-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pphho96fY0w6SrMz1KqVPA6AsKkFLN2SRxfzfZOItTsX8qFCTt7APjMXbEw12Kmr fsjAqh/VieNAk/V077rN4w== 0001170918-05-000165.txt : 20050331 0001170918-05-000165.hdr.sgml : 20050331 20050331145351 ACCESSION NUMBER: 0001170918-05-000165 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050331 DATE AS OF CHANGE: 20050331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XTRANA INC CENTRAL INDEX KEY: 0000830736 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 581729436 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-14257 FILM NUMBER: 05719392 BUSINESS ADDRESS: STREET 1: PO BOX 668 CITY: SEDALIA STATE: CO ZIP: 80135 BUSINESS PHONE: 3034664424 MAIL ADDRESS: STREET 1: PO BOX 668 CITY: SEDALIA STATE: CO ZIP: 80135 FORMER COMPANY: FORMER CONFORMED NAME: BIOPOOL INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CYTRX BIOPOOL LTD DATE OF NAME CHANGE: 19890716 10KSB 1 fm10ksb-2004.txt FORM 10-KSB 2004 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 COMMISSION FILE NUMBER 001-14257 XTRANA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 58-1729436 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P.O. BOX 668 SEDALIA, COLORADO 80135 (Address of principal executive offices) (Zip Code) Registrant's telephone number (including area code) (303) 466-4424 Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Title of each class Common Stock, par value $.01 per share - -------------------------------------------------------------------------------- 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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State Issuer's revenues for its most recent fiscal year: $102,000. The aggregate market value of Xtrana, Inc. Common Stock, $.01 par value, held by non-affiliates, computed by reference to the average of the closing bid and asked prices as reported by OTCBB on March 1, 2004, was $2,111,438. Number of shares of Common Stock of Xtrana, Inc., $.01 par value, issued and outstanding as of March 31, 2005: 16,533,269. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Definitive Proxy Statement for the 2005 Annual Meeting are incorporated by reference into Part III of this Form 10-KSB. Transitional Small Business Disclosure Format (Check one): Yes [_]; No [X] ================================================================================ INDEX TO ANNUAL REPORT ON FORM 10-KSB PART I PAGE ---- Item 1. Business............................................. 3 Item 2. Properties........................................... 6 Item 3. Legal Proceedings.................................... 6 Item 4. Submission of Matters to a Vote of Security-Holders.................................. 6 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............ 7 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 8 Item 7. Financial Statements and Supplementary Data.......... 15 Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 15 Item 8A. Controls and Procedures.............................. 15 PART III Item 9. Directors and Executive Officers..................... 16 Item 10. Executive Compensation............................... 16 Item 11. Security Ownership of Certain Beneficial Owners and Management............................. 16 Item 12. Certain Relationships and Related Transactions....... 16 Item 13. Exhibits, Financial Statement Schedules.............. 16 Item 14. Principal Accountant Fees & Services................. 17 SIGNATURES.................................................... 18 2 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This 2004 Annual Report on Form 10-KSB contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the intent, belief or current expectations of the Company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, among other things, whether the closing of the proposed merger transaction with Alpha Innotech will occur in a timely manner, if at all; our ability to continue as a going concern; and other risks and uncertainties that may be detailed herein. See "Item 6, Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors." PART I ITEM 1. BUSINESS OVERVIEW Until recently, Xtrana, Inc. ("we," "us," "Xtrana" or the "Company") developed and marketed nucleic acid-based tests for use in drug discovery, detection of environmental and food contaminants, forensics and identity testing, human and animal diseases, genetic predisposition to disease, and other applications. We were initially incorporated in Delaware in 1987. The name of the Company was changed from Biopool International, Inc., to Xtrana, Inc., in June of 2001. Our corporate office is located in Castle Rock Colorado, where we maintain the financial records. RECENT DEVELOPMENTS SALE OF INTELLECTUAL PROPERTY On January 26, 2004, we entered into an Assignment Agreement with Applera Corporation through its Applied Biosystems Group. Pursuant to the terms of the Assignment Agreement, Applied Biosystems purchased all of our intellectual property, other than trademarks and trade names. The assets purchased by Applied Biosystems included all our U.S. and foreign patents, inventions, trade secrets and know-how, and constituted substantially all of our assets. The total consideration of $4,000,000 consisted of: (a) a $100,000 cash deposit, which was paid to us prior to closing, (b) $3,500,000 in cash paid to us at closing; and (c) $400,000 in cash to be paid 90 days after closing, subject to our providing certain consulting services as required by the Assignment Agreement. On March 31, 2004, Applied Biosystems delivered the $3,500,000 closing cash payment, and we delivered our intellectual property rights, into an escrow account pending the final closing of the transaction. Such final closing took place on May 14, 2004, after Applied Biosystems' receipt of certain certifications from us required as part of the due diligence efforts under the Assignment Agreement. On August 15, 2004, Applied Biosystems delivered the final $400,000 in cash due to the completion of our consulting services as required by the Assignment Agreement. The sale of our intellectual property to Applied Biosystems resulted in our receipt of net proceeds of approximately $3,357,000, after payment of all expenses associated with the transaction. After complying with the requirements of the Assignment Agreement with Applera to provide consulting services, we terminated all of our remaining employees. As of May 3, 2004, we terminated the lease for our prior executive offices pursuant to an early termination agreement. As a result, we no longer have any continuing operations or significant assets other than cash. We could distribute the remaining cash proceeds as a dividend to our stockholders as part of liquidation, after satisfaction of all of our liabilities and payment of all costs associated with the liquidation. If we were to make a distribution to stockholders before the expiration of certain representations and warranties 3 we made under the Assignment Agreement (18 months from the date of closing), we would be required to reserve and hold back $1,000,000 for possible settlement of potential claims by Applied Biosystems against us for our breaches of those representations and warranties. PRIOR MERGER DISCUSSIONS Our Board of Directors believes that we can attract interest from other businesses that might benefit from access to our funds, as well as our status as a public company with a clean reporting history. Such interest could result in us merging or otherwise joining together with an existing business that could create much greater long-term stockholder value than simply liquidating the Company. Since completion of the sale of our intellectual property, after payment of employee severance and lease terminations costs, we have limited overhead costs of operation, but remain a reporting company under the rules and regulations of the Securities and Exchange Commission. In June 2004, the Company entered into a non-binding letter of intent with Aduromed Corporation, pursuant to which we would acquire Aduromed in a reverse merger transaction. The proposed acquisition was subject to certain conditions, including satisfactory completion of due diligence by both parties, execution of a definitive agreement, approval by our stockholders, and obtaining required third party approvals, among others. In September 2004, our Board of Directors determined to terminate its negotiations with Aduromed and the letter of intent based on the results of our due diligence investigation of Aduromed and its business. Following termination of discussions with Aduromed, we continued to explore merger candidates. MERGER AGREEMENT WITH ALPHA INNOTECH CORPORATION In December 2004, we entered into a definitive Agreement and Plan of Merger with Alpha Innotech Corporation pursuant to which Alpha Innotech would merge with our wholly-owned subsidiary in a reverse merger transaction. Security holders of Alpha Innotech would receive shares of our common stock, and all outstanding Alpha Innotech stock options and warrants would be converted into options and warrants to purchase our common stock. Immediately following the consummation of the transaction, our stockholders would own approximately 17%, and the shareholders of Alpha Innotech would own approximately 83%, of the outstanding shares of common stock of the combined company. Pursuant to the definitive agreement, we also loaned Alpha Innotech Corporation $500,000. Upon completion of the transaction, we are expected to change our corporate name to Alpha Innotech Corp. Alpha Innotech Corporation, a privately held company founded in 1992, is a supplier of innovative solutions for life science and drug discovery with core expertise in quantitative imaging, informatics, and molecular biology. Alpha Innotech maintains its corporate offices in San Leandro, California and it has distributors located in over 35 countries around the world. Following the merger, the board of directors will be comprised of two of our current board members and four current Alpha Innotech board members. The Boards of Directors of both companies have unanimously approved the merger agreement and each is expected to submit it to their respective stockholders for approval. Completion of the transaction is subject to a number of conditions, including approval of both the Xtrana and Alpha Innotech stockholders, obtaining certain regulatory and third party approvals, and other customary conditions. We expect to submit the merger for approval at a meeting of our stockholders during the first six months of 2005. STRATEGY Since the acquisition of the nucleic acid technologies in August of 2000, we had worked to continue the development of these technologies with the ultimate goal of moving them into commercial products. The first of these products were the Xtra Amp(TM) nucleic acid extraction kits. These reagent kits were marketed primarily to the research laboratory marketplace through a distributor network. The market for nucleic acid extraction kits is a fairly mature market, and is dominated by a few large firms. The majority of the customers in this market operate under tightly regulated quality systems, which require them to go through a rigorous validation of all new products. This validation process can be quite time consuming and costly. Even though customers who evaluated the Xtra Amp(TM) product liked its ease of use, it was not enough to 4 convince them to make the investment in the validation process and change over to Xtra Amp(TM) from the products they were currently using. As a result, our sales of these products did not meet expectations. The primary product that we were focused on developing was our SCIP diagnostic platform. This device would reduce DNA testing to a simple-to-use, sample-in, result-out device that could be used outside of a traditional laboratory. Although our SCIP product and our technologies had been funded primarily through government research grants, we needed additional funding to complete development and move into the commercial market. As our cash flow received from the Xtra Amp(TM) products was much lower than anticipated, the Board of Directors made the decision to seek outside capital to fund continued operations and development of our SCIP technology. Our cash flow problems were exacerbated when we were sued by Trinity Biotech, plc. In December 2002, Trinity filed suit against us alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, unjust enrichment, and violation of the Delaware Consumer Fraud Act in conjunction with the sale of our Hemostasis business to Trinity. The suit alleged that we misrepresented the status of a single product that was the subject of the Instrumentation Laboratory patent infringement suit settled by us in January 2002, and Trinity sought $1.2 million in damages and $3 million in punitive damages. We filed a counter suit against Trinity in response to Trinity's suit seeking $27 million in actual damages and $30 million in punitive damages for tortious interference with prospective economic advantage, breach of contract, and breach of the covenant of good faith and fair dealing. We also sought a declaratory judgment that Trinity's suit was an improper attempt to avoid its contractual obligations to us because Trinity merely instituted litigation to force us to renegotiate the terms of the sale of our Hemostasis business. We settled this litigation in June 2003, but the cost of defending the litigation forced us to radically reduce the investment in our product development. Based on these factors, and advice from our financial advisor, the Board of Directors determined that the best way to maximize stockholder value was to examine other alternatives, including the sale of the Company or our assets. Working with our financial advisor, we conducted an extensive solicitation process to obtain proposals for transactions ranging from a financing to the sale of our Company or our assets. This process resulted in us entering into the Assignment Agreement with Applera, as previously discussed. Since completion of the sale of our intellectual property we have no continuing operations or significant assets. As a result, we have limited overhead costs of operation, but remain a reporting company under the rules and regulations of the Securities and Exchange Commission. The Board of Directors believes that a combination with an existing business, which would entail us merging or otherwise joining together with an existing business, that could create much greater long-term stockholder value than simply liquidating the Company. For these reasons, we have entered into the merger agreement with Alpha Innotech Corporation as described above. RESEARCH AND DEVELOPMENT All of our research and development activities have been terminated we have abandoned any remaining grants due to the sale of our intellectual property to Applera Corporation in early 2004. In 2003, we spent $309,000 on research and development. In 2004, research and development expenses decreased to $99,000. Due to the sale of our intellectual property to Applera, all research and development spending has been eliminated. MANUFACTURING AND QUALITY CONTROL We conducted no manufacturing during 2004. SALES AND MARKETING As a result of the sale of our intellectual property to Applied Biosystems, we are no longer actively marketing any commercial products. 5 COMPETITION As a result of the sale of our intellectual property to Applied Biosystems, we are no longer actively engaged in producing or selling any products or services and therefore is not in competition with other businesses. SUPPLIERS As a result of the sale of our intellectual property to Applied Biosystems, we are no longer purchasing materials for commercial products. PATENTS, TRADEMARKS, AND PROPRIETARY INFORMATION As described above, in early 2004 we sold substantially of our intellectual property rights, other than trademarks and trade names, to Applied Biosystems. We are no longer actively pursuing protection of our previous trademarks and trade names. EMPLOYEES As of December 31, 2004, we had no employees. ITEM 2. PROPERTIES We previously leased a 14,671 square-foot corporate office, research and development, and manufacturing facility in Broomfield, Colorado. The lease commenced in April 2001 and has a term of five years. Base rent for this facility is $214,894 per year, increasing 3% per year. On November 11, 2003, we entered into an early termination agreement with the landlord of this property. The early termination agreement stipulated that we would pay 50% of the remaining base rent plus the abetted gross rent plus any unpaid interest. We terminated our lease on May 3, 2004 pursuant to this arrangement. ITEM 3. LEGAL PROCEEDINGS We are not involved in any legal proceedings that would have a material adverse impact on our business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS There were no matters submitted during the fourth quarter of the fiscal year covered by this Report to a vote of stockholders, through the solicitation of proxies, or otherwise. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock currently trades on the OTC Bulletin Board(R) (OTCBB) under the symbol XTRN. The following sets forth the high and low trade prices for our common stock for the periods indicated as reported by the OTCBB. The quotations provided by the OTCBB reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions. We have not paid any dividends since our inception and do not contemplate payment of dividends in the foreseeable future. 2004 2003 ----------------------- ----------------------- HIGH LOW HIGH LOW ---------- ---------- ---------- ---------- First quarter .............. $ 0.220 $ 0.090 $ 0.210 $ 0.100 Second quarter ............. 0.220 0.110 0.300 0.090 Third quarter .............. 0.220 0.160 0.220 0.100 Fourth quarter ............. 0.230 0.150 0.180 0.090 (a) On March 16, 2005, the closing trade price of our common stock, as reported by the OTCBB, was $0.14. (b) As of March 16, 2005, we had 223 holders of record of our common stock. A large number of shares are held in nominee name. Based upon information provided by our transfer agent, American Stock Transfer and Trust Company, we had approximately 2,492 beneficial stockholders on the same date. DIVIDENDS We have never paid dividends on our common stock. We intend to retain any future earnings for use in our business. 7 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our financial statements provided under Part II, Item 7, of this annual report on Form 10-KSB. Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially, as discussed more fully herein. OVERVIEW We previously developed and marketed nucleic acid-based tests for use in drug discovery, detection of environmental and food contaminants, forensics and identity testing, human and animal diseases, genetic predisposition to disease, and other applications. SALE OF INTELLECTUAL PROPERTY On January 26, 2004, we entered into an Assignment Agreement with Applera Corporation through its Applied Biosystems Group. Pursuant to the terms of the Assignment Agreement, Applied Biosystems purchased all of our intellectual property, other than trademarks and trade names. The assets purchased by Applied Biosystems included all our U.S. and foreign patents, inventions, trade secrets and know-how, and constituted substantially all of our assets. The total consideration of $4,000,000 consisted of: (a) a $100,000 cash deposit, which was paid to us prior to closing, (b) $3,500,000 in cash paid to us at closing; and (c) $400,000 in cash to be paid 90 days after closing, subject to our providing certain consulting services as required by the Assignment Agreement. On March 31, 2004, Applied Biosystems delivered the $3,500,000 closing cash payment, and we delivered our intellectual property rights, into an escrow account pending the final closing of the transaction. Such final closing took place on May 14, 2004, after Applied Biosystems' receipt of certain certifications from us required as part of the due diligence efforts under the Assignment Agreement. On August 15, 2004, Applied Biosystems delivered the final $400,000 in cash due to the completion of our consulting services as required by the Assignment Agreement. The sale of our intellectual property to Applied Biosystems resulted in our receipt of net proceeds of approximately $3,357,000, after payment of all expenses associated with the transaction. After complying with the requirements of the Assignment Agreement with Applera to provide consulting services, we terminated all of our remaining employees. As of May 3, 2004, we terminated the lease for our prior executive offices pursuant to an early termination agreement. As a result, we no longer have any continuing operations or significant assets other than cash. We could distribute the remaining cash proceeds as a dividend to our stockholders as part of liquidation, after satisfaction of all of our liabilities and payment of all costs associated with the liquidation. If we were to make a distribution to stockholders before the expiration of certain representations and warranties we made under the Assignment Agreement (18 months from the date of closing), we would be required to reserve and hold back $1,000,000 for possible settlement of potential claims by Applied Biosystems against us for our breaches of those representations and warranties. PRIOR MERGER DISCUSSIONS Our Board of Directors believes that we can attract interest from other businesses that might benefit from access to our funds, as well as our status as a public company with a clean reporting history. Such interest could result in us merging or otherwise joining together with an existing business that could create much greater long-term stockholder value than simply liquidating the Company. Since completion of the sale of our intellectual property, after payment of employee severance and lease terminations costs, we have limited overhead costs of operation, but remain a reporting company under the rules and regulations of the Securities and Exchange Commission. 8 In June 2004, the Company entered into a non-binding letter of intent with Aduromed Corporation, pursuant to which we would acquire Aduromed in a reverse merger transaction. The proposed acquisition was subject to certain conditions, including satisfactory completion of due diligence by both parties, execution of a definitive agreement, approval by our stockholders, and obtaining required third party approvals, among others. In September 2004, our Board of Directors determined to terminate its negotiations with Aduromed and the letter of intent based on the results of our due diligence investigation of Aduromed and its business. Following termination of discussions with Aduromed, we continued to explore merger candidates. MERGER AGREEMENT WITH ALPHA INNOTECH CORPORATION In December 2004, we entered into a definitive Agreement and Plan of Merger with Alpha Innotech Corporation pursuant to which Alpha Innotech would merge with our wholly-owned subsidiary in a reverse merger transaction. Security holders of Alpha Innotech would receive shares of our common stock, and all outstanding Alpha Innotech stock options and warrants would be converted into options and warrants to purchase our common stock. Immediately following the consummation of the transaction, our stockholders would own approximately 17%, and the shareholders of Alpha Innotech would own approximately 83%, of the outstanding shares of common stock of the combined company. Pursuant to the definitive agreement, we also loaned Alpha Innotech Corporation $500,000. Upon completion of the transaction, we are expected to change our corporate name to Alpha Innotech Corp. Alpha Innotech Corporation, a privately held company founded in 1992, is a supplier of innovative solutions for life science and drug discovery with core expertise in quantitative imaging, informatics, and molecular biology. Alpha Innotech maintains its corporate offices in San Leandro, California and it has distributors located in over 35 countries around the world. Following the merger, the board of directors will be comprised of two of our current board members and four current Alpha Innotech board members. The Boards of Directors of both companies have unanimously approved the merger agreement and each is expected to submit it to their respective stockholders for approval. Completion of the transaction is subject to a number of conditions, including approval of both the Xtrana and Alpha Innotech stockholders, obtaining certain regulatory and third party approvals, and other customary conditions. We expect to submit the merger for approval at a meeting of our stockholders during the first six months of 2005. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of our financial condition and results of operations are based upon our 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. INVENTORY ADJUSTMENTS Due to the sale of our intellectual property to Applera whereby the inventory on hand at December 31, 2003, was deemed impaired and, therefore, devalued to $0.00. INCOME TAXES Deferred income taxes are recognized for the expected tax consequences in the future years for the differences between the tax bases of assets and liabilities and their financial reporting amounts, based upon enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Our significant deferred tax asset is related primarily to our net operating loss 9 carryforwards and foreign tax credits. We have had net income in fiscal 2004 and a net loss 2003 and received a going concern explanatory paragraph in the Independent Auditors Report of our financial statements for the year ended December 31, 2004. We have concluded that it is more likely than not that our deferred tax assets will not be realized. As a result, we have provided a valuation allowance for the total of our net deferred tax asset at December 31, 2004. The estimates for deferred tax asset and the corresponding valuation allowance require complex judgments. We periodically review those estimates for reasonableness. However, because the recoverability of the deferred tax assets is directly dependent upon future operating results, actual recoverability of deferred tax assets may differ materially form our estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our financial statements. REVENUE RECOGNITION Product revenues are recorded on the day products are shipped from our facilities. The products are warranted; however, to date, no significant returns have occurred. 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. We historically have been able to estimate its percentage of completion on contracts reliably. 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. LONG-LIVED ASSETS In October 2001, the Financial Accounting Standards Board ("FASB") issued Statement on Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," it retains many of the fundamental provisions of that statement. The standard is effective for fiscal years beginning after December 15, 2001. It is our policy, and consistent with SFAS No. 144, to account for long-lived assets, including intangibles, at amortized cost. As part of an ongoing review of the valuation and amortization of long-lived assets, management assesses the carrying value of such assets if facts and circumstances suggest that they may be impaired. If this review indicates that long-lived assets will not be recoverable, as determined by a non-discounted cash flow analysis over the remaining amortization period, the carrying value of the Company's long-lived assets would be reduced to its estimated fair value based on discounted cash flows. Long-lived assets consist primarily of leasehold improvements, computer equipment, office furniture, and equipment. As part of its review of its first quarter financial results and executing an agreement to sell all its intellectual property, the Company performed an impairment assessment of fixed assets. The impairment assessment was performed to determine whether any impairment existed. The impairment indicators included, but were not limited to, the decline in the Company's stock price, the net book value of the assets, and the overall decline in forecasted growth rates which have negatively impacted the Company's revenues and forecasted revenue growth rates, and the impact of the sale of the intellectual property. 10 RESULTS OF OPERATIONS REVENUE Revenue from continuing operations was $0.1 million for the year ended December 31, 2004, compared with $1.2 million for the year ended 2003. This represents a decrease in revenue equal to $1.1 million, or 91%. The decrease was the result of the sale of the intellectual property to Applied Biosystems and discontinuing our operations. COSTS AND EXPENSES Cost of sales, from continuing operations, decreased to $0.1 million in 2004, as a result of the sale of the intellectual property to Applied Biosystems and discontinuing our operations. Selling, general and administrative expenses of continuing operations decreased by $.8 million, or 35%, to $1.5 million in 2004 as compared to the prior year. The decline of $.8 million was due to a reduction in expenses resulting from the termination of all employees and the termination and closing of our manufacturing facility in Broomfield, Colorado following the sale of substantially all our assets. Research and development expenses of continuing operations decreased to $0.01 million in fiscal 2004. This decrease was due to abandoning the grants and terminating the employees as a result of the sale of our intellectual property to Applied Biosystems. INCOME TAXES The difference between our effective tax rate for 2004 and the 34% federal statutory tax rate was primarily due to the effects of state income taxes, non-deductible goodwill amortization, and impairment, as well as the provision for a full valuation allowance on all net deferred tax assets available to us. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2004, we had cash and cash equivalents of $2.4 million. As of December 31, 2004, our working capital position was $2.3 million, with a current ratio of 21.0 to 1.0. We generated cash of $1.3 million from investing and operating activities in 2004 compared to $0.4 million generated in 2003. Net cash generated in operating activities is primarily the result of the sale of our intellectual property to Applied Biosystems. In December 2002, Trinity Biotech plc filed suit against us alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, unjust enrichment, and violation of the Delaware Consumer Fraud Act in conjunction with the sale of our Hemostasis business to Trinity in December 2001. The suit alleged that we misrepresented the status of a single product that was the subject of the Instrumentation Laboratory patent infringement suit settled by us in January 2002, and Trinity sought $1.2 million in damages and $3 million in punitive damages. We filed a counter suit against Trinity in response to Trinity's suit seeking $27 million in actual damages and $30 million in punitive damages for tortious interference with prospective economic advantage, breach of contract, and breach of the covenant of good faith and fair dealing. We also sought a declaratory judgment that Trinity's suit was an improper attempt to avoid its contractual obligations to us because Trinity merely instituted litigation to force us to renegotiate the terms of the sale of our Hemostasis business. We settled this litigation in June 2003, but the cost of defending the litigation forced us to radically reduce the investment in our product development. On January 26, 2004, we entered into an Assignment Agreement with Applera Corporation through its Applied Biosystems Group. Pursuant to the terms of the Assignment Agreement, Applied Biosystems purchased all our intellectual property other than our trademarks and trade names, for a total purchase price of $4 million. The assets purchased by Applied Biosystems included all our U.S. and foreign patents, inventions, trade secrets and know-how, and constituted substantially all of our assets. The transaction was completed in May 2004. The sale of our intellectual property to Applied Biosystems resulted in our receipt of 11 net proceeds of approximately $3,357,000, after payment of all expenses associated with the transaction. After complying with the requirements of the Assignment Agreement with Applied Biosystems to provide consulting services, we terminated all of our remaining employees. As of May 3, 2004, we terminated the lease for our prior executive offices pursuant to an early termination agreement. In August 2001, we entered into an executive employment agreement with Timothy J. Dahltorp, pursuant to which Mr. Dahltorp agreed to serve as our Chief Executive Officer and Chief Financial Officer for a period of 3 years. The agreement provided for a base salary of $200,000 per year, plus annual incentive compensation as determined by the Compensation Committee of the Board of Directors. The agreement also provided for severance of up to one year's base salary if the agreement was terminated by us without cause or by Mr. Dahltorp upon a change in control. Pursuant to the employment agreement, our entering into the Assignment Agreement with Applied Biosystems constituted a "change of control" and, in accordance with the terms of the Agreement, Mr. Dahltorp terminated the employment agreement effective as of March 19, 2004. As a result, we were obligated to continue to pay Mr. Dahltorp his current base salary of $200,000 for a period of 12 months following such termination. As of December 31, 2004, all severance obligations to Mr. Dahltorp have been satisfied. On November 11, 2003, we entered into an early termination agreement with the landlord from which we lease or executive offices in Broomfield, Colorado. This agreement provided for rent abatement and granted us an early termination option. The gross rent was reduced by $5,000 per month for the period of December 2003 through May 2004. The abated gross rent carried an accrued interest charge at 6% per annum. We exercised the early termination of the agreement on May 3, 2004, pursuant to which we paid 50% of the remaining base rent plus the abated gross rent plus any unpaid interest. The Company has never paid dividends on common stock and has no plans to do so in fiscal 2004. Our earnings if any will be retained for reinvestment in the business. Due to the sale of our intellectual property to Applied Biosystems, we no longer have any continuing operations and are no longer generating any revenues. We are currently consuming cash to fund our limited operations. However, since the completion of sale our intellectual property, we have terminated our remaining employees and liquidated substantially all of our assets. If the merger transaction with Alpha Innotech Corporation fails to close for any reason, we could continue to explore other potential business opportunities that would provide long-term value to stockholders or we could distribute our cash as a dividend to our stockholders as part of liquidation and after satisfaction of all of our liabilities and payment of all costs associated with the liquidation. If we were to make a distribution to stockholders before the expiration of certain representations and warranties we made under the Assignment Agreement (18 months from the date of closing), we would be required to reserve and hold back $1,000,000 for possible settlement of potential claims by Applied Biosystems against us for our breaches of those representations and warranties. There can be no guarantee that any of these activities will be successful. OFF-BALANCE SHEET ARRANGEMENTS At December 31, 2004 and 2003, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. RELATED PARTY TRANSACTIONS We have a consulting agreement in place with Mr. James Chamberlain, a member of the Board of Directors, pursuant to which we have engaged Mr. Chamberlain as or Chief Executive Officer and Chief Financial Officer. The agreement stipulates payments of $5,000 per month until a merger transaction is complete. 12 RECENTLY ISSUED ACCOUNTING STANDARDS FAS 123R DISCLOSURE In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) is effective for public companies for interim or annual periods beginning after June 15, 2005, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro-forma disclosure is no longer an alternative. The new standard will be effective for the Company, beginning August 1, 2005. The Company has not yet completed their evaluation but expects the adoption to have an effect on the financial statements similar to the pro-forma effects reported above. FAS 153 DISCLOSURE The FASB issued SFAS 153, Exchanges of Nonmonetary Assets, which changes the guidance in APB Opinion 29, Accounting for Nonmonetary Transactions. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective during fiscal years beginning after June 15, 2005. The Company does not believe the adoption of SFAS 153 will have a material impact on the Company's financial statements. RISK FACTORS You should carefully consider the following risk factors and all other information contained in this report before purchasing shares of our common stock. Investing in our common stock involves a high degree of risk. If any of the following events or outcomes actually occurs, our business, operating results, and financial condition would likely suffer. As a result, the trading price of our common stock could decline, and you may lose all or part of the money you paid to purchase our common stock. RISKS RELATED TO OUR COMPANY WE ARE NO LONGER GENERATING REVENUES FROM OPERATIONS. Our revenues for the year ended December 31, 2004 resulted primarily from the sale of our intellectual property. Since the completion of that transaction, we have closed our operations and are no longer generating any revenues. We are dependent upon our cash reserves to fund our remaining overhead and administrative operations. WE MAY NOT BE ABLE TO IDENTIFY AND EVALUATE A POTENTIAL MERGER OR REORGANIZATION PARTNER IN A TIMELY MANNER, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS. While we have entered into a definitive Agreement and Plan of Merger with Alpha Innotech Corporation, the closing of the transaction is subject to a number of conditions to closing. These conditions include approval of both the Xtrana and Alpha Innotech stockholders, obtaining certain regulatory and third party approvals, and other customary conditions. We expect to submit the merger for approval at a meeting of our stockholders during the first six months of 2005. However, there can be no assurance that the transaction will be completed in a timely manner, if at all. If the transaction is not completed, we could either pursue other potential business combinations or propose a liquidation of the Company. Because we are no longer generating revenues, delays in completion of any transaction will result in further depletion of our cash reserves. In addition, there can be no assurance following consummation of any acquisition or merger that the business venture will develop into a going concern or, if the business is already operating, that it will continue to operate successfully. Many of the potential business opportunities available, including Alpha Innotech Corporation, for acquisition may involve new and untested products, processes or market strategies that may not ultimately prove successful. 13 OUR STOCKHOLDERS MAY EXPERIENCE SUBSTANTIAL DILUTION IN A POTENTIAL ACQUISITION, MERGER OR REORGANIZATION. In the event we do successfully acquire or merge with an operating business opportunity, it is likely that our present stockholders will experience substantial dilution; and, in such event, there will be a probable change in control of our Company. Most likely, the owners of the business opportunity will acquire control of our Company following such transaction. Our merger agreement with Alpha Innotech Corporation provides that immediately following the consummation of the transaction, our stockholders would own approximately 17%, and the shareholders of Alpha Innotech would own approximately 83%, of the outstanding shares of common stock of the combined company. If we do not complete the Alpha Innotech transaction and pursue other opportunities, we cannot predict the manner in which we might participate in a prospective new business opportunity. Each separate potential opportunity will be reviewed and, upon the basis of that review, a suitable legal structure or method of participation will be chosen. The particular manner in which we participate in a specific business opportunity will depend upon the nature of that opportunity, the respective needs and desires of the Company and management of the opportunity, and the relative negotiating strength of the parties involved. Actual participation in a business venture may take the form of an asset purchase, lease, joint venture, license, partnership, stock purchase, reorganization, merger or consolidation. We may act directly or indirectly through an interest in a partnership, corporation, limited liability company or other form of organization. RISKS ASSOCIATED WITH OUR COMMON STOCK OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWN A SIGNIFICANT PERCENTAGE OF OUR CAPITAL STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR AFFAIRS. Our executive officers, directors, and principal stockholders will continue to beneficially own over 30% of our outstanding common stock, based upon the beneficial ownership of our common stock as of December 31, 2004. In addition, these same persons also hold options to acquire additional shares of our common stock, which may increase their percentage ownership of the common stock further in the future. Accordingly, these stockholders: (1) will be able to significantly influence the composition of our board of directors; (2) will significantly influence all matters requiring stockholder approval, including change of control transactions; and (3) will continue to have significant influence over our affairs. This concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO YOU. Some investors favor companies that pay dividends, particularly in general downturns in the stock market. We have not declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for funding growth, and we do not currently anticipate paying cash dividends on our common stock in the foreseeable future. Because we may not pay dividends, your return on this investment likely depends on your selling our stock at a profit. 14 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements of Xtrana, Inc. are included in the report on the following pages: PAGE NO. -------- Report of independent registered public accounting firm................ 20 Balance sheet as of December 31, 2004.................................. 21 Statements of operations for the years ended December 31, 2004 and 2003............................................. 23 Statements of stockholders' equity for the years ended December 31, 2004 and 2003....................................... 24 Statements of cash flows for the years ended December 31, 2004 and 2003............................................. 25 Notes to financial statements.......................................... 26 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 8A. CONTROLS AND PROCEDURES As of December 31, 2004, the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer, with the participation of our management, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer believe that, as of the date of the evaluation, our disclosure controls and procedures are effective. There were no significant changes in our internal controls over financial reporting or in other factors that could significantly affect these internal controls over financial reporting after the date of our most recent evaluation. 15 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTER AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2005. ITEM 10. EXECUTIVE COMPENSATION Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2005. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2005. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2005. ITEM 13. EXHIBITS EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 Assignment Agreement dated January 24, 2004 between the Company and Applera Corporation, though its Applied Biosystems Group (7) 2.1.1 First Amendment to the Assignment Agreement dated March 31, 2004 between the Company and Applera Corporation, through its Applied Biosystems Group 2.2 Agreement and Plan of Merger dated as of December 14, 2004, by and among the Company, AIC Merger Corp. and Alpha Innotech Corporation (9) 3.1 Certificate of Incorporation (1) 3.2 By Laws (1) 4.1 Shareholder Rights Plan (3) 4.2 Second Rights Agreement Amendment between the Company and American Stock Transfer and Trust Company (10) 10.1 1993 Stock Incentive Plan (2) * 10.2 2000 Stock Incentive Plan (5) * 10.4 Lease Agreement - Broomfield, Colorado (6) 10.4.1 Lease Addendum Two for Modification of Rent and Early Termination of Lease dated November 11, 2003 between the Company and James M. Roswell d/b/a Burbank East Business Par.(7) 10.4.2 Lease Addendum Three for Modification of Rent and Early Termination of Lease dated February 12, 2004 between the Company and James M. Roswell d/b/a Burbank East Business Park (7) 10.5 Secured Promissory Note Dated December 16, 2004 made by Alpha Innotech Corporation in favor of the Company 10.6 Pledge and General Security Agreement dated December 16,2004 between Alpha Innotech Corporation and the Company 14.1 Code of Ethical Conduct (8) 23.1 Consent of Independent Auditors 24.1 Power of Attorney (included on signature page) 16 31.1 Certificate of our Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a). 32.1 Certificate of our Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b). * Indicates a management contract or compensatory plan. (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-20584). (2) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994. (3) Incorporated by reference to Registrant's Form 8-A filed June 26, 1998. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. (5) Incorporated by reference to Registrant's Definitive Proxy Statement filed on June 23, 2000. (6) Incorporated by reference to Registrant's Form 8-K filed January 25, 2001. (7) Incorporated by reference to Registrant's Form 10-KSB filed on March 19, 2004. (8) Incorporated by reference to the Registrant's Form 10-KSB/A filed on April 28, 2004. (9) Incorporated by reference to the Registrant's Form 8-K filed on December 17, 2004. (10) Incorporated by reference to the Registrant's Form 8-K filed January 5, 2005. ITEM 14. PRINCIPAL ACCOUNTANT AND FEES Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2005. 17 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Xtrana, Inc. Date: March 31, 2005 BY: /S/ JAMES H. CHAMBERLAIN -------------------------------- James H. Chamberlain Chief Executive Officer & Chief Financial Officer (Principal Executive, Financial and Accounting Officer) Each person whose signature appears below constitutes and appoints James H. Chamberlain and Michael Bick, Ph.D., and each of them, as his true and lawful attorney-in-fact and agent with full power of substitution and re-substitution, for him and his name, place and stead, in any and all capacities to sign this Form 10-KSB and to file any amendments hereto under the Securities and Exchange Act of 1934 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /S/ MICHAEL D. BICK Chairman of the Board March 31, 2005 - --------------------------- Michael D. Bick, Ph.D. /S/ JAMES H. CHAMBERLAIN Chief Executive Officer, March 31, 2005 - --------------------------- Chief Financial James H. Chamberlain Officer and Director /S/ DOUGLAS L. AYER Director March 31, 2005 - --------------------------- Douglas L. Ayer /S/ N. PRICE PASCHALL Director March 31, 2005 - --------------------------- Price Paschall /S/ JOHN C. GERDES, PH.D. Director March 31, 2005 - --------------------------- John C. Gerdes, Ph.D. /S/ JAMES MAHONY, PH.D. Director March 31, 2005 - --------------------------- James Mahony, Ph.D. 18 ANNUAL REPORT ON FORM 10-KSB ITEM 13(A)(1) AND (2) FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2004 XTRANA, INC. (A DEVELOPMENT STAGE ENTERPRISE) SEDALIA, COLORADO 19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Xtrana, Inc. Sedalia, CO We have audited the accompanying balance sheet of Xtrana, Inc. (the Company), a development stage enterprise, as of December 31, 2004, and the related statements of operations, stockholders' equity, and cash flows for the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing and opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xtrana, Inc. as of December 31, 2004 and the results of its operations and its cash flows for the years ended December 31, 2004 and 2003 in conformity with United States generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered significant losses from operations for the years ended December 31, 2004 and 2003. Management's plans to address these matters are also included in Note 2 to the financial statements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. HEIN & ASSOCIATES LLP Denver, Colorado March 2, 2005 20 XTRANA, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEET DECEMBER 31, 2004 (in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents ................................... $2,397 Notes Receivable $500 (net of reserve of $500) .............. -- Prepaid expenses and other current assets ................... 13 ------ TOTAL CURRENT ASSETS ............................................. 2,410 TOTAL ASSETS ..................................................... $2,410 ====== See accompanying notes to financial statements. 21 XTRANA, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEET DECEMBER 31, 2004 (in thousands except share data) (continued) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ............................................. $ 59 Accrued liabilities .......................................... 56 -------- TOTAL CURRENT LIABILITIES ......................................... 115 COMMITMENTS AND CONTINGENCIES (see notes 2 and 3) STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 50,000,000 shares authorized; 16,533,269 shares issued and outstanding .................. 165 Additional paid-in capital ................................... 19,446 Accumulated deficit .......................................... (18,574) Retained earnings during development stage ................... 1,258 -------- TOTAL STOCKHOLDERS' EQUITY ........................................ 2,295 -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $ 2,410 ======== See accompanying notes to financial statements. 22 XTRANA, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, -------------------- 2004 2003 -------- -------- (in thousands except per share data) REVENUE: Grant revenue .......................................... $ 102 $ 1,159 Nucleic acid (DNA/RNA) testing kits .................... -- 32 -------- -------- Total revenue .......................................... 102 1,191 COST OF SALES: Grant Cost of Sales .................................... 79 949 Nucleic acid (DNA/RNA) testing kits .................... -- 4 -------- -------- Total cost of sales .................................... 79 953 -------- -------- GROSS PROFIT ........................................... 23 238 Operating expenses: Selling, general and administrative ............... 1,492 2,300 Research and development .......................... 99 308 Fixed asset impairment charges .................... -- 493 -------- -------- TOTAL OPERATING EXPENSES ............................... 1,591 3,101 -------- -------- Reserve for loss on note receivable .................... (500) -- Gain (loss) on sale of intellectual property ........... 3,310 -- Other income, net ...................................... 16 51 -------- -------- NET INCOME (LOSS) ...................................... $ 1,258 $ (2,812) ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING Basic and Diluted ................................. 16,533 16,533 ======== ======== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ............ $ 0.08 $ (0.17) ======== ======== See accompanying notes to financial statements. 23 XTRANA, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands except share data)
RETAINED EARNINGS ADDITIONAL DURING COMMON STOCK PAID-IN ACCUMULATED DEVELOPMENT SHARES AMOUNT CAPITAL DEFICIT STAGE TOTAL ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT JANUARY 1, 2003 ........ 16,533,269 $ 165 $ 19,438 $ (15,762) $ -- $ 3,841 Net loss ...................... -- -- -- (2,812) -- (2,812) Options issued to non-employees -- -- 8 -- -- 8 ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 2003 ...... 16,533,269 165 19,446 (18,574) -- 1,037 Net Income .................... -- -- -- -- 1,258 1,258 ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 2004 ...... 16,533,269 $ 165 $ 19,446 $ (18,574) $ 1,258 $ 2,295 ========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements. 24 XTRANA, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, ------------------ 2004 2003 ------- ------- (in thousands) OPERATING ACTIVITIES Net Income (loss) from operations ................... $ 1,258 $(2,812) Adjustments to reconcile income (loss) from operations to net cash used in by continuing operating activities: Options issued to non-employees .................. -- 8 Depreciation and Amortization .................... 17 245 Reserve for loss on note receivable .............. 500 -- Loss on Fixed Asset Disposal ..................... 5 -- Gain on Patent Disposal .......................... (3,357) -- Fixed Asset impairment charge .................... -- 493 Inventory valuation allowance .................... -- 35 Changes in operating assets and liabilities: Notes receivable - discount ...................... -- (225) Accounts and grants receivable ................... 7 65 Prepaid expenses and other current assets ........ 42 46 Accounts payable and accrued expenses ............ (339) (217) ------- ------- Net cash used in continuing operating activities .... (1,867) (2,362) NET CASH USED IN OPERATING ACTIVITIES .................... (1,867) (2,362) INVESTING ACTIVITIES Sale of Intellectual Property ....................... 3,658 -- Note Receivable ..................................... (500) -- Sale of Fixed Assets ................................ 41 -- Receipts on note receivable ......................... -- 2,848 Other ............................................... (21) -- Additions to deferred patent cost ................... -- (78) ------- ------- NET CASH PROVIDED IN INVESTING ACTIVITIES ................ 3,178 2,770 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..... 1,311 408 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............. 1,086 678 ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR ................... $ 2,397 $ 1,086 ======= ======= SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 XTRANA, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Xtrana, Inc. ("Xtrana" or the "Company"), formerly known as Biopool International, Inc., was incorporated in 1987 in the state of Delaware. The Company previously developed and marketed nucleic acid-based tests for use in drug discovery, detection of environmental and food contaminants, forensics and identity testing, human and animal diseases, genetic predisposition to disease, and other applications. In January 2004 the Company sold its intellectual property and is currently seeking a merger candidate (see note 2). BASIS OF PRESENTATION Our financial statements have been prepared assuming the Company will continue as a going concern. For the year ended December 31, 2004, we incurred positive cash flow of approximately $1.3 million. This is the result of the sale of our Intellectual property to Applera. As described more fully in Notes 2 and 3 to the financial statements, during the latter part of 2002 and in 2003, the Company transitioned its core line of business from Hemostasis to nucleic acid testing. In connection with this transition, revenues from continuing operations were substantially reduced. Effective January 1, 2004 the Company determined it went back into a development stage enterprise as a result of and agreement to sell its remaining revenue generating operations (see note 2). Activities during the development stage have included the sale of assets and search for a potential merger company. REVENUES 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. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the change could be material to the financial statements. CASH AND CASH EQUIVALENTS Cash and cash equivalents represent highly liquid investments, which mature daily. 26 STOCK-BASED COMPENSATION As permitted under the Statements of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," the Company accounts for its stock-based compensation for options issued to employees in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). As such, for options granted to employees and directors, compensation expense is recorded on a straight-line basis over the shorter of the period that the services are provided or the vesting period, only if the current market price of the underlying stock exceeds the exercise price. Certain pro forma net income and earnings per share disclosures for employee stock option grants are also included below as if the fair value method as defined in SFAS 123 had been applied. Transactions in equity instruments with non-employees for goods or services are accounted for by the fair value method. Had compensation cost for the Plan been determined based upon the fair value at the grant date for options granted, consistent with the provisions of SFAS 123, the Company's net income/loss and net income/loss per share would have been increased to the pro forma amounts indicated below: 2004 2003 --------- --------- Net income (loss) - as reported .................. $ 1,258 $ (2,812) Effect of stock-based compensation included in reported net loss ................. -- -- Effect of stock-based compensation per SFAS 123 .................................. (66) (148) --------- --------- Net income (loss) applicable to common stock - pro forma ...................... $ 1,192 $ (2,960) ========= ========= Basic and diluted: Net income (loss) per share - as reported ..... $ 0.08 $ (0.17) Effect of stock-based compensation included in reported net loss .............. -- -- Effect of stock-based compensation per SFAS 123 ............................... (0.01) (0.01) --------- --------- Net loss applicable to common stock - pro forma .................................. $ 0.07 $ (0.18) ========= ========= The fair value of each option grant under the Plan is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 2004 2003 --------- --------- Risk-free interest ......................... 4.0% 4.0% Expected life .............................. 6.9 years 6.9 years Expected volatility ........................ 167.0% 167.0% Expected dividend .......................... -- -- The expected life was determined based on the Plan's vesting period and exercise behavior of the employees. NOTE RECEIVABLE Pursuant to the definitive merger agreement see (note 2), we loaned Alpha Innotech Corporation $500,000. The note matures and becomes due 6 months following the date of termination and automatically terminates as closing as defined in the merger agreement. The note carries interest at a rate of 8% annually 27 payable at maturity. Concentration of credit risk with respect to the note receivable is collateralized by the assets of Alpha Innotech Corporation. The note receivable is subordinated to BFI Business Finance under a loan and security agreement dated March 9, 2004. The Company has reserved the entire amount of the note due to the questionable collectability of the note should the merger not be consummated. PROPERTY AND EQUIPMENT Property and equipment was stated at cost. Depreciation was generally calculated on a straight-line basis over their estimated useful lives, which ranged from 3 to 10 years. Leasehold improvements were generally depreciated over their estimated useful lives or over the period of the lease, whichever was shorter. As part of its review of its 2004 first quarter financial results and entering into an agreement to sell all its intellectual property, the Company performed an impairment assessment of fixed assets. The impairment assessment was performed to determine whether any impairment existed. The impairment indicators included, but were not limited to, the decline in the Company's stock price, the net book value of the assets, and the overall decline in forecasted growth rates which have negatively impacted the Company's revenues and forecasted revenue growth rates, and the impact of the sale of the intellectual property. As a result the Company recorded a $33,000 impairment charge in 2004 to reduce fixed assets to reflect their current estimated fair value of $0.00. DEFERRED PATENT COSTS Prior to the sale of its patents in January 2004 (see note 2) the Company capitalized legal costs directly incurred in pursuing patent applications as deferred patent costs. When such applications resulted in an issued patent, the related costs were amortized over the remaining legal life of the patents, generally 15 years, using the straight-line method. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed when incurred and include both internal research and development costs and payments to third parties. Research and development costs were $99,000 and $308,000 during the years ended December 31, 2004 and December 31, 2003 respectively. INCOME TAXES The Company accounts for income taxes in accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized. The tax provision shown on the accompanying statement of operations is zero since the deferred tax asset generated from the net operating loss is offset in its entirety by a valuation allowance. CONCENTRATION OF CREDIT RISK Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and a note receivables to Alpha Innotech Corporation (see note 2). At December 31, 2004, substantially all cash and cash equivalents were on deposit with one financial institution. Concentration of credit risk with respect to the note receivable is secured by the assets of Alpha Innotech Corporation. The note receivable is subordinated to BFI Business Finance under a loan and security agreement dated March 9, 2004. The Company has reserved the entire amount of the note due to the questionable collectability of the note should the merger not be consummated. 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 28 dilutive potential common shares outstanding. Potential common shares are outstanding options under the Company's stock option plans and outstanding warrants, which are included under the treasury stock method. Options and warrants to purchase 1,746,389 and 2,373,802 shares with exercise prices greater than the average market prices of common stock were outstanding during the years ended December 31, 2004 and 2003, respectively. These options and warrants were, therefore, excluded from the respective computations of diluted earnings per share because their effect would be anti-dilutive. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of the Company's cash and cash equivalents, note receivable, payables and accrued expenses approximate fair value due to the short maturity of these instruments. RECENT ACCOUNTING PRONOUNCEMENTS FAS 123R DISCLOSURE In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) is effective for public companies for interim or annual periods beginning after June 15, 2005, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro-forma disclosure is no longer an alternative. The new standard will be effective for the Company, beginning August 1, 2005. The Company has not yet completed their evaluation but expects the adoption to have an effect on the financial statements similar to the pro-forma effects reported above. FAS 153 DISCLOSURE The FASB issued SFAS 153, Exchanges of Nonmonetary Assets, which changes the guidance in APB Opinion 29, Accounting for Nonmonetary Transactions. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective during fiscal years beginning after June 15, 2005. The Company does not believe the adoption of SFAS 153 will have a material impact on the Company's financial statements. 2. GOING CONCERN The accompanying financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying financial statements reflect net income of $1,258,000 and a loss of $2,812,000 for the years ended, December 31, 2004 and 2003, respectively. Working capital and stockholders' equity is $2,295,000 and $2,295,000, respectively, as of December 31, 2004. On January 26, 2004, the Company entered into an Assignment Agreement with Applera Corporation through its Applied Biosystems Group. Pursuant to the terms of the Assignment Agreement, Applied Biosystems purchased all intellectual property of the Company, other than the Company's trademarks and trade names. The assets purchased by Applied Biosystems included all the Company's U.S. and foreign patents, inventions, trade secrets and know-how, and constituted substantially all of the Company's assets. The total consideration of $4,000,000 consists of: (a) a $100,000 cash deposit, which was previously paid to the Company, (b) $3,500,000 in cash paid to the Company at closing; and (c) $400,000 in cash to be paid 90 days after closing, subject to the Company providing certain consulting services as required by the Assignment Agreement. The total purchase price paid by Applied Biosystems was determined in arms-length negotiations between the parties. 29 On March 31, 2004, Applied Biosystems delivered the $3,500,000 closing cash payment, and the Company delivered its intellectual property rights, into an escrow account pending the final closing of the transaction. Such final closing took place on May 14, 2004, after Applied Biosystems' receipt of certain certifications from the Company required as part of the due diligence efforts under the Assignment Agreement. On August 15, 2004, Applied Biosystems delivered the $400,000 in cash due to the completion of the consulting services as required by the Assignment Agreement. The sale of the Company's intellectual property to Applied Biosystems resulted in the receipt of net proceeds of approximately $3,357,000 by the Company, after payment of all expenses associated with the transaction. After complying with the requirements of the Assignment Agreement with Applera to provide consulting services, the Company terminated all of its remaining employees. As of May 3, 2004, the Company terminated the lease for its prior executive offices pursuant to an early termination agreement. The Company could distribute the remaining cash proceeds as a dividend to the Company's stockholders as part of liquidation, after satisfaction of all of the Company's liabilities and payment of all costs associated with the liquidation. If the Company were to make a distribution of the remaining cash proceeds to its stockholders before the expiration of certain representations and warranties the Company made under the Assignment Agreement (18 months from the date of closing), the Company would be required to reserve and hold back $1,000,000 for possible settlement of potential claims by Applied Biosystems against the Company for the Company's breaches of those representations and warranties. The Company and Alpha Innotech Corporation announced in December 2004 that they entered into a merger agreement. Security holders of Alpha Innotech will receive shares of the Company's common stock, and all outstanding Alpha Innotech stock options and warrants will be converted into options and warrants to purchase shares of the Company's common stock. Immediately following the consummation of the transaction, the stockholders of the Company will own approximately 17%, and the stockholders of Alpha Innotech will own approximately 83%, of the outstanding shares of common stock of the combined company. Alpha Innotech Corporation, a privately held company founded in 1992, is a supplier of innovative solutions for life science and drug discovery with core expertise in quantitative imaging, informatics, and molecular biology. Pursuant to the definitive agreement, The Company also agreed to loan Alpha Innotech Corporation $500,000. The agreement requires Stockholder approval. 3. COMMITMENTS AND CONTINGENCIES LEASES On November 11, 2003, the Company entered into an early termination agreement with the landlord. The agreement provides for rent abatement and an early termination option. The gross rent was reduced by $5,000 per month for the period of December 2003 through May 2004. The abated gross rent carried an interest charge at 6% per annum. The lease was terminated May 3, 2004 under the agreement that stipulated the Company pay 50% of the remaining base rent plus the abetted gross rent plus any unpaid interest. The Company paid $201,159 for early termination. 4. RELATED PARTY TRANSACTIONS The Company has an agreement in place with Mr. James Chamberlain a member of the Company's Board of Directors, pursuant to which the Company has engaged Mr. Chamberlain as the Company's Chief Executive Officer and Chief Financial Officer. The agreement stipulates payments of $5,000 per month until a merger transaction is complete. 30 5. STOCK OPTION PLANS AND WARRANTS The Company has two stock option plans (the "Plans") for the benefit of employees, officers, directors, and consultants of the Company. As of December 31, 2004, a total of 3,946,634 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 activity for 2004 and 2003 was as follows: WEIGHTED AVERAGE SHARES EXERCISE OUTSTANDING PRICE RANGE PRICE --------- ----------------- --------- BALANCE AT JANUARY 1, 2003 ..... 1,890,179 $0.2300 - $2.5000 $ 0.83 Granted ........................ -- -- -- Exercised ...................... -- -- -- Cancelled ...................... (201,132) $0.2900 - $1.3750 $ 0.92 --------- BALANCE AT DECEMBER 31, 2003 ... 1,689,047 $0.2300 - $2.5000 $ 0.82 Granted ........................ -- -- -- Exercised ...................... -- -- -- Cancelled ...................... 617,413 $0.2600 - $1.5000 $ 1.10 --------- BALANCE AT DECEMBER 31, 2004 ... 1,071,634 $0.2300 - $2.5000 $ 0.67 The following information summarizes stock options outstanding at December 31, 2004: OUTSTANDING EXERCISABLE -------------------------------- ------------------------- Weighted Average ------------------- Remaining Weighted Contractual Average Number Life in Exercise Number Exercise Exercise Price Outstanding Months Price Exercisable Price - -------------------------------------------------------------------------------- $ 0.00 - $ 0.31 110,000 91 $ 0.230 110,000 $ 0.230 $ 0.31 - $ 0.63 495,000 88 $ 0.370 458,332 $ 0.370 $ 0.63 - $ 0.94 128,000 54 $ 0.765 123,999 $ 0.764 $ 0.94 - $ 1.25 276,634 55 $ 0.993 276,634 $ 0.993 $ 1.25 - $ 1.56 8,250 13 $ 1.438 8,250 $ 1.438 $ 1.56 - $ 1.88 12,500 31 $ 1.687 12,500 $ 1.687 $ 2.19 - $ 2.50 41,250 26 $ 2.396 41,250 $ 2.396 --------- -- ------- --------- ------- 1,071,634 72 $ 0.665 1,030,965 $ 0.675 At December 31, 2004, 3,460,630 shares were available for future grants under the Plans. The weighted average remaining contractual life of outstanding options at December 31, 2004, was 6.0 years. At December 31, 2004, there were 1,030,965 options exercisable with weighted average exercise prices of $0.68. As of December 31, 2004, the Company had 674,755 warrants to purchase common stock outstanding and exercisable for prices ranging from $0.01 to $1.875 with a weighted average exercise price of $0.9047 per share. The weighted average remaining contractual life of these warrants at December 31, 2004, was 2.9 years. These warrants have expiration dates ranging from 2005 to 2010. 31 6. INCOME TAXES The reconciliation of income tax attributable to continuing operations computed at the U.S. Federal Statutory rates to the income tax provision is as follows: YEARS ENDED DECEMBER 31, --------------- 2004 2003 ---- ---- Tax at U.S. statutory rate (34%) ......................... (34%) (34%) Permanent differences .................................... -- 1% Effect of gain on sale ................................... -- -- State income tax expense net of federal benefit .......... (3%) 2% Valuation allowance ...................................... 37% 31% ---- ---- Net expense (benefit) ............................... 0.00% 0.00% ==== ==== The components of the Company's deferred tax assets and liabilities at December 31, 2004 are as follows: (in thousands) CURRENT LONG TERM ------- ------- Deferred tax assets: Net operating loss carryforwards ......... $ 0 $ 2,756 Reserve for Note Receivable .............. 186 0 Accumulated depreciation amortization .... 0 0 R & D credit ............................. 0 45 Foreign tax credit ....................... 0 564 Valuation reserve ........................ (186) (3,365) ------- ------- Subtotal .................................... -- -- Net deferred tax (liability) asset ............ $ -- $ -- ======= ======= At December 31, 2004, the Company had available net operating loss carryforwards of approximately $7,427,000 in the United States. The United States carryforwards expire in varying amounts through 2023. 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. 7. RETIREMENT PLAN The Company had a defined contribution plan for its domestic operations under which employees who have satisfied minimum age and service requirements may defer compensation pursuant to Section 401(k) of the Internal Revenue Code. As of December 31, 2004, the Company has terminated the 401K plan. 32 EX-10 2 ex10-5.txt EX-10.5 EXHIBIT 10.5 SECURED PROMISSORY NOTE $500,000.00 December 16, 2004 FOR VALUE RECEIVED, the undersigned, ALPHA INNOTECH CORPORATION, a California corporation (the "MAKER"), hereby promise to pay to XTRANA, INC., a Delaware corporation (the "PAYEE" and, together with the Maker, the "PARTIES"), in lawful money of the United States of America, the principal sum of FIVE HUNDRED THOUSAND DOLLARS AND NO CENTS ($500,000.00). Except as provided in Paragraph 1.2 below, no interest shall accrue on this Note. This Note has been executed and delivered in connection with the Agreement and Plan of Merger, dated as December 14, 2004, by and among Maker, Payee and AIC Merger Corporation (the "MERGER AGREEMENT"). The Parties agree that, in the event that Payee becomes obligated to pay Maker a termination fee pursuant to Section 8.2.1 of the Merger Agreement, such termination fee shall be deemed to reduce the principal amount of this Note as of the date of termination. 1. PAYMENT 1.1 MATURITY DATE. Upon any termination of the Merger Agreement pursuant to Section 8.1 thereof, to the extent outstanding and subject to Section 5 hereof, the entire unpaid principal balance of this Note and any accrued but unpaid interest thereon shall become due and payable on the date which is six (6) months following the date of such termination. 1.2 INTEREST. In the event of any termination of the Merger Agreement pursuant to Section 8.1 of the Merger Agreement, interest will accrue on the unpaid principal balance from time to time outstanding, retroactive from the date of issuance of this Note until the principal balance is paid in full, at a rate of eight percent (8%) per annum (the "INTEREST RATE"). In addition (but without duplication), from and after the occurrence of an Event of Default (as defined below) interest will accrue on the unpaid principal balance from time to time outstanding, from the date of such occurrence of such Event of Default until the date when such Event of Default is cured or until the principal balance is paid in full, whichever is earlier, at the Interest Rate. Interest at the Interest Rate will be calculated on the basis of a year of 365 or 366 days, as applicable, and charged for the actual number of days elapsed. 1.3 PREPAYMENT; APPLICATION OF PAYMENTS. Maker will have the right to prepay all or any portion of the outstanding principal amount without premium or penalty. All payments on this Note will be applied first to the payment of accrued interest (if any) before being applied to the payment of principal. 1.4 MANNER OF PAYMENT. Principal, interest, and all other amounts due under this Note will be payable, in U.S. dollars, by electronic wire transfer of immediately available funds pursuant to written instructions provided to Maker by Payee. If any payment of principal or interest on this Note is due on a day that is not a Business Day, such payment will be due on the next succeeding Business Day. "BUSINESS DAY" means any day other than a Saturday, Sunday or legal holiday in the State of California. All amounts due from Maker to Payee under this Note will be made without benefit of any setoff, counterclaim or other defense. 2. DEFAULTS 2.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events with respect to Maker will constitute an event of default hereunder ("EVENT OF DEFAULT"): (a) If Maker fails to pay when due any payment of principal or interest on this Note and such failure continues for five (5) days after such payment becomes due; (b) If Maker is in material breach of any other provision of this Note or any provision of the Merger Agreement, which breach is not cured within ten (10) days after written notice from Payee of such breach; (c) If Maker shall default in the performance or observance of any obligation or condition with respect to indebtedness in excess of $100,000 or any other event shall occur or condition exist, if the effect of such default, event or condition is to accelerate the maturity of such indebtedness or is such indebtedness shall become or be declared to be due and payable prior to its stated maturity as a result of the foregoing; or (d) If Maker, under the laws of any jurisdiction: (i) consents to the appointment of a trustee, receiver, assignee, liquidator or similar official; (ii) makes a general assignment for the benefit of its creditors; or (iii) institutes a proceeding, or has an involuntary proceeding instituted against it, seeking a judgment of insolvency, bankruptcy, or any other similar relief under any bankruptcy, insolvency, or other similar law affecting creditors' rights that is not dismissed within ninety (90) days thereafter. 2.2 NOTICE BY MAKER. Maker will notify Payee in writing within five (5) days after the occurrence of any Event of Default of which Maker acquires knowledge. If Payee is not so notified, said failure to notify is, in and of itself, a default. 2.3 REMEDIES. Subject to the provisions of Paragraph 4.2 hereof, upon the occurrence of an Event of Default hereunder (unless waived in writing by Payee), Payee may, at its option, (a) by written notice to Maker, declare the entire unpaid principal balance of this Note, together with all accrued interest thereon, immediately due and payable or (b) exercise any and all rights and remedies available to it under applicable law, including the right to collect from Maker all sums due under this Note. Maker will pay all costs and expenses incurred by or on behalf of Payee in connection with Payee's exercise of any or all of its rights and remedies under this Note, including attorneys' fees. 3. SECURITY AGREEMENT. Maker's obligations under this Note are secured by the collateral set forth in that certain Security Agreement, dated as of the date hereof, between Maker and Payee (the "SECURITY AGREEMENT"). Concurrently with the termination of this Note pursuant to Paragraph 5 below, the Security Agreement shall terminate and be of no further force and effect (other than the Parties' obligations to execute and deliver such documents as be necessary or appropriate to release any 2 lien upon or security interest in the collateral secured thereby). The security interest of Maker in the Collateral is, and at all times shall be, junior and subordinate to the security interest of Senior Lender. 4. SENIOR SUBORDINATION 4.1 DEFINITION OF SENIOR INDEBTEDNESS. For purposes of this Note, the term "SENIOR INDEBTEDNESS" shall mean the principal of and premium, if any, and interest on indebtedness of Maker under that certain Loan and Security Agreement, dated March 9, 2004, between Maker and BFI Business Finance ("BFI") or its assigns ("SENIOR LENDER") and money borrowed from other commercial banks, equipment lessors, or other financial institutions under a secured or unsecured line of credit, term loan or equipment lease approved by BFI. 4.2 SUBORDINATION TO SENIOR INDEBTEDNESS. The payment of principal and interest on this Note is subordinated in right of payment to the prior payment in full of all Senior Indebtedness of Maker, whether outstanding on this date or thereafter. In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization, or other similar proceedings relative to Maker, or to its property, or in the event of any proceedings for voluntary liquidation, dissolution, or other winding up of Maker, then the holders of Senior Indebtedness will be entitled to receive payment in full of all principal and interest on all Senior Indebtedness before Maker is entitled to receive any payment on account of principal or interest on this Note. NOTWITHSTANDING THE FOREGOING, Maker may make scheduled payments of principal and interest under this Note as provided in Section 1 hereof, as and when such payments are due and payable, UNLESS AND UNTIL Payee and Maker have received written notice from the Senior Lender that an event of default has occurred or been declared under either (i) the Secured Promissory Note dated August 26, 2004 in the principal amount of $300,000.00 issued by Maker to Senior Lender (unless Maker has paid in full all of its obligations under such Secured Promissory Note) or (ii) that certain Loan and Security Agreement, dated March 9, 2004, between Maker and BFI. 4.3 SENIOR TO OTHER INDEBTEDNESS. Subject to the prior payment in full of the Senior Indebtedness, Payee shall receive payments from Maker, prior to any other creditors, until the obligations related to this Note are satisfied in full, PROVIDED, HOWEVER, that the foregoing will not apply to Permitted Indebtedness (as defined below). Notwithstanding any subordination to Senior Indebtedness as described above, Maker will cooperate with Payee to ensure that payment on this Note is (to the extent commercially practicable and permitted by applicable law) senior to all other existing and future debt of Maker. For the purpose of this Paragraph 4.3, "PERMITTED INDEBTEDNESS" shall mean indebtedness to trade creditors incurred in the ordinary course of business. 4.4 NO IMPAIRMENT. This Paragraph 4 is not intended to impair, as between Maker, its creditors (other than with respect to the holders of Senior Indebtedness) and Payee, the unconditional obligation of Maker to pay the principal of and interest on this Note. Nothing in this Note shall prevent Payee from exercising all remedies otherwise permitted by applicable law upon default of this Note, subject to the rights, if any, of the holders of the Senior Indebtedness in respect to cash, property, or securities of Maker received upon exercise of any such remedies. 3 5. TERMINATION This Note, and the rights and obligations under this Note, shall automatically terminate upon the Closing (as defined in the Merger Agreement). 6. MISCELLANEOUS 6.1 WAIVER. Maker hereby waives presentment, demand, protest, and notice of dishonor and protest. 6.2 ASSIGNMENT. Neither Party shall assign or transfer this Note or any of its rights or obligations under this Note without express prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed, provided that Payee may assign this Note to any person or entity which acquires all or substantially all of the assets of Payee without the written consent of Payee. 6.3 SUCCESSORS. All of the terms, agreements, covenants, representations, warranties, and conditions of this Note are binding upon, and inure to the benefit of and are enforceable by, the Parties and their respective successors. If the principal business, operations or a majority or substantial portion of the assets of Maker are assigned, conveyed, allocated, or otherwise transferred, including by sale, merger, consolidation, amalgamation, conversion, or similar transactions, such receiving person or persons will automatically become bound by and subject to the provisions of this Note, and Maker, subject to satisfaction of the provisions of Paragraph 6.2 above will cause the receiving person or persons to expressly assume its obligations hereunder. 6.4 NOTICES. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by facsimile, electronic mail, or overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Maker, to: Alpha Innotech Corporation 2401 Merced St. San Leandro, CA 94577 Attn: Chief Executive Officer Fax: 510-483-3227 with a copy to (which shall not constitute notice): Heller Ehrman White & McAuliffe LLP 4350 La Jolla Village Drive, 7th Floor San Diego, CA 92122 Attn: Stephen Ferruolo, Esq. Fax: (858) 450-8499 4 if to Payee, to: Xtrana, Inc. c/o James H. Chamberlain, CEO 733 Spruce Meadow Place Thousand Oaks, CA 91362 Fax: (805) 494-0832 with a copy to (which shall not constitute notice): Stubbs Alderton & Markiles, LLP 15821 Ventura Blvd., Suite 525 Encino, CA 91436 Attn: Scott Alderton, Esq. Fax: (818) 444-4520 6.5 TIME. Time is of the essence in the performance of this Note. 6.6 HEADINGS. The article and section headings contained in this Note are inserted for convenience only and will not affect in any way the meaning or interpretation of this Note. 6.7 GOVERNING LAW. This Note and the performance of the obligations of the Parties hereunder will be governed by and construed in accordance with the laws of the State of California, without giving effect to any choice of law principles. 6.8 AMENDMENTS AND WAIVERS. No amendment, modification, replacement, termination, or cancellation of any provision of this Note will be valid, unless the same will be in writing and signed by the each Party. No waiver by any Party of any default, Event of Default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, may be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising because of any prior or subsequent such occurrence. 6.9 SEVERABILITY. The provisions of this Note will be deemed severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof; provided that any provision of this Note that is invalid or unenforceable in any situation or in any jurisdiction will not affect the enforceability of the remaining terms and provisions hereof or the enforceability of the offending term or provision in any other situation or in any other jurisdiction. 6.10 EXPENSES. Except as otherwise expressly provided in this Note, each Party will bear its own costs and expenses incurred in connection with the preparation, execution and performance of this Note, including all fees and expenses of agents, representatives, financial advisors, legal counsel, and accountants. This paragraph shall not affect attorneys' fees which may be incurred in connection with collection of late payments or resulting from any Event of Default, as described above. 5 6.11 ATTORNEYS' FEES. If there exists an Event of Default, Maker agrees to pay all costs and expenses of collection, including attorneys' fees, incurred by Payee in connection therewith, whether or not suit is filed. 6.12 CONSTRUCTION. The Parties have participated jointly in the negotiation and drafting of this Note. If an ambiguity or question of intent or interpretation arises, this Note will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party because of the authorship of any provision of this Note. Any reference to any federal, state, local, or foreign law will be deemed also to refer to such law as amended and all rules and regulations promulgated thereunder, unless the context requires otherwise. The words "include," "includes," and "including" will be deemed to be followed by "without limitation." Pronouns in masculine, feminine, and neuter genders will be construed to include any other gender, and words in the singular form will be construed to include the plural and vice versa, unless the context otherwise requires. The words "this Note," "herein," "hereof," "hereby," "hereunder," and words of similar import refer to this Note as a whole and not to any particular subdivision unless expressly so limited. The Parties intend that each representation, warranty, and covenant contained herein will have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached will not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. 6.13 REMEDIES. Except as expressly provided herein, the rights, obligations and remedies created by this Note are cumulative and in addition to any other rights, obligations or remedies otherwise available at law or in equity. Except as expressly provided herein, nothing herein will be considered an election of remedies. IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the date first above written. MAKER: ALPHA INNOTECH CORPORATION /S/ HASEEB CHAUDHRY ----------------------------- By: Haseeb Chaudhry Its: Chief Executive Officer 6 EX-10 3 ex10-6.txt EX-10.6 EXHIBIT 10.6 ================================================================================ PLEDGE AND GENERAL SECURITY AGREEMENT Dated as of December 16, 2004 By and Between ALHPA INNOTECH CORPORATION, as Debtor And XTRANA, INC., as Secured Party ================================================================================ PLEDGE AND GENERAL SECURITY AGREEMENT THIS PLEDGE AND GENERAL SECURITY AGREEMENT (this "AGREEMENT") dated as of December 16, 2004, entered into by and between, Alpha Innotech Corporation, a California corporation, as debtor (the "DEBTOR"), and Xtrana, Inc., a Delaware corporation, as secured party (the "SECURED PARTY"), sets forth the agreement pursuant to which the Debtor pledges and assigns its interest in, and grants a security interest and general Lien in and upon, the Collateral described herein as security for the obligations incurred by Debtor under that certain Secured Promissory Note of even date herewith in the original principal amount of $500,000 (the "SECURED NOTE"). WHEREAS, it is a condition to the Secured Party making a loan and advance of funds pursuant to the Secured Note that the Debtor execute this Agreement in favor of the Secured Party. NOW THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good, valuable, and binding consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. DEFINITIONS. (a) Capitalized terms used herein and not otherwise defined herein shall have the meanings provided in the Secured Note. To the extent that any terms or concepts defined or used herein are defined or used in the UCC (as defined below), such terms or concepts shall be interpreted for purposes hereof in a manner that is consistent with such definition or use in the UCC. (b) The following terms shall have the meanings set forth below: "ACCOUNT" has the meaning given such term in Section 9102(a)(2) of the UCC. "ACCOUNT DEBTOR" has the meaning given such term in Section 9102(a)(3) of the UCC. "CERTIFICATE OF TITLE" has the meaning given such term in Section 9102(a)(10) of the UCC. "CERTIFICATED SECURITY" has the meaning given such term in Section 8102(a)(4) of the UCC. "CHATTEL PAPER" has the meaning given such term in Section 9102(a)(11) of the UCC. "COLLATERAL" shall mean all right, title, and interest of the Debtor in and to all of the following property of the Debtor, whether now owned or hereafter acquired and whether now existing or hereafter coming into existence: (i) Accounts; (ii) Chattel Paper and rights to receive monies included thereby; (iii) Commercial Tort Claims; (iv) Deposit Accounts; (v) Documents; (vi) Equity Collateral; (vii) General Intangibles; (viii) Goods, including Inventory and Equipment; (ix) Instruments and rights to receive monies included thereby; (x) Intellectual Property; (xi) Investment Property, including Commodity Accounts and Commodity Contracts; (xii) Letter-of-Credit Rights; (xiii) Notes; (xiv) other tangible and intangible personal property and Fixtures of the Debtor; (xv) to the extent related to any property described in the clauses (i) through (xiv), all books, correspondence, loan files, records, invoices, and other papers, including without limitation all tapes, cards, computer runs, and other papers and documents in the possession or under the control of the Debtor or any computer service company from time to time acting for the Debtor; and (xvi) cash and non-cash Proceeds of any and all of the foregoing. "COMMERCIAL TORT CLAIM" has the meaning given such term in Section 9102(a)(13) of the UCC. "COMMODITY ACCOUNT" has the meaning given such term in Section 9102(a)(14) of the UCC. "COMMODITY CONTRACT" has the meaning given such term in Section 9102(a)(15) of the UCC. "COPYRIGHT COLLATERAL" shall mean all Copyrights, whether now owned or hereafter acquired by the Debtor. "COPYRIGHTS" shall mean all copyrights, copyright registrations, and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the 2 right to recover for all past, present, and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto. "DEPOSIT ACCOUNT" has the meaning given such term in Section 9102(a)(29) of the UCC. "DOCUMENTS" has the meaning given such term in Section 9102(a)(30) of the UCC. "EQUIPMENT" has the meaning given such term in Section 9102(a)(33) of the UCC. "EQUITY COLLATERAL" shall mean Pledged Equity and Pledged Equity Proceeds. "EVENT OF DEFAULT" shall have the meaning specified in SECTION 15 of this Agreement. "FIXTURES" has the meaning given such term in Section 9102(a)(41) of the UCC. "GENERAL INTANGIBLES" has the meaning given such term in Section 9102(a)(42) of the UCC. "GOODS" has the meaning given such term in Section 9102(a)(44) of the UCC, and shall include Motor Vehicles. "INSTRUMENTS" has the meaning given such term in Section 9102(a)(47) of the UCC. "INTELLECTUAL PROPERTY" shall mean, collectively, all Copyright Collateral, all Patent Collateral, and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how, and trade secrets; (b) all licenses or user or other agreements granted to the Debtor with respect to any of the foregoing, in each case whether now or hereafter owned or used; (c) all information, customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogs, computer and automatic machinery software and programs, splash screens, films, masters, and artwork; (d) all field repair data, sales data, and other information relating to sales or service of products now or hereafter manufactured; (e) all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records, or data; and (f) all licenses, consents, permits, variances, certifications, and approvals of governmental agencies now or hereafter held by the Debtor. "INVENTORY" has the meaning given such term in Section 9102(a)(48) of the UCC. "INVESTMENT PROPERTY" has the meaning given such term in 9102(a)(49) of the UCC. "LETTER-OF-CREDIT RIGHT" has the meaning given such term in Section 9102(a)(51) of the UCC. "LIEN" shall mean a pledge, assignment, lien, charge, mortgage, encumbrance, or other security interest obtained under this Agreement or under any other agreement or instrument with 3 respect to any present or future assets, property, contract rights, or revenues in order to secure the payment of indebtedness of the party referred to in the context in which the term is used. "MOTOR VEHICLES" shall mean motor vehicles, tractors, trailers, and other like property, whether or not the title thereto is governed by a certificate of title or ownership. "NOTES" shall mean all Promissory Notes or other debt instruments (including, without limitation, bonds and debentures of any nature whatsoever) from time to time issued to, or held by, the Debtor. "OBLIGATIONS" shall mean (i) (x) the principal of and any interest on the Secured Note and (y) all other obligations and liabilities (including, without limitation, indemnities, Fees and interest thereon) of the Debtor, whether now existing or hereafter incurred, under, arising out of, or in connection with, the Secured Note or otherwise and the due performance and compliance by the Debtor with all of the terms, conditions, and agreements contained in the Secured Note; (ii) any and all sums advanced by the Secured Party in order to preserve the Collateral or preserve its Lien and security interest in the Collateral; (iii) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i) and (ii) above, the reasonable expenses of any exercise by the Secured Party of its rights hereunder, together with reasonable attorneys' fees and court costs; and (iv) to the extent not otherwise included in clauses (i), (ii), and (iii) above, the Debtor's obligations set forth in SECTION 22. "PATENT COLLATERAL" shall mean all Patents, whether now owned or hereafter acquired by the Debtor. "PATENTS" shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof, all income, royalties, damages, and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present, and future infringements thereof, and all rights corresponding thereto throughout the world. "PERMITTED LIENS" shall mean (i) those Liens set forth on EXHIBIT A attached hereto, (ii) Liens for taxes, fees, assessments or other government charges or levies which are not delinquent or are being contested by Debtor in good faith and for which Debtor maintains adequate reserves on its books, (iii) Liens consisting of deposits made in the ordinary course of business in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance, social security and other similar laws, and (iv) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons, PROVIDED that if any such Lien arises from the nonpayment of such claims or demand when due, such claims or demands do not exceed $50,000 in the aggregate. "PLEDGED EQUITY" shall mean (i) the shares of stock of, or partnership and other ownership interest in, any entity, and (ii) all ownership interests of any class or character of a successor entity formed by or resulting from a consolidation or merger in which any such issuer 4 is not the surviving entity; in each case, whether now or hereafter owned by the Debtor, together with any certificates evidencing of the foregoing. "PLEDGED EQUITY PROCEEDS" shall mean all shares, securities, moneys, or property representing a dividend on any of the Pledged Equity, or representing a distribution or return of capital upon or in respect of the Pledged Equity, or resulting from a split-up, revision, reclassification, or other like change of the Pledged Equity or otherwise received in exchange therefor, and any subscription warrants, rights, or options issued to the holders of, or otherwise in respect of, the Pledged Equity. "PROCEEDS" has the meaning given such term in Section 9102(a)(64) of the UCC. "PROMISSORY NOTES" has the meaning given such term in Section 9102(a)(65) of the UCC. "SECURITIES" has the meaning given such term in Section 8102(a)(15) of the UCC. "SECURITIES ACCOUNT" has the meaning given such term in Section 8501(a) of the UCC. "TRADEMARK COLLATERAL" shall mean all Trademarks, whether now owned or hereafter acquired by the Debtor. Notwithstanding the foregoing, the Trademark Collateral does not and shall not include any Trademark that would be rendered invalid, abandoned, void, or unenforceable by reason of its being included as part of the Trademark Collateral. "TRADEMARKS" shall mean all trade names, trademarks and service marks, logos, domain names, trademark and service mark registrations, and applications for trademark and service mark registrations, including, without limitation, all renewals of trademark and service mark registrations, all rights corresponding thereto throughout the world, the right to recover for all past, present, and future infringements thereof, all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark, and service mark. "UCC" shall mean the Uniform Commercial Code as in effect in the State of California from time to time. "UNCERTIFICATED SECURITY" has the meaning given such term in Section 8102(a)(18) of the UCC. 2. GRANT OF LIENS. As security for the due and punctual payment and performance in full of all Obligations (whether at the stated maturity, by acceleration, or otherwise and whether now owing or incurred in the future), the Debtor hereby pledges, assigns, and grants to the Secured Party a continuing security interest in and a general Lien upon all of the Debtor's right, title, and interest in and to the Collateral and all additions thereto and substitutions therefor, whether heretofore, now or hereafter received by or delivered or transferred to the Secured Party hereunder. 5 3. CONTINUING SECURITY INTEREST. (a) This Agreement creates a continuing security interest in, and general Lien upon, the Collateral, and shall (a) remain in full force and effect until all Obligations have been paid in full and the Secured Note has been terminated, (b) be binding upon the Debtor and its successors, permitted transferees, and permitted assigns, and (c) inure, together with the rights and remedies of the Secured Party hereunder, to the benefit of the Secured Party and its successors, transferees, and assigns. (b) Upon the indefeasible payment in full of all Obligations and the termination of the Secured Note, the assignment, pledge, charge, Lien, and security interest granted hereunder shall terminate and, upon delivery and transfer of the Collateral to the Debtor, all rights to the Collateral shall revert to the Debtor. Upon such termination, the Secured Party will at the sole expense of the Debtor execute and deliver to the Debtor such documents as the Debtor shall reasonably request to evidence such termination, including the preparation and filing of a UCC-3 termination statement or execution of an authentication authorizing the Debtor to prepare and file a UCC-3 termination statement, and the Secured Party shall deliver and transfer such Collateral to the Debtor. 4. DEBTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding, (i) the Debtor shall remain liable under any agreements which have been (in whole or in part) pledged or assigned herein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (ii) the exercise by the Secured Party of any of the rights hereunder shall not release the Debtor from any of its respective duties or obligations under any such agreements; and (iii) the Secured Party shall not have any obligation or liability under any such agreements by reason of this Agreement, nor shall the Secured Party be obligated to perform any of the obligations or duties of the Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 5. DELIVERY AND PERFECTION. The Debtor hereby authorizes the Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral, and agrees to take all such other actions and to execute and deliver and file or cause to be filed such other instruments or documents, as the Secured Party may reasonably require in order to establish and maintain a perfected, valid, and continuing security interest and Lien in the Collateral in accordance with this Agreement and the UCC and other applicable law. (a) The Debtor shall, at the written request of the Secured Party: (i) promptly deliver any and all Documents, Instruments, and Chattel Paper (including, without limitation, any Certificates of Title) evidencing or relating to the Collateral to the Secured Party at the time and place and manner specified in the Secured Party's request; (ii) promptly execute (if applicable) and deliver to the Secured Party (or file or record in such offices as the Secured Party may deem necessary or appropriate) any and all financing and continuation statements, other agreements, instruments, or other documents or amendments thereto, and 6 perform any acts which may be necessary (A) to create, perfect, preserve, or otherwise protect the security interest and Liens granted herein or (B) to enable the Secured Party to exercise and enforce its rights hereunder; (iii) with respect to any Certificated Security not otherwise credited to a Securities Account, the Debtor shall effect transfer thereof to the Secured Party (A) by physical delivery of such Certificated Security to the Secured Party endorsed to the Secured Party or its nominee or in blank or (B) in the case of a Certificated Security in registered form, by physical delivery of such Certificated Security to the Secured Party specially endorsed to the Secured Party or its nominee and thereafter reregistered in the name of the Secured Party or its nominee; (iv) with respect to any Uncertificated Security not otherwise credited to a Securities Account, the Debtor shall (A) effect transfer thereof to the Secured Party by registration thereof on the books and records of the issuer in the name of the Secured Party or its nominee or (B) obtain the agreement of the issuer of such Uncertificated Securities that it will comply with instructions originated by the Secured Party without further consent by the registered owner, through a written agreement in form and substance satisfactory to the Secured Party; and (v) mark all Certificates of Title in the manner specified in a written notice of the Secured Party to the Debtor requesting such marking, to evidence the fact that such Certificates of Title are subject to the security interest and Lien of the Secured Party granted herein. (b) Upon the written request of the Secured Party, the Debtor agrees immediately to deliver to the Secured Party, appropriately endorsed to the order of the Secured Party, any Notes, trade acceptance, Chattel Paper, or other Instrument in which a security interest must be perfected by delivery or transfer of such Collateral to a secured party, which shall be acquired by the Debtor from time to time. (c) Notwithstanding Section 9207 of the UCC, the Secured Party may hold as additional security any Proceeds, including money and funds, received from the Collateral, all of which shall constitute Collateral hereunder, and the Secured Party shall not be required to apply such money or funds to reduce the Obligations other than as expressly set forth herein. (d) In the event of an actual conflict between the provisions of the Section 5 and this Agreement and the terms of the provisions of that certain Loan and Security Agreement dated March 9, 2004 between Debtor and BFI Business Finance (the "BFI LOAN AGREEMENT"), the rights of Secured Party and obligations of Debtor under this Section 5 and this Agreement, to the extent such a conflict results, shall be subject only to the senior obligations of Debtor under the BFI Loan Agreement. 6. RELATION TO OTHER SECURITY DOCUMENTS. To the extent applicable, the provisions of this Agreement supplement the provisions of any real estate mortgage or deed of trust granted by 7 the Debtor to the Secured Party and securing the payment or performance of any of the Obligations. Nothing contained in any such real estate mortgage or deed of trust shall derogate from any of the rights or remedies of the Secured Party hereunder. 7. PROCEEDS OF SALE. Nothing contained in this Agreement shall limit or restrict in any way the Secured Party's right to receive Proceeds of the Collateral in any form in accordance with the provisions of this Agreement. All Proceeds that are received by the Debtor contrary to the provisions of this Agreement shall be received in trust for the benefit of the Secured Party, shall be segregated from other property or funds of the Debtor and shall be forthwith paid over to the Secured Party as Collateral in the same form as so received (with any necessary endorsement, document or instrument of transfer). 8. RECORDS AND INFORMATION. The Debtor agrees to keep, at its office set forth in SECTION 12(D), its records concerning the Collateral. The Debtor agrees to promptly furnish to the Secured Party such information concerning itself, the Collateral, and any Account Debtor as the Secured Party may reasonably request. 9. INSPECTION. The Debtor agrees upon reasonable notice provided by the Secured Party, to permit the Secured Party, through its officers and agents, to examine and inspect the Collateral and all records pertaining thereto, and to make extracts from such records as the Secured Party may reasonably require. 10. USE OF COLLATERAL. Except upon the occurrence and during the continuance of any Event of Default, the Debtor may in the ordinary course of its business use, consume, exhibit, demonstrate, sell, lease, or otherwise dispose of its Inventory, grant non-exclusive licenses to its Intellectual Property pursuant to standard end-user license agreements, and, with the prior written consent of the Secured Party, its Equipment, in carrying on its businesses substantially in the same manner as now conducted; PROVIDED, HOWEVER, that a sale in the ordinary course of business shall not include any transfer or sale in satisfaction, partial or complete, of a debt owed by the Debtor or any transfer or sale to any shareholder or affiliate of the Debtor for consideration less than the consideration which would have been paid to the Debtor by an unaffiliated third party in an arms' length transaction; and PROVIDED FURTHER that any such disposition shall not be unlawful or inconsistent with the terms of this Agreement or of any policy of insurance covering such Collateral. 11. NO DISPOSITION. The Debtor covenants and agrees that it will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, any of the Collateral, except for the Permitted Liens and as provided for in SECTION 10 hereof, nor will it create, incur, or permit to exist any Lien on or with respect to any of the Collateral, any interest therein, or any Proceeds thereof, except for the Permitted Liens, the security interests and Liens granted or created in connection with this Agreement, the Secured Note or any other obligation of the Debtor in favor of the Secured Party. 12. REPRESENTATIONS AND WARRANTIES. The Debtor represents and warrants to the Secured Party throughout the term of this Agreement that: 8 (a) The Debtor is and will be the sole legal and beneficial owner of all of the Collateral now owned or hereafter acquired free and clear of any Lien, security interest, assignment, option, or other charge or encumbrance, except for the Permitted Liens, the Liens and security interests granted or created in connection with this Agreement, the Secured Note or any other obligation of the Debtor in favor of the Secured Party; (b) This Agreement has been duly and validly authorized by the Debtor and executed and delivered by the Debtor and constitutes the legal, valid, and binding obligation of the Debtor, enforceable against the Debtor in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium, or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)) and, subject to the performance of the relevant procedures as specified in SECTION 5 herein with respect to such Collateral, creates a valid, binding, enforceable, and second priority perfected security interest in and general second Lien upon all of the Collateral (subject only to the first priority Lien granted in favor of BFI Business Finance under the BFI Loan Agreement), and the Debtor is duly authorized to make all filings and take all other actions necessary or desirable to perfect and to continue perfected such security interest; (c) As of the date hereof and on the date of delivery or transfer to the Secured Party of any Collateral under this Agreement, the Debtor has good and marketable title to the Collateral; (d) The office where the Debtor maintains all records relating to the Collateral is located at: Alpha Innotech Corporation 2401 Merced St. San Leandro, CA 94577 (e) The Debtor is a corporation duly organized and validly existing under the laws of the State of California; (f) The Debtor's exact legal name as that name appears on the Debtor's Certificate of Incorporation and the Debtor's organization identification number issued by its State of incorporation is as follows: LEGAL NAME IDENTIFICATION NUMBER Alpha Innotech Corporation C1808742 (g) All Pledged Equity in which the Debtor currently has or shall hereafter acquire an interest is and will be, as applicable, duly authorized, validly existing, fully paid, and non-assessable (in the case of any equity interest in a corporation) and duly issued and outstanding (in the case of any equity interest in any other entity), and none of such Pledged Equity is or will be subject to any contractual restriction, or any restriction under the charter, by- 9 laws, partnership agreement, or other organizational document of the respective issuer, upon the transfer of such Pledged Equity. (h) Except pursuant to licenses and other user agreements entered into by the Debtor in the ordinary course of business, the Debtor owns and possesses the right to use, and has done nothing to authorize or enable any other Person to use, any Copyright, Patent or Trademark owned or used by the Debtor on the date hereof, and all registrations therefor are valid and in full force and effect; and the Debtor owns or possesses the right to use all such Copyrights, Patents and Trademarks. (i) To the Debtor's knowledge, (i) there is no violation by others of any right of the Debtor with respect to any Copyright, Patent or Trademark of Debtor and (ii) the Debtor is not infringing in any respect upon any Copyright, Patent or Trademark of any other Person; and no proceedings have been instituted or are pending against the Debtor or, to the Debtor's knowledge, threatened, and no claim against the Debtor has been received by the Debtor, alleging any such violation. 13. COVENANTS. (a) The Debtor shall: (i) Maintain, or cause to be maintained, all items of the Collateral in good condition and repair, ordinary wear and tear excepted in the case of Equipment, and pay, or cause to be paid, the costs of repairs to or maintenance of that Collateral which is of a type that could be repaired or maintained; (ii) Not use any Collateral in violation of law or any applicable policy of insurance; (iii) Pay or cause to be paid when due all taxes, assessments, and other charges relating to the Collateral or this Agreement and reimburse the Secured Party for all costs of and fees incurred in connection with any filing of the documents and instruments referred to in SECTION 5; (iv) Not change its: (a) name or the name under which it does business; (b) chief executive office; (c) type of organization; (d) jurisdiction of organization; or (e) other legal structure without at least thirty (30) days' prior written notice to the Secured Party. Prior to effectuating any change described in the preceding sentence, the Debtor shall take or cause to be taken all actions deemed by the Secured Party to be necessary or desirable to prevent any financing or continuation statement from becoming seriously misleading or rendered ineffective, or the security interests granted herein from becoming unperfected or the relative priority thereof otherwise impaired, as a result of such removal or change; (v) Perform and observe all the material terms and provisions of any agreement for the sale or lease of goods, or any agreement for the 10 rendering of services, giving rise to an Account to be performed or observed by it, maintain any such agreement in full force and effect, enforce any such agreement in accordance with its terms, and take all such action to such end as may be from time to time reasonably requested by the Secured Party. (b) The Debtor shall not, without the prior written consent of the Secured Party: (i) Permit anything to be done that might impair the value of the Collateral or adversely affect the security or Liens intended to be afforded by this Agreement in favor of the Secured Party, except as permitted in Section 10 and 11; (ii) Modify, amend, or waive any terms or conditions of the Collateral or any rights or interests therein; or (iii) Waive any default under or breach of any agreement giving rise to or connected with any Account Receivable. 14. FURTHER ASSURANCES AND PROTECTIONS. (a) The Debtor shall at its expense do, file, record, make, execute, and deliver all such acts, notices, instruments, statements, or other documents as the Secured Party may reasonably request (which request may be oral or in writing) to register in the name of the Secured Party, perfect, preserve, or otherwise protect the security interest and Liens of the Secured Party in the Collateral or any part thereof or to give effect to the rights, powers, and remedies of the Secured Party under this Agreement; and (b) The Debtor will give prompt written notice to the Secured Party of, and defend the Collateral against, any suit, action, or proceeding related to the Collateral or which could adversely affect the security interests and Liens granted hereunder. 15. EVENTS OF DEFAULT. The occurrence of any of the following events or conditions shall constitute an event of default (each an "EVENT OF DEFAULT") under this Agreement: (a) The occurrence and continuation of an Event of Default as defined in the Secured Note; (b) The Debtor fails to make, when due, any transfer, delivery, pledge, assignment or grant of Collateral required to be made by it and that failure continues unremedied for five (5) business days after notice of that failure is given to the Debtor; or (c) The failure or refusal by the Debtor to perform, or the breach or violation of, any of the terms, obligations, covenants, or warranties of this Agreement or the Secured Note other than those specified in clause (b) and that failure or refusal continues unremedied for ten (10) business days after notice of such failure or refusal is given to the Debtor. 11 16. REMEDIES UPON AN EVENT OF DEFAULT. On and after the occurrence and continuance of an Event of Default, all Obligations shall become immediately due and payable, upon written notice by the Secured Party to the Debtor. In such event, the Secured Party may, in its discretion: (a) request that the Debtor, and upon such request the Debtor shall, assemble the Collateral at such place or places reasonably convenient to the Secured Party designated in such request; (b) enforce collection of any of the Collateral by suit or any other lawful means available to the Secured Party, or demand, collect, or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral; (c) surrender, release, or exchange or otherwise modify the terms of all or any part of the Collateral, or compromise or extend or renew for any period any indebtedness thereunder or evidenced thereby; (d) assert all other rights and remedies of a secured party under the UCC (whether or not in effect in any applicable jurisdiction) and all other applicable law, including, without limitation, the right to take possession of, hold, collect, sell, lease, deliver, grant options to purchase, or otherwise retain, liquidate, or dispose of all or any portion of the Collateral. The proceeds of any collection, liquidation, or other disposition of the Collateral shall be applied by the Secured Party first to the payment of all expenses (including, without limitation, all fees, taxes, reasonable attorneys' fees and legal expenses) incurred by the Secured Party in connection with retaking, holding, collecting, or liquidating the Collateral. The balance of such proceeds, if any, shall, to the extent permitted by law, be applied to the payment of the Obligations in such order of application as determined by the Secured Party in its sole discretion to the extent such order of application is not inconsistent with applicable law. In case of any deficiency, the Debtor shall, whether or not then due, remain liable therefor. If notice prior to disposition of the Collateral or any portion thereof is necessary under applicable law, written notice mailed to the Debtor at its notice address specified on the signature page hereof ten (10) business days prior to the date of such disposition shall constitute reasonable notice, but notice given in any other reasonable manner shall be sufficient. Without precluding any other methods of sale or other disposition, the sale or other disposition of the Collateral or any portion thereof shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of creditors disposing of similar property; but in any event the Secured Party may sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose such Collateral on such terms and to such purchaser(s) (including the Secured Party) as the Secured Party in its discretion may choose, and for cash or for credit or for future delivery, without assuming any credit risk, at public or private sale or other disposition, without demand of performance, and without any obligation to advertise or give notice of any kind other than that necessary under applicable law, provided that such sale or other disposition is conducted in a commercially reasonably manner. The Debtor hereby waives and releases to the fullest extent permitted by law all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale or other disposition, unless prohibited by applicable law, the Secured Party may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. The Secured Party shall not be liable for failure to 12 collect or realize upon any or all of the Collateral or for any delay in so doing nor shall it be under any obligation to take any action whatsoever with regard thereto; The Secured Party shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to this Agreement conducted in a commercially reasonable manner. The Debtor hereby waives any claims against the Secured Party to the extent permitted by applicable law arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Secured Party accepts the first offer received and does not offer the Collateral to more than one offeree; The Debtor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Secured Party may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the relevant Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Debtor acknowledges that any such private sale may be at prices and on terms less favorable to the Secured Party than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to enable the registration of the Collateral or related transaction so as to permit a public offer to be made with respect thereto; (e) license or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Intellectual Property included in the Collateral throughout the world for such term or terms, on such conditions and in such manner as the Secured Party shall in its sole reasonable discretion determine; provided that such licenses or sublicenses do not conflict with any existing license of which the Secured Party shall have received a copy; (f) without assuming any obligation or liability thereunder, at any time and from time to time, in its sole and reasonable discretion, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of the Debtor in, to and under any of its Intellectual Property and take or refrain from taking any action under any thereof, and the Debtor releases the Secured Party from liability for, and agrees to hold the Secured Party free and harmless from and against any claims and expenses arising out of, any lawful action so taken or omitted to be taken with respect thereto, except for claims and expenses arising from the Secured Party's gross negligence or willful misconduct; (g) make a request upon the Debtor (which shall not be construed as implying any limitation on the rights or powers of the Secured Party), and upon such request the Debtor shall, execute and deliver to the Secured Party a power of attorney, in form and substance reasonably satisfactory to the Secured Party, for the implementation of any sale, lease, license or other disposition of Intellectual Property owned by the Debtor or any such action related thereto. In connection with any such disposition, but subject to any confidentiality provisions imposed on such Debtor in any license or similar agreement, such Debtor will supply to the Secured Party its 13 know-how and expertise relating tot he relevant Intellectual Property, and its customer lists and other records relating to such Intellectual Property and to the distribution of said products or services; (h) to the extent not already so transferred, transfer all or any part of the Collateral into the Secured Party's name or the name of its nominee or nominees; and (i) give all consents, waivers, and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (the Debtor hereby irrevocably constituting and appointing the Secured Party the proxy and attorney-in-fact of the Debtor, with full power of substitution to do so), including, without limitation, the exercise of all voting, consensual and other powers of ownership pertaining to the Collateral. 17. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Without limiting any rights or powers granted to the Secured Party pursuant to this Agreement, applicable law or otherwise, the Debtor hereby appoints the Secured Party as its attorney-in-fact, with full power and authority in the place and stead of the Debtor and in the name of the Debtor or otherwise, from time to time after an Event of Default has occurred and is continuing, or is reasonably probable to occur, in the Secured Party's discretion to take any and all action and to execute, file and record any and all instruments, agreements, and documents which the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to execute any assignment of Intellectual Property to the Secured Party or other transferee, and to receive, endorse and collect all instruments made or payable to the Debtor representing any Proceeds in respect of the Collateral or any part thereof and to give full discharge for the same. The appointment set forth in this SECTION 17 is coupled with an interest and is irrevocable. 18. SECURED PARTY MAY PERFORM. If the Debtor fails to perform any agreement, covenant, or obligation contained herein, the Secured Party may itself perform, or cause performance of such agreement, covenant or obligation and the expenses and costs of the Secured Party incurred in connection therewith shall be payable by the Debtor. 19. SECURITY INTEREST ABSOLUTE. All rights of the Secured Party and all Liens hereunder, and all obligations of the Debtor hereunder, shall be absolute and unconditional irrespective of: (a) lack of validity or enforceability of this Agreement or the Secured Note; (b) any change in the time, manner, or place of payment of, or in any other term of any or all of the Obligations or any amendment or waiver of any provision of this Agreement or the Secured Note; (c) any release or non-perfection of any portion of the Collateral or any exchange, release, or non-perfection of any other collateral, or any release, amendment, or waiver of any guaranty for all or any of the Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of the Debtor in respect of the Obligations or this Agreement or the Secured Note. 14 20. SECURED PARTY'S DUTIES. The powers conferred to the Secured Party hereunder are solely to protect the Secured Party's interest in the Collateral and shall not impose any duty upon it to exercise any such powers except for the safe custody of any Collateral or any portion thereof in its possession, and the Secured Party shall exercise that standard of care with respect to the Collateral in its possession which it exercises in the administration of its own assets and property; PROVIDED, HOWEVER, that the Secured Party shall not be liable for any action taken or omitted with respect to the Collateral or this Agreement in good faith and in the absence of gross negligence or willful misconduct. The Secured Party shall have no duty as to the Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to the Collateral. 21. RIGHTS CUMULATIVE. The rights, powers, and remedies of the Secured Party under this Agreement shall be in addition to all rights, powers, and remedies given to the Secured Party by virtue of any statute or rule of law or any agreement, all of which rights, powers and remedies shall be cumulative and may be exercised successively or concurrently without impairing the Secured Party's security interest, Lien, and assignment in the Collateral. 22. INDEMNITY AND EXPENSES. (a) The Secured Party shall not have any liability to any person and shall be indemnified and held harmless by the Debtor for any liability incurred by reason of taking or refraining from taking any action with respect to the Collateral, except in the case of the Secured Party's gross negligence or willful misconduct. The Debtor agrees to indemnify the Secured Party from and against any and all claims, losses, and liabilities arising out of or connected with this Agreement (including, without limitation, enforcement of this Agreement), except such claims, losses, or liabilities resulting solely from the Secured Party's gross negligence or willful misconduct. This SECTION 22(A) shall survive any termination of this Agreement. (b) The Debtor agrees to pay all expenses, costs, and disbursements incurred by the Secured Party (including, without limitation, all Fees, taxes and reasonable attorneys' fees and other legal expenses incurred by the Secured Party in connection therewith) in connection with (i) retaking, holding, collecting, preparing for sale, and selling or otherwise realizing upon, liquidating, or disposing of the Collateral, (ii) the preparation and execution of this Agreement and the documents contemplated hereunder, (iii) the enforcement of its rights hereunder whether in connection with an Event of Default or otherwise, (iv) the performance by the Secured Party of any agreement, covenant, or obligation of the Debtor contained herein that the Debtor has failed or refused to perform, and (v) the participation or other involvement of the Secured Party with (x) bankruptcy, insolvency, receivership, foreclosure, winding up, or liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise, or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Secured Party in respect thereof, by litigation or otherwise, including expenses of insurance, (y) judicial or regulatory proceedings, and (z) workout, restructuring, or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated). 15 23. AMENDMENT OR WAIVER. Neither this Agreement nor any terms hereof may be changed, waived, discharged, or terminated unless such change, waiver, discharge or termination is in writing signed by the parties hereto. 24. NOTICES. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to the Debtor, at the addresses specified immediately below the Debtor's name on the signature page hereof; and if to the Secured Party at its address specified immediately below its name on the signature page hereof; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier. 25. NO WAIVER. No failure or delay on the part of the Secured Party in exercising any right, power or privilege hereunder or under the UCC or any other applicable law shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder or under the UCC or any other applicable law preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. No notice to or demand on the Secured Party in any case shall entitle the Debtor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Secured Party to any other or further action in any circumstances without notice or demand. 26. AGENTS AND ATTORNEYS-IN-FACT. The Secured Party may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected in good faith. 27. SEVERABILITY OF PROVISIONS. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of that prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of that provision in any other jurisdiction. 28. NON-ASSIGNMENT. The Debtor shall not have the right to assign its rights or delegate its obligations hereunder or any part thereof to any other person without the Secured Party's prior written consent. 29. INTEGRATION OF TERMS. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. 30. GOVERNING LAW. (a) This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of California without regard to choice of law principles thereof. The parties hereto agree than any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in any United States District Court for sitting in the State of California or any State court 16 of competent jurisdiction of the State of California, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any such suit, action or proceeding in such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 31. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. [Signature Page Follows] 17 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first written above. DEBTOR ALPHA INNOTECH CORPORATION By: /S/ HASEEB CHAUDHRY ------------------------------------------- Name: Haseeb Chaudhry Title: Chief Executive Officer Address: Alpha Innotech Corporation 2401 Merced St. San Leandro, CA 94577 Attn: Chief Executive Officer Fax: 510-483-3227 SECURED PARTY XTRANA, INC. By: /S/ JAMES H. CHAMBERLAIN ------------------------------------------- Name: James H. Chamberlain Title: Chief Executive Officer Address: Xtrana, Inc. c/o James H. Chamberlain, CEO 733 Spruce Meadow Place Thousand Oaks, CA 91362 Fax: (805) 494-0832 18 EXHIBIT A PERMITTED LIENS PERMITTED LIEN HOLDERS UCC FINANCING STATEMENT NUMBER DATE FILED - ---------------------- ------------------------------ ---------- BFI Business Finance 0407260283 03/09/2004 BFI Business Finance 0407660479 03/11/2004 EX-23 4 ex23-1b.txt EX-23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-22819 and 333-58318) pertaining to the Biopool International, Inc. 1993 Stock Incentive Plan and the Biopool International, Inc. 2000 Stock Incentive Plan of our report dated March 2, 2005, with respect to the financial statements of Xtrana, Inc. included in the Annual Report (Form 10-KSB) for the year ended December 31, 2004. /S/ HEIN & ASSOCIATES LLP ----------------------------------- Hein & Associates, LLP Denver, Colorado March 2, 2005 EX-31 5 ex31-1f.txt EX-31.1 EXHIBIT 31.1 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, James Chamberlain, certify that: 1. I have reviewed this annual report on Form 10-KSB of Xtrana, Inc.; 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 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 the small business issuer's board of directors (or persons performing the equivalent function): 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: March 31, 2005 /S/ JAMES CHAMBERLAIN ----------------------------------- James Chamberlain Chief Executive Officer and Chief Financial Officer EX-32 6 ex32-1f.txt 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 Annual Report on Form 10-KSB for the Fiscal Year Ended December 31, 2004 (the "Report") by Xtrana, Inc. ("Registrant"), the undersigned hereby certifies that: 1. to the best of my knowledge, the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. to the best of my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. Dated: March 31, 2005 /S/ JAMES CHAMBERLAIN -------------------------------------------- James Chamberlain, Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----