10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

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

Commission file number 001-14257

Alpha Innotech Corp.

(Exact name of Registrant as specified in its charter)

Delaware	58-1729436
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2401 Merced St., San Leandro, CA94577	(510) 483-9620
(Address of principal executive offices)	(Issuer’s telephone number )

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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  ¨ 

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

As of August 10, 2007, there were 10,462,576 shares of the issuer’s Common Stock, $.01 par value per share, outstanding.

Transitional Small Business Disclosure Format: Yes  ¨    No  x 

Alpha Innotech Corp.

Quarter Ended June 30, 2007

Table of Contents

PART I.  FINANCIAL INFORMATION	2
Item 1. Financial Statements	2
Condensed Consolidated Balance Sheets (Unaudited)	2
Condensed Consolidated Statements of Operations (Unaudited)	3
Condensed Consolidated Statements of Cash Flows (Unaudited)	4
Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2. Management’s Discussion and Analysis or Plan of Operation	12
Item 3. Controls and Procedures	16
PART II.  OTHER INFORMATION	16
Item 4. Submission of Matters to a Voter of Security Holders	16
Item 6. Exhibits	16

FORWARD LOOKING STATEMENTS

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Information included in this Form 10-QSB may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except for the historical information contained in this discussion of the business and the discussion and analysis of financial condition and results of operations, the matters discussed herein are forward looking statements. These forward looking statements include but are not limited to the Company’s plans for sales growth, expectations of gross margin, expenses, new product introduction, and the Company’s liquidity and capital needs. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. In addition to the risks and uncertainties described in “Risk Factors” contained in the annual report on Form 10-KSB filed with the Securities and Exchange Commission on April 2, 2007, these risks and uncertainties may include consumer trends, business cycles, scientific developments, changes in governmental policy and regulation, currency fluctuations, economic trends in the United States and inflation. Forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

1

PART I. FINANCIAL INFORMATION 

Item 1.   Financial Statements

ALPHA INNOTECH CORP.

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
	2007			2006
Assets
Current assets
Cash and cash equivalents	$	399,256		$	445,656
Accounts receivable, net		2,080,530			2,189,411
Inventory, net		791,313			633,550
Prepaid expenses and other current assets		110,190			189,524
Total current assets		3,381,289			3,458,141
Property and equipment, net		966,164			1,048,906
Other assets		91,307			91,307
Total assets	$	4,438,760		$	4,598,354
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable	$	1,762,114		$	1,608,286
Accrued liabilities		1,123,046			975,666
Current portion of debt		1,500,803			1,593,675
Deferred revenue		911,663			895,875
Other liabilities		205,576			210,474
Total current liabilities		5,503,202			5,283,976
Debt, net of current portion		298,503			489,068
Commitments and contingencies		-			-
Total liabilities		5,801,705			5,773,044
Shareholders' deficit:
Common stock, $0.01 par value per share: 50,000,000 shares authorized,
10,421,393 and 9,891,393 shares issued and outstanding		104,214			98,914
Additional paid in capital		17,252,632			17,108,125
Accumulated deficit		(18,711,723	)		(18,373,661	)
Treasury stock		(8,068	)		(8,068	)
Total shareholders' deficit		(1,362,945	)		(1,174,690	)
Total liabilities and shareholders' deficit	$	4,438,760		$	4,598,354
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

 

ALPHA INNOTECH CORP.

Condensed Consolidated Statements of Operations (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Revenues	$	3,611,820		$	3,192,617		$	7,158,756		$	6,151,411
Cost of goods sold		1,619,770			1,508,802			3,195,087			3,016,712
Gross profit		1,992,050			1,683,815			3,963,669			3,134,699
Operating costs and expenses:
Sales and marketing		1,162,826			1,158,046			2,217,395			2,140,577
Research and development		343,996			410,245			647,490			737,473
General and administrative		753,297			606,946			1,285,295			1,111,038
Total operating costs and expenses		2,260,119			2,175,237			4,150,180			3,989,088
Loss from operations		(268,069	)		(491,422	)		(186,511	)		(854,389	)
Other income (expense):
Interest expense		(66,693	)		(73,620	)		(149,145	)		(158,095	)
Other income (expense), net		(2,635	)		(10,748	)		(2,406	)		20,998
Total other income (expense)		(69,328	)		(84,368	)		(151,551	)		(137,097	)
Net loss	$	(337,397	)	$	(575,790	)	$	(338,062	)	$	(991,486	)
Net loss per share - basic and diluted	$	(0.03	)	$	(0.06	)	$	(0.03	)	$	(0.10	)
Weighted average shares outstanding - basic and diluted		10,421,393			9,804,847			10,289,625			9,765,546

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

ALPHA INNOTECH CORP.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
	2007			2006
Cash flow from operating activities:
Net loss	$	(338,062	)	$	(991,486	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		275,345			279,683
Allowance for sales returns and doubtful accounts		(6,013	)		(3,727	)
Provision for demo equipment		(8,175	)		(1,000	)
Provision for inventory		15,482			-
Stock based compensation		149,807			48,447
Acretion of debt discount to interest expense		9,435
Change in operating assets and liabilities:
Accounts receivables		114,894			867,641
Inventory		(173,245	)		246,977
Prepaid expenses and other current assets		79,334			112,734
Other assets		-			(36,647	)
Accounts payable		153,828			80,397
Accrued liabilities		147,380			(38,529	)
Deferred revenue		15,788			(4,941	)
Other liabilities		(4,898	)		(37,986	)
Net cash provided by operating activities		430,900			521,563
Cash flows from investing activities:
Purchase of property and equipment		(184,428	)		(289,477	)
Net cash used in investing activities		(184,428	)		(289,477	)
Cash flows from financing activities:
Proceeds from borrowing of debt obligations		7,128			-
Repayment of debt obligations		(300,000	)		(411,652	)
Proceeds from exercise of warrants		-			8,068
Repurchase of common stock		-			(8,068	)
Net cash used in financing activities		(292,872	)		(411,652	)
Net decrease in cash and cash equivalents		(46,400	)		(179,566	)
Cash and cash equivalents at the beginning of the period		445,656			545,665
Cash and cash equivalents at the end of the period	$	399,256		$	366,099
The accompanying notes are an integral part of these unaudited condensed financial statements.

4

ALPHA INNOTECH CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization and Summary of Significant Accounting Policies

Nature of Operations - Alpha Innotech Corporation was incorporated and began operations in June 1992, in the state of California, with facilities in San Leandro, California. Xtrana, Inc. was incorporated in October 1987 in the state of Delaware. On October 3, 2005, Alpha Innotech Corporation was acquired by Xtrana, Inc. In the transactions, Alpha Innotech Corporation merged with a subsidiary of Xtrana, Inc. and became a wholly-owned subsidiary of Xtrana, Inc. Xtrana, Inc. changed its corporate name to Alpha Innotech Corp. and obtained a new trading symbol APNO.OB.

Alpha Innotech Corp. and subsidiary (the “Company”) develop and market both macro imaging and micro imaging systems. The macro imaging systems are used for image documentation, quantitative analysis, and image archiving. These systems are used with electrophoresis samples (gel, blots, autoradiographs, etc), microscopy applications, and general imaging from insects to culture plates. The micro imaging systems address the micro array, multi-plex array and cell based markets. Researchers use the microimaging products to analyze slides or multi well microplates printed with genomic, proteomics or cellular samples and in some cases, fixed cell cultures.

Basis of Presentation - The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to these rules and regulations. These condensed consolidated financial statements should be read in conjunction with our audited financials statements and footnotes related thereto for the year ended December 31, 2006 included in our annual report on Form 10-KSB filed with the Securities and Exchange Commission on April 2, 2007 (“Annual Report”). The unaudited condensed consolidated financial statements include, in our opinion, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position as of June 30, 2007, and the results of our operations and cash flows for the six months ended June 30, 2007 and June 30, 2006. The results of operations for such interim periods are not necessarily indicative of the results to be achieved for the full year.

Management’s Plan - Through June 30, 2007, the Company has incurred substantial losses. For the six month period ended June 30, 2007, the Company had a loss from operations in the amount of $186,511and a net loss of $338,062. The Company has a working capital deficiency and a stockholder’s deficit as of June 30, 2007. However, the Company has had a positive cash flow from operations for the past five quarters.  For the six month period ended June 30, 2007, the Company had a positive cash flow from operations in the amount of $430,900. As a result, management believes the Company has sufficient cash to fund its operating, investing, and financing activities in the near term. Management plans to continue to manage expenses and operate using the existing line of credit.

Going Concern - The accompanying condensed consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities in the normal course of business. The Company has incurred recurring losses from operations and was unable to generate positive cash flow from operations from 1999 through 2005. These conditions raise substantial doubts about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Comprehensive Loss - For all periods presented, there were no differences between net loss and comprehensive loss.

Loss Per Share - Basic net loss per share to common stockholders is calculated based on the weighted-average number of shares of common stock outstanding during the period, excluding those shares that are subject to repurchase by or forfeiture to the Company. Diluted net loss per share attributable to common stockholders would give effect to the dilutive effect of common stock issuable upon the exercise or conversion of stock options and warrants. Dilutive securities have been excluded from the diluted net loss per share computations as they have an antidilutive effect due to the Company’s net loss.

5

The following outstanding stock options and warrants were excluded from the computation of diluted net loss per share attributable to holders of common stock as they had antidilutive effects as of June 30, 2007 and 2006.

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Shares issuable upon exercise of stock options		209,140		—		209,140		—
Shares issuable upon exercise of warrants		432,391		333,958		432,391		333,958
Denominator for basis and diluted calculations		641,531		333,958		641,531		333,958

Accounting for Uncertainty in Income Taxes - In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in tax positions. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN 48 provides guidance on de-recognition, classification, interest and penalties, and accounting in interim periods and requires expanded disclosure with respect to the uncertainty in income taxes. FIN 48 requires that we recognize in our financial statements the impact of a tax position if that position is more likely than not to be sustained on audit, based on the technical merits of the position. The Company adopted the provisions of FIN 48 as of January 1, 2007, with the cumulative effect of the change in accounting principle to have been recorded as an adjustment to opening retained earnings if there had been any (there were none). At the adoption date and as of June 30, 2007, the Company did not have any unrecognized tax benefits and no adjustments to liabilities or operation were required.

Recent Accounting Pronouncements- In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its financial position and results of operations. 

2. Balance Sheet Components

Accounts receivable, net consisted of the following at June 30, 2007 and December 31, 2006:

	2007			2006
Accounts receivable	$	2,225,128		$	2,340,022
Less allowance for sales returns		(139,598	)		(143,453	)
Less allowance for doubtful accounts		(5,000	)		(7,158	)
Accounts receivable, net	$	2,080,530		$	2,189,411

Inventory, net consisted of the following at June 30, 2007 and December 31, 2006:

	2007			2006
Raw materials	$	754,577		$	571,693
Inventory in transit		94,052			103,691
Less allowance for excess and obsolete inventory		(57,316	)		(41,834	)
Inventory, net	$	791,313		$	633,550

6

Property and equipment, net consisted of the following at June 30, 2007 and December 31, 2006:

	2007			2006
Machinery and equipment	$	406,817		$	404,687
Furniture and fixtures		208,201			208,201
Leasehold improvements		1,507,500			1,507,500
Loaner and demonstration units		954,241			812,188
Computers		331,430			309,072
Software		97,695			90,517
Total property and equipment		3,505,884			3,332,165
Less accumulated depreciation and amortization		(2,539,720	)		(2,283,259	)
Property and equipment, net	$	966,164		$	1,048,906

In 2002, the Company entered into a capital lease agreement for production equipment. As of June 30, 2007, property and equipment includes $4,756 of equipment under capital lease and accumulated amortization of assets under capital lease was $4,756.

Accrued liabilities consisted of the following at June 30, 2007 and December 31, 2006:

	2007		2006
Payroll and related costs	$	403,542	$	412,877
Warranty		135,485		135,773
Audit and tax accrual		44,250		56,500
Finder’s fee		175,000		175,000
Consultant and board member fees		68,333		68,930
Founder's bonus		176,000		-
Other		120,436		126,586
Total accrued liabilities	$	1,123,046	$	975,666

7

3. Share-Based Employee Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payments” (“SFAS 123R”) using the modified prospective transition method. Under the modified prospective transition method, prior periods are not restated for the effect of SFAS 123R. Starting with the first quarter of 2006, compensation cost includes all share-based payments granted prior to, but not vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123R. The company recognizes the fair value of its stock option awards as compensation expense over the requisite service period of each award, generally four years. Compensation expense related to stock options granted prior to January 1, 2006 and on or after January 1, 2006 is recognized on a straight-line basis.

The following table presents share-based compensation expense included in the Condensed Consolidated Statements of Operations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Cost of goods sold	$	2,688	$	2,117	$	5,101	$	2,117
Sales and marketing		28,447		8,649		41,442		8,649
Research and development		13,242		5,601		19,884		5,601
General and administrative		50,708		16,694		83,380		32,080
Total share-based compensation	$	95,085	$	33,061	$	149,807	$	48,447

As of June 30, 2007, $681,381 of total unrecognized share-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award through February, 2011. The weighted average term of the unrecognized stock-based compensation is 2.76 years.

In the six months ended June 30, 2007, no share-based compensation expense was capitalized and there were no recognized tax benefits associated with the share-based compensation expense. The share-based compensation expense did not significantly impact basic and diluted net loss per share in the six months ended June 30, 2007.

The following table summarizes the Company’s unvested stock option activity for the six months ended June 30, 2007:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested stock options outstanding at January 1, 2007		389,566		$	1.42
Granted		485,500			0.94
Vested		(97,224	)		0.78
Forfeited		(38,875	)		1.01
Expired		(11,595	)		6.47
Unvested stock options outstanding at June 30, 2007		727,372		$	1.12

8

The fair value of unvested shares is $817,864 for the six months ended June 30, 2007.

The Company estimates the fair value of stock options using the Black-Scholes Option Pricing Model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, expected option term, expected volatility of the stock over the option’s expected term, risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The Company believes that the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the stock options granted.

The value of each option grant was estimated on the date of grant using the Black-Scholes Option Pricing Model with the following assumptions:

	Six Months Ended June 30,
	2007			2006
Dividend yield		0.00	%		0.00	%
Volatility		157.91	%		70.00	%
Risk-free interest rate		4.76	%		5.02	%
Expected term in years	10 years			10 years

Activity under the Company’s stock plans for the six months ended June 30, 2007 is as follows:

	Shares			Weighted -Average Exercise Price per Share		Weighted-Average Remaining Contractual Terms		Aggregate Intrinsic Value
Outstanding at January 1, 2007		880,821		$	2.30
Grants		485,500			0.94
Forfeitures		(38,875	)		1.01
Expirations		(11,595	)		6.47
Outstanding at June 30, 2007		1,315,851		$	1.80		7.87	$	1,039,647
Exercisable at June 30, 2007		588,479		$	2.64		6.06	$	166,024

The aggregate intrinsic value is the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of its first quarter of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of that date. The Company’s closing stock price on June 30, 2007 was $1.50.

9

4. Stock Option Plans 

At June 30, 2007, the Company had five stock option plans for the benefit of employees, officers, directors, and consultants of the Company. As of June 30, 2007, a total of 1,895,105 shares of the Company’s common stock were reserved for issuance under the Plans. Options granted under the Plans are generally exercisable for a period of ten years from the date of grant at an exercise price that is not less than the closing price of the common stock on the date of grant. Options granted under the Plans generally vest over a one- to five-year period from the date of the grant.

Stock option plan activity for the six months ended June 30, 2007 and June 30, 2006 was as follows:

				Outstanding Options
	Shares Available for Grant			Number of Shares			Weighted Average Exercise Price		Aggregate Price
Balance, January 1, 2006		460,368			475,117		$	3.21	$	1,524,282
Authorization of 2006 Plan		1,000,000			—			—		—
Options granted		(416,001	)		416,001			1.46		608,643
Options cancelled		11,377			(11,377	)		2.19		(24,945	)
Options expired		81			(906	)		13.32		(12,072	)
Balance, June 30, 2006		1,055,825			878,835			2.38		2,095,908
Options granted		(60,000	)		60,000			0.95		57,000
Options cancelled		42,316			(42,316	)		1.42		(60,253	)
Options expired		14,198			(15,698	)		4.08		(64,016	)
Balance, December 31, 2006		1,052,339			880,821			2.30		2,028,639
Evergreen provision per 2006 plan		494,570			—			—		—
Restricted stock issued		(530,000	)		—			—		—
Options granted		(485,500	)		485,500			0.94		454,950
Options cancelled		38,875			(38,875	)		1.01		(39,351	)
Options expired		8,970			(11,595	)		6.47		(74,980	)
Balance, June 30, 2007		579,254			1,315,851		$	1.80	$	2,369,258

10

The following information summarizes stock options outstanding at June 30, 2007: 

		Options Outstanding at June 30, 2007						Options Exercisable at June 30, 2007
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Number Outstanding		Weighted Average Exercise Price
$	0.90		403,500		9.63	$	0.90	—		$	0.90
	0.95		51,666		7.23		0.95		38,334		0.95
	1.20		60,000		9.97		1.20		—		1.20
	1.35		148,000		8.75		1.35		42,415		1.35
	1.40		29,932		1.77		1.40		29,933		1.40
	1.50		40,000		6.33		1.50		40,000		1.50
	1.53		200,000		8.78		1.53		87,500		1.53
	1.66		56,117		7.84		1.66		26,639		1.66
	1.92		8,243		7.28		1.92		6,319		1.92
	2.30		11,000		5.10		2.30		11,000		2.30
	2.62		100,024		4.88		2.62		98,970		2.62
	2.89		120,006		3.72		2.89		120,006		2.89
	3.70		49,500		4.82		3.70		49,500		3.70
	6.60		2,000		1.34		6.60		2,000		6.60
	7.00		6,000		3.97		7.00		6,000		7.00
	7.81		1,500		3.75		7.81		1,500		7.81
	9.38		200		2.56		9.38		200		9.38
	9.40		15,663		1.92		9.40		15,663		9.40
	10.00		6,000		3.11		10.00		6,000		10.00
	10.30		1,500		3.11		10.30		1,500		10.30
	11.56		4,500		0.92		11.56		4,500		11.56
	16.87		500		2.68		16.87		500		16.87
			1,315,851						588,479

The weighted average remaining contractual life of outstanding options at June 30, 2007 was 7.87 years. At June 30, 2007, there were 588,479 options exercisable with a weighted average exercise price of $2.64.

In February 2007, the Company granted restricted stock awards and issued 530,000 shares of the Company’s common stock to employees. During the vesting period the employees have the rights of a shareholder in terms of voting and dividends but are restricted from transferring the shares. The restricted shares vest over a three-year period with 1/3 of the shares vesting one year from February 2007, and at a rate of 1/36^th per month for the remaining 24 months, so long as the employees continue to be employed by the Company. Restricted shares are valued at the price of common stock on the date of grant, $0.90, and the expense is recorded ratably over the vesting period.

11

A summary of the unvested restricted share activity for the six months ended June 30, 2007 is as follows:

	Number of Shares		Weighted- Average Grant Date Fair Value
Unvested at January 1, 2007		—	$	—
Granted		530,000		0.90
Unvested at June 30, 2007		530,000	$	0.90

At June 30, 2007, there was $437,239 of total unrecognized compensation costs related to the outstanding restricted stock awards that will be recognized over a weighted average period of 2.63 years.

As of June 30, 2007, the Company had 687,988 warrants to purchase common stock outstanding and exercisable for prices ranging from $0.0875 to $14.69 with a weighted average exercise price of $ 0.92 per share. The weighted average remaining contractual life of these warrants at June 30, 2007 was 5.01 years. These warrants have expiration dates ranging from August 2007 to July 2016.

5. Cash Flow Information

	Six Months Ended June 30,
	2007		2006
Supplemental disclosures:
Cash paid for interest	$	149,145	$	158,095
Supplemental schedule of noncash financing activities:
Issuance of restricted shares	$	5,300	$	—

Item 2.   Management’s Discussion and Analysis or Plan of Operation 

The information contained in this Form 10-QSB is intended to update the information contained in our Annual Report on Form 10-KSB for the year ended December 31, 2006 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-KSB. The following discussion and analysis also should be read together with our condensed consolidated financial statements and the notes to the condensed consolidated financial statements included elsewhere in this Form 10-QSB.

Except for the historical information contained herein, this report contains forward-looking statements (identified by the words “estimate,” “anticipate,” “expect,” “believe,” and similar expressions), which are based upon management’s current expectations and speak only as of the date made. These forward-looking statements are subject to risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements and include the factors discussed in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006.

 Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions 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 assumptions 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. In addition, estimates and assumptions about future events and their effects cannot be determined with certainty. These estimates and assumptions may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have been included in the condensed consolidated financial statements as soon as they became known. Actual results may differ from these estimates under different assumptions or conditions. In addition, we are periodically faced with uncertainties, the outcomes of which are not within our control and may not be known for extended periods of time.

12

 Our critical accounting policies are set forth below.

Revenue Recognition

 Our revenue is derived from the sale of digital imaging systems and other products, net of returns and allowances, and is recognized when a contract is executed, all delivery obligations have been met, the fee is fixed and determinable, and collection is probable. All products are sold with a one year standard warranty agreement and we record an associated reserve for estimated warranty costs.

For products sold where software is deemed to be more than incidental, we follow Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended. Revenue earned on software arrangements involving multiple elements is allocated to each element based on vendor-specific objective evidence, which is based on the price charged when the same element is sold separately. When a digital imaging system is sold, the multiple elements are software and maintenance and support. Revenue allocated to software is recognized when a contract is executed, all delivery obligations have been met, the fee is fixed and determinable, and collection is probable. Revenue allocated to maintenance and support is recognized ratably over the maintenance term, typically for a period of one year, beginning when a digital imaging system is considered sold or an extended maintenance and support contract is signed.

Revenue is recorded net of estimated returns. Our management makes estimates of potential future product returns related to current period revenue. We analyze historical returns, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of our allowance for sales returns and other allowances, such as allowance for bad debts, in any accounting period. As of June 30, 2007, our allowance for sales returns was $139,598 and our allowance for doubtful accounts was $5,000.

Inventory

We record inventories at the lower of cost or market value, with cost generally determined on a first-in, first-out basis. We perform periodic valuation assessments based on projected sales forecasts and analyzing upcoming changes in future configurations of our products and record inventory write-downs for excess and obsolete inventory. As of June 30, 2007, our allowance for excess and obsolete inventory was $57,316.

Deferred Taxes Valuation Allowance

We believe sufficient uncertainties exist regarding the future realization of deferred tax assets, and, accordingly, a full valuation allowance is required at June 30, 2007. In subsequent periods if and when we generate pre-tax income, a tax expense will not be recorded to the extent that the remaining valuation allowance can be used to offset that expense. Once a consistent pattern of pre-tax income is established or other events occur that indicate that the deferred tax assets will be realized, additional portions or all of the remaining valuation allowance will be reversed back to income. Should we generate pre-tax losses in subsequent periods, a tax benefit will not be recorded and the valuation allowance will be increased. Despite the valuation allowance, we retain the ability to utilize the benefits of net operating loss carryforwards and research and development credits.

Recent Accounting Pronouncements- In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessingthe impact of SFAS 159 on its financial position and results of operations. 

Results of Operations

Revenues

Our revenues are primarily derived from sales of instruments, software, consumables, and service contracts. Total revenues were $3,611,820 and $3,192,617 for the three-month periods ended June 30, 2007 and 2006, respectively, representing an increase of $419,203 or 13.1%. Total revenues were $7,158,756 and $6,151,411 for the six-month periods ended June 30, 2007 and 2006, respectively, an increase of $1,007,345 or 16.4%. These increases were primarily due to increased sales under our OEM agreement with GE Healthcare and increased sales of our FluorChem HD2 and AlphaImager HP products, offset by lower domestic sales of our FluorChem SP product.

13

For the three- and six- month periods ended June 30, 2007, revenues outside of the United States represented 53.2% and 49.7%, respectively, of our total revenues compared to 41.7% and 37.3% of our total revenues for the three- and six- month periods ended June 30, 2006. The increase was primarily due to increased sales under our OEM agreement with GE Healthcare.

Cost of Goods Sold

Cost of goods sold includes direct material, labor and manufacturing overhead. Cost of goods sold were $1,619,770 and $1,508,802 for the three-month periods ended June 30, 2007 and 2006, respectively, representing an increase of $110,968 or 7.4%. Cost of goods sold was $3,195,087 and $3,016,712 for the six- month periods ended June 30, 2007 and 2006, respectively, representing an increase of $178,375 or 5.9%. Changes in the mix of products sold, including increased sales of depreciated demonstration units and increased sales of high margin products to GE Healthcare, slowed the growth in cost of goods sold relative to growth in revenues.

Gross Profit

Gross profit was $1,992,050 and $1,683,815 for the three-month periods ended June 30, 2007 and 2006, respectively, representing an increase of $308,235 or 18.3%. The gross profit was $3,963,669 and $3,134,699 for the six-month periods ended June 30, 2007 and 2006, respectively, representing an increase of $828,970 or 26.4%. The gross profit as a percentage of revenues was 55.2% and 52.7% for the three-month periods ended June 30, 2007 and 2006, respectively. The gross profit as a percentage of revenues was 55.4% and 51.0% for the six- months ended June 30, 2007 and 2006, respectively. These improvements in gross profit are attributable primarily to changes in the mix of products sold from low margin products to high margin products.

Sales and Marketing Expenses

Sales and marketing expenses were $1,162,826 and $1,158,046 for the three- month periods ended June 30, 2007 and 2006, respectively, representing an increase of $4,780 or 0.4%. Sales and marketing expenses were $2,217,395 and $2,140,577 for the six- month periods ended June 30, 2007 and 2006, respectively, representing an increase of $76,818 or 3.6%. Sales and marketing expenses as a percentage of revenues decreased from 36.3% for the three- month period ended June 30, 2006 to 32.2% for the three- month period ended June 30, 2007. Sales and marketing expenses as a percentage of revenues decreased from 34.8% for the six- month period ended June 30, 2006 to 31.0% for the six- month period ended June 30, 2007. These increases in sales and marketing expenses were primarily due to stock based compensation expenses incurred in the first quarter. We anticipate sales and marketing expenses to increase as we fill open sales and technical support positions.

Research and Development Expenses

Research and development expenses were $343,996 and $410,245 for the three-month periods ended June 30, 2007 and 2006, respectively, representing a decrease of $66,249 or 16.1%. Research and development expenses were $647,490 and $737,473 for the six-month periods ended June 30, 2007 and 2006, respectively, representing a decrease of $89,983 or 12.2%. Research and development expenses as a percentage of revenues decreased from 12.8% for the three-month period ended June 30, 2006 to 9.5% for the three-month period ended June 30, 2007. Research and development expenses as a percentage of revenues decreased from 12.0% for the six- month period ended June 30, 2006 to 9.0% for the six-month period ended June 30, 2007. These decreases in research and development spending resulted from decreased spending on salaries and consultants.

General and Administrative Expenses

General and administrative expenses were $753,297 and $606,946 for the three- month periods ended June 30, 2007 and 2006, respectively, representing an increase of $146,351 or 24.1%. General and administrative expenses were $1,285,295 and $1,111,038 for the six- month period ended June 30, 2007 and 2006, respectively, representing an increase of $174,257 or 15.7%. The increases in expenses were related in part to accruals to the Company’s founders (Messrs. Haseeb Chaudhry and Darryl Ray) in accordance with their employment agreements and Founders Bonus Plan. For the three-month period ended June 30, 2007, the Company accrued $176,000 for the Founders Bonus Plan. The Company expects to pay $76,000 in cash and $100,000 in stock to the founders in 2008, based on expected 2007 results. The general and administrative expenses as a percentage of revenues increased from 19.0% for the three-month period ended June 30, 2006 to 20.9% for the three-month period ended June 30, 2007. The general and administrative expenses as a percentage of revenues decreased from 18.1% for the six-month period ended June 30, 2006 to 18.0% for the six-month period ended June 30, 2007.

14

Other Income (Expense)

Interest expenses were $66,693 and $73,620 for the three-month periods ended June 30, 2007 and 2006, respectively, representing a decrease of $6,927 or 9.4%. Interest expenses were $149,145 and $158,095 for the six-month periods ended June 30, 2007 and 2006, respectively, representing a decrease of $8,950 or 5.7%. The lower expenses were attributable primarily to lower outstanding balance owed on a term note.

Liquidity and Capital Resources

 From inception through June 30, 2007, Alpha Innotech Corporation ("Alpha CA") has raised a total of $1,956,076, net of offering costs, in convertible notes that were converted into redeemable convertible preferred stock in 2004, a total of $7,615,319, net of offering costs, from the sale of redeemable convertible preferred stock, and $107,137, net of offering costs, from the issuance of common stock. As a result of the closing of the merger with Xtrana, on October 3, 2005 Alpha CA received an additional $2,033,000 in cash. As described below, the Company also raised a total of $375,000 from the sale of convertible notes in July 2006. As of June 30, 2007, we had $399,256 in cash and a working capital deficit.

At June 30, 2007, we had the following capital resources available:

Issuance of Convertible Note - On July 21, 2006, the Company completed a private placement offering of subordinated Senior Convertible Note with the principal amount of $375,000 due in 2011 (the "Note"). The Note bears interest at a rate of 3% per year. During the occurrence of an "Event of Default" under the Note, the Note will bear interest at a rate of 10% per year. The Note is convertible intoshares of common stock of the Company at an initial conversion price of $1.60 per share. As of June 30, 2007, no portion of the principal amount of the note had been repaid or converted.

Loan from Alexandria - On April 8, 2005, Alpha CA secured a loan in the amount of $1,500,000. The loan bears interest at the rate of 12.5% per annum and the outstanding principal amount of the loan is due and payable in 30 equal monthly installments of $50,000 per month ($600,000 per year) beginning on November 1, 2005. As of June 30, 2007, $1,000,000 of the principal had been repaid, leaving $500,000 still owing. The obligations under the loan are secured by a second priority lien and security interest in substantially all our assets.

BFI Business Finance Line of Credit - On March 9, 2004, Alpha CA established a line of credit in the maximum amount of $1 million with BFI Business Finance (“BFI”). As of June 30, 2007, the Company had drawn the full $1,000,000, leaving none available to draw. The interest rate is variable. As of June 30, 2007, the interest rate was 11.39% and the outstanding balance was subject to a 0.50% per month administrative fee.

 Cash provided by operating activities was $430,900 and $521,563 for the six-month period ending June 30, 2007 and 2006, respectively. During the six-month period ending June 30, 2007, cash was provided by a positive change in working capital of $333,081, plus net income (net of non-cash expenses for depreciation and amortization and stock-based compensation) of $97,819. During the six-month period ending June 30, 2006, cash was provided by a positive change in working capital of $1,189,646, offset in part by a net loss (net of non-cash expenses for depreciation and amortization and stock-based compensation) of $668,083.  

Cash used in investing activities was $184,428 and $289,477 for the six- month periods ending June 30, 2007 and 2006, respectively, to purchase property and equipment needed to support our operations. These amounts include costs of demonstration systems used by our sales teams and which, in some cases, are ultimately sold to customers.

Net cash used in financing activities was $292,872 and $411,652, for the six- month periods ending June 30, 2007 and 2006, respectively. In the six- month period ending June 30, 2007, we repaid $300,000 on the term loan from Alexandria, and borrowed an additional $7,128 under the BFI line of credit. In the six months ending June 30, 2006, we repaid $411,652 of debt obligations, $8,068 was provided from exercise of warrants, and $8,068 was used to repurchase common stock.

While management believes the Company has sufficient cash to fund its operating, investing, and financing activities in the near term, additional working capital may be needed if the Company experiences growth above that currently foreseen by management. For example, the Company’s existing line of credit may prove to be insufficient should higher inventory levels be required. Additional working capital will likely be needed for cash payments under the Founders Bonus Plan. Payments under this plan were not triggered in the fiscal years 2005 and 2006, but due to the Company exceeding certain revenue and income thresholds in 2007, the last year of the plan, management expects that additional cash and stock issuance expenses will be accrued for the remainder of 2007. While it is also expected that the impact of the Founders Bonus Plan will likely result in net losses fo the remainder of 2007, cash payments to the founders under the plan may exceed the Company's current working capital capacity. If the Company's capital resources are unable to meet its capital requirements, it will have to raise additional funds. The Company may be unable to raise sufficient additional capital when it needs it or to raise capital on favorable terms. The sale of equity or convertible debt securities in the future may be dilutive to the Company's stockholders, and debt financing arrangements may require the

15

Company to pledge certain assets and enter into covenants that could restrict certain business activities or the Company's ability to incur further indebtedness and may contain other terms that are not favorable to the Company or its stockholders. If the Company is unable to obtain adequate funds on reasonable terms, it may be required to curtail operations significantly or to obtain funds by entering into financing agreements on unattractive terms.

Item 3.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Based on his evaluation as of the end of the period covered by this Quarterly

Report on Form 10-QSB, our chief executive officer and chief financial officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with our evaluation that occurred during the three months ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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

The Annual Meeting of stockholders was held at the Company’s headquarters on June 19, 2007.

Results of the shareholder votes are summarized below.

Election of Directors:

Name	In Favor		Withheld
William Snider		8,027,740		28,383
Haseeb Chaudhry		8,027,790		28,333
Michael D. Bick, Ph.D.		6,512,886		1,543,237
James H. Chamberlain		8,026,965		29,158
Ronald H. Bissinger		8,026,890		29,233
Joseph D Keegan, Ph.D.		8,028,359		27,764
Gus E. Davis		8,028,256		27,867

Appointment of Rowbotham & Company LLP as the Company’s independent auditors for the fiscal year ending December 31, 2007:

In Favor	Opposed	Abstain
8,010,063	778	45,282

Item 6. Exhibits

Exhibit No.	Description
31.1	Certificate of our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate of our Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

16

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 14, 2007	Alpha Innotech Corp.
	/s/ Ronald Bissinger
	Ronald Bissinger
	Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CEO PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14 AND 15d-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald Bissinger, certify that:

1. I have reviewed this Quarterly Report on Form 10-QSB of Alpha Innotech Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: August 14, 2007
	/s/ Ronald Bissinger
	Ronald Bissinger
	Chief Executive Officer and Chief Financial Officer
	(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Quarterly Report on Form 10-QSB for the Period Ended June 30, 2007 (the “Report”) by Alpha Innotech Corp. (“Registrant”), the undersigned hereby certify that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.

Dated: August 14, 2007

/s/ Ronald Bissinger

Ronald Bissinger

Chief Executive Officer and Chief Financial Officer

(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)