market position, there are external factors that could adversely affect demand for our products, including global economic conditions that affect funding for HIV testing and national policies regarding HIV testing adopted by foreign governments.

In order to accomplish our business plan and meet our financial obligations, we must:

Reduce accounts payable and other debt and associated fixed costs.

Increase marketing and sales of our current products through our distribution network.

Obtain FDA clearance for our AwareTM 2 product.

In 2012, we remain focused on our strategy of increasing marketing and sales in the countries where our products are registered, seeking additional product registrations in countries where we have a high likelihood of making sales, planning and executing the clinical and pre-clinical trials of AwareTM 2, and keeping our operating costs low.

Our Products

Our product line includes our AwareTM line of low cost rapid tests, our AwareTM HIV-1 BED Incidence test and our Aware MessengerTM specimen collection device. At present, our rapid tests are designed for use in international markets. We plan to introduce rapid tests for the domestic market in the future; this plan includes AwareTM 2.

The AwareTM Rapid Test Product Line

Our HIV-1/2 rapid tests are based on lateral flow immunochromatography technology and are used to detect antibodies to HIV-1 and HIV Type 2 ("HIV-2") in oral mucosal transudate ("OMT"), also called "oral fluid". Rapid tests provide results in 20 minutes or less, which reduces patient anxiety and increases both return-of-results and linkage to care (Because of the inherent delay, a large proportion of laboratory testing clients do not receive their test results.) Rapid tests are particularly suitable for point-of-care testing in both the professional sector and in the over-the-counter ("OTC") market, especially in developing countries which may lack the medical infrastructure to support laboratory based testing.

Our AwareTM line of low cost rapid tests are especially suited to address the needs of developing world markets in Africa and parts of Southeast Asia, as well as the Middle East and Eastern Europe. We have developed our AwareTM line of low cost rapid tests in a simple, easy to use format suitable for use in point of care settings in remote locations. We have developed rapid tests for the detection of antibodies to HIV-1 and HIV-2 that can use oral fluid, blood or urine as a specimen sample, but we currently manufacture and sell only the oral fluid rapid tests. We are primarily concentrating on introducing our oral fluid rapid tests into international markets.

Our current AwareTM line includes the following products:

AwareTM HIV-1/2 OMT (Oral fluid) PRO (Professional)

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

·	It has a true IgG control line that indicates not only that the device is functional but that a human sample has been added (some assays feature a control line that appears even if the correct sample is not added)
·	Kit packaging is designed to permit multiple users to use the kit simultaneously
·	Unlike its primary competitor, the AwareTM OMT sample preparation step produces surplus sample, which can be used to repeat the test, or to perform a confirmatory assay such as an oral fluid Western Blot test or a second rapid oral fluid test
·	AwareTM OMT testing is painless, safe, and non-invasive

·	Although more expensive than blood tests, the all-in costs (including costs of handling and disposal of blood) are comparable or less. Further, we expect the AwareTM OMT to have a cost advantage over its primary current oral fluid competitor.

AwareTM HIV-1/2 Oral OTC

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

HIV-1 BED Incidence EIA

The HIV-1 BED Incidence EIA Test, recently re-named the AwareTM BEDTM HIV-1 Incidence Test (the “Incidence Test”), is designed to estimate the rate of new HIV infections in a population by determining what proportion of a population of HIV infected people were infected recently (e.g. within approximately the past 6 months). Under a license from the CDC, we have the right to market this test worldwide. The guidelines that dictate how the test is to be interpreted and how the data generated by the test are to be used are determined by the CDC. We also market a control kit that contains materials required to use the Incidence Test for testing dried blood, serum or plasma spots.

We believe that the capability of this test is significant because a critical element of reducing HIV transmission rates is identifying where new infections are occurring and instituting prevention programs accordingly. The Incidence Test is useful as an epidemiological measurement tool to track the expansion of HIV infection into susceptible populations, which will allow public health agencies to more efficiently use their resources by focusing their prevention efforts on those groups having the greatest need. Incidence estimates help determine the effectiveness of prevention programs from both a disease spread and financial resource perspective and allow managers to evaluate areas appropriate for alternative therapeutic media, such as vaccine trials.

Aware MessengerTM Oral Fluid Sample Collection Device

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

New Products

AwareTM 2

Our current AwareTM product line is a rapid testing solution that is well suited for developing countries. However, in the U.S. and other developed countries, a cassette-enclosed format may be more acceptable. We plan to introduce the AwareTM 2 product line for these markets using such a format.

The AwareTM 2 line provides a cassette-housed strip in a unique two-step platform that we have licensed from Ani Biotech Oy (the “Ani Platform”). This license and the associated technology provides us the platform and the required technology to commercially sell into the developed world markets.

There are currently no U.S. FDA-approved over-the-counter HIV tests; however an FDA advisory panel has recommended that the FDA consider an approval protocol for such a test. We believe that OTC tests would be advantageous in the battle against HIV transmission and that a rapid test platform such as AwareTM 2 would be appropriate for use in an FDA-approved OTC application.

Potential Future Products

We believe that the Ani Platform provides us with an alternative product format having potential applicability in both the professional and OTC markets worldwide. We are also evaluating the development of a rapid test for non-HIV applications such as the detection of syphilis.

Before we can exploit any of these opportunities, we will need to prove the viability of the Ani Platform using the AwareTM 2 HIV test. We have a design-locked prototype which has performed extremely well in initial testing, including clinical trials in the U.S. and Africa. We have contracted with a U.S. cGMP compliant manufacturer for production of the devices and filed an Investigational Device Exemption ("IDE") under which we plan to conduct clinical trials in the U.S. as part of our application for FDA Premarket Approval. We are currently engaged in responding to the FDA's initial reply to our IDE, conducting technology transfer to enable production of test devices and recruiting collection sites for the clinical trials.

Our Aware MessengerTM oral fluid sample collection device is another platform on which future opportunities might build. In addition to rapid tests for diseases other than HIV-1/2, there is the potential to enter the drug abuse testing market. This is a multi-billion dollar global market in which oral fluid testing has several strong advantages over urine testing, including reduction of privacy concerns, immediacy of testing and resistance to sample tampering.

Marketing, Sales and Distribution

We generally rely upon local distributors to explore local market conditions, pursue sales opportunities, follow up on leads we provide, train and support local customers and assist in the regulatory approval process. Additionally, we work with the CDC to distribute the Incidence Test in the U.S. and internationally.

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

Our marketing efforts are severely curtailed at this time, due to the lack of financing and uncertainty about our ability to continue in business and our reduced workforce.

During 2011, we focused on the following primary markets:

Africa

In Africa, we have been pursuing individual country markets for our AwareTM HIV-1/2 OMT rapid test products where we expect growth rates for HIV testing to be the highest. Our AwareTM HIV-1/2 OMT test is currently approved in South Africa, Cote d’Ivoire, Kenya, and Uganda. We received our initial orders for the AwareTM HIV-1/2 OMT test in 2006 from South Africa, and sales to our South African distributor have continued regularly since then. We have focused our marketing activity mostly in Kenya, Uganda and South Africa during 2011. We have received favorable responses from the Kenyan government. We have abandoned the registration efforts in other African countries.

Middle East

In the Middle East we have product approval in Iraq and U.A.E. In 2009, we terminated our relationship with the prior distributor in U.A.E. In 2011, we focused on finding suitable partners to help us grow the vast potential for oral fluid based HIV testing in the gulf countries to a significant business for Calypte. While we have had some strategic discussions with a few distributors we don’t have a definitive agreement with any of them at this time.

Competition

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

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

We believe our OMT tests have unique advantages compared with blood based tests, as indicated below.

Non-invasive and painless sampling. Studies show greater acceptance of HIV testing without the pain and risks of drawing blood, which translates into higher testing rates

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

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

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

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

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

The over-the-counter version may foster increased use as a result of increased privacy

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

Research and Development Spending

Our product research and development spending was $0.3 million in each of 2010 and 2011. We are slowly ramping up our R&D department, with the goal of continuing the gradual increase in spending in our R&D department as we focus on our AwareTM 2 research.

Intellectual Property

Our success depends, in part, on our ability to obtain patent protection for our products, to preserve our trade secrets and to avoid infringing the proprietary rights of third parties.

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

Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure the success of our business. Competitors may be able to produce products competing with our products without infringing our licensed patent rights. The issuance of a patent is not conclusive as to validity or as to the enforceable scope of the patent that we license. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. Accordingly, we cannot assure that our patents rights, trademarks or trade secrets will afford adequate protection to our products or that our competitors will not be able to design around such patents, trademarks and trade secrets.

We are not aware of any pending claims of infringement or other challenges to our rights to use this intellectual property or our rights to use our trademarks or trade secrets in the U.S. or in other countries.

We require our employees, consultants, outside collaborators, and other advisors to execute confidentiality and assignment of invention agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. The agreements also provide that all inventions conceived by the individual during his or her tenure with us are our exclusive property. Although we believe these agreements are enforceable, there can be no assurance that they would be upheld in court or that, if they are breached, we will have adequate remedies.

Rapid Tests

We believe we have secured rights to intellectual property and related materials necessary for the manufacture and worldwide sale of our HIV-1/2 Rapid Tests.

Synthetic Antigen (Adaltis, Inc.): In April 2004, we entered into a license and supply agreement with Adaltis, Inc. under which Adaltis supplies us with HIV-1/2 peptides.

Guire/Swanson Patent Suite (Abbott Laboratories, Inc.): In June 2004, we entered into a sublicense agreement with Abbott Laboratories, Inc. for certain worldwide rights to patents relating to the design, manufacture and sale of lateral-flow rapid diagnostic tests. Under the terms of the agreement, we were granted certain worldwide rights to use a family of patents known as the “Guire/Swanson” patents in both the professional and OTC markets.

HIV-2 (Bio-Rad Laboratories): In September 2004, we entered into a worldwide, non-exclusive sub-license agreement with Bio-Rad Laboratories and Bio-Rad Pasteur for HIV-2 rights. This agreement permits us to commercialize and market our HIV-1/2 Rapid Tests in areas where HIV-2 is increasing in prevalence or where it is required to achieve regulatory approval for our tests.

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

Gold Sols Patent: We have been issued a U.S. patent, “One-step production of gold sols” (11/242,732), securing our rights in a proprietary method of producing colloidal gold (“gold sols”), a key reagent in our rapid tests.

Incidence Test

We initiated a technology transfer of the Incidence Test in April 2004 from the CDC (Center for Disease Control). We have a non-exclusive license for the development, manufacture and sale of the BED capture EIA.

Manufacturing

To meet the challenges of testing for HIV in the developing world, we have adopted a manufacturing strategy for our rapid tests that utilizes the reduced labor and overhead rates typical of the regions in which we expect to sell our tests. We have established manufacturing capabilities in the U.S. and Thailand.

Pacific Biotech

We have outsourced production of our AwareTM product line to Pacific Biotech in Thailand. Under the terms of the contract manufacturing agreement, we pay Pacific Biotech a volume-variable price per test for assembly of AwareTM test kits. Pacific Biotech is an ISO 13485 certified manufacturing facility.

MML Diagnostics Packaging

We have outsourced production of the Incidence Test and the Aware MessengerTM oral fluid sampling device to MML in Troutdale, Oregon. The terms of the MML agreement are similar to the Pacific Biotech agreement. MML is an FDA registered GMP and ISO compliant manufacturing facility.

Government Regulation

AwareTM Rapid Tests

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

1.	Those requiring no local approval;
2.	Those requiring local approvals, and possibly clinical trials; or those requiring approval in the country of manufacture; or

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

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

Local Approvals

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

We have obtained regulatory approval for our AwareTM OMT product line in the following countries as of December 2011: China, India, Kenya, Russia, South Africa, Uganda, Iraq, Cote d’Ivoire, United Arab Emirates and Peru.

USAID Waiver

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

BED Incidence Test

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

Other Regulations

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

Product Liability and Recall Risk; Limited Insurance Coverage

The manufacture and sale of medical diagnostic products subjects us to risks of product liability claims or product recalls, particularly in the event of false positive or false negative reports. A product recall or a successful product liability claim or claims that exceed our insurance coverage could have a material adverse effect on us. We maintain a $5,000,000 claims-made products liability insurance policy. However, our insurance coverage may not adequately protect us from liability that we incur in connection with clinical trials or sales of our products.

Employees

As of December 31, 2011, we have four full time employees and five consultants, including all of our senior management. Our employees are not represented by a union or collective bargaining entity. We believe our relations with our employees are good.

Where to Get More Information

We file or furnish annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference rooms in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

Item 1A. Risk Factors.

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

Risks Related to Our Financial Condition

Because Of Our Recurring Operating Losses And Negative Cash Flows From Operations, Our Audit Report Expresses Substantial Doubt About Our Ability To Continue As A Going Concern.

Because of our recurring operating losses and negative cash flows from operations and substantial indebtedness, our audit report expresses substantial doubt about our ability to continue as a going concern. At December 31, 2011 and 2010, we had working capital deficits of $3.2 million and $3.5 million, respectively. Our cash on hand and existing sources of cash are insufficient to fund our cash needs over the next twelve months under our current capital structure. We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue in existence.

We Will Need Additional Financing To Meet Our Financial Needs.

Despite our having obtained a commitment by a private investor to invest an additional $1 million pursuant to the MoU, we will continue to require additional capital in order to fund our operations and achieve positive cash flow. Our current plan is to obtain additional financing after reviewing all possible options in detail, including, but not limited to, the issuance of equity or debt securities or alliances or joint ventures with other biotechnology firms, pharmaceutical companies with biotechnology divisions or medical diagnostic companies. It may be difficult, or impossible, for us to raise additional capital because our stock price has recently been trading at below its par value and because we may not have sufficient shares of authorized stock to issue to investors. If we are able to raise capital, funds raised from the issuance of additional equity securities may have a negative effect on our stockholders, such as a dilution of their percentage of ownership, and the rights, preferences or privileges of the new security holders may be senior to those of our current stockholders. There is no assurance that we will be able to obtain any financing on favorable terms, or at all. If we cannot obtain additional financing, we will likely not be able to continue our operations.

Our Working Capital Deficit May Adversely Affect Our Ability To Further Implement Our Growth Strategy And Expand Our Presence In The International Market for HIV And Other Diagnostic Tests.

Neither our cash flow from operations nor our capital resources are sufficient to meet our existing financial needs or sustain our operations. If we are unable to generate significant revenue or attain profitability, we will not be able to sustain operations and will have to curtail significantly or cease operations.

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

At December 31, 2011, our domestic trade accounts payable totaled $1.3 million, of which essentially all was over 60 days past due. Further, we currently have a number of cash-only arrangements with suppliers. Certain vendors and service providers may choose to bring legal action against us to recover amounts they deem due and owing. While we may dispute certain of these claims, should a creditor prevail, we may be required to pay all amounts due to the creditor. If the working capital that enables us to make payments is not available when required, we will be placed in significant financial jeopardy and we may be unable to continue our operations at current levels, or at all. Additionally, our financial condition has prevented us from ordering certain materials in the most economical order quantities, which increases the cost of our products and reduces our margins.

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

At December 31, 2011, we had federal net operating loss carryforwards of approximately $134 million. Section 382 of the Internal Revenue Code imposes an annual limitation on the utilization of net operating loss carryforwards following a “change in ownership.” The amount of the limitation is based on a statutory rate of return and the value of the corporation at the time of the change of ownership. Our private placements and other sales of our equity securities can potentially cause a change of ownership either individually or in the aggregate. We have conducted a preliminary analysis of our stock ownership changes which indicates that ownership changes within the meaning of Section 382 of the Internal Revenue Code may have occurred in 2003 and 2004. After applying the Section 382 limitations resulting from these presumed ownership changes, approximately $82 million and $9.3 million of federal and state net operating loss carryforwards, respectively, are available at December 31, 2011. If a change of ownership has occurred as a result of past financings and an annual limitation is imposed, we may not be able to fully utilize all of our federal and state loss carryforwards and research and development credit carryforwards. Our inability to fully utilize our net operating loss carryforwards and tax credits could have a negative impact on our tax asset, financial position and results of operations.

Risks Related to the Market for Our Common Stock

We have a history of operating losses and expect to report future losses that may cause our stock price to decline and a loss of your investment.

Since our inception of operations through December 31, 2011, we have incurred a cumulative loss of $180.1 million. We expect to continue to incur losses as we spend additional capital to market our products and establish our infrastructure and organization to support anticipated operations. We cannot be certain whether we will ever earn a significant amount of revenue or profit, or if we do, that we will be able to continue earning such revenues or profit. Any economic weakness or global recession, including the current environment, may limit our ability to ultimately market our products. Any of these factors could cause our stock price to decline and result in a loss of a portion or all of your investment.

The price and trading volume of our common stock is subject to certain factors beyond our control that may result in significant price and volume volatility, which substantially increases the risk that you may not be able to sell your shares at or above the price that you pay for the shares.

Factors beyond our control that may cause our share price to fluctuate significantly include, but are not limited to, the following:

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the development of a market for our products;

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changes in market valuations of similar companies;

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announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

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additions or departures of key personnel; and

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fluctuations in stock market price and volume.

Additionally, in recent years the stock market in general, and the OTC Bulletin Board (the "OTCBB") stocks in particular, have experienced extreme price and volume fluctuations. In some cases these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price regardless of our operating performance. The historical trading of our common stock is not necessarily an indicator of how it will trade in the future and our trading price as of the date of this report is not necessarily an indicator of what the trading price of our common stock might be in the future.

In the past, class action litigation has often been brought against companies following periods of volatility in the market price of those companies' common stock. If we become involved in this type of litigation in the future it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock.

Our issuance of warrants and stock options may have a negative effect on the trading price of our common stock.

We currently have a large number of stock options and warrants outstanding. The exercise of stock options and warrants into shares of common stock could cause significant dilution to our stockholders. In addition to the potential dilutive effect of issuing a large number of shares upon exercise of stock options and warrants, there is the potential that a large number of the shares may be sold in the public market at any given time, which could place significant downward pressure on the trading price of our common stock.

There is no assurance of an established public trading market, which would adversely affect the ability of investors in our company to sell their securities in the public markets.

Although our common stock trades on the OTCBB, a regular trading market for our common stock may not be sustained in the future. The Financial Industry Regulatory Authority (FINRA) limits quotation on the OTCBB to securities of issuers that are current in their reports filed with the SEC. If we fail to be current in the filing of our reports with the SEC, after a grace period of approximately 30 days, our common stock will not be able to be traded on the OTCBB. The OTCBB is an inter-dealer market that provides significantly less liquidity than a national securities exchange or automated quotation system.

Market prices for our common stock may be influenced by a number of factors, including:

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the issuance of new equity securities;

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changes in interest rates;

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competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

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variations in quarterly operating results;

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change in financial estimates by securities analysts;

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the depth and liquidity of the market for our common stock;

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investor perceptions of our company and the technologies industries generally; and

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general economic and other national conditions.

Our common stock is a "penny stock."

Our common stock is a "penny stock" for purposes of Section 15(g) of the Exchange Act because common stock trades at a price less than $5.00 per share and is not traded on a "recognized" national exchange or quoted on The NASDAQ Stock Market, and we have net tangible assets of less than $2,000,000. The principal result or effect of being designated a "penny stock" is that securities broker-dealers cannot recommend our common stock but can only trade in it on an unsolicited basis.

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

Failure to achieve and maintain internal controls in accordance with Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.

We are examining and evaluating our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, as required for our Annual Report on Form 10-K for the year ending December 31, 2011. If we fail to maintain adequate internal controls or fail to implement required new or improved controls, as such control standards are modified, supplemented or amended from time to time, we may not be able to assert that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial fraud. If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price.

Risks Related to Our Business

A viable market for our products may not develop or we may not be able to successfully develop and market new products that we plan to introduce.

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

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

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

We have recently introduced our Aware MessengerTM oral fluid sample collection device, have no experience marketing such a product and our financial condition has allowed us to do only limited marketing for the product at present.

If our current products fail to achieve additional regulatory approvals or market acceptance or generate significant revenues, we may have to abandon them and alter our business plan. Such modifications to our business plan will likely delay achievement of sustainable cash flow from product sales and profitability. As a result, we may have to seek additional financing, which may not be available on the timetable required or on acceptable terms, or we may have to curtail our operations, or both.

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

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

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

We are dependent upon patents, licenses and other proprietary rights from third parties.

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

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

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

Our success depends on our ability to protect our proprietary technologies.

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

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

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

Certain of our employees, including scientific and management personnel, were previously employed by competing companies. Although we encourage and expect all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and similar claims against us.

We have collaborated in the past and expect to collaborate in the future with universities and governmental research organizations which, as a result, may acquire part of the rights to any inventions or technical information derived from collaboration with them.

We may incur substantial costs and be required to expend substantial resources in asserting or protecting our intellectual property rights, or in defending suits against us related to intellectual property rights. Disputes regarding intellectual property rights could substantially delay product development or commercialization activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation as well as patent interference, patent reexamination, patent reissue, or trademark opposition proceedings in the United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office. An adverse decision in any proceeding regarding intellectual property rights could result in the loss or limitation of our rights to a patent, an invention or trademark.

We may need to establish additional collaborative agreements, and this could have a negative effect on our freedom to operate our business or profit fully from sales of our products.

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

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

Without collaborative arrangements, we must fund our own research and development activities, accelerating the depletion of our financing resources and requiring us to develop our own marketing capabilities. Therefore, if we are unable to establish and maintain collaborative arrangements, we could experience a material adverse effect on our ability to develop products and, once developed, to market them successfully.

The time needed to obtain regulatory approvals and respond to changes in regulatory requirements could adversely affect our business.

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

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

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

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

We engage contract manufacturers and plan to conduct international manufacturing operations to produce some of our products, including our rapid tests currently being commercialized.

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

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

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

We rely on sole source suppliers that we cannot quickly replace for certain components critical to the manufacture of our products.

We purchase some components from single sources, and although we believe we could obtain alternatives at competitive cost, any delay or interruption in the supply of these sole source components could have a material adverse effect on us by significantly impairing our or our contract manufacturer’s ability to manufacture products in sufficient quantities, particularly as we increase our manufacturing activities in support of commercial sales. In addition, it is possible that such changes might require further changes in our products and subject them to additional regulatory requirements and review. Further, price increases imposed by these suppliers may result in increased costs and reduced margins to us, if we are unable to pass the increased costs on to our customers. In addition, if our financial condition impairs our ability to pay for critical components on a timely basis, our suppliers may delay or cease selling critical components to us, which could also restrict our ability to manufacture. We typically do not have long-term supply agreements with these suppliers, relying instead on periodic purchase orders to acquire materials with the result that suppliers could delay or decline to ship components until payment is made in advance or on a COD basis.

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

A large percentage of our executives and senior employees left the Company during 2008. As a small company, our success depends on the services of key employees in various research and development, administrative, marketing and quality systems positions. Our inability to replace or attract key employees in certain positions as a result of our financial condition, or for other reasons, could have a material adverse effect on our operations.

Our Research, Development and Commercialization Efforts May Not Succeed or Our Competitors May Develop and Commercialize More Effective or Successful Diagnostic Products.

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

A primary focus of our efforts has been rapid HIV tests that we are commercializing or that are in the process of being developed. We plan to expand our product line to include tests for other STD’s or synergistic diseases or conditions. However, there can be no assurance that we will have the funds to perform the necessary research and development to do this. Moreover, there can be no assurance that will succeed in our research and development efforts with respect to rapid tests or other technologies or products or in our commercialization of these tests.

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

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

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

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

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

	•	actions taken by the FDA or foreign regulatory bodies relating to products we are commercializing or seeking to develop;
	•	the extent to which our current or proposed new products gain market acceptance;
	•	the timing and size of purchases by our customers, distributors or joint venture partners;
	•	introductions of alternative means for testing for HIV by competitors;
	•	changes in the way regulatory authorities evaluate HIV testing, including supplemental testing of the results of a rapid HIV screening test;
	•	the failure to raise funds to continue our operations; and
	•	customer concerns about the stability of our business which could cause them to seek alternatives to our product.

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

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

	•	the imposition of government controls (regulatory approval);
	•	export license requirements;
	•	political and economic instability;
	•	trade restrictions;
	•	changes in tariffs;
	•	difficulties in managing international operations (difficulty in establishing a relationship with a foreign distributor, joint venture partner, or contract manufacturer with the financial and logistical ability to maintain quality control of product);
	•	the ability to secure licenses for intellectual property or technology that are necessary to manufacture or sell our products in the selected countries;
	•	fluctuations in foreign currency exchanges rates;
	•	the financial stability of our distributors and/or their expertise in obtaining local country regulatory approvals;
	•	the financial capabilities of potential customers in lesser-developed countries or, alternatively, our inability to obtain approvals which would enable such countries access to outside financing, such as the World Bank;
	•	the ability of our distributors to successfully sell into their contractual market territory or to successfully cover their entire territory;
	•	the possibility that a distributor may be unable to meet minimum contractual commitments;
	•	establishing market awareness; and
	•	external conditions such as regional conflicts, health crises or natural disasters.

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

An Economic Downturn, Terrorist Attacks or Other Conditions Beyond Our Control May Adversely Affect Our Business or Our Customers May Not Be Able to Satisfy Their Contractual Obligations and We May Not Be Able to Deliver Our Products as a Result of the Impact of Conditions Such as Certain World Events or Natural Disasters.

Changes in economic conditions could adversely affect our business. For example, in a difficult economic environment, customers may be unwilling or unable to invest in new diagnostic products, may elect to reduce the amount of their purchases or may perform less HIV testing. A weakening business climate could also cause longer sales cycles and slower growth, and could expose us to increased business or credit risk in dealing with customers adversely affected by economic conditions.

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

Our business model and future revenue forecasts call for a significant expansion of sales in the People’s Republic of China as well as in Africa, Russia, India and elsewhere upon successful commercialization of our rapid test products. Should conditions beyond our control, such as disease outbreaks, natural disasters, war or political unrest, redirect attention from the worldwide HIV/AIDS epidemic or concern for other STD’s, if and when we are able to develop and introduce such diagnostic products, our customers’ ability to meet their contractual purchase obligations and/or our ability to supply product internationally for either evaluation or commercial use may prevent us from achieving the revenues we have projected. As a result, we may have to seek additional financing beyond that which we have projected, which may not be available on the timetable required or on acceptable terms that are not substantially dilutive to our stockholders, or we may have to curtail our operations, or both.

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

We manufacture medical diagnostic products, which subjects us to risks of product liability claims or product recalls, particularly in the event of false positive or false negative reports. A product recall or a successful product liability claim or claims that exceed our insurance coverage could have a material adverse effect on us. We maintain a $5,000,000 claims-made policy of product liability insurance. However, product liability insurance is expensive. In the future we may not be able to obtain coverage on acceptable terms, if at all. Moreover, our insurance coverage may not adequately protect us from liability that we incur in connection with clinical trials or sales of our products.

Item 2. Properties

Our principal corporate offices, administrative, sales and marketing, research and development and support facilities are located at 15875 S.W. 72nd Avenue, Portland, Oregon, 97224 and consist of approximately 7,000 square feet of leased office and laboratory space.

We believe our properties are adequate for our current needs.

PART II

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

Trading Market

Our common stock, par value $0.03 per share, is traded on the OTC Bulletin Board (“OTCBB”) under the symbol “CBMC.” High and low quotations reported by the OTCBB are shown below. These quotations reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

Fiscal Year	Quarter	High		Low
2011	4th	$	0.022	$	0.010
2011	3rd		0.029		0.012
2011	2nd		0.039		0.012
2011	1st		0.049		0.004

2010	4th	$	0.009	$	0.005
2010	3rd		0.009		0.005
2010	2nd		0.010		0.005
2010	1st		0.012		0.006

On December 31, 2011, there were approximately 296 holders of record of our common stock. The closing price of our common stock on December 31, 2011 was $0.012 per share. We have never paid any cash dividends, and our Board does not anticipate paying cash dividends in the foreseeable future. We intend to retain any future earnings to provide funds for the operation and expansion of our business.

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

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with our consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K. This MD&A should also be read in conjunction with Item 1.A. “Risk Factors.”

This MD&A contains forward-looking statements regarding our business development plans, the characteristics and growth of our markets and customers; our objectives and plans for future operations and products and our liquidity and capital resources. Forward-looking statements are generally identifiable by the use of terms such as “anticipate,” “will,” “expect,” “believe,” “should” or similar expressions. These forward-looking statements express our current intentions, beliefs, expectations, strategies or predictions and are based on a number of assumptions and currently available information. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including, without limitation, our ability to obtain an increased market share in the diagnostic test market; market acceptance of our products by governmental and other public health agencies, health care providers and consumers; the success of our future marketing and brand-building efforts; FDA and international regulatory actions; our ability to protect our proprietary technologies; the further development of our technologies and products; our ability to compete successfully against existing and new competitors; our future financial and operating results; our liquidity and capital resources; our ability to obtain additional financing as necessary to fund both our short- and long-term business plans; our ability to terminate or reduce our debt obligations; changes in domestic or international conditions beyond our control that may disrupt our or our customers’ or distributors’ ability to meet contractual obligations; changes in health care policy in the United States or abroad; fluctuations in market demand for and supply of our products; public concern as to the safety of products that we or others develop and public concern regarding HIV and AIDS; availability of reimbursement for use of our products from private health insurers; governmental health administration authorities and other third-party payors; our ability to attract or retain key personnel and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations).

Overview of Critical Events in 2011

During 2011, we continued to focus on our research and development operations, and building upon the promising results of the completed internal trials of our new AwareTM 2 HIV-1/2 oral fluid rapid test, which showed an accuracy of 100%. We have contacted the FDA and started the process to conduct clinical trials.

Our ability to obtain a small stream of funding through private placements of common stock has enabled us to continue our operations. On October 10, 2011, we entered into a memorandum of understanding (“MoU”) with a private investor to secure funding needed to initiate the FDA approval procedures for our new AwareTM 2 product. The MoU contemplates an initial investment of at least $1,000,000 through 2012, contingent upon the Company following an agreed upon budget plan, and potentially up to $4,000,000 from additional investors. Although the MoU expresses the expectation of the parties that the investor will assist us in raising an additional $4 million from other investors, no party is under a contractual obligation to invest any funds beyond the $1 million to be invested pursuant to the MoU, and there can be no assurance that we will be able to raise the additional funds. Based on our revised revenue and expense forecasts, we anticipate that we will be required to raise additional financing beyond the initial $1 million from the MOU in order to fully fund our efforts to obtain FDA approval of our AwareTM 2 product.

For the year ended December 31, 2011, we saw a 30% increase in revenue, compared to the same period in 2010. We remain focused on our strategy of increasing marketing and sales in a subset of countries where our products are registered, seeking additional product registrations in countries where we have a high likelihood of making sales, developing new products for the western markets and keeping our operating costs low. During the fiscal year of 2011, we were able to recapture some market share lost to a competitor for our AwareTM BED Incidence kits, and saw a 23% revenue increase on sales of this product compared to the fiscal year 2010. We also continue to make fresh batches of AwareTM HIV-1/2 OMT rapid tests, but saw our fiscal year 2011 sales of that product decline 34% from the same period of 2010.

Business Environment

Although we have received regulatory approval in a number of countries, there is a long lag time between regulatory approval and sales. In our target markets, government ministries of health or similar government and nongovernmental agencies are the primary purchasers of our products, typically through a “lowest-cost” tender process. These purchasers have historically purchased blood-based HIV tests. We have had to overcome the obstacle of changing these purchasers’ mindsets from preferring tests that use the current blood standard of care. We have expended much time, money and effort to try to convince government bodies and non-governmental organizations to try our oral fluid tests, both for its ease of use, efficiency and lower-cost benefits.

We consider these efforts to be part of a strategy in which the “standard of care” for HIV diagnosis evolves from the exclusive use of blood tests to more widespread use of non-invasive oral fluid-based tests. If we can successfully change the standard of care, we expect to reach a point at which our revenue will increase significantly. We cannot forecast whether or when this point will occur, as it is largely governed by factors beyond our control.

Outlook

In order to accomplish our business plan and meet our financial obligations, we must:

Reduce accounts payable and other debt and associated fixed costs.

Increase marketing and sales of our current products through our distribution network.

Conduct a successful clinical trial for our AWARETM 2 product.

In 2012, we remain focused on our strategy of increasing marketing and sales in the countries where our products are registered, seeking additional product registrations in countries where we have a high likelihood of making sales, planning for the clinical trials of AWARETM 2 and keeping our operating costs low.

AwareTM BED Incidence Test

We began selling the BED Incidence Test in the fourth quarter of 2004. It accounted for approximately 55% and 58% of our sales in calendar years 2011 and 2010, respectively. In absolute terms, revenue from the sale of the Incidence Test increased by approximately 23% between 2010 and 2011, as we were able to recapture some market share previously lost to a competitor.

AwareTM HIV 1/2 OMT Rapid Tests

Sales of our HIV-1/2 OMT rapid diagnostic tests accounted for approximately 15% of our revenues in 2011 compared with 30% in 2010. In absolute terms, revenue from the sale of the rapid diagnostic tests decreased by approximately 34% between 2010 and 2011, primarily due to economic conditions, combined with the loss of one customer that elected to switch from oral fluid testing to blood testing. We expect that our future near- and medium-term revenues will be derived primarily from selling our HIV-1/2 rapid tests in both the professional and over-the-counter (OTC) markets.

AwareTM MessengerTM Sampling Device

Our AwareTM MessengerTM oral fluid sample collection device and our Life Sciences reagents, both introduced during early 2008, accounted for approximately 7% of our 2011 sales.

Financial Condition and Results of Operations

During 2011 and 2010, we used cash of $0.4 million and $0.7 million, respectively, in our operations. In both periods, the cash used in operations was primarily for development and commercialization of our rapid tests, as well as for our selling, general and administrative expenses.

The following summarizes the results of our operations for the years ended December 31, 2011 and 2010 (in thousands):

	Years Ended December 31,
	2011			2010

Total revenues	$	579		$	444
Cost of product sales		417			260

Gross Margin		162			184

Operating expenses:
Research and development		296			282
Selling, general and administrative		839			999

Total operating expenses		1,135			1,281

Loss from operations		(973	)		(1,097	)

Interest expense, net		(121	)		(545	)
Other income, net		223			10,931
Benefit (Provision) for income taxes		178			(181	)

Net income (loss) from continuing operations	$	(693	)	$	9,108

Net loss attributable to Calypte from discontinued operations		-			(136	)

Net loss attributable to noncontrolling interest from discontinued operations		-			(131	)

Net income (loss)	$	(693	)	$	8,841

Years Ended December 31, 2011 and 2010

Our revenue for 2011 totaled $579,000 compared with $444,000 for 2010, an increase of $135,000, or 30%. Sales of our BED Incidence Test accounted for 55% of our sales in 2011, compared with 57% in 2010. Revenue from the sales of the BED Incidence Test increased by 23% in 2011 compared with 2010 primarily due to the recapture of some market share previously lost to a competitor. Such sales tend to be irregular as public health and research institutions begin or conclude various studies to monitor the incidence of HIV infection within their subject populations. Sales of our AwareTM HIV-1/2 rapid tests accounted for 15% and 30% of our revenues for 2011 and 2010, respectively. Revenues from the sale of our HIV-1/2 rapid tests decreased by 34% in 2011 compared with revenues in 2010, primarily due to economic conditions, combined with the loss of one customer that elected to switch from oral fluid testing to blood testing. Our Aware MessengerTM oral fluid sample collection device and our Life Sciences reagents, both introduced during early 2008, accounted for 7% of our 2011 sales. Sales of raw materials to our former joint venture partner, Beijing Marr, accounted for $134,000 in 2011.

Four customers accounted for approximately 66% of our revenue for 2011. Three customers accounted for approximately 53% of our revenue for 2010. For 2011, 18% of our revenue was from domestic customers, with 82% coming from international customers. For 2010, 38% of our revenue was from domestic customers, with 62% coming from international customers.

We reported a gross margin of 28% of sales in 2011, compared with a gross margin of 41% in 2010. Margins are down primarily due to sales returns that occurred during the third quarter of 2011. The margins we reported in both 2011 and 2010, however, are not typical of our expected future results because of the relatively nominal amounts of revenues and product quantities over which the quality systems costs and certain fixed expenses, like annual royalty minimum payments, have been allocated. Product costs in both periods are based on resource-constrained purchasing patterns and pilot-plant-sized production lots, and do not reflect the economies of scale that we anticipate when we achieve true commercial scale operations.

Research and development (“R&D”) costs increased by $14,000 or 5%, from $282,000 in 2010 to $296,000 in 2011. The R&D expense increase is primarily due to the work started on the process to conduct clinical trials of our new AwareTM 2 HIV-1/2 oral fluid rapid test.

Selling, general and administrative costs decreased by $160,000, or 16% from $999,000 in 2010 to $839,000 in 2011, primarily due to a decrease in legal and consulting expenses.

Our 2011 net loss was $0.7 million, compared to net income of $9.0 million in 2010. The 2010 net income reflects restructuring of our outstanding indebtedness to Marr and SF Capital and the associated transfer of our Chinese joint ventures.

We recorded net interest expense of $121,000 in 2011 compared with net interest expense of $545,000 in 2010. The decrease in interest expense primarily results from the restructuring of our outstanding indebtedness to Marr and SF Capital.

The following table summarizes the components of interest expense (in thousands):

	Years ended December 31,
	2011			2010

Interest expense on debt instruments paid or payable in cash	$	-		$	(190	)
Non-cash expense composed of:
Accrued interest on 8% Convertible Notes		-			(231	)
Accrued interest on 4% Note Payable		(1	)		(4	)
Expense attributable to dividends on mandatorily redeemable Series A preferred stock		(120	)		(120	)

Total non-cash items		(121	)		(355	)

Total interest expense	$	(121	)	$	(545	)

Liquidity and Capital Resources

For the year ended December 31, 2011, we incurred a net loss of $0.7 million, and a negative cash flow from operations of $0.4 million. At December 31, 2011, we had a working capital deficit of $3.2 million and our stockholders’ deficit was $5.1 million. Our cash balance at December 31, 2011 was $10,000.

Our consolidated operating cash burn rate for 2011 averaged approximately $37,000 per month compared to approximately $57,000 per month in 2010. Our decreased burn rate for 2011 reflects our efforts to significantly reduce or eliminate the expenditures required to ramp up marketing and manufacturing initiatives to achieve our near-term milestones.

During 2011, we generated $379,000 from financing activities compared to $637,000 generated from financing activities during 2010. The funds generated from financing activities in both 2011 and 2010, were primarily the result of advances from shareholders.

In October 2011, we entered into a memorandum of understanding (“MoU”) with a private investor to secure funding needed to initiate the FDA approval procedures for the new AWARETM 2 product. The MoU contemplates an initial investment of at least $1,000,000 through 2012, contingent upon the Company following an agreed upon budget plan, and potentially up to $4,000,000 from additional investors. Although the MoU expresses the expectation of the parties that the investor will assist us in raising an additional $4 million from other investors, no party is under a contractual obligation to invest any funds beyond the $1 million to be invested pursuant to the MoU, and there can be no assurance that we will be able to raise the additional funds.

Subsequent to December 31, 2011 and through the date of this filing, we have received an aggregate of $220,000 in advances from one of our investors, representing a portion of the funds committed pursuant to the MOU. We are using the proceeds of these investments for general working capital purposes.

Liquidity Needs and our Business Plan

We are taking steps to address our capital requirements for financial liquidity and have developed a business plan that we believe will provide us with sufficient financial resources to continue to conduct our operations. See "Item 1. Business - General, Requirements of Additional Capital and Business Plan" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook" for more details on our plan. However, no assurances can be given that we will successfully accomplish the objectives of our plan.

We believe that we will continue to incur net losses and negative cash flow from operating activities through 2012. Due to our historical operating losses, our operations have not been a source of liquidity. We do not have sufficient capital resources to fund our operations beyond the very near-term.

We presently do not have any available credit, bank financing or other external sources of liquidity. Additional financing is required in order to meet our current and projected cash flow deficits from operations. We have financed our operations from our inception primarily through the private placements of preferred stock and common stock, our initial public offering and the issuance of convertible notes and debentures. Since 2009, we have relied on periodic equity investments by two private investors as our sole source of financing. Should these investors discontinue their financial support, we would be required to identify other sources of capital. There is no assurance that such capital will be available upon acceptable terms, if at all.

In order to obtain financing from other sources, we may need to sell additional shares of our common stock, other equity or debt securities or borrow funds from private lenders. Our ability to raise additional capital may depend upon the status of capital markets and industry conditions. Moreover, it may be difficult, or impossible, for us to raise additional capital because our stock price has often traded at below its par value and because we may not have sufficient shares of authorized stock to issue to investors. If we issue additional equity or debt securities, stockholders may experience dilution or the new equity securities may have rights, preferences or privileges senior to those of existing stockholders. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

We may experience fluctuations in operating results in future periods due to a variety of factors, including our ability to obtain additional financing in a timely manner and on terms favorable to us, our ability to successfully implement our business plan and execute our business model, the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure and the implementation of marketing programs, key agreements, and strategic alliances, and general economic conditions as well as those specific to our industry.

Our independent accountants have stated in their report dated March 22, 2012 that our recurring operating losses and negative cash flows from operations and the insufficient cash resources to sustain operations through 2012 raise substantial doubt about our ability to continue as a going concern.

Critical Accounting Policies and Estimates

This MD&A is based upon our consolidated financial statements, which have been prepared in accordance with U.S generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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

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

Inventory Valuation. We adjust the value of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions and development of new products by our competitors. Further, we also review our inventories for lower of cost or market valuation.

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

Stock based compensation We adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”) as codified in FASB ASC topic 718, Compensation — Stock Compensation (“ASC 718”), effective January 1, 2006. We adopted SFAS 123R using the modified prospective method, which requires that we apply the provisions of SFAS 123R to all awards granted or modified after the date of adoption. We recognized the unrecognized expense attributable to awards not fully vested at our January 1, 2006 date of adoption in our net loss during 2006 and 2007 using the same valuation method (i.e. Black-Scholes) and assumptions determined under the original provisions of SFAS 123, “Accounting for Stock-Based Compensation,” as disclosed on a pro-forma basis in our previous financial statements. Under the fair value recognition provisions of SFAS 123R, we recognize stock-based compensation, net of an estimated forfeiture rate which results in recognizing compensation expense for only those awards expected to vest, over the service period of the award. Since our adoption of SFAS 123R, we have estimated the fair value of options granted to employees and directors, and we expect to estimate the fair value of future grants, using the Black-Scholes option pricing model. This model requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and pre-vesting option forfeitures. To date, we have generally estimated the expected life of options granted based on the simplified method provided in Staff Accounting Bulletin No. 107 for “plain vanilla” options. Where appropriate, we will consider separately for valuation purposes groups of employees or directors that have similar historical exercise behavior. We estimate the volatility of our common stock at the date of grant based on its historical volatility over a period generally equivalent to the expected term of the grant. We estimate the expected pre-vesting forfeiture rate and recognize expense for only those shares expected to vest. We have estimated our forfeiture rate based on our historical experience with stock-based awards that are granted and forfeited prior to vesting. If the actual forfeiture rate is materially different from the estimate, the stock-based compensation expense could also differ from what we have recorded in the current period. As required under ASC 718, we will review our valuation assumptions at each grant date and, as a result, may periodically change the valuation assumptions used to value employee stock-based awards granted in future periods.

Adoption of New Accounting Pronouncements

In April 2010, the FASB issued guidance on applying the milestone method of revenue recognition for milestone payments for achieving specific performance measures when those payments are related to uncertain future events. The guidance is effective on a prospective basis to milestones achieved in fiscal years, and interim periods within those years, beginning January 1, 2011. The adoption of this new guidance did not have a material impact on the Company’s financial statements.

In April 2011, the FASB issued guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of this new guidance will not have a material impact on the Company’s financial statements.

In June 2011, the FASB issued guidance regarding presentation of other comprehensive income in the financial statements. This guidance will eliminate the option under GAAP to present other comprehensive income in the statement of changes in equity. Under the guidance, the Company will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this new guidance will not have a material impact on the Company’s financial statements.

Item 8. Financial Statements and Supplementary Data

The Company’s Consolidated Financial Statements as of and for the year ended December 31, 2011 are included on pages F-1 through F-23 of this Annual Report on Form 10-K.

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

None.

Item 9A. Controls and Procedures

(1) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive and financial officer (our “CEO”) of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our principal executive and financial officer (our “CEO”) has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our President, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(2) Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a–15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with GAAP. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that our internal control over financial reporting is not effective as of December 31, 2011. Management has identified the following material weaknesses in our internal control over financial reporting as of December 31, 2011:

We did not maintain an effective control environment, which is the foundation for the discipline and structure necessary for effective internal control over financial reporting, as evidenced by: (i) lack of segregation of duties over individuals responsible for certain key control activities; (ii) an insufficient number of personnel appropriately qualified to perform control monitoring activities, including the recognition of the risks and complexities of transactions; and (iii) an insufficient number of personnel, such as absence of permanent chief financial officer, with an appropriate level of GAAP knowledge and experience or training in the application of GAAP commensurate with our financial reporting requirements. This control environment material weakness contributed to the company not having effective controls to ensure that potential errors or misstatements may occur, but may not be detected.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the control procedure may deteriorate.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. We are a smaller reporting company and not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Following is a list of our directors and executive officers as of December 31, 2011. Directors serve until the next annual meeting stockholders and until their successors are elected or until their earlier death, retirement, resignation or removal.

Name	Age	Position	Director Since
Adel Karas	67	President, Chief Executive Officer, Chief Financial Officer, Secretary and Director	2007
Tareq Al Yousefi	49	Director	2009
Kartlos Edilashvili	38	Director	2010

Adel Karas was appointed to our Board of Directors in May 2007. In March 2009, the Board of Directors appointed Mr. Karas as our interim Chief Executive Officer, Chief Financial Officer and Secretary, to act our principal executive officer, president and principal financial officer. In February 2010, Mr. Karas was formally elected as the our President, Chief Executive Officer, Chief Financial Officer and Secretary. Since December 2005 Mr. Karas has worked as the Regional Director (Asia, Africa & Middle East) for the World Agency of Planetary Monitoring & Earthquake Risk Reduction (WAPMERR) based in Dubai, United Arab Emirates (UAE). WAPMERR is involved with disaster management and risk assessments. Prior to his involvement with WAPMERR, in 2003 Mr. Karas co-founded and served as Managing Director of Strategic Energy Investment Group in Dubai. He started this group following his retirement from Petroleum Geo-Services (PGS) in Houston, Texas where he served as Senior Vice President of Business Development for two years before moving to Dubai where he set up and, for the next eight years, served as President of PGS for the Middle East Region. Mr. Karas served, as well, as the executive vice president for Grant Tensor Geophysical in Houston-Texas and as the president of Tensor Geophysical in Egypt. Mr. Karas attended AinShams University, University of Texas and University of Houston. He holds degrees in Geophysics and Operations Research as well as a Masters Degree in electrical engineering and an MBA.

Tareq Al Yousefi was appointed to our Board of Directors in September 2009. He is the founder and chief executive officer of Gulf Access LLC, a consultancy company for petro chemical, real estate and industrial projects, where he has served since 2005. In addition, since 2006, he has been a partner in Polymer Access Pvt. Ltd., which is also involved in petro chemical. Since 1999, he has served as a market analyst to Borouge Pte. Ltd., a joint venture between ADNOC and Borealis, a leading international petro chemical company. Mr. Al Yousefi earned a B.A., Bachelors in Aviation Maintenance Management from Embry Riddle Aeronautical University in Florida. During his seven year stay in the United States he earned a degree in Business Administration, a degree in Aircraft Engineering and a private pilot’s license. He started his career as an United Arab Emirates air force officer and was trained in the United Kingdom at RAF Cranwell. Mr. Al Yousefi speaks English, Arabic and Urdu.

Kartlos Edilashvili was appointed to our Board of Directors in February 2010. Mr. Edilashvili has served as a Vice President of a subsidiary of ours in Geneva, Switzerland since August 2007. From 2005 to 2007 he was a Senior Technical Advisor of WAPMERR in Geneva. Prior thereto, he served as First Secretary for the Embassy of Georgia in Geneva. Mr. Edilashvili holds an MA in Finances from Tbilisi State University.

The Board of Directors and Its Committees

In the past, the Board of Directors had established three standing committees, the Audit Committee, the Compensation Committee and the Nominating Committee. However, in light of personnel changes on the Board during 2009, those committees are no longer active and do not have any members other than Mr. Karas, who is a member of the Nominating Committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act (“Section 16(a)”) requires our executive officers, directors, and persons who beneficially own more than 10% of our Common Stock (collectively, “Reporting Persons”) to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such Reporting Persons are also required by SEC rules to furnish us with copies of all Section 16(a) forms that they file. To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations that no other reports were required, during the year ended December 31, 2011, all Section 16(a) filing requirements applicable to Reporting Persons were satisfied on a timely basis.

Code of Business Conduct

We previously adopted a Code of Business Conduct that applied to all of our employees, including our chief executive officer and principal financial and accounting officer, and to the members of our Board of Directors. Given the nearly 100% turnover among our Board of Directors and management team and significant reduction in our staffing during the past three years, we have suspended implementation of our Code of Business Conduct while we consider changes to the code to reflect the needs of the organization and continue to focus on resolving more immediate issues affecting our cash flow and long-term viability.

Item 11. Executive Compensation

Our only executive officer is Adel Karas, our President, Chief Executive Officer, Chief Financial Officer and Secretary. Mr. Karas joined Calypte as a nonemployee director in 2007 and took on these executive officer roles in 2008 after the persons who previously held those positions left Calypte. At present, Mr. Karas does not receive any compensation for serving in those roles. Mr. Karas holds an option that was granted to him in his capacity as a director during 2007. The following table sets forth information concerning Mr. Karas’s option as of December 31, 2011:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date

Adel Karas	3,000,000 (1)	-	$0.11	11/28/17


(1) The option vested and became exercisable with respect to (i) 1,500,000 shares on November 28, 2007 (the date of grant); (ii) 750,000 shares on November 28, 2008; and (iii) 750,000 shares on November 28, 2009.

DIRECTOR COMPENSATION

We have no compensation arrangements with our directors. Directors are reimbursed for their out-of-pocket travel expenses associated with their attendance at Board of Directors and committee meetings. Mr. Karas holds an outstanding option that was granted to him in his capacity as a director. See “Outstanding Equity Awards at Fiscal Year-End” above.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of February 29, 2012 for (i) all persons known by us to own beneficially more than 5% of our outstanding common stock, (ii) each of our directors, (iii) our chief executive officer and (iv) all current directors and executive officers as a group:

Beneficial Owner (1)	Shares Beneficially Owned	Percent of Total (2)
Marr Technologies BV (3) Strawinskylaan 1431 1077XX, Amsterdam The Netherlands	226,172,517	32.0%
David Khidasheli (4) Sheikh Zayed Road Fairmont Building, # 3104 Dubai, United Arab Emirates	60,667,499	8.6%
SF Capital Partners Ltd. (5) 3600 South Lake Drive St. Francis, WI 53235	46,733,698	6.6%
Ahmed Abdalla Deemas Alsuwaidi (6) P.O. Box 681 Sharjah, United Arab Emirates	33,920,000	4.8%

Mohamed Ahmed (7) P.O. Box 33280 Dubai, United Arab Emirates	32,375,000	4.6%
Mohamed Yousif Ahmed Saleh Sulaiman (8) P.O. Box 19533 Sharjah, United Arab Emirates	31,375,000	4.4%
Adel Karas (9)	3,050,000	*
Tareq Al Yousefi	3,954,743	*
Kartlos Edilashvili	--	*
All current directors and executive officers as a group (3 persons) (9)	7,004,743	1.0%

*	Represents beneficial ownership of less than 1%.

(1)

To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in this table has sole voting and investment power with respect to the shares set forth opposite such person’s name. Except as otherwise indicated, the address of each of the persons in this table is as follows: c/o Calypte Biomedical Corporation, 15875 SW 72nd Avenue, Portland, Oregon 97224.

(2)	Based on 705,843,159 beneficial shares outstanding as of March 22, 2012.

(3)

Based on holdings reported in Amendment No. 6 to Schedule 13D dated December 6, 2007 filed with the Commission on March 20, 2008. Includes shares beneficially owned by Marat Safin. Mr. Safin has voting and investment control over shares held by Marr Technologies BV. Includes 152,341,741 shares issued in March 2012 pursuant to the Debt Agreement.

(4)

Based on holdings reported in Amendment No. 1 to Schedule 13D filed with the Commission on August 7, 2009 plus shares we subsequently issued directly to Mr. Khidasheli in a private placement. Excludes 20,566,666 shares that we expect to issue to Mr. Khidasheli upon conversion of advances that Mr. Khidasheli has made to us and 21,166,666 additional shares that we expect to issue to Mr. Khidasheli pursuant to the MoU.

(5)	Based on holdings reported in Amendment No. 10 to Schedule 13G filed with the Commission on February 14, 2012. Michael A. Roth and Brian J. Stark possess voting and dispositive power over all of the shares owned by SF Capital Partners Ltd.

(6)	Based on holdings reported in Schedule 13G dated March 28, 2007 filed with the Commission on October 29, 2007.

(7)	Based on holdings reported in Schedule 13G dated March 28, 2007 filed with the Commission on October 30, 2007.

(8)	Based on holdings reported in Schedule 13G dated March 28, 2007 filed with the Commission on November 2, 2007, plus shares we subsequently issued directly to Mr. Sulaiman in a private placement.

(9)	Includes 3,000,000 shares issuable upon exercise of options.

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

Director Independence

The Board of Directors has determined that Mr. Al Yousefi is the only independent director under the rules of the Nasdaq Stock Market as applied to members of the board of directors and of the audit committee, compensation committee and nominating committee.

Item 14. Principal Accountant Fees and Services

The following table sets forth the aggregate fees accrued and paid by us for OUM & Co. LLP, our independent registered public accounting firm for the years ended December 31, 2011 and 2010:

	2011		2010
Audit Fees		$97,500		$97,670
Audit-Related Fees		--		--
Tax Fees		--		--
All Other Fees		--		--

“Audit fees” include fees paid in 2011 and 2010 for the audits of our annual financial statements for 2010 and 2009; fees for the quarterly review of our financial statements for the quarters ended March 31, June 30, and September 30, 2011 and 2010, as well as fees for consultation regarding accounting issues and their impact on or presentation in our financial statements; and fees for the review of registration statements and the issuance of related consents.

All of the audit and non-audit services described above were approved by our Board of Directors in accordance with the applicable rules of the SEC.

PART IV

Item15. Exhibits, Financial Statement Schedules.

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

	1. Our Consolidated Financial Statements are included on pages F-1 through F-23 of this Annual Report on Form 10-K.

	2. Exhibits

3.1	Bylaws of the Registrant, as amended on March 7, 2005 (1)
3.2	Restated Certificate of Incorporation of Calypte Biomedical Corporation, a Delaware corporation, filed July 31, 1996 (2)
3.3	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Calypte Biomedical Corporation effective as of February 14, 2003 (3)
3.4	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Calypte Biomedical Corporation, effective as of May 27, 2003, as corrected by Certificate of Correction filed on May 28, 2003 (4)
10.1	Form of Indemnification Agreement between the Registrant and each of its directors and officers, as amended January 19, 2004 (5)
10.16	First Amendment to License Agreement between the Registrant and New York University, dated as of January 11, 1995 (6)
10.17	Second Amendment to License Agreement between the Registrant and New York University, dated as of October 15, 1995 (6)
10.18*	Third Amendment to License Agreement between the Registrant and New York University, dated as of January 31, 1996 (6)
10.21*	Sublicense Agreement between the Registrant and Cambridge Biotech Corporation, dated as of March 31, 1992 (6)
10.22*	Master Agreement between the Registrant and Cambridge Biotech Corporation, dated as of April 12, 1996 (6)
10.23*	Sub–License Agreement between the Registrant and Cambridge Biotech Corporation, dated as of April 12, 1996 (6)
10.24*	Agreement between the Registrant and Repligen Corporation, dated as of March 8, 1993 (6)
10.25*	Non–Exclusive License Agreement between the Registrant and The Texas A&M University System, dated as of September 12, 1993 (6)

10.51	Non–Exclusive Patent and License Agreement between the Registrant and Public Health Service, dated June 30, 1999 (7)
10.73*	Fourth Amendment to the License Agreement between the Registrant and New York University, dated as of June 1, 2000 (8)
10.114	Amendment to Non-Exclusive Patent and License Agreement between Registrant and Public Health Service, dated April 5, 2002 (9)
10.121	Distribution Agreement between the Registrant and Zhong Yang Pute Co. dated as of October 10, 2002 (10)
10.128**	2003 Non-Qualified Stock Option Plan
10.132	Subscription Agreement between Registrant and Marr Technologies B.V. dated as of August 1, 2003 (11)
10.133	Subscription Agreement between the Registrant and Marr Technologies B.V. for 20,000,000 shares of Registrant’s Common Stock dated August 28, 2003 (12)
10.134	Agreement for Commitment to Purchase Aggregate of $10,000,000 of 5% Promissory Notes between the Registrant and Marr Technologies B.V. dated November 13, 2003 (13)
10.137	Lease Agreement between the Registrant and ARE-1500 East Gude LLC dated as of March 1, 2004 (5)
10.142	Form of Registration Rights Agreement between the Registrant and the investors in the May 2004 PIPE financing (14)
10.143	Form of Warrant between the Registrant and the investors in the May 2004 PIPE financing (18)
10.146**	2004 Incentive Plan, as amended October 11, 2011
10.148	Form of Registration Rights Agreement between the Registrant and the investors in the July 2004 PIPE financing (15)
10.149	Form of Warrant between the Registrant and the investors in the July 2004 PIPE financing (15)
10.150	Sublicense Agreement between the Registrant and Abbott Laboratories dated June 28, 2004 (16)
10.151	License Agreement and Technology Transfer Agreement between the Registrant and Ani Biotech Oy dated as of September 30, 2004 (16)
10.152	License Agreement between the Registrant and Bio-Rad Laboratories, Inc. and Bio-Rad Pasteur dated September 28, 2004 (16)
10.155	Form of $2,000,000 7% Promissory Note issued by the Registrant to Marr Technologies BV dated January 14, 2005 and form of Amendment thereto (17)
10.157	Form of Secured 8% Convertible Promissory Note between the Registrant and the investors in the April 2005 financing dated April 4, 2005 (18)
10.158	Form of Registration Rights Agreement between the Registrant and the investors in the April 2005 financing dated April 4, 2005 (18)
10.159	Form of Series A Warrant between the Registrant and the investors in the April 2005 financing dated April 4, 2005 (18)
10.160	Form of Series B Warrant between the Registrant and the investors in the April 2005 financing dated April 4, 2005 (18)
10.161	Form of Security Agreement between the Registrant and the investors in the April 2005 financing dated April 4, 2005 (18)
10.163	2005 Credit Facility Agreement between the Registrant and Marr Technologies BV dated April 4, 2005 (18)
10.164	Agreement effective September 1, 2005 between the Registrant and Marr Technologies Asia Limited describing the rights, duties and obligations of the shareholders of Beijing Calypte Biomedical Technology Ltd., a corporation organized in the Peoples’ Republic of China (19)
10.165	Asset Purchase and License Agreement dated November 15, 2005 by and between the Registrant and Maxim Biomedical, Inc. (20)

10.166	Amendment to 2005 Credit Facility between the Registrant and Marr Technologies BV effective November 30, 2005 (21)
10.168	Equity Transfer Agreement between the Registrant and Marr Technologies Asia Limited dated December 21, 2005 (22)
10.169	Agreement dated December 21, 2005 between the Registrant and Marr Technologies Asia Limited describing the rights, duties and obligations of the shareholders of Beijing Marr Bio-Pharmaceutical Technology Ltd. (22)
10.173	Form of Warrant between the Registrant and the investors in the February 2007 PIPE financings, effective February 23, 2007 through March 27, 2007 (23).
10.174	Form of Subscription Agreement between the Registrant and the investors in the March 2007 PIPE financing, dated March 28, 2007 (23)
10.175	Form of Registration Rights Agreement between the Registrant and the investors in the March 2007 PIPE financing, dated March 28, 2007 (28)
10.176	Form of Series A Warrant between the Registrant and the investors in the March 2007 PIPE financing, dated March 28, 2007 (23)
10.177	Form of Series B Warrant between the Registrant and the investors in the March 2007 PIPE financing, dated March 28, 2007 (23)
10.178	Form of Amendment to 8% Secured Convertible Promissory Notes between the Registrant and SF Capital Partners Ltd. dated March 21, 2007, effective March 28, 2007 (23)
10.179	Form of Sixth Amendment to 2005 Credit Facility between the Registrant and Marr Technologies BV dated March 21, 2007, effective March 28, 2007 (23)
10.180	Form of Amendment to 8% Secured Convertible Promissory Notes between the Registrant and Marr Technologies BV dated March 21, 2007, effective March 28, 2007 (23)
10.181	Form of Amendment to 8% Secured Convertible Promissory Notes between the Registrant and Morningtown Limited dated March 21, 2007, effective March 28, 2007 (23)
10.182	Form of Amendment to Registration Right Agreement between the Registrant and the investors in the March 2007 private placement, effective July 7, 2007 (24)
10.183	Seventh Amendment to 2005 Credit Facility between the Registrant and Marr Technologies BV dated December 4, 2007 (25)
10.184	Amendment No. 3 to Secured 8% Convertible Promissory Notes between the Registrant and Marr Technologies BV dated December 4, 2007 (25)
10.186	Registration Rights Agreement, dated as of January 16, 2008, by and between the Registrant and Fusion Capital Fund II, LLC. (26)
10.188	Subscription Agreement, dated August 15, 2008, between the Registrant and Tinja Limited (27)
10.189	Form of Warrant issued to Tinja Limited (27)
10.190	Form of Subscription Agreement between the Registrant and Almyn Limited, effective September 19, 2008 (28)
10.191	Form of Warrant issued to Almyn Limited (28)
10.193	Resignation and Mutual Release , dated September 10, 2009, between the Registrant and Julius R. Krevans, M.D., Paul E. Freiman and John J. DiPietro (29)
10.194	Subscription Agreement dated as of September 14, 2009, between the Registrant and Carolina Lupascu (30)
10.195	Lease dated October 13, 2009 by and between Pacific Realty Associates, L.P. and the Registrant (31)
10.196	Subscription Agreement between the Company and Carolina Lupascu, dated as of March 3, 2010, between the Company and Carolina Lupascu (32)

10.197	Debt Agreement dated July 2, 2010 among the Registrant, Marr Technologies B.V. (“Marr”), Marr Technologies Limited (“MTL”) and Marr Technologies Asia Limited (“MTL”) (33)
10.198*	Equity Transfer Agreement dated July 2, 2010 among the Registrant, Kangplus (China) Holdings Ltd., Marr, MTL and MTAL (34)
10.199	Debt Conversion Agreement dated July 9, 2010 between the Registrant and SF Capital Partners Limited (35)
10.200**	2005 Director Incentive Plan, as amended October 11, 2010
10.201	Subscription Agreement dated as of January 28, 2011, between the Registrant and David Khidasheli (36)
10.202	Subscription Agreement dated as of February 15, 2011, between the Registrant and Carolina Lupascu (36)
10.203	Memorandum of Understaning dated October 10, 2011, between the Registrant and David Khidasheli
21.1	Subsidiaries of the Registrant
23.1	Consent of OUM & Co. LLP, Independent Registered Public Accounting Firm
31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS+

XBRL Instance

101.SCH+

XBRL Taxonomy Extension Schema

101.CAL+

XBRL Taxonomy Extension Calculation

101.DEF+

XBRL Taxonomy Extension Definition

101.LAB+

XBRL Taxonomy Extension Labels

101.PRE+

XBRL Taxonomy Extension Presentation

+ XBRL

information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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

**	Represents a management contract or compensatory plan or arrangement.

(1)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Annual Report on Form 10-KSB filed on March 31, 2005.

(2)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Report on Form 10-K dated March 28, 1997.

(3)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Annual Report on Form 10-K dated March 26, 2003.

(4)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Registration Statement on Form S-2 (File No. 333-106862) filed on July 7, 2003.

(5)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Annual Report on Form 10-KSB filed on March 30, 2004.

(6)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Registration Statement on Form S-1 (File No. 333-04105) filed on May 20, 1996, as amended to June 25, 1996, July 15, 1996 and July 26, 1996.

(7)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q dated November 15, 1999.

(8)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q dated August 10, 2000.

(9)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q dated August 14, 2002.

(10)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q/A (No.3) dated February 4, 2003.

(11)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-QSB dated August 14, 2003.

(12)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K dated September 12, 2003.

(13)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-QSB dated November 14, 2003.

(14)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K on June 1, 2004.

(15)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K filed on July 13, 2004.

(16)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-QSB/A (Amendment No. 1) dated December 20, 2004.

(17)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Annual Report on Form 10-KSB filed on March 31, 2005.

(18)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K filed on April 5, 2005.

(19)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-QSB dated November 14, 2005.

(20)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K on November 21, 2005.

(21)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K on December 6, 2005.

(22)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K on March 30, 2006.

(23)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Annual Report on Form 10-KSB filed on March 30, 2007.

(24)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Registration Statement on Form SB-2 on July 23, 2007 (File No. 333-144778).

(25)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K on December 10, 2007.

(26)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K on January 23, 2008.

(27)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K on August 21, 2008.

(28)	Incorporated by reference to identically-numbered exhibit to the Registrant’s. Current Report on Form 8-K on September 23, 2008.

(29)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Current Report on Form 8-K dated September 16, 2009.

(30)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q dated October 8, 2009.

(31)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q filed on December 4, 2009.

(32)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q filed on June 24, 2010.

(33)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2010.

(34)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Amendment to Quarterly Report on Form 10-Q/A filed on November 22, 2010.

(35)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Annual Report on Form 10-K filed on March 31, 2010.

(36)	Incorporated by reference to identically-numbered exhibit to the Registrant’s Quarterly Report on Form 10-Q filed on September 15, 2011.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets	F-3

Consolidated Statements of Operations	F-4

Consolidated Statements of Stockholders’ Deficit	F-5

Consolidated Statements of Cash Flows	F-6

Notes to Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Calypte Biomedical Corporation

We have audited the accompanying consolidated balance sheets of Calypte Biomedical Corporation as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements audited by us present fairly, in all material respects, the consolidated financial position of Calypte Biomedical Corporation at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring operating losses and negative cash flows from operations, and management believes that the Company’s cash resources will not be sufficient to sustain its operations through 2012 without additional financing. This raises substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ OUM & Co. LLP

San Francisco, California

March 22, 2012

F-2

CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31,
	2011			2010

ASSETS
Current assets:
Cash	$	10		$	79
Accounts receivable		8			21
Inventories		186			264
Prepaid expenses		23			39
Total current assets		227			403
Property and equipment, net of accumulated depreciation of $375 and $345 at December 31, 2011 and 2010, respectively		44			68
Intangible assets, net of accumulated amortization of $857 and $940 at December 31, 2011 and 2010, respectively		1,674			1,843
Other assets		17			17
Total assets	$	1,962		$	2,331

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	1,999		$	1,971
Advances from shareholder		397			680
Liability with related party		914			914
Income tax liability		-			180
4% Note payable, including accrued interest of $6 and $5 at December 31, 2011 and 2010, respectively		45			61
12% Convertible debentures payable		60			60
Deferred revenue		-			23
Total current liabilities		3,415			3,889
Mandatorily redeemable Series A preferred stock, $0.001 par value; no shares authorized at December 31, 2011 and 2010; 100,000 shares issued and outstanding at December 31, 2011 and 2010; aggregate redemption and liquidation value of $1,000 plus cumulative dividends		3,656			3,536
Total liabilities		7,071			7,425

Commitments and contingencies

Stockholders’ deficit:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding		-			-
Common stock, $0.03 par value; 800,000,000 shares authorized at December 31, 2011 and 2010; 547,826,416 and 525,159,750 shares issued and outstanding as of December 31, 2011 and 2010, respectively		15,249			14,569
Additional paid–in capital		159,747			159,749
Other comprehensive income (loss)		(1	)		(1	)
Accumulated deficit		(180,104	)		(179,411	)
Total stockholders’ deficit		(5,109	)		(5,094	)
Total liabilities and stockholders’ deficit	$	1,962		$	2,331

See accompanying notes to consolidated financial statements.

F-3

CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Years Ended December 31,
	2011			2010

Revenues:
Product sales	$	579		$	444

Operating costs and expenses:
Cost of product sales		417			260
Research and development expenses		296			282
Selling, general and administrative expenses		839			999

Total operating expenses		1,552			1,541

Loss from operations		(973	)		(1,097	)

Interest expense, net (non-cash expense of ($121) and ($355) in 2011 and 2010, respectively)		(121	)		(545	)

Gain on transfer of assets		-			2,289
Gain on restructuring of notes		-			8,500
Other income, net		223			142

Net income (loss) before income taxes		(871	)		9,289

Benefit (Provision) for income taxes		178			(181	)

Net income (loss) from continuing operations		(693	)		9,108

Net loss attributable to Calypte from discontinued operations		-			(136	)

Net loss attributable to noncontrolling interest from discontinued operations		-			(131	)

Net income (loss)	$	(693	)	$	8,841

Net income (loss) per share from continuing operations		(0.001	)		0.019

Net loss per share attributable to Calypte from discontinued operations		-			(0.001	)

Net income (loss) per share (basic and diluted)		(0.001	)		0.018

Weighted average shares used to compute net income (loss) per share (basic and diluted)		545,854			487,616

See accompanying notes to consolidated financial statements.

F-4

CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S DEFICIT

YEARS ENDED DECEMBER 31, 2011 and 2010

	Number of Common Shares		Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders' Deficit

Balances at December 31, 2009		461,355,457		13,841		159,738			125			(188,378	)		(14,674	)

Shares sold in March 2010 Private Placement		12,933,333		388		-			-			-			388
Shares issued in March 2010 Morningtown debt conversion		3,055,262		91		37			-			-			128
Stock-based employee and director compensation		-		-		(33	)		-			-			(33	)
Shares issued in September 2010 SF Capital debt conversion		47,815,698		249		-			-			-			249

Foreign currency translation		-		-		7			1			(1	)		7
Transfer of 51% interest in BJ-Marr		-		-		-			(127	)		127			-
Net income (loss)		-		-		-			-			8,841			8,841
Balances at December 31, 2010		525,159,750	$	14,569	$	159,749		$	(1	)	$	(179,411	)	$	(5,094	)

Shares sold in January 2011 Private Placement		16,666,666		500		-			-			-			500
Shares sold in February 2011 Private Placement		6,000,000		180											180
Stock-based employee and director compensation		-		-		(2	)		-			-			(2	)
Net loss		-		-		-			-			(693	)		(693	)
Balances at December 31, 2011		547,826,416	$	15,249	$	159,747		$	(1	)	$	(180,104	)	$	(5,109	)

See accompanying notes to consolidated financial statements.

F-5

CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years ended December 31,
	2011			2010

Cash flows from operating activities:
Net income (loss) from continuing operations	$	(693	)	$	9,108
Adjustments to reconcile net income (loss) to operating activities:
Depreciation and amortization		198			255
Non-cash interest expense attributable to:
Dividends on mandatorily redeemable Series A preferred stock		120			120
Gains from note restructuring and asset transfer		-			(10,789	)
Stock-based employee compensation expense		(2	)		(32	)
Loss on disposition of equipment		-			24
Loss attributed to noncontrolling interest in discontinued operations		-			(131	)
Changes in operating assets and liabilities:
Accounts receivable		13			19
Inventories		78			(45	)
Prepaid expenses and other current assets		16			34
Accounts payable, accrued expenses and other current liabilities		(173	)		755

Net cash used in operating activities		(443	)		(682	)

Cash flows from investing activities:
Purchases of equipment		(5	)		(36	)

Net cash used in investing activities		(5	)		(36	)

Cash flows from financing activities:
Principal payments on notes payable		(18	)		(43	)
Proceeds from shareholder advances		397			680

Net cash provided by financing activities		379			637

Net decrease in cash		(69	)		(81	)

Cash at beginning of the year		79			160

Cash at end of the year	$	10		$	79

See accompanying notes to consolidated financial statements.

F-6

CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

	Years ended December 31,
	2011		2010

Supplemental disclosure of cash flow activities:
Cash paid for interest	$	-	$	190

Supplemental disclosure of noncash activities:
Conversion of advances from related party into common stock	$	680	$	388
Conversion of notes payable into common stock	$	-	$	377

See accompanying notes to consolidated financial statements.

F-7

CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) The Company

Calypte Biomedical Corporation (the “Company”) develops, manufactures, and distributes in vitro diagnostic tests, primarily for the diagnosis of Human Immunodeficiency Virus (“HIV”) infection. We were incorporated in California in 1989 and reincorporated in Delaware in 1996 at the time of our initial public offering. Since September 8, 2006, our common stock has traded on the OTC Bulletin Board under the symbol “CBMC.” We are located in Portland, Oregon where we have a facility that combines both our research and development as well as administrative operations. We have a sales and marketing office in Dubai, United Arab Emirates (“U.A.E.”), which is where our CEO is based. We have a Director of sales based in Milan, Italy.

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

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

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

Until July 2010, we were the 51% owner of each of two joint ventures in China, Beijing Calypte Biomedical Technology Ltd. (“Beijing Calypte”) and Beijing Marr Bio-Pharmaceuticals Co., Ltd. (“Beijing Marr”). In July 2010 we entered into a series of agreements providing for (i) the restructuring of our outstanding indebtedness to Marr and SF Capital (the “Debt Agreement”) and (ii) the transfer of our interests in the two Chinese joint ventures, Beijing Marr and Beijing Calypte, to Kangplus (the “Equity Agreement”). Under the Debt Agreement, $6,393,353 in outstanding indebtedness was agreed to be converted to 152,341,741 shares of our common stock (the “Shares”), and our remaining indebtedness to Marr, totaling $3,000,000 as of December 31, 2009, was cancelled. In consideration for such debt restructuring, we transferred our equity interests in Beijing Marr to Kangplus pursuant to the Equity Transfer Agreement and transferred certain related technology to Beijing Marr. We have also agreed to transfer our equity interests in Beijing Calypte to Marr or a designate of its choosing. The transactions contemplated by the Debt Agreement and the Equity Transfer Agreement are subject to Chinese government registration of the transfer of the equity interests. This registration has now been approved, and the Shares were issued in March 2012. Under the debt agreement with SF Capital, $2,008,259 in outstanding indebtedness was converted to 47,815,698 shares of our common stock.

As announced in March 2011, we successfully completed internal trials of our new AwareTM 2 HIV-1/2 oral fluid rapid test, which showed an accuracy of 100%. Based on these promising results, we have contacted the Food and Drug Administration (FDA) and started the process to conduct clinical trials and apply for Premarket Approval.

F-8

(2) Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the results of operations of the Company, and its wholly-owned subsidiary, Calypte, Inc. Former 51% ownership interests in both Beijing Calypte and Beijing Marr have been reported as Discontinued Operations in the Consolidated Statements of Operation. We have eliminated all significant intercompany accounts and transactions in consolidation.

Foreign Currency Translation

The functional currency of our former consolidated Chinese joint ventures is the local currency, the Chinese Yuan Renminbi. We translate the revenues and expenses of our foreign subsidiary to U.S. dollars at the average rates of exchange for the accounting period. We have reported the effect of translation gains and losses as our only component of other comprehensive income in our Consolidated Statements of Operations.

Cash and Cash Equivalents

Cash equivalents consist of investments in money market accounts.

Allowance for Doubtful Accounts

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

Inventories

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

Property and Equipment

Our property and equipment is stated at cost, net of accumulated depreciation. We depreciate our buildings, machinery and equipment, furniture and fixtures, and computer equipment using the straight line method over the estimated useful lives of the assets.

F-9

We generally depreciate our assets as follows:

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

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

Impairment of Long-Lived Assets

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

Fair Value of Financial Instruments

Financial assets and short-term liabilities have carrying values which approximate their fair values for all periods presented.

Revenue Recognition

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

	●	We have received a binding purchase order or similar commitment from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of a sale).
	●	The purchase price has been fixed, based on the terms of the purchase order.
	●	We have delivered the product from our contract manufacturing plant to a common carrier acceptable to the purchaser. Our customary shipping terms are FOB shipping point. Because of the need for controlled conditions during shipment, we suggest, but leave to the purchaser’s discretion, acquiring insurance for the value of the shipment. If the purchaser elects to insure the shipment, the insurance is at the purchaser’s expense.
	●	We deem the collection of the amount invoiced probable. To eliminate the credit risk associated with international distributors with whom we have had little or no experience, we require prepayment of all or a substantial portion of the order or a letter of credit before shipment.

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

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

Royalty Revenue

Royalty Revenue is recognized upon receipt of the semi-annual royalty data from the licensee, as designated in the royalty agreement, and when collectability is reasonably assured.

F-10

Income Taxes

We account for income taxes under ASC 740, “Income Taxes.” ASC 740 requires an asset and liability approach for the financial reporting of income taxes. Under ASC 740, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To date, we have no history of earnings. Therefore, our deferred tax assets are reduced by a valuation allowance to the extent that realization of the deferred tax asset is not assured. We have recorded a valuation allowance for the full amount of our calculated deferred tax asset as of December 31, 2011 and 2010.

We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 (“FIN 48”), as codified by ASC 740, on January 1, 2007. FIN 48 provides clarification related to the process associated with accounting for uncertain tax positions recognized in financial statements. FIN 48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FIN 48 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements.

Upon adoption of FIN 48, we determined that we did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations as a result of implementing FIN 48 (see Note 12, Income Taxes).

Stock-Based Compensation Expense

We adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), as codified in FASB ASC topic 718, “Compensation – Stock Compensation” (“ASC 817”), using the modified prospective method. Under this method, we apply the provisions of SFAS 123R to all awards granted or modified after the date of adoption. We recognized in our net loss for the periods after the date of adoption the unrecognized expense attributable to awards not yet vested at the date of adoption using the same valuation method (i.e. Black-Scholes option valuation model) and assumptions determined under the original provisions of SFAS 123, “Accounting for Stock-Based Compensation,” as disclosed on a pro-forma basis in our previous financial statements. Under the fair value recognition provisions of SFAS 123R, we recognize stock-based compensation, net of an estimated forfeiture rate which results in recognizing compensation expense for only those awards expected to vest, over the service period of the award.

We have elected to calculate the fair value of option awards based on the Black-Scholes option-pricing model. Calculating stock-based compensation expense under the provisions of SFAS 123R requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and pre-vesting option forfeitures. Because of significant restructurings of our operations and reductions in our workforce in the past which have resulted in the termination of a significant number of our employees prior to the vesting of their options, to date, we have generally estimated the expected life of options granted in the future based on the simplified method provided in Staff Accounting Bulletin No. 107 for “plain vanilla” options. Where appropriate, we will consider separately for valuation purposes groups of employees or directors that have similar historical exercise behavior. We estimate the volatility of our common stock at the date of grant based on its historical volatility over a period generally equivalent to the expected term of the grant. We estimate the expected pre-vesting forfeiture rate and recognize expense for only those shares expected to vest. We have estimated our forfeiture rate based on our historical experience with stock-based awards that are granted and forfeited prior to vesting. If the actual forfeiture rate is materially different from the estimate, the stock-based compensation expense could also differ from what we have recorded in the current period.

F-11

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As required under ASC 718, we review our valuation assumptions at each grant date and, as a result, may periodically change the valuation assumptions used to value employee and director stock-based awards granted in future periods.

Net Income (Loss)Per Share

We compute basic net income (loss) per share by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods presented. The computation of diluted loss per common share is similar to the computation of basic net income (loss) per share, except that the denominator is increased for the assumed conversion of convertible securities and the exercise of options and warrants, to the extent they are dilutive, using the treasury stock method. The weighted average shares used in computing basic and diluted net income (loss) per share are the same for the periods presented in these consolidated financial statements. Outstanding options and warrants to purchase 5,675,002 shares and 6,175,002 shares were excluded from the computation of net income (loss) per share for the years ended December 31, 2011 and 2010, respectively, as their effect is anti-dilutive.

Concentrations of Credit Risk

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

Use of Estimates

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

Comprehensive Loss

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

Segment and Geographic Information

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

The following table summarizes our product sales revenues by product for the years ended December 31, 2011 and 2010 (in thousands):

	2011		2010

AwareTM BEDTM HIV-1 Incidence Test	$	317	$	257
AwareTM Rapid HIV diagnostic tests		88		134
All other		40		53

Revenue from product sales	$	445	$	444

Revenue from raw material sourcing	$	134	$	-

Total Revenue	$	579	$	444

F-12

Sales to international customers accounted for approximately 82% and 62% of our revenues in 2011 and 2010, respectively. Four customers accounted for approximately 66% of our revenue for 2011. At December 31, 2011 approximately $109,000, or 59%, of our inventory and $0 of our property and equipment, net, was held in international locations.

Reclassifications

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

Recent Accounting Pronouncements

(3) Discontinued Operations

As previously mentioned in Note 1, in July 2010 we entered into a series of agreements providing for (i) the restructuring of our outstanding indebtedness to Marr and SF Captial and (ii) the transfer of our ownership interests in the two Chinese joint ventures, Beijing Marr and Beijing Calypte, to Kangplus and to Marr or its designate, respectively. As such, we have classified accounts related to the two consolidated Chinese joint ventures as discontinued operations for all periods presented.

Discontinued operations from the Consolidated Statement of Operations for the twelve months ended December 31, 2011 and 2010 consisted of the following (in thousands):

	2011		2010
Revenues:
Product sales	$	-	$	15

Operating costs and expenses:
Cost of product sales		-		3
Selling, general and administrative expenses		-		148

Total operating expenses		-		151

Loss from operations		-		(136	)

Net loss attributable to Calypte from discontinued operations	$	-	$	(136	)

F-13

(4) Inventories

Inventory as of December 31, 2011 and 2010 consisted of the following (in thousands):

	December 31,
	2011		2010

Raw materials	$	132	$	188
Work-in-process		5		16
Finished goods		49		60

Total inventories	$	186	$	264

(5) Property and Equipment

Property and equipment as of December 31, 2011 and 2010 consisted of the following (in thousands):

	December 31,
	2011			2010

Computer equipment	$	148		$	143
Machinery and equipment		210			209
Furniture and fixtures		48			48
Leasehold improvements		13			13

		419			413

Accumulated depreciation		(375	)		(345	)
	$	44		$	68

(6) Intangible assets

During 2004 and 2005, we entered into various license agreements and similar arrangements under which we invested approximately $2,934,000 to acquire the technology and materials necessary for the commercialization of our rapid tests. These licenses provide us with access to the HIV-2 antigen, to certain lateral flow technologies and to certain HIV-1/2 peptides used in our rapid tests. We recorded the license amount for each license agreement as an intangible asset. We began amortizing these intangible assets in 2006, when we began commercial sales of the products employing the licensed technology or materials. We recognized amortization expense of $169,000 and $218,000 in the years ended December 31, 2011 and 2010, respectively. Each of the license agreements also contains a royalty on sales component that takes into consideration the different pricing realities of markets around the world.

F-14

(7) Accounts payable and accrued expenses

Accounts payable and accrued expenses as of December 31, 2011 and, 2010 consisted of the following (in thousands):

	December 31,
	2011		2010

Trade accounts payable	$	1,301	$	1,305
Accrued royalties		217		202
Accrued salary and vacation pay		44		42
Accrued interest		16		16
Accrued audit, legal and consulting expenses		158		160
Accrued liabilities of legacy business		190		190
Other		73		56

Total accounts payable and accrued expenses	$	1,999	$	1,971

(8) Notes and Debentures Payable

The following tables summarize the note and debenture activity for the years ended December 31, 2010 and 2011 (in thousands).

								Conversion to
	Balance				Conversion			4% Notes			Asset						Balance
	12/31/09		Additions		to Equity			Payable			Transfer			Repayment			12/31/10

Current Notes and Debentures

8% Secured Convertible Notes –
April 4, 2005	$	4,399	$	-	$	(1,299	)	$	(100	)	$	(3,000	)	$	-		$	-
July 4, 2005 Interest		66		-		(66	)		-			-			-			-
October 4, 2005 Interest		68		-		(68	)		-			-			-			-
January 4, 2006 Interest		69		-		(69	)		-			-			-			-
April 4, 2006 Interest		68		-		(68	)		-			-			-			-
July 4 and 21, 2006 Interest		122		-		(122	)		-			-			-			-
October 4, 2006 Interest		91		-		(91	)		-			-			-			-
January 4, 2007 Interest		100		-		(100	)		-			-			-			-
April 3, 2007 Interest		99		-		(99	)		-			-			-			-
July 3, 2007 Interest		102		-		(102	)		-			-			-			-
October 3, 2007 Interest		106		-		(106	)		-			-			-			-
January 3, 2008 Interest		108		-		(108	)		-			-			-			-
April 3, 2008 Interest		110		-		(110	)		-			-			-			-
July 3, 2008 Interest		111		-		(111	)		-			-			-			-
October 3, 2008 Interest		115		-		(115	)		-			-			-			-
January 3, 2009 Interest		117		-		(117	)		-			-			-			-
April 3, 2009 Interest		117		-		(117	)		-			-			-			-

Total 8% Secured Convertible Notes	$	5,968	$	-	$	(2,868	)	$	(100	)	$	(3,000	)	$	-		$	-

7% Promissory Notes to related party -
2005 Credit Facility with Marr	$	4,200	$	-	$	(4,200	)	$	-		$	-		$	-		$	-

12% Convertible Debentures – Mercator assignees	$	60	$	-	$	-		$	-		$	-		$	-		$	60

4% Note Payable – Morningtown	$	-	$	100	$	-		$	-		$	-		$	(44	)	$	56

F-15

	Balance				Conversion					Balance
	12/31/10		Additions		to Equity		Repayments			12/31/11

Current Notes and Debentures

12% Convertible Debentures – Mercator assignees	$	60	$	-	$	-	$	-		$	60

4% Note Payable – Morningtown	$	56	$	-	$	-	$	(17	)	$	39

8% Secured Convertible Notes

On April 4, 2005, we concluded a private placement to five institutional investors of $8,000,000 of Secured 8% Convertible Notes originally due April 3, 2007 (the “Convertible Notes”) and subsequently extended to April 3, 2009. The Convertible Notes provide for quarterly interest to be paid in cash, or subject to certain conditions, by issuing additional Convertible Notes maturing on April 3, 2009 (the “Interest Notes”). From July 4, 2005 through April 3, 2009 we issued Interest Notes in an aggregate face amount of $1,962,000 in payment of quarterly interest.

As discussed in Note 3, in July 2010 we entered into a series of agreements providing for (i) the restructuring of our outstanding indebtedness to Marr and SF Capital (the “Debt Agreement”) and (ii) the transfer of our interests in the two Chinese joint ventures, Beijing Marr and Beijing Calypte, to Kangplus (the “Equity Agreement”). Under the Debt Agreement, $6,393,353 in outstanding indebtedness was agreed to be converted to 152,341,741 shares of our common stock (the “Shares”), and our remaining indebtedness to Marr, totaling $3,000,000 was cancelled. In consideration for such debt restructuring, we transferred our equity interests in Beijing Marr to Kangplus pursuant to the Equity Transfer Agreement and transferred certain related technology to Beijing Marr. We have also agreed to transfer our equity interests in Beijing Calypte to Marr or a designate of its choosing. The transactions contemplated by the Debt Agreement and the Equity Transfer Agreement are subject to Chinese government registration of the transfer of the equity interests. This registration has now been approved, and the Shares were issued in March 2012. Under the debt agreement with SF Capital, $2,008,259 in outstanding indebtedness was converted to 47,815,698 shares of our common stock.

Notwithstanding this debt restructuring, our significant working capital deficit and limited cash resources place a high degree of doubt on our ability to continue our operations. In light of our existing operations and financial challenges, we are exploring strategic and financing options. Failure to obtain additional financing will likely cause us to seek bankruptcy protection.

Interest expense

The following table summarizes the components of net interest expense for the years ended December 31, 2011 and 2010 related to the notes and debentures described above and other financing instruments as reported in the Consolidated Statements of Operations (in thousands).

F-16

	Years ended December 31,
	2011			2010

Interest expense on debt instruments paid or payable in cash	$	-		$	(190	)
Non-cash expense composed of:
Accrued interest on 8% Convertible Notes		-			(231	)
Accrued interest on 4% Note Payable		(1	)		(4	)
Expense attributable to dividends on mandatorily redeemable Series		(120	)		(120	)
A preferred stock

Total non-cash items		(121	)		(355	)

Total interest expense	$	(121	)	$	(545	)

(9) Mandatorily Redeemable Preferred Stock

At the time of our original incorporation, we issued both common stock and $1,000,000 of mandatorily redeemable Series A preferred stock. We are required to redeem all shares of mandatorily redeemable Series A preferred stock within 60 days of any fiscal year-end in which we attain $3,000,000 in retained earnings, and funds are legally available. Based on losses accumulated through December 31, 2011, we must achieve approximately $183,000,000 in future earnings before any repayment is required. The mandatorily redeemable Series A preferred stock is nonvoting and holders of these shares are entitled to receive cumulative dividends at the rate of $1.20 per share per annum.

Through June 30, 2003, we had charged cumulative preferred dividends totaling $1,636,000 to stockholders’ deficit to accrete for the mandatorily redeemable Series A preferred stock redemption value with a corresponding increase in the recorded amount of the mandatorily redeemable Series A preferred stock. Since that date, we have charged the preferred dividends to interest expense to accrete for the mandatorily redeemable Series A preferred stock redemption value. During each of the years ended December 31, 2011 and 2010, we charged preferred dividends totaling $120,000 to interest expense with a corresponding increase in the recorded amount of the mandatorily redeemable Series A preferred stock.

In anticipation of using a portion of the proceeds from its Initial Public Offering to redeem the Series A preferred stock, we eliminated the Series A preferred stock from our articles of incorporation upon our reincorporation in Delaware in June 1996. However, we subsequently chose not to redeem the Series A preferred stock and as of December 31, 2011 it remains outstanding. The holders of such shares maintain the same rights as held before the reincorporation.

(10) Stockholders’ Deficit

2009-12 Private Placements

In September 2009 and March 2010, we entered into subscription agreements (the “Subscription Agreements”) with Carolina Lupascu pursuant to which Ms. Lupascu purchased 7,000,000 shares and 12,933,333 shares, respectively, of our common stock (the “Shares”) at a purchase price of $0.03 per share, for a total purchase price of $210,000, and $388,000, respectively, which Ms. Lupascu had advanced to us in several installments during 2009. The Shares were issued pursuant to Regulation S under the Securities Act of 1933. Each of the Subscription Agreements contains customary representations and warranties by Ms. Lupascu regarding her status as a non-U.S. person, her investment intent and restrictions on transfer. Ms. Lupascu was granted certain piggy-back registration rights which require us to use our best efforts to register all or a portion of the Shares on the next registration statement we file with the Securities and Exchange Commission under the Securities Act of 1933. We used the proceeds of the private placements for general working capital purposes.

F-17

During 2010, Ms. Lupascu made several advances totaling $180,000 in anticipation of entering into a future subscription agreement. We used the proceeds of these investments for general working capital purposes. In January 2011, we entered into a subscription agreement with Ms. Lupascu having substantially the same terms and conditions as the Subscription Agreements, pursuant to which Ms. Lupascu purchased 6,000,000 shares of our Common Stock at a purchase price of $0.03. These shares were issued in reliance upon Regulation S.

During 2010, David Khidasheli made several advances totaling $500,000 in anticipation of entering into a future subscription agreement. We used the proceeds of these investments for general working capital purposes. In January 2011, we entered into a subscription agreement with Mr. Khidasheli having substantially the same terms and conditions as the Subscription Agreements, pursuant to which Mr. Khidasheli purchased 16,666,666 shares of our Common Stock at a purchase price of $0.03. These shares were issued in reliance upon Regulation S.

During 2011, Mr. Khidasheli made several advances totaling $397,000, and in 2012 has made advances totaling $220,000, in anticipation of entering into a future subscription agreement. We used the proceeds of these investments for general working capital purposes.

At December 31, 2011, we had warrants outstanding to purchase an aggregate of 2,625,001 shares of our common stock at a weighted average price of $0.076 per share, as summarized in the following table:

	Number of Shares		Weighted Average Exercise price per share		Expiration Date

Warrants issued in connection with February 2007 Private Placement		2,500,001	$	0.077	March 27, 2012
Warrants issued to placement agents in connection with the February
2007 Private Placement		125,000	$	0.062	February 23, 2012 to March 27, 2012

		2,625,001	$	0.076

Shares reserved for future issuance

The following table summarizes shares reserved for future issuance at December 31, 2011:

Shares issuable pursuant to options outstanding under benefit plans			3,050,000
Shares reserved for future issuance under benefit plans			13,091,367
Shares issuable pursuant to warrants outstanding			2,625,001
Shares issuable under equity line with Fusion Capital			37,885,604
Shares issuable under related party notes payable			13,233,333
Shares issuable under related party liability			152,341,741

			222,227,046

(11) Share Based Payments

We adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”) Share-Based Payment, as codified in FASB ASC topic 718, Compensation — Stock Compensation (“ASC 718”), effective January 1, 2006. SFAS 123R requires the recognition of the fair value of stock compensation, including stock options, in net income (loss). We recognize the stock compensation expense over the requisite service period of the individual grantees, which generally is the same as the vesting period of the grant. All of our stock compensation is accounted for as an equity instrument. We generally issue stock option grants to employees with an exercise price equal to the market price at the grant date.

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

F-18

We value option grants to non-employees at the date of grant using the Black-Scholes option-pricing model. Option grants that do not include sufficient disincentive for non-performance are accounted for in accordance with EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with, Selling Goods and Services and EITF 00-18, Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees. In such instances, the deferred compensation is amortized over the term of the agreement on a straight-line basis. Until the awards are fully vested or a measurement date is achieved, we record an adjustment to deferred compensation and consultant expense to reflect the impact of the fair value, as remeasured at quarter-end, of the options based on changes to our stock price.

We did not grant any options to employees or members of our Board of Directors during 2011. Under the provisions of ASC 718, we have recorded approximately ($2,000) of stock based employee compensation expense in our condensed consolidated statement of operations for the year ended December 31, 2011 attributable to stock option forfeitures, offset by employee options granted during the second quarter of 2008 and to options granted to non-employee members of our Board of Directors in the fourth quarter of 2007.

We have assumed an annual pre-vesting forfeiture rate of 7.75% in determining our stock compensation expense. In determining the inputs to the Black-Scholes option valuation model, we have assumed a dividend yield of zero since we have never paid cash dividends and have no present intention to do so. We estimate volatility based upon the historical volatility of our common stock over a period generally commensurate with the expected life of the options. We determine the risk-free interest rate based on the quoted U.S. Treasury Constant Maturity Rate for a security having a comparable term at the time of the grant. To date, we have calculated the expected term of option grants using the simplified method prescribed by SEC Staff Accounting Bulletin 107 for “plain vanilla” options. We have historically granted options having a ten year contractual term to our employees and directors.

The following table presents a summary of option activity for all of our stock option plans from December 31, 2009 through December 31, 2011.

	Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value at Date Indicated

Options outstanding at December 31, 2009		3,300,000		$	0.127		7.27	$	0
Options granted		-			-
Options exercised		-			-
Options forfeited		-			-
Options expired		(250,000	)	$	0.310

Options outstanding at December 31, 2010		3,050,000		$	0.112		6.87	$	0
Options granted		-			-
Options exercised		-			-
Options forfeited		-			-
Options expired		-			-

Options outstanding at December 31, 2011		3,050,000		$	0.112		5.87	$	0

Options vested and exercisable at December 31, 2010		3,050,000		$	0.112		6.87	$	0

Options vested and exercisable at December 31, 2011		3,050,000		$	0.112		5.87	$	0

F-19

The following table summarizes information about stock options outstanding under all of our option plans at December 31, 2011.

		Options Outstanding						Options Exercisable
				Weighted
				Average		Weighted				Weighted
Range of				Remaining		Average				Average
Exercise		Number		Years to		Exercise		Number		Exercise
Prices		Outstanding		Expiration		Price		Exercisable		Price

$	0.11		3,000,000		5.91	$	0.110		3,000,000	$	0.110
$	0.23		50,000		3.32	$	0.230		50,000	$	0.230

			3,050,000		5.87	$	0.112		3,050,000	$	0.112

There was no intrinsic value associated with any of our outstanding options at December 31, 2011, as the exercise prices for all outstanding or exercisable options exceeded the $0.012 per share quoted market price of our common stock at that date.

We did not record any income tax benefits for stock-based compensation arrangements for the years ended December 31, 2011 or 2010, as we have cumulative operating losses and have established full valuation allowances for our income tax benefits.

(12) Section 401(k) Plan

Effective January 1, 1995, we adopted a Retirement Savings and Investment Plan (the “401(k) Plan”) covering our full-time employees located in the United States. The 401(k) Plan was intended to qualify under Section 401(k) of the Internal Revenue Code.

Under the terms of the 401(k) Plan, employees could elect to reduce their current compensation by up to the statutorily prescribed annual limit and to have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan permitted us to make contributions which become vested to our employees over terms as described in the plan, but we made no such contributions in 2010. We terminated the 401(k) Plan effective June 7, 2010 and have disbursed the funds to the plan participants on record.

(13) Income Taxes

The provision for income taxes is based upon our loss before provision for income taxes for the years ended December 31, 2011 and 2010, as follows (in thousands):

	2011			2010
Net income (loss) before income taxes:
Domestic	$	(871	)	$	9,108
International		-			(136	)

Total net income (loss) before income taxes	$	(871	)	$	8,972

For the years ended December 31, 2011 and 2010, income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% to domestic pretax losses as a result of the following:

F-20

	2011			2010
Computed expected tax expense	$	(296	)	$	3,067
Losses and credits for which no benefits have been recognized		255			-
Expense related to amortization of financing discounts in interest expense		-			213
State tax expense, net of federal income tax benefit		(178	)		180
Net Operating Loss Carryover		-			(3,319	)
Other, net operating losses not previously benefits		41			40
	$	(178	)	$	181

The tax effect of temporary differences that give rise to significant portions of the deferred tax asset is presented below:

	2011			2010
Deferred tax assets:
Net operating loss carryovers	$	28,323		$	27,054
Research and development credits		482			482
Other		2,051			2,242
Total gross deferred tax assets		30,856			29,778
Valuation allowance		(30,856	)		(29,778	)
Net deferred tax assets	$	-		$	-

The net change in the valuation allowance for the years ended December 31, 2011 was an increase of $1,078,000 and in 2010 was a decrease of $5,363,000. Because there is uncertainty regarding our ability to realize our deferred tax assets, a 100% valuation allowance has been established. In accordance with SFAS 123(R), we have excluded certain tax benefits resulting from employee stock option exercises from our deferred tax asset at December 31, 2011 and 2010. In the future, if and when such tax benefits are ultimately realized, the amount of excess tax benefits will be credited to additional paid-in capital in our Consolidated Statements of Stockholders’ Deficit.

As of December 31, 2011, we had federal net operating loss carryforwards of $82.1 million that expire in 2019 through 2031, and federal research and development credit carryforwards of $482,000 that are scheduled to expire in 2024 through 2028. We also have state net operating loss carryforwards of $9.3 million that expire in 2021 through 2026.

Federal and state laws limit the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. We conducted a preliminary analysis of our stock ownership changes under Internal Revenue Code Section 382 from our inception through December 31, 2007 and have reported our deferred tax assets related to net operating loss and research credit carryforwards after recognizing change of control limitations that may have occurred in 2003 and 2004. This limitation resulted in a reduction of deferred tax assets and a corresponding reduction in the valuation allowance. The Company has not updated its Section 382 analysis to assess whether any additional ownership changes have occurred due to costs associated with such analysis. If the Company has experienced any additional changes of control, utilization of its NOL or tax credit carryforwards would be subject to annual limitations under Section 382. Such additional annual limitations could result in the expiration of our reported net operating loss and credit carryforwards available as of December 31, 2011 before their utilization.

We adopted the provisions of FIN 48 effective January 1, 2007 (see Note 2, Summary of Significant Accounting Policies). Upon adoption of FIN 48, we determined that we did not have any unrecognized tax benefits and there was no effect on our consolidated financial condition or results of operations as a result of implementing FIN 48.

F-21

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are subject to U.S. federal and state income tax examinations by tax authorities for tax years 1999 through 2011 due to net operating losses that are being carried forward for tax purposes.

Our policy is to recognize interest and penalties related to income tax matters in income tax expense. We had no accrual for interest or penalties on our Consolidated Balance Sheets at December 31, 2011 and 2010, and have not recognized interest or penalties in our Consolidated Statements of Operations for the years ended December 31, 2011 and 2010.

(14) Related Party Transactions

Until July 2010, we were the 51% owner of each of two joint ventures in China, Beijing Calypte and Beijing Marr. In July 2010 we entered into a series of agreements providing for (i) the restructuring of our outstanding indebtedness to Marr and SF Capital and (ii) the transfer of our interests in the two Chinese joint ventures, Beijing Marr and Beijing Calypte, to Kangplus. Under the Debt Agreement, the parties agreed to convert $6,393,353 in outstanding indebtedness to 152,341,741 shares of our common stock (the “Shares”), and our remaining indebtedness to Marr, totaling $3,000,000, was cancelled. As of December 31, 2011, the common stock had not yet been issued and we have recorded a liability to related party in our consolidated balance sheet for $914,000. In consideration for such debt restructuring, we transferred our equity interests in Beijing Marr to Kangplus pursuant to the Equity Transfer Agreement and transferred certain related technology to Beijing Marr. We have also agreed to transfer our equity interests in Beijing Calypte to Marr or a designate of its choosing. The transactions contemplated by the Debt Agreement and the Equity Transfer Agreement were subject to Chinese government registration of the transfer of the equity interests. The registration was approved by the Chinese government in 2011, and the Shares were issued in March 2012. Under the debt agreement with SF Capital, $2,008,259 in outstanding indebtedness was converted to 47,815,698 shares of our common stock.

During 2011 and 2010, two investors advanced a total of $397,000 and $680,000, respectively, to the Company. Through March 22, 2012, these investors have further advanced us $220,000. These advances are intended for future subscription agreements.

(15) Commitments and Contingencies

On August 31, 2009 we filed a complaint against Roger Gale, a former director and officer of Calypte, Ron Mink, a former Chief Scientific Officer of Calypte, three other former employees, and Sedia Bioscience Corporation, a company formed in 2009 with which these former employees are believed to be associated (collectively, the “Defendants”), in the Circuit Court of the County of Multnomah in Portland, Oregon. In this matter, we are seeking (i) to enjoin Defendants from using or disclosing any of our trade secrets related to diagnostic and population incidence testing, (ii) to recover property belonging to us, and (iii) monetary damages. On March 10, 2010 we entered into a settlement agreement with Sedia and the Defendants, the terms of which are confidential but are not material to the Company or its investors.

Lease

We lease an office facility with a remaining term that extends to May 31, 2012. Subsequent to December 31, 2011, we have been in negotiations with the landlord to extend the existing lease. Rent expense was $84,000 for 2011.

Future annual minimum payments under the lease are as follows:

Years Ending December 31,
2012	$	84,000
2013	$	84,000
2014	$	35,000

F-22

(16) Subsequent Events

Subsequent to December 31, 2011, we have received an aggregate of $220,000 in advances from an existing investor in anticipation of entering into a subscription agreement. We are using the proceeds of these investments for general working capital purposes.

In March 2012, we issued the Shares to Marr pursuant to the Debt Agreement, as described in Notes 1, 8 and 14 above.

We have evaluated all other subsequent events through the date of this filing and determined there are no other material recognized or unrecognized subsequent events.

F-23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CALYPTE BIOMEDICAL CORPORATION
	(Registrant)


	By:	/s/ Adel Karas
	Adel Karas
	President, Chief Executive Officer, Chief Financial Officer and Secretary

Date: March 22, 2012

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

Signature	Title	Date

/s/ Adel Karas	President, Chief Executive Officer, Chief	March 22, 2012
Adel Karas	Financial Officer (Principal Financial and Accounting Officer) and Secretary, Director

/s/ Tareq Al Yousefi	Director	March 22, 2012
Tareq Al Yousefi

/s/ Kartlos Edilashvili	Director	March 22, 2012
Kartlos Edilashvili

S-1

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. sophomore Good

Calypte Biomedical (CBMC) Inactive 10-K2011 FY Annual report

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