Calypte Only Company with Full Menu of Tests.

Prepared Remarks of Roger I. Gale and Theodore R. Gwin

               Calypte Biomedical Corporation Second Quarter 2006            

               Analyst/Investor Conference Call                 

August 9, 2006 Tim Clemensen - Calypte Biomedical Corporation - Rubenstein IR Good afternoon and welcome to the Calypte Biomedical Second Quarter 2006 ResultsConference Call. Joining us today from the Calypte management team are RogerGale, Chairman and Chief Executive Officer and Ted Gwin, Chief FinancialOfficer. Management's comments can be accessed via the Internet at the followingaddress www.calypte.com and click on Investors. The conference call will beavailable for replay through September 8, 2006. By now you should have receiveda copy of the Company's second quarter 2006 earnings release that was issuedlast Friday. If you have not, you can view the press release at Calypte's website at calypte.com or feel free to contact our office at 212-843-8094 and wewill fax it to you. In addition, the June 30, 2006, 10QSB was filed on August 7. We'd like to remind you that during the course of this conference call theCompany might make projections or other forward-looking statements regardingfuture events for the future financial performance of the company. We want tocaution you that such statements are just predictions and that actual events orresults may differ materially based upon factors discussed on this call or dueto other events that are now unknown. Further we refer you to the documents theCompany files from time to time with the Securities and Exchange Commission andother publicly filed documents. These documents contain and identify importantrisk factors that could cause the actual results to differ materially from thosecontained in our projections or forward-looking statements. I would now like to turn the call over to Roger Gale, Chairman and CEO ofCalypte Biomedical. Roger Gale - Calypte Biomedical Corporation - Chairman and CEO Thank you, Tim. Good afternoon and thank you for joining us on the call today. I am going toreport to you today on the progress that we've made over the past quarter and inthe time since I last spoke to you in May with my colleagues. I am pleased toreport to you that I have myself relocated to Portland headquarters and I haveassumed full-time duties as chief executive officer on the first of August thismonth of 2006. Before I talk about our operations, Ted Gwin will review the financials andprovide us with an update from his recent board trip to China at the end of theJuly, but before turning over to Ted, let me just recount several current issuesrelated to our stock listing and our fund raising efforts. For now, we continueto trade on the American Stock Exchange as HIV. Following the formal noticeperiod, we expect to trade on the OTCBB, the over-the-counter bulletin board.The stock will likely be dual listed on the pink sheets as well. That timing isexpected to be August 21, 2006. We will put out an announcement as soon as wehave our new stock symbol. While the adverse impacts of the press notice of ourintention to withdraw from the AMEX has taken us somewhat by surprise, let meassure you that the transition to the OTCBB from the AMEX will have no impact onour ability to build product or meet shipment deadlines. My current operationalfocus is on matters within my control -- my control and my team's control.Control and influence and I'm taking an updated look now at Calypte businessopportunities and not focusing on the short term sentiment associated with wherethe stock trades and at what price. As long as the stock is listed, it hasalways been heavily traded off the AMEX, I do not expect any long-term adversereaction from our operational marketplace. With the help of our customers andour partners, we will execute on the sound business plan that we have envisionedsince the middle of last year 2005 and that we continue to implement today. Wehave a large number of investors and many of you are listening to me today andmany of you who followed Calypte for years, perhaps, know that we have had aconsiderable uphill task since the middle of last year to implement the earlystages of our business plan. It is my responsibility to all of our constituentsto focus on our business opportunities and, as these opportunities grow, to usetheir credibility to attract new and seasoned institutional investors.    Let me say what I can now about capitalizing the Company. In this transitionphase, we have more flexibility on the OTCBB to capitalize the Companyefficiently, which is very important, as we see several major opportunitieslooming for Aware HIV-1/2 Rapid Tests. We're particularly encouraged with thereception we've been receiving for our oral fluid test. That's our OMT RapidTest. However, there are new challenges. In June we announced that the Companyhad entered into a subscription agreement to sell an aggregate $3 milliondollars worth of our common stock. As of today, only $495,000 of this has beenfunded. The two investors concerned are in breach of the subscription agreement.We are working with the investor-representatives to remedy this situation. Theseagreements and the timeliness of the concomitant investments have been anintegral part of our re-capitalization program. To date, we have hired placementagents, two placement agents, as reported in the 10QSB. In April 2005, weconcluded an $8 million convertible note financing and entered into a $5.5million credit facility with Marr. As of today, we have the ability to issue oneadditional promissory note under the 2005 Mar credit facility in the amount ofthe $500,000 prior to August 31, 2006. During 2006, we offered to amend to $0.15 per share the exercise price ofwarrants issued in conjunction with our May and July 2004 private placements,our April 2005 8% convertible notes and our credit facility arrangements withMar for those warrant holders agreeing to exercise all or part of their warrantsby July 21, 2006. Warrant holders took advantage of this and it has helpedstrengthen our balance sheet. They exercised warrants to purchase an aggregateof 20 million shares of our stock at the reduced exercised price. We receivedapproximately $258,000 in cash proceeds from this exercise and retired over $3.5million of our outstanding secured debt. As part of this re-pricing offer, theinvestors also approved our withdrawal from the AMEX. I'm pleased to have with me Ted Gwin, our CFO, and not to miss out RickBrounstein, our Executive Vice President. He is also with us today and Rick willbe available for the Q&A session. Now let me turn it over to Ted who will review the financial results for Q2 andupdate you on his recent trip to China. I will then come back to you and discussthe ongoing operations and our plans for the future in some greater detail. Over to Ted Ted Gwin - Calypte Biomedical Corporation - CFO Thanks, Roger. As Tim said, we filed our second quarter 2006 10QSB on Monday, August 7. Today Iwant to give you some highlights of the quarter's activities and an update onChina. Revenue for continuing operations for the second quarter of 2006 totaled $49,000compared with $89,000 for the second quarter of 2005, a decrease of 40,000, or45%. In the second quarter of 2005, we also reported $705,000 in revenueattributable to sales of our Legacy Business products. The revenues and costsattributable to the Legacy business are classified as discontinued operationssubsequent to the sale of the business in November of 2005. Sales of our BED Incidence Test, which began in the fourth quarter of 2004accounted for 100% of our second quarter 2005 sales from continuing operationsand approximately 86% of our second quarter 2006 sales. The balance of ourrevenue for the second quarter of 2006 is from sales of our HIV-1/2 Oral FluidRapid Test to our South African distributor. The Company has received notification that its HIV-1/2 BSP blood rapid test hasbeen approved for addition to the USAID waiver list. This is an important stepwith helping the sales process in Africa and other USAID supported countries.We're in the process of performing additional field studies for USAID and WHOfor our HIV-1/2 Oral Fluid Rapid test, which should be concluded within 120days. These studies are required for that test to be placed on the USAID waiverlist.    Our gross margin decreased from 75% of sales in the second quarter of 2005 to aminus 59% in the second quarter of 2006. However, analyzing current rates is nottoo meaningful and they are not indicative of future results, which we expectwill trend to an average gross profit of 50%. Because of the minimal amounts ofrevenues and product quantities, the timing of minimum annual royalty payments,which are charged as cost of sales, have a significant impact on thepercentages. Further, in both 2005 and 2006, product costs were based on pilot plant sizeproduction lots and did not reflect the economies of scale that we expect toachieve in a commercial scale operation. Research and development costs decreased by $334,000, or 47%, from $710,000 in2005 to $376,000 in 2006. The decrease primarily reflects the elimination of ourprevious Rockville, Maryland facility based R&D staff and its related operationsas a result of our business restructuring in the second quarter of 2005. Whilewe continue to incur travel and other costs related to the support of ourmanufacturing facilities in Thailand and China and for various internationalclinical trials of our rapid tests during the second quarter of 2006, thoseexpenses decreased compared to the level incurred during the second quarter of2005. Offsetting the decreases noted was $64,000 of research and developmentexpense related to our rapid tests and incurred in conjunction with our BeijingMarr Chinese Joint Venture, which did not exist in 2005. Selling, general, and administrative costs decreased by $1.092 million, 53%,from $2.046 million in 2005 to $954,000 in 2006. The primary components of thenet decrease included the following:       o A decrease of approximately $535,000 related to the charge for therestructure of our operations and closure of the Maryland and Californiafacilities that was unique to the second quarter of 2005.       o A decrease of approximately 264,000 in marketing expenses, and       o A net decrease of approximately $179,000 in general and administrativemanagement and consulting expense. Our loss from operations for the second quarter of 2006, at $1,359,000, reflectsa 49% decrease compared with the $2,689,000 loss reported for the second quarterof 2005. We recorded net interest expense of $2,492,000 for the second quarterof 2006 compared with $2,078,000 of net interest income in the second quarter of2005. This was primarily due to the accounting for the derivative andanti-dilution obligations of our 2005 convertible note financing which wererequired to be adjusted to their fair value at each balance sheet or othermeasurement dates, with the change in value being recognized at interest expenseor income. This interest expense and income category is almost entirelynon-cash. I would like now to turn to the update of China where I just returned from lastweek. We've hired a new chief operating officer, David Harris, to manage theday-to-day operations in China. He has lived in China for many years and isfluent in both Mandarin and Cantonese, as well as having a law degree fromBeijing University. Prior to accepting the COO position, David was instrumentalin the successful completion of the SFDA submission for our HIV-1/2 Test. The factory renovations are now complete and the GMP validation andre-certification has begun. We anticipate this will take approximately 60 to 90days to complete. Upon completion of this process, this manufacturing facilitywill be available to support our Thailand facility as the expected level ofsales into Africa and the Middle East expand. In addition to manufacturing forexport, this facility will manufacture the HIV-1/2 Oral Fluid Test that isundergoing the SFDA review and approval, as well as any of the tests we acquiredwith the factory that we ultimately intend to sell. As I know there's a lot of focus on the SFDA process, let me give you achronology of events to date. The application to market our Aware HIV-1/2 OMTRapid Test is continuing through the SFDA approval process. Prior to submission,we had our application reviewed extensively for both form and content by SFDAexpert consultants. Then, in accordance with the Chinese Drug RegistrationRegulations; we submitted our application to the Beijing Drug Administration, orthe BDA, on December 27 of last year. The application has since passed a numberof important milestones in the approval process. On January 12, 2006, we were notified that the BDA had completed their initialreview of our application and found it to be sufficiently complete and incompliance with regulations for formal considerations. During the week ofJanuary 23, the BDA inspected our facilities in R&D records in connection withour application. (This is the standard inspection that all applicants have topass.) On January 25, 2006, we submitted several supplements to our applicationin response to requests for some additional information made by the BDAfollowing their inspection. During the week of February 20, 2006, the BDAforwarded our application to the SFDA in accordance with the processing timelinespecified in the Chinese Drug Registration Regulations.    On March 14, 2006, we were notified that the samples of our HIV-1/2 OMT testkits that had been selected by the BDA inspectors during their factory visit hadpassed evaluation and inspection by the National Institute for the Control ofPharmaceutical and Biological Products, otherwise known as the National Labs. What's next? The statutory review period of approximately 100 business days haspassed and we have not yet received a formal response as expected from SFDA. Wemust point out the statutory timelines given by the SFDA are guidelines and arenot absolute. We've been in touch with the SFDA. They are aware that they arelate and have expressed concern and continued interest in having an oral fluidHIV rapid test available in China soon. They have indicated to us that they aremaking every effort to get our application back on track. The next major milestone in the approval process is for applications to bereviewed by an SFDA expert committee, which is required for all novel HIVdiagnostic products such as our Aware HIV-1/2 OMT Rapid Test. These committeesmeet monthly and we should expect to be on the docket in October, and yesterdayits project director has said he will make every effort to get us on inSeptember. Oral Fluid HIV Tests are unique and new to China, and based on ourexperience with U.S. FDA, we have anticipated the likely time-consumingquestions that will come from that review. During the time since we submittedour application, we have conducted additional clinical trials for the ChineseCDC in expectation that the SFDA expert panel will ask for more data. We shouldhave the final report on both trials shortly and we have seen the raw data andfeel very good about the results. I would like to point out that the approvalprocess has been an iterative one, and much of what happens is not in ourcontrol. We feel strongly that China believes in the value in our product and weare confident in the quality and reliability. We will continue to work closelywith the SFDA as the product moves forward towards final approval. I will now turn the call back over to Roger who will more fully discuss ourbusiness strategy and current plan. Roger Gale - Calypte Biomedical Corporation - Chairman and CEO Thank you, Ted. To begin with, I would like to do a quick recap of our recent history to set thesecond part of what I'm going to say into context. In mid-2005, the Companycreated a restructuring and re-capitalization plan in order to reposition theCompany for success and build value for stockholders. Since then, the Companyhas been diligently executing upon that plan (even if, in reality, we have notnecessarily been rewarded to the extent that we would like by the market place).First, the company proceeded with successfully selling off its Legacy lab-basedurine test and blood confirmatory test and consolidated and relocated itsoffices to Lake Oswego, Oregon. These actions result in a reduction in spendingby over 50% to less than 500,000 a month and in Ted's report just earlier, wecan now see the benefits of that restructuring coming through. Simultaneously,the Company invested $3 million in its new "Ani platform" technology includingacquiring the necessary rights to introduce an HIV-1/2 diagnostic test and otherSTD tests into the U.S., Europe, and other important markets, without fear ofviolating certain patents held by our competitors. This set the base for us tointroduce a new and expanded diagnostic offering into both professional andover-the-counter markets. In early 2006, the Company further invested in a 51%stake in the manufacturing facility in Beijing China through a joint venture andTed has just referred to this joint venture. And in conjunction with thisongoing SFDA process in China that Ted described, we have renovated theproduction plant and we are now working to get it GMP compliant. We have recently announced plans for humanitarian programs into Africa,initially through the MineSeeker Charity. Today, we received the firstsubstantial order for 100,000 tests into the United Arab Emirates (UAE) and havebeen told by our distributor to expect additional country approvals in theregion soon. All of this is good news as we validate that we can sell a productthat we, within Calypte, have all known to be very high quality and unique forsome considerable period of time. The point here is that having a back-upmanufacturing site ready in China to support our Thailand manufacturingcapability is an important tactical move - one that we have invested in someconsiderable time ago.    With GMP approval in China, we can build product for export, pending our SFDAapproval for sale into the domestic Chinese market. This will give us invaluableexperience that will help in ramping up the factory for China production. Thisfactory is intended to handle production volumes of up to 10 million tests permonth and our initial experience will be invaluable in meeting this objective. In May 2006, the Company announced that it had hired me to lead the Companythrough the final stages of their structuring and re-capitalization process andthen, secondly, my assignment was to implement the new business plan and bringthe company into breakeven and then profitability within the next 1-1/2 to 2years. We had previously announced to you in our public filings that we intendedraising $15 to $20 million, and as I had indicated earlier, we have hired twoplacement agents in this regard. Our objective is to capitalize the Companysufficiently to bring it into break-even and profitability over the next 1 to2-1/2 years or sooner and allow us to proceed full bore with our business plan,capitalizing on the investments we've made over the past two years and whichhave yet to bear fruit. Further, it places us in a very strong partnering andnegotiating position, especially as we validate our U.S. technology built aroundthe Ani platform that I referred to earlier. We don't have any further definitive agreements in place at this time on thefinancing side, so I am going to move on to just talk about the capital marketsituation. I, and my management team, believe that if we are successful with thefundraising, i.e., the $15 to $20 million, we will not have to access thecapital market again during the next two-year period in order to meet ourcurrent objectives. But we can build and move on to build this business into aprofitable ongoing venture. It is not my intention to repeat again our overallstrategy and business plan for the Company; however, I do want to re-emphasizeto you that the management is continuously driving the restructuring andre-capitalization plans and substantial progress is being made in importantareas, not least of which many of these important areas where we are makingprogress are not short-term developments but do require medium and long-termefforts to arrive at some achievement. Our vision is to open up the global markets to our current range of HIVdiagnostic tests and to broaden our product range in HIV and STD tests throughdevelopments in our technology. While today we are developing a world-classprofessional care product, tomorrow we intend to not only capitalize on thatopportunity but expand with a developed world over-the-counter product offeringand eventually broaden the company's product range to the less-regulated,broader market use diagnostic tests beyond HIV. We envision developing amulti-platform offering in time, as many of the diseases that we diagnose arecomplementary to each other - i.e., they're often found together, for example,syphilis and HIV. I want to just pause for a moment then and just make a few points with regard toour key initiatives and I do apologize if some of these have been touched onalready but I do want to re-emphasize them. First, is our development in theChinese market. I don't want to repeat what Ted has already said, but theChinese market for HIV diagnostic tests is expected to grow from about $12million in 2003 to over $150 million by 2011. Once approved, our Aware HIV oraltest will be the only alternative fluid rapid test available in China. Our jointventure is putting in a sales and marketing plan to capture between 15% and 25%of that Chinese market for diagnostic screening tests and we expect to achievethat within the next two years, following approval. In my opinion, this isrealistic. Only a non-blood test, such as the one that we have, can safely bedistributed on a wide scale to meet the Chinese government's formal goals infighting HIV and AIDS. Further, this sales and marketing program is buildingrelationships with key figures in the Chinese government who support and driveand initiative, the company has determined, is essential to gaining significantmarket share for its products as well as opening doors to the introduction ofother over-the-counter versions of its Aware product in China. To this end,Calypte and Marr together in the joint venture that we have formed will make anadditional investment in China of over $2.5 million, primarily in the next 12months, as we begin the ramping up of our sales process. Second, I'd like to talk about the Indian market which, regrettably, in the pasthas been, perhaps, underplayed as we emphasized China. With an estimated 5.1million infections, India has the world's highest number of HIV/AIDS infectedpeople, second only to South Africa, and the market for HIV diagnostic testingis expected to grow in excess of 20% annually. Calypte is seeking approval tosell into 3 markets in India -- the military, the private sector, and thegovernment sector. The Company has begun field evaluation of its Aware OMT testin India and expects to file for approval in all of those three markets based onthe capabilities and approvals achieved in our Chinese facility. Once again,this Aware oral test will be the only alternative HIV rapid test available inIndia. While sales and marketing plans are not as well as developed as in China,on the strength of this test, I have set a target for the management team forthe Company to capture between 25% and 50% within 3 years following approval andlaunch.    Third is the development of the regional over-the-counter market. Beyond theU.S., Calypte is pursuing OTC market opportunity in the Middle East and EasternEurope. The Company has already begun selling this test to its distributor,Joseph & Gionis, and as I said earlier, we had received an order for 100,000units today. Our distributor is Joseph and Gionis and they are distributing forus throughout the region. The total number of countries to which they have theexclusive right is 21. We have also begun the process that will enable us tointroduce the over-the-counter test in Eastern Europe, particularly in Russia,as additional registrations and approvals are obtained. We filed for approvalwithin Russia and plan to work with Marr, our partner, there to develop a salesand marketing plan. Fourth, I'd like to emphasize the development of regional professional markets.Calypte is pursuing individual country markets in Africa, South Asia, and LatinAmerica for the professional version of our Aware OMT Rapid Test. In aggregate,these markets are expected to grow by 10% annually; however, growth rates arehigher in certain key countries and this is where the Company will focusparticular efforts. The Company has already begun selling its HIV OMT Rapid Testin South Africa and you will be aware through our press releases that we havereceived our first order from the MineSeeker Foundation. That order we expect tototal 1 million tests over the next 12 months, and we anticipate that will rampup to 5 million tests annually. We intend to build on this humanitarianapproach. These groups have a sincere interest in fighting HIV, AIDS epidemics,and have the funds to make it happen. It is well documented that diagnosing HIVis the key to controlling AIDS and reducing the prevalence and we believe, andMineSeeker has validated, the safety, ease of use of the non-blood tests likeour Aware OMT tests is the perfect diagnostic tests for this market. In additionto South Africa, Calypte has approvals in Kenya, Malaysia, Uganda, and Zimbabwe.Calypte has also recently obtained USAID approval of the Aware HIV blood tests,which will be added to the USAID waiver list. The Company is also underway inqualifying for the USAID waiver list with its Aware OMT test. Being on thatWaiver list, we believe further validates our product and qualifies bothproducts - blood and oral fluid tests - for inclusion in the U.S. government $6billion PEPFAR subsidized testing program. Fifth, the development of the market for the HIV BED Incidence Test. Calyptesupports the CDC Incidence Test as a contract manufacturer. This test is usedfor surveillance purposes. During the second quarter of 2006, the CDC issued arevised protocol that has been accepted by the UNAIDS and the World HealthOrganization to address certain conditions that may have resulted inover-estimation of Incidence. We believe this test design and use and theinterpretation of its results will continue to evolve as the public healthagencies and the CDC gain experience with it. We believe this product has acontinual role in the fight against HIV AIDS. Sixth, and I'm towards the end of my key points here, the development of theU.S. over-the-counter HIV tests. The U.S. is the largest market for HIVdiagnostic tests in the world, with 2005 revenue for screening tests estimatedat $165 million. The FDA advisory panel recently supported the development ofthe process to bring an OTC test to the United States and that's a very, veryimportant development. Calypte has invested approximately $3 million to obtainthe technology and equipment required to manufacture such a product in the U.S.and this, for us, is a longer-term investment where we expect to reapconsiderable future rewards. Calypte is well positioned to deliver this U.S. OTCmarket rapid assay for HIV and other diseases of public health interest. Thefirst step will be to obtain approval for the test in the professional usemarket. That product is in the lab today. With this approval, the Company willhave 1 of only 2 oral fluid HIV tests approved for sale in the U.S. and theCompany expects to successfully compete in the U.S. professional market whilealso focusing clinical efforts on the OTC market. The Company expects that itwill capture somewhere between 33% and 50% of the U.S. OTC market. It isexpected that we will have strong margins and that this product can position theCompany for possible partnership and strategic relationships. We are buildingthis product around a market position that would be protected by strong patentbarriers. And finally, just a couple of early comments on some new developments: First,Calypte has identified several new promising diagnostic products that it isdeveloping in partnership with the U.S. CDC. These products include an HIV RapidIncidence Test and a Rapid Test for syphilis. The Company is in the process ofobtaining a second license from Ani Biotech for a new rapid test platform thatenables simultaneous screening of a sample for multiple analytes on a singletest device, which we call our Multi-Test platform. Such a platform is suitablefor point-of-care testing of blood, oral fluid, and urine samples. Calypte'slicense will be exclusive for oral fluid and urine, and non-exclusive for blood.By grouping multiple tests on the same device, the multi-platform test offers aless expensive and more convenient way to perform diagnostic testing.    And now I want to wrap up, but in wrapping up I would just like to look backvery briefly. We have now completed a significant and diverse number of fieldstudies of our Aware blood and oral tests in some of the most challengingsettings known for an HIV screening test, and these tests, our tests, haveconsistently demonstrated performance that is on par with rapid blood tests outin the market. While we have expected this level of performance from our bloodtests, it is a remarkable achievement for an alternative fluid rapid test suchas our oral test to compete on par with the same or better test results asblood. Of course, the ultimate test for our products is not how they perform inthe field studies, but how they perform in the market and here too the news isgood. As some of our recent press releases demonstrate, the sales momentum forour Aware test is beginning to build. I'm optimistic that over the next 12months we will see our Aware line validated, not just in field studies andregulatory evaluations, but by the market itself. Looking towards the future, wewill stepwise expand the reach of our HIV testing products into the highermargin segments and markets. We have already rolled out and received the firstapproval in the UAE for our OTC version of our products, and, with today'sorder, we are moving ahead. We have in development the next generation of ourAware range of products which will be a professional market product fordeveloped countries such as the U.S. which we intend to follow as quickly aspossible with an over-the-counter version. Each of these steps will bring usinto markets with successively higher margins. And last, as we gain experience in market validation of our next-generationAware platform, it sets the stage for us to expand beyond our HIV testing line.We will build a profitable Company on the HIV platform and a much larger Companyand profitable Company with the product offerings going forward. Thank you very much, ladies and gentlemen. Our conference call today has been alittle longer than usual. The reason is we just wanted to make sure that one ortwo short-term developments, adverse developments have not detracted themanagement and the company from its medium- to longer-term goal of buildingstockholder value, and getting our products out into the marketplace, andgetting profitable as soon as possible. So we thank you very much for bearingwith us and thank you to my colleagues and thank you all for listening in. ByeBye.