10QSB 1 xtrn10q0902rev1.txt FORM 10-QSB 09/30/2002 ================================================================================ 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 September 30, 2002 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-17714 XTRANA, INC. (Exact name of Small Business Issuer as specified in its charter) DELAWARE 58-1729436 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 590 BURBANK STREET, SUITE 205, (303) 466-4424 BROOMFIELD, COLORADO 80020 (Issuer's telephone number (Address of principal executive offices) including area code) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Outstanding at November 8, 2002, Common Stock, $.01 par value per share, 17,470,215 shares. ================================================================================ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS XTRANA, INC. (FORMERLY BIOPOOL INTERNATIONAL, INC.) CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER DECEMBER 30, 31, 2002 2001 (UNAUDITED) -------------------------------------------------------------------------------- (in thousands except share data) ASSETS CURRENT ASSETS Cash ............................................ $ 1,325 $ 3,726 Accounts receivable, net ........................ 177 46 Inventories ..................................... 59 66 Note receivable and accrued interest ............ 888 855 Prepaid expenses and other current assets ....... 69 56 -------- -------- TOTAL CURRENT ASSETS ................................. 2,518 4,749 PROPERTY AND EQUIPMENT ............................... 1,104 862 Less accumulated depreciation ................... (260) (98) -------- -------- PROPERTY AND EQUIPMENT, NET .......................... 844 764 NOTES RECEIVABLE ..................................... 1,736 1,736 Goodwill, net ........................................ 8,516 8,516 OTHER ASSETS ......................................... 169 148 -------- -------- TOTAL ASSETS ......................................... $ 13,783 $ 15,913 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY TOTAL CURRENT LIABILITIES ............................ $ 487 $ 809 LONG TERM LIABILITY .................................. 40 36 STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 50,000,000 shares authorized; 17,470,215 and 17,323,498 shares issued and outstanding in 2002 and 2001 ......... 175 173 Other stockholders' equity ........................... 19,421 19,407 Accumulated deficit .................................. (6,340) (4,512) -------- -------- TOTAL STOCKHOLDERS' EQUITY ........................... 13,256 15,068 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........... $ 13,783 $ 15,913 ======== ======== See accompanying notes to condensed consolidated financial statements. 2 XTRANA, INC. (FORMERLY BIOPOOL INTERNATIONAL, INC.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDING NINE MONTHS ENDING SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 ------------------------------------------------------------------------------- (in thousands except per share data) SALES .............................. $ 425 $ 54 $ 1,133 $ 277 Cost of sales ...................... 344 32 809 118 -------- -------- -------- -------- GROSS PROFIT ....................... 81 22 324 159 Operating expenses: Selling, general, administrative . 605 693 1,744 2,276 Research and development ......... 141 303 527 949 -------- -------- -------- -------- Total operating expense ............ 746 996 2,271 3,225 Other income, net .................. (39) (21) (120) (73) -------- -------- -------- -------- LOSS FROM CONTINUING OPERATIONS BEFORE TAXES ..................... (626) (953) (1,827) (2,993) -------- -------- -------- -------- DISCONTINUED OPERATIONS: Income (loss) from discontinued operations - net of income tax effect ......................... -- (74) -- 253 NET LOSS ........................... $ (626) $ (1,027) $ (1,827) $ (2,741) ======== ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING Basic and diluted ................ 17,470 17,248 17,420 17,192 BASIC AND DILUTED EARNINGS PER SHARE Net loss - Continuing operations . $ (0.04) $ (0.06) $ (0.10) $ (0.17) Net income - Discontinued operations ..................... -- -- -- 0.01 Net loss ......................... (0.04) (0.06) (0.10) (0.16) See accompanying notes to consolidated financial statements. 3 XTRANA, INC. (FORMERLY BIOPOOL INTERNATIONAL, INC.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDING SEPTEMBER 30, 2002 2001 ------------------------------------------------------------------------------- (in thousands) OPERATING ACTIVITIES ................................. $(2,125) $(2,425) INVESTING ACTIVITIES ................................. (276) (932) DISCONTINUED OPERATIONS .............................. -- 1,003 EFFECT OF EXCHANGE RATES ............................. -- (232) ------- ------- NET DECREASE IN CASH ................................. (2,401) (2,586) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....... 3,726 4,011 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............. $ 1,325 $ 1,425 ======= ======= See accompanying notes to consolidated financial statements. 4 XTRANA, INC. (FORMERLY BIOPOOL INTERNATIONAL, INC.) SEPTEMBER 30, 2002 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2002, are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 2001. The balance sheet at December 31, 2001, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Financial information presented in the notes to the consolidated financial statements excludes discontinued operations except where noted. 2. INVENTORIES (in thousands) September 30, December 31, 2002 2001 ---------- ---------- Raw materials ............................... $ 14 $ 10 Finished products ........................... 68 56 Reserve ..................................... (23) -- ---------- ---------- $ 59 $ 66 ========== ========== 3. EARNINGS PER SHARE Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share is based upon the weighted average number of common shares and dilutive potential common shares outstanding. Potential dilutive shares are outstanding options under the Company's stock option plans and outstanding warrants, which are included under the treasury stock method and would be anti-dilutive in nature. 4. COMPREHENSIVE INCOME SFAS No. 130 requires unrealized gains and losses on the Company's foreign currency translation adjustments to be included in other comprehensive income. However, the adoption of this statement had no impact on the Company's net loss or stockholders' equity. Total comprehensive loss for the period ended September 30, 2002, was $1,827,000, compared to $2,974,000 for the same period in 2001. Included in the $2,974,000 is $232,000 of cumulative foreign currency translation adjustments, which were included in the gain on the sale of the discontinued operations in the fourth quarter of 2001. 5 5. GOODWILL AND OTHER LONG-LIVED ASSETS In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("Statement 142"), which prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 also requires that these assets be reviewed for impairment at least annually. Under Statement 142, intangible assets with finite lives continue to be amortized over their estimated useful lives. The Company adopted Statement 142 on January 1, 2002. The Company completed the transitional goodwill impairment test utilizing the present value of future cash flows approach utilizing a 25% discount rate and concluded that no goodwill impairment existed at January 1, 2002. The Company is required to perform impairment tests annually and plans to perform these tests in the fourth quarter of each year. However, the Company may be required to perform these tests on a more frequent basis if conditions exist which indicate potential impairment. Management will continue to evaluate any potential impairment on an ongoing basis pursuant to Statement 142, and if the assumptions used in the analysis do not materialize or change substantially, an impairment charge may need to be taken in the future. Through December 31, 2001, the Company had recorded accumulated goodwill amortization of $1.4 million. Application of the non-amortization provisions of Statement 142 is expected to result in a reduction of operating expenses of approximately $1.0 million ($0.06 per share) for the year ending December 31, 2002. Net loss and net loss per share, adjusted to exclude amortization of goodwill, are as follows (in thousands, except per share amounts): NINE MONTHS ENDING SEPTEMBER 30, 2002 2001 -------------------------------------------------------------------------------- (in thousands) Operating expenses: Selling, general and administrative (excludes $746 in goodwill amortization in 2001) ..................... $ 1,744 $ 1,530 LOSS FROM CONTINUING OPERATIONS BEFORE TAXES .......................................... (1,827) (2,247) Income tax expense ............................... -- -- ------- ------- LOSS FROM CONTINUING OPERATIONS .................. (1,827) (2,247) DISCONTINUED OPERATIONS: Income from discontinued operations - net of income tax effect .................... -- 252 NET LOSS ADOPTING FASB 142 ....................... $(1,827) $(1,995) ======= ======= BASIC AND DILUTED EARNINGS PER SHARE ADOPTING FASB 142 Net loss - continuing operations ............... $ (0.10) $ (0.13) Net income - discontinued operations ........... $ -- $ 0.01 Net loss ....................................... $ (0.10) $ (0.12) Management plans to test goodwill for impairment using the two-step process described in Statement 142 on an annual basis, consistent with the analysis performed as of December 31, 2001. 6. SEGMENT REPORTING Statement of Financial Accounting Standards No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes standards for the reporting of information about operating segments. The Company's continuing operations are one operating segment. 6 7. INCOME TAXES At December 31, 2001, the Company had available net operating loss carryforwards of approximately $3,674,000 in the United States. The United States carryforwards expire in varying amounts through 2011. Under section 382 of the Internal Revenue Code, the utilization of the federal net operating loss carryforwards may be limited based on changes in the percentage of ownership in the Company. The current quarter ended September 30, 2002, reflects a full valuation allowance on the net operating loss recorded for the period. 8. LITIGATION On March 26, 2001, we entered into a settlement agreement with Agen Biomedical Ltd. ("Agen") with regard to a patent infringement action filed against us by Agen on March 10, 2000, relating to products that were included in the discontinued operations. As a part of the settlement, the Company and Agen have entered into a non-exclusive license agreement for the underlying patent and all claims by Agen and counter claims made by us have been dropped. As a part of the sale of the Hemostasis business, the Company signed an amendment to the settlement agreement that consented to the assignment and assumption of the settlement agreement by Trinity Biotech plc. As a part of the agreement, the Company made a lump sum payment of $250,000 to Agen, which is reflected as a transaction cost in the gain on the sale of the discontinued operations as of December 31, 2001. On January 24, 2002, we entered into a settlement agreement with Instrumentation Laboratory Company ("IL") with regard to a patent infringement action filed against us on August 9, 2001 by IL relating to a product that was included in the discontinued operations. As part of the settlement, the Company and IL entered a consent judgment with the court, and we agreed to pay damages and costs in the amount of $20,000, which was included in accrued expenses at December 31, 2001. The Company does not believe that the settlement will have a material impact on the results of continuing operations. 9. MERGER WITH THE FORMER XTRANA, INC. Effective August 10, 2000, the former Xtrana, Inc. was merged with and into the Company pursuant to an Agreement and Plan of Reorganization dated May 3, 2000, between the former Xtrana, Inc. and the Company, as reported on the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 11, 2000, and amended October 24, 2000. The Company issued 8,829,461 shares of the Company's common stock in exchange for all the outstanding capital stock of the former Xtrana, Inc. Of the total shares issued, 936,946 shares are held in escrow and are contingently cancelable if certain sales objectives for the former Xtrana, Inc. business are not met. Also, an additional 1,030,641 shares are issuable to the former Xtrana shareholders if certain sales objectives are exceeded. The escrow period for the contingent shares expired on September 30, 2002 without achieving the sales objectives. Pursuant to the Merger Agreement, the 936,946 shares in escrow will be canceled, and the additional 1,030,641 shares will not be issued. At September 30, 2002, the contingent shares were reflected as outstanding common stock as the holders of these shares have full right to vote the shares while in escrow. Additionally, as a part of the merger, 998,366 warrants with an estimated fair value of $587,000 were issued to warrant holders of the former Xtrana, Inc. and certain financial advisors. At the effective time of the merger, the stockholders of the former Xtrana, Inc. held approximately 50% of the outstanding stock of the Company, on a fully diluted basis. On June 21, 2001 the Company changed its name to Xtrana, Inc. 10. SALE OF HEMOSTASIS BUSINESS On December 20, 2001, the shareholders approved the sale of the Hemostasis business. On December 21, 2001, the Company closed the sale of substantially all of the assets of its Hemostasis business to Trinity Biotech plc for total consideration of US$6,250,000, plus the assumption of certain liabilities. The assets sold included the operations located in Ventura, California, and the Company's wholly owned Swedish subsidiary, 7 Biopool AB. The total consideration paid to the Company of US$6,250,000 consisted of cash and notes as follows: (a) US$3,658,000 in cash at closing; (b) a note in the amount of US$855,200 due one year from the closing date; (c) a note in the amount of US$1,166,200 due two years from the closing date; and (d) a note in the amount of US$570,100 due three years from the closing date. The notes carry interest at a rate of 5% per annum and are secured by a second position on substantially all of the U.S. assets of Trinity Biotech plc. Included in Accrued Expenses is $175,000 related to transaction costs associated with the sale of the Hemostasis business. Included in other long-term liabilities is $36,000 related to transaction costs that are the result of a broker commission payable over 3 years as follows: $24,000 due December 21, 2003, and $12,000 due December 21, 2004. This note bears interest at a rate of 5% per annum. The Hemostasis business was a distinct operating segment, whose sale is accounted for as discontinued operations in accordance with ACCOUNTING PRINCIPLES BOARD OPINION 30 - REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS. As a result, the Company reclassified its prior period financial statements to reflect the appropriate accounting for the sale of the Hemostasis business, as discontinued operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Xtrana's mission is to simplify the analysis of DNA/RNA, so that nucleic acid based detection systems can be utilized in point-of-care, point-of-service applications. The proprietary assays developed by Xtrana are designed to be easy to use outside of a traditional molecular biology laboratory at a cost per test that is competitive with existing rapid test technologies. These diagnostic tests are intended for use in drug discovery, detection of environmental and food contaminants, forensics and testing for identity, human and animal diseases, genetic predisposition to disease, and other applications. The Company's first commercial nucleic acid product is Xtra Amp(TM), DNA or RNA extraction kits that enable high throughput extraction in as little as 3 minutes, versus competing technologies that can take 30 minutes to 3 hours. Through its Hemostasis Business, the Company also developed, manufactured, and marketed a full range of test kits to assess and diagnose disorders of blood coagulation, thrombotic risk factors, fibrinolysis, platelet function, and the vascular system under the Biopool(R) label. However, on December 20, 2001, the shareholders approved the sale of the Hemostasis business; and on December 21, 2001, the Company closed the sale of substantially all of the assets of its Hemostasis business to Trinity Biotech plc for total consideration of US$6,250,000, plus the assumption of certain liabilities. CRITICAL ACCOUNTING POLICIES GENERAL Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Specifically, management must make estimates in the following areas: ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company has $182,000 in gross trade accounts receivable and $5,000 in allowance for doubtful accounts on the consolidated balance sheet at September 30, 2002. A review of our allowance for doubtful accounts is done timely and consistently throughout the year. As of September 30, 2002, we believe our allowance for doubtful accounts is fairly stated. Because of our limited sales of our nucleic acid-based products, we do not believe that a change in the financial condition of any of our current customers could result in the need to create a significant allowance, nor could any such change have a material adverse effect on our financial results for 2002. 8 The Company believes the following critical accounting policies affect the significant judgments and estimates used in preparation of the consolidated financial statements. REVENUE RECOGNITION Product revenues are recorded on the day products are shipped from the Company's facilities. Grant revenues are recorded when earned, pursuant to the respective grant agreements. Shipping costs are included in the cost of sales. Grant revenues and profit on long-term contracts are recorded as the contract progresses using the percentage of completion method of accounting, which relies on estimates of total expected contract revenues and costs. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. Accordingly, favorable changes in estimates result in additional profit recognition, and unfavorable changes in estimates result in the reversal of previously recognized revenue and profits. When estimates indicate a loss under a contract, cost of revenue is charged with a provision for such loss. As work progresses under a loss contract, revenue continues to be recognized, and a portion of the contract costs incurred in each period is charged to the contract loss reserve. The Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition," ("SAB 101") provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. We believe that our revenue recognition policy is consistent with this guidance and in accordance with generally accepted accounting principles. We do not anticipate any changes to our revenue recognition and shipping policies in the future. GOODWILL GOODWILL AND OTHER LONG-LIVED ASSETS. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("Statement 142"), which prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 also requires that these assets be reviewed for impairment at least annually. Under Statement 142, intangible assets with finite lives continue to be amortized over their estimated useful lives. The Company adopted Statement 142 on January 1, 2002. The Company completed the transitional goodwill impairment test utilizing the present value of future cash flows approach utilizing a 25% discount rate and concluded that no goodwill impairment existed at January 1, 2002. The Company is required to perform impairment tests annually and plans to perform these tests in the fourth quarter of each year. However, the Company may be required to perform these tests on a more frequent basis if conditions exist which indicate potential impairment. Notwithstanding the requirement of Statement 142 that requires that these assets be reviewed for impairment at least annually, management will continue to evaluate any potential impairment on an ongoing basis pursuant to Statement 142, and if the assumptions used in the analysis do not materialize or change substantially, an impairment charge may need to be taken in the future. RESULTS OF OPERATIONS Sales from continuing operations were $0.43 million for the three-month period and $1.13 million for the nine-month period ended September 30, 2002, compared with $0.05 million and $0.28 million for the corresponding periods of 2001. Revenue for the first nine months of 2002 increased 309% over the same period of 2001. This increase in revenue is the result of sales of Xtra Amp(TM) extraction kits of $0.12 million in the first three quarters of 2002 versus no sales in the corresponding 2001 period, and increased grant revenue of $0.74 million in the 2002 period, a 266% increase over the same period of 2001. Xtra Amp(TM), the Company's first commercial nucleic acid based product, was officially launched through various distributors in the third quarter of 2001. Sales of Xtra Amp(TM) in the first nine months of 2002 increased 500% over the sales achieved in all of 2001. Although sales of Xtra Amp(TM) have shown steady increase on a quarter-to-quarter basis, the levels of revenue are below the Company's expectations, due mainly to a much longer sales cycle than was originally anticipated as a result of the highly technical nature of the product. Management is aggressively working with its distributors to increase these revenues at a much faster rate, but there can be no assurance that more aggressive growth will be achieved. We anticipate that our grant revenue will be maintained at the levels experienced in the current quarter just ended at least through the end of 2002. As a number of these grants will be fully consumed by mid 2003, there can be no assurance that the Company will be able to replace these research grants to fund its ongoing research and development efforts. As of September 30, 2002, the available funding under these various grants was $1.8 million including the most recent grant awarded the 9 Company of $1.0 million from the National Institute of Health (NIH), which is budgeted to be spent over a three-year period. Cost of goods sold from continuing operations was $0.34 million for the three month period and $0.81 million for the nine-month period ended September 30, 2002, compared with $0.03 million and $0.12 million relating solely to revenue from continuing operations for the corresponding period in 2001. Gross margin was 29% for the nine-month period ended September 30, 2002, compared with 57% for the corresponding period in 2001. During the quarter ended September 30, 2002 the Company established an obsolescence reserve for Xtra Amp(TM) inventory of $0.02 million. As Xtra Amp(TM) kits have an established shelf life, the Company felt that the establishment of such a reserve was appropriate. Gross margin excluding the reserve for obsolescence on Xtra Amp(TM) product sales was 66% during the three quarters of 2002. Management does not believe that this comparison is particularly meaningful at this stage of the development of the continuing operations because gross margins are largely related to government grants that vary depending upon the specific contract. The 57% gross margin in 2001 was the result of final revenue recognition on certain government grants. Operating expenses from continuing operations were $0.7 million for the three months and $2.3 million for the nine-month period ended September 30, 2002, compared with $1.0 and $3.2 million for the same period in 2001. Operating expenses decreased by $0.9 million during the first three quarters of 2002 versus the same period in 2001 as a result of: (a) the adoption of the change in accounting for amortization of goodwill of $0.8 million (note 5); (b) severance obligations relating to the Company's former CEO of $0.2 million that were recognized in the 2001 period, the payment of which was completed in February 2002; and (c) increased billing utilization of grant revenue producing personnel, which is reclassified to cost of sales. Other income is primarily interest income. FINANCIAL CONDITION During the 4th quarter of 2001, the Company sold substantially all of the assets of its Hemostasis business for $6.25 million in cash and notes, which resulted in a $0.8 million gain over net asset value. This inflow of cash added to the Company's existing liquidity position. As of September 30, 2002, working capital was $2.0 million, with a current ratio of 5.2 to 1.0. The Company is currently consuming cash to fund its operations and the research and development of its nucleic acid diagnostic technologies. The Company believes that the current availability of cash and notes receivable are adequate to fund operations for at least the next twelve months. However, due to the slower than anticipated growth in Xtra Amp(TM) sales and the uncertainty regarding the Company's ability to obtain additional research grants, it may become necessary for the Company to raise additional capital to fund its research and development in 2003 and to fund operations in the subsequent 12-month period. FORWARD LOOKING STATEMENTS 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, but are not limited to, competitors' pricing strategies and technological innovations, changes in health care and government regulations, litigation claims, foreign currency fluctuation, product acceptance, as well as other factors discussed in the Company's last Report on Form 10-KSB. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures, which it has designed to ensure that material information related to Xtrana, Inc., is disclosed in its public filings on a regular basis. In response to recent legislation and proposed regulations, the Company reviewed its internal control structure and its 10 disclosure controls and procedures. The Company believes that its pre-existing disclosure controls and procedures are adequate to enable the Company to comply with its disclosure obligations. Within 90 days prior to the filing of this report, members of the Company's management, including Timothy Dahltorp, the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, Mr. Dahltorp concluded that the Company's disclosure controls and procedures are effective in causing material information to be recorded, processed, summarized and reported by management of the Company on a timely basis and to ensure that the quality and timeliness of the Company's public disclosures complies with its SEC disclosure obligations. CHANGES IN CONTROLS AND PROCEDURES There were no significant changes in the Company's internal controls or in other factors that could significantly affect these internal controls after the date of our most recent evaluation. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 99.1 Certificate of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: none 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 13, 2002 XTRANA, INC. ------------------------ ------------------------------- (Registrant) /s/ Timothy J. Dahltorp ------------------------------- Timothy J. Dahltorp Chief Executive Officer and Chief Financial Officer 12 CERTIFICATION OF CEO AND CFO 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, Timothy Dahltorp, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Xtrana, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Timothy Dahltorp -------------------------- Timothy Dahltorp Chief Executive Officer and Chief Financial Officer 13