10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

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

For the quarterly period ended September 30, 2006

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

Commission file number 001-14257

ALPHA INNOTECH CORP.

(Exact name of Registrant as specified in its charter)

Delaware	58-1729436
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2401 Merced St., San Leandro, CA 94577	(510) 483-9620
(Address of principal executive offices)	(Issuer’s telephone number )

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

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

As of October 26, 2006, there were 9,891,393 shares of the issuer’s Common Stock, $.01 par value per share, outstanding.

Transitional Small Business Disclosure Format:    Yes  ¨    No  x

Alpha Innotech Corp.

Quarter Ended September 30, 2006

Table of Contents

PART I. FINANCIAL INFORMATION	2
Item 1. Financial Statements	2
Condensed Consolidated Balance Sheet (Unaudited)	2
Condensed Consolidated Statements of Operations (Unaudited)	3
Condensed Consolidated Statements of Cash Flows (Unaudited)	4
Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2. Management’s Discussion and Analysis or Plan of Operation	11
Item 3. Controls and Procedures	15
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 6. Exhibits	15

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALPHA INNOTECH CORP.

Condensed Consolidated Balance Sheet (Unaudited)

	September 30, 2006			December 31, 2005
Assets
Current assets:
Cash and cash equivalents	$	390,764		$	545,665
Accounts receivable, net		1,981,893			2,410,570
Inventory, net		626,112			952,009
Prepaid expenses and other current assets		119,261			211,988
Total current assets		3,118,030			4,120,232
Property and equipment, net		1,112,887			1,171,276
Other assets		95,473			76,325
Total assets	$	4,326,390		$	5,367,833
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable	$	1,506,450		$	1,496,828
Accrued liabilities		981,206			1,084,341
Current portion of debt		1,485,028			1,555,966
Deferred revenue		825,771			774,971
Other liabilities		213,960			230,198
Total current liabilities		5,012,415			5,142,304
Debt, net of current portion		634,360			800,000
Commitments and contingencies		—			—
Shareholders’ deficit:
Common stock, $0.01 par value per share: 50,000,000 shares authorized, 9,891,393 and 9,725,809 shares issued and outstanding		98,914			97,258
Additional paid in capital		17,003,728			16,703,678
Accumulated deficit		(18,414,959	)		(17,375,407	)
Treasury Stock		(8,068	)		—
Total shareholders’ deficit		(1,320,385	)		(574,471	)
Total liabilities and shareholders’ deficit	$	4,326,390		$	5,367,833

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

2

ALPHA INNOTECH CORP.

Condensed Consolidated Statements of Operations (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Revenues	$	3,354,790		$	3,140,125		$	9,506,201		$	8,158,739
Cost of goods sold		1,503,344			1,716,242			4,520,056			4,489,270
Gross profit		1,851,446			1,423,883			4,986,145			3,669,469
Operating costs and expenses:
Sales and marketing		933,044			1,134,053			3,073,621			3,562,174
Research and development		246,256			358,653			983,729			1,165,468
General and administrative		639,940			336,074			1,750,978			1,110,044
Total operating costs and expenses		1,819,240			1,828,780			5,808,328			5,837,686
Operating profit (loss)		32,206			(404,897	)		(822,183	)		(2,168,217	)
Other income (expense):
Interest expense		(77,918	)		(79,808	)		(236,012	)		(241,676	)
Other income (expense), net		(2,354	)		(1,481	)		18,643			(886	)
Total other income (expense)		(80,272	)		(81,289	)		(217,369	)		(242,562	)
Net loss		(48,066	)		(486,186	)		(1,039,552	)		(2,410,779	)
Accretions on redeemable convertible preferred stock		—			(203,468	)		—			(631,461	)
Net loss applicable to common shareholders	$	(48,066	)	$	(689,654	)	$	(1,039,552	)	$	(3,042,240	)
Net loss per share - basic and diluted	$	(0.00	)	$	(0.28	)	$	(0.11	)	$	(1.15	)
Weighted average shares outstanding - basic and diluted		9,858,694			2,476,548			9,796,937			2,649,207

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

3

ALPHA INNOTECH CORP.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
	2006			2005
Cash flow from operating activities
Net loss	$	(1,039,552	)	$	(2,410,779	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		436,971			435,443
Allowance for sales returns and doubtful accounts		12,189			5,120
Provision for demo equipment		(49,371	)		(4,801	)
Accretion of debt discount to interest expense		3,703			—
Warrants issued in lieu of compensation		—			130,933
Stock based compensation		192,875			—
Change in operating assets and liabilities:
Accounts receivables		416,488			340,521
Inventory		325,897			(98,198	)
Prepaid expenses and other current assets		92,726			(7,508	)
Other assets		(19,147	)		2,419
Accounts payable		9,621			589,955
Accrued liabilities		(103,132	)		2,965
Deferred revenue		50,800			69,787
Other liabilities		(16,239	)		3,947
Net cash provided by (used in) operating activities		313,829			(940,196	)
Cash flows from investing activities:
Purchase of property and equipment		(329,211	)		(213,124	)
Net cash used in investing activities		(329,211	)		(213,124	)
Cash flows from financing activities:
Proceeds from borrowing of debt obligations		375,000			1,500,000
Repayment of debt obligations		(520,939	)		(385,038	)
Proceeds from exercise of common stock options		—			846
Proceeds from exercise of warrants		14,488			—
Repurchase of common stock		(8,068	)		—
Net cash provided by (used in) financing activities		(139,519	)		1,115,808
Net decrease in cash and cash equivalents		(154,901	)		(37,512	)
Cash and cash equivalents at the beginning of the period		545,665			40,174
Cash and cash equivalents at the end of the period	$	390,764		$	2,662

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

4

ALPHA INNOTECH CORP.

September 30, 2006

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

Nature of Operations - Alpha Innotech Corporation (“Alpha CA”) was incorporated and began operations in June 1992, in the state of California, with facilities in San Leandro, California.

Alpha CA had a wholly-owned subsidiary, Alpha Innotech Limited, which was located in the United Kingdom and commenced sales operation in September 2001. Alpha Innotech Limited ceased its operations in August 2003 and was legally dissolved in August 2005.

Xtrana, Inc. was incorporated in October 1987 in the state of Delaware. Xtrana, Inc. previously developed and marketed nucleic acid-based tests for use in drug discovery, detection of environmental and food contaminants, forensics and identity testing human animal diseases, genetic predisposition to disease, and other applications. In January 2004, Xtrana, Inc. sold its intellectual property and began seeking a merger candidate.

Merger - On October 3, 2005, Alpha CA was acquired by Xtrana, Inc. In the transactions, Alpha CA merged with a subsidiary of Xtrana, Inc. and became a wholly-owned subsidiary of Xtrana, Inc. Xtrana, Inc. changed its corporate name to Alpha Innotech Corp. and obtained a new trading symbol APNO.OB. The officers and some of the board members of Xtrana, Inc. resigned and were replaced by officers of Alpha CA along with newly appointed board members. Alpha CA shareholders received 8,072,482 shares of common stock of Xtrana, Inc. As a result of the transaction, and subsequent exercise of options and warrants, there are 9,891,393 shares of common stock issued and outstanding.

Xtrana, Inc. assumed all outstanding Alpha CA stock options and warrants with proportionate adjustments to the number of underlying shares and exercise prices based on the following ratios:

• Preferred stock warrants to common stock warrants at an exchange ratio of .3033634 for 1

• Common stock warrants to common stock warrants at an exchange ratio of .1142909 for 1

The transaction has been treated as a reverse merger and a recapitalization of Alpha CA for reporting purposes.

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

The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. These condensed consolidated financial statements should be read in conjunction with our audited financial statements and footnotes related thereto for the year ended December 31, 2005 included in our annual report on Form 10-KSB filed with the Securities and Exchange Commission on March 31, 2006. The unaudited condensed consolidated financial statements include, in our opinion, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position as of September 30, 2006, the results of our operations for the three months ended September 30, 2006 and for the nine months ended September 30, 2006, and our cash flows for the nine months ended September 30, 2006. The results of operations for such interim periods are not necessarily indicative of the results to be achieved for the full year.

Share-Based Employee Compensation

Effective January 1, 2006, the Company adopted the provision of Statement of Financial Accounting standards (SFAS) No. 123 (R), “Share-Based Payment”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS (R), share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period, generally the vesting period of the equity grant. Before January 1, 2006, the Company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 24, “Accounting for Stock Issued to Employees,” and related interpretations. The Company also followed the disclosure requirements of SFAS No. 123, “Accounting for Stock Based

5

Compensation.” The Company elected to adopt the modified prospective transition method as provided by SFAS 123 (R) beginning January 1, 2006 and, accordingly, financial statement amounts for the periods before the first and second quarters presented in this Form 10-QSB have not been restated to reflect the fair value method of expensing share-based compensation.

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

	Three Months Ended September 30, 2006			Nine Months Ended September 30, 2006
Manufacturing	$	2,527		$	4,644
Sales and marketing		4,983			13,632
Research and development		4,104			9,705
General and administrative		132,814			164,894
Total share-based compensation	$	144,428		$	192,875
During the nine months ended September 30, 2005, no significant compensation costs related to the share-based awards to employees was recognized in the Consolidated Statement of Operations. In the nine months ended September 30, 2006, no share-based compensation expense was capitalized and there were no recognized tax benefits associated with the stock-based compensation charge. The stock-based compensation charge did not significantly impact basic and diluted net loss per share in the nine months ended September 30, 2006. The Company estimates the fair value of stock options using the Black-Scholes Option Pricing Model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, expected option term, expected volatility of the stock over the option’s expected term, risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The Company believes that the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculation the fair values of the stock options granted in the nine months ended September 30, 2006. No compensation cost was recognized for the employee share-based awards for the nine months ended September 30, 2005. Had compensation cost been determined on the fair value at the grant dates, the Company’s net loss would have been the pro forma amounts indicated in the table below:
	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Net loss applicable to common stockholders as reported	$	(689,654	)	$	(3,042,240	)
Effect of stock-based compensation per SFAS 123		(5,040	)		(24,959	)
Net loss applicable to common stockholders - pro forma	$	(694,694	)	$	(3,067,199	)
	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Basic and Diluted:
Net loss per share as reported	$	(0.28	)	$	(1.15	)
Effect of stock-based compensation per SFAS 123		—			(0.01	)
Net loss applicable to common stockholders - pro forma	$	(0.28	)	$	(1.16	)
The value of each option grant was estimated on the date of grant using the Black-Scholes Option-Pricing Model with the following assumptions:
	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Dividend yield		0.00	%		0.00	%
Volatility		70.00	%		70.00	%
Risk-free interest rate		4.72	%		4.72	%
Expected term		10 years			10 years

6

Management’s Plan – In the past, the Company has incurred substantial losses and negative cash flows from operating activities. For the nine months ended September 30, 2006, the Company incurred a net loss of $1,039,552 and a positive cash flow from operating activities of $313,829 and has a working capital deficiency and a stockholder’s deficit as of September 30, 2006. Management believes operating losses will decrease in the fourth quarter as new cost cutting measures are implemented and if sales increase as anticipated. However, management anticipates a seasonal drop in sales in the first quarter of 2007 which may lead to increased operating losses in that period. Failure to generate sufficient revenues, raise additional capital or reduce spending would have a material adverse effect on the Company’s ability to continue its current operations.

Going Concern – The accompanying condensed consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities in the normal course of business. The Company has incurred recurring losses and has been unable to generate positive cash flow from operations on an annual basis since 1999. These conditions raise substantial doubts about the Company’s ability to continue as a going concern. The Company has been able to fund its operating losses to date primarily through the sale of preferred stock, cash received through our merger with Xtrana, an existing term loan with Alexandria Finance and a line of credit against its accounts receivable. On July 21, 2006, the Company also received $375,000 from the issuance of a convertible note. The ability of the Company to manage its operating expenses to a level that can be financed by existing cash is critical to the Company’s ability to continue as a going concern. Management plans to manage expenses and is seeking additional sources of cash through debt and or equity financings. We cannot be sure we will be able to obtain funding on favorable terms, or at all. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this going concern uncertainty.

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

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

The following outstanding stock options, warrants, common stock subject to repurchase by the Company, and preferred stock (on an as-converted into common stock basis) were excluded from the computation of diluted net loss per share attributable to holders of common stock as they had antidilutive effects as of September 30, 2006 and 2005.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2006	2005	2006	2005
Shares issuable upon exercise of stock options	—	1,802	—	1,802
Shares issuable upon exercise of warrants	405,356	611,341	405,356	611,341
Shares issuable upon conversion of redeemable convertible preferred stock	—	4,042,508	—	4,042,508
Denominator for basis and diluted calculations	405,356	4,655,651	405,356	4,655,651

Recent Accounting Pronouncements - In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which is an interpretation of SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not believe that the adoption of FIN 48 will have a significant effect on its financial statements.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets-An Amendment of FASB Statement No. 140” (“SFAS 156”). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006, with earlier adoption permitted. The Company does not believe the adoption of SFAS 156 will have a significant effect on its financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fiar value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not believe that the adoption of SFAS 157 will have a significant effect on its financial statements.

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2. Balance Sheet Components

Accounts receivable, net consisted of the following at September 30, 2006 and December 31, 2005:

	2006			2005
Accounts receivable	$	2,115,982		$	2,532,470
Less allowance for sales returns		(130,056	)		(94,944	)
Less allowance for doubtful accounts		(4,033	)		(26,956	)
Accounts receivable, net	$	1,981,893		$	2,410,570

Inventory, net consisted of the following at September 30, 2006 and December 31, 2005:

	2006			2005
Raw materials	$	673,708		$	982,328
Inventory in transit		—			25,540
Less allowance for excess and obsolete inventory		(47,596	)		(55,859	)
Inventory, net	$	626,112		$	952,009

Property and equipment, net consisted of the following at September 30, 2006 and December 31, 2005:

	2006			2005
Machinery and equipment	$	396,175		$	361,930
Furniture and fixtures		208,201			208,201
Leasehold improvements		1,507,500			1,507,500
Loaner and demonstration units		790,732			1,184,999
Computers		289,797			257,344
Software		86,509			84,415
Total property and equipment		3,278,914			3,604,389
Less accumulated depreciation and amortization		(2,166,027	)		(2,433,113	)
Property and equipment, net	$	1,112,887		$	1,171,276

In 2002, the Company entered into a capital lease agreement for production equipment. As of September 30, 2006 and December 31, 2005, property and equipment includes $4,756 of equipment under capital lease and accumulated amortization of assets under capital lease was $4,756 and $4,276 as of September 30, 2006 and December 31, 2005. The equipment under the capital lease was fully depreciated as of September 30, 2006.

Accrued liabilities consisted of the following at September 30, 2006 and December 31, 2005:

	2006		2005
Payroll and related costs	$	393,996	$	546,924
Warranty		128,629		114,061
Audit and tax accrual		76,125		63,750
Finder’s fee		175,000		175,000
Royalty fees		50,000		60,952
Other		157,456		123,654
Accrued liabilities	$	981,206	$	1,084,341

3. Stock Option Plans

At September 30, 2006, the Company had five stock option plans, the 1993 Stock Incentive Plan (“1993 Plan”), the Amended and Restated 1999 Stock Option Plan (“1999 Plan”), the 2000 Stock Incentive Plan (“2000 Plan”), the 2001 Milestone Stock Option Plan (the “2001 Plan”) and the 2006 Equity Incentive Plan (the “2006 Plan”) (collectively the “Plans”) for the benefit of employees, officers, directors, and consultants of the Company. As of September 30, 2006, a total of 1,934,660 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.

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Stock option activity for the nine months ended September 30, 2006 and September 30, 2005 was as follows:

	Shares Available for Grant		Outstanding Options
			Number of Shares		Weighted Average Exercise Price		Aggregate Price
Balance, December 31, 2004	416,905		518,930		$	3.43	$	1,779,994
Granted	(21,830	)	21,830			1.92		41,913
Exercised	—		(350	)		2.42		(848	)
Cancelled	51,275		(51,275	)		2.62		(134,088	)
Expired	11,122		(11,122	)		4.15		(46,109	)
Balance, September 30, 2005	457,472		478,013			3.43		1,640,862
Granted	(97,774	)	97,774			1.59		155,434
Cancelled	14,425		(14,425	)		2.55		(36,732	)
Expired	86,245		(86,245	)		2.73		(235,283	)
Balance, December 31, 2005	460,368		475,117			3.21		1,524,281
Additional shares reserved	1,000,000		—			—		—
Granted	(416,001	)	416,001			1.42		591,300
Cancelled	43,985		(43,985	)		1.63		(71,792	)
Expired	3,156		(3,981	)		4.58		(18,214	)
Balance, September 30, 2006	1,091,508		843,152		$	2.40	$	2,025,575

The following information summarizes stock options outstanding at September 30, 2006:

	Options Outstanding at September 30, 2006				Options Exercisable at September 30, 2006
Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractural Life (in Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$  1.35	167,126	9.65	$	1.35	15,243	$	1.35
1.40	30,849	4.08		1.40	30,849		1.40
1.50	40,000	9.19		1.50	33,332		1.50
1.53	210,000	9.53		1.53	30,833		1.53
1.66	56,404	8.59		1.66	17,718		1.66
1.92	15,115	8.31		1.92	11,536		1.92
2.30	11,000	5.85		2.30	11,000		2.30
2.62	101,164	5.63		2.62	94,864		2.62
2.89	120,006	4.43		2.89	120,006		2.89
3.70	49,500	5.56		3.70	49,500		3.70
6.60	2,000	2.08		6.60	2,000		6.60
7.00	6,000	4.72		7.00	6,000		7.00
7.81	1,500	4.50		7.81	1,500		7.81
9.38	200	3.30		9.38	200		9.38
9.40	15,663	2.67		9.40	15,663		9.40
10.00	6,000	3.86		10.00	6,000		10.00
10.30	1,500	3.86		10.30	1,500		10.30
11.56	4,500	1.67		11.56	4,500		11.56
16.87	500	3.43		16.87	500		16.87
23.13	2,125	0.65		23.13	2,125		23.13
24.38	500	0.50		24.38	500		24.38
25.00	1,500	0.21		25.00	1,500		25.00
	843,152				456,869

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At September 30, 2006 1,091,508 shares were available for future grants under the 2006 Plan, 2000 Plan and 1999 Plan. No further grants may be made under the 1993 Plan and 2001 Plan. The weighted average remaining contractual life of outstanding options at September 30, 2006 was 7.45 years. At September 30, 2006 and 2005, respectively, there were 456,869 and 329,381 options exercisable with weighted average exercise prices of $3.21 and $3.77.

In addition to the above, the Company in December, 2005 granted its Chairman of the Board of Directors a nonstatutory stock option to purchase 300,000 shares of common stock with an exercise price of $1.46. The options vest with respect to 200,000 shares on June 30, 2006 and 100,000 shares on December 31, 2006, subject to completion of certain milestones. The options expire in December 2015. As the initial milestones had not been met as of June 30, 2006, options to purchase 200,000 shares did not vest. The remaining 100,000 shares will continue to vest until December 31, 2006.

As of September 30, 2006, the Company had 810,749 warrants to purchase common stock outstanding and exercisable for prices ranging from $0.0875 to $18.75 with a weighted average exercise price of $ 1.18 per share. The weighted average remaining contractual life of these warrants at September 30, 2006, was 4.89 years. These warrants have expiration dates ranging from 2006 to 2016.

The total compensation cost not yet recognized as of September 30, 2006 related to non-vested option awards was $453,305, which will be recognized over four years.

5. Changes In Shareholders’ Deficit

	Common Stock			Additional Paid in Capital		Accumulated Deficit			Treasury Stock				Total Shareholders’ Deficit
	Shares	Amount							Shares	Amount
Balance at December 31, 2005	9,725,809	$	97,258	$	16,703,678	$	(17,375,407	)	—	$	—		$	(574,471	)
Stock based compensation	—		—		192,875		—		—		—			192,875
Exercise of warrants	165,584		1,656		12,832		—		—		—			14,488
Repurchase of common stock held in treasury	—		—		—		—		4,746		(8,068	)		(8,068	)
Debt discount associated with warrants	—		—		94,343		—		—		—			94,343
Net loss	—		—		—		(1,039,552	)	—		—			(1,039,552	)
Balance at September 30, 2006	9,891,393	$	98,914	$	17,003,728	$	(18,414,959	)	4,746	$	(8,068	)	$	(1,320,385	)

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Item 2. Management’s Discussion and Analysis

The information contained in this Form 10-QSB is intended to update the information contained in our Annual Report on Form 10-KSB for the year ended December 31, 2005 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-KSB. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Form 10-QSB.

Except for the historical information contained herein, this report contains forward-looking statements (identified by the words “estimate,” “anticipate,” “expect,” “believe,” and similar expressions), which are based upon management’s current expectations and speak only as of the date made. These forward-looking statements are subject to risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements and include the factors discussed in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005.

Overview

We sell instruments, software and consumables used in life science laboratories for the study of nucleic acids (DNA and RNA), proteins and cells. Our customers include pharmaceutical companies, academic/medical institutions, biotechnology companies, and government institutes. In the United States, we sell our products through a network of direct sales representatives and independent manufacturers’ representatives. Internationally, we sell our products through a network of independent distributors. As of November 2, 2006 we had 43 distributors in 42 countries worldwide.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, estimates and assumptions about future events and their effects cannot be determined with certainty. These estimates and assumptions may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have been included in the consolidated financial statements as soon as they became known. Actual results may differ from these estimates under different assumptions or conditions. In addition, we are periodically faced with uncertainties, the outcomes of which are not within our control and may not be known for extended periods of time.

Our critical accounting policies are set forth below.

Revenue Recognition

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

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

Revenue is recorded net of estimated returns. Our management makes estimates of potential future product returns related to current period revenue. We analyze historical returns, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of our allowance for sales returns and other allowances, such as allowance for bad debts, in any accounting period. As of September 30, 2006, our allowance for sales returns was $130,056 and our allowance for doubtful accounts was $4,033.

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Inventory

We record inventories at the lower of cost or market value, with cost generally determined on a first-in, first-out basis. We perform periodic valuation assessments based on projected sales forecasts and analyzing upcoming changes in future configurations of our products and record inventory write-downs for excess and obsolete inventory. As of September 30, 2006, our allowance for excess and obsolete inventory was $47,596.

Deferred Taxes Valuation Allowance

We believe sufficient uncertainties exist regarding the future realization of deferred tax assets, and, accordingly, a full valuation allowance is required, which amounted to approximately $6 million at September 30, 2006. In subsequent periods, if and when we generate pre-tax income, a tax expense will not be recorded to the extent that the remaining valuation allowance can be used to offset that expense. Once a consistent pattern of pre-tax income is established or other events occur that indicate that the deferred tax assets will be realized, additional portions or all of the remaining valuation allowance will be reversed back to income. Should we generate pre-tax losses in subsequent periods, a tax benefit will not be recorded and the valuation allowance will be increased. Despite the valuation allowance, we retain the ability to utilize the benefits of net operating loss carryforwards and research and development credits.

Share-based Compensation

Effective January 1, 2006, our accounting policy related to stock option accounting changed upon our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment.” SFAS 123(R) requires us to expense the fair value of employee stock options and other forms of share-based compensation. Under the fair value recognition provisions of SFAS 123(R), share-based compensation cost is estimated at the grant date based on the value of the award and is recognized as expense ratably over the requisite service period of the award. Determining the appropriate fair value model and calculating the fair value of share-based awards requires judgment, including estimating stock price volatility, the risk-free interest rate, forfeiture rates and the expected life of the equity instrument. Expected volatility utilized in the model is based on the historical volatility of the Company’s stock price and other factors. The risk-free interest rate is derived from the U.S. Treasury yield in effect at the time of the grant. The model incorporates forfeiture assumptions based on an analysis of historical data. The expected life of the 2006 grants is derived from historical and other factors. In accordance with the SFAS No. 123(R), we recorded $192,875 of share-based compensation in the nine-month period ended September 30, 2006. Before 2006, we accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations and followed the disclosure requirements of SFAS No. 123(R), “Accounting for Stock-Based Compensation.” Thus, before the first and second quarters of 2006, we did not record any significant compensation cost related to share-based awards. Periods before our first and second quarters of 2006 have not been restated to reflect the fair value method of expensing stock options. The impact of expensing stock awards on our earnings, was not significant through September 30, 2006 and is further described in Note 1 to the notes to our unaudited condensed consolidated financial statements.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Net loss applicable to common stockholders as reported	$	(48,066	)	$	(689,654	)	$	(1,039,552	)	$	(3,042,240	)
Effect of stock-based compensation per SFAS 123		—			(5,040	)		—			(24,959	)
Net loss applicable to common stockholders - pro forma	$	(48,066	)	$	(694,694	)	$	(1,039,552	)	$	(3,067,199	)
Basic and Diluted :
Net loss per share as reported	$	(0.00	)	$	(0.28	)	$	(0.11	)	$	(1.15	)
Effect of stock-based compensation per SFAS 123		—			—			—			(.01	)
Net loss applicable to common stockholders - pro forma	$	(0.00	)	$	(0.28	)	$	(0.11	)	$	(1.16	)

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	Nine Months Ended September 30,
	2006		2005
Dividend Yield	0.00	%	0.00	%
Volatility	121.61	%	70.00	%
Risk-free interest rate	4.75	%	4.72	%
Expected term	10 years		10 years

Results of Operations

Revenues

Our revenues are primarily derived from sales of instruments, software, consumables, and service contracts. Total revenues were $3,354,790 and $3,140,125 for the three-month periods ended September 30, 2006 and 2005, respectively, representing an increase of 6.8%. Total revenues were $9,506,201 and $8,158,739 for the nine-month periods ended September 30, 2006 and 2005, respectively, an increase of 16.5%. These increases were primarily due to increased sales under our OEM agreement with GE Healthcare and increased sales of our FluorChem HD2 product, offset by lower domestic sales of our FluorChem SP product.

For the three- and nine- month periods ended September 30, 2006, revenues outside of the United States represented 42.7% and 39.2%, respectively, of our total revenues compared to 35.7% and 37.2% of our total revenues for the three- and nine- month periods ended September 30, 2005. The increase was primarily due to increased sales under our OEM agreement with GE Healthcare.

Cost of Goods Sold

Cost of goods sold includes direct material, labor and manufacturing overhead. Cost of goods sold were $1,503,344 and $1,716,242 for the three-month periods ended September 30, 2006 and 2005, respectively, representing a decrease of 12.4%. The decrease is attributable primarily to a write-off of Alpha Array related inventory during the third quarter of 2005. Cost of goods sold was $4,520,056 and $4,489,270 for the nine- month periods ended September 30, 2006 and 2005, respectively, representing an increase of 0.7%. The increased costs are attributable to the increase in sales, offset by a reduction in per-unit component costs achieved in late 2005, and by the write-off of Alpha Array related inventory which resulted in higher manufacturing overhead costs during the third quarter of 2005.

Gross Profit

Gross profit was $1,851,446 and $1,423,883 for the three-month periods ended September 30, 2006 and 2005, respectively, representing an increase of 30.0%. The gross profit was $4,986,145 and $3,669,469 for the nine-month periods ended September 30, 2006 and 2005, respectively, representing an increase of 35.9%. The gross profit as a percentage of revenues was 55.2% and 45.3% for the three-month periods ended September 30, 2006 and 2005, respectively. The gross profit as a percentage of revenues was 52.5% and 45.0% for the nine- months ended September 30, 2006 and 2005, respectively. These improvements in gross profit are attributable to higher sales, reduction in per-unit component costs achieved in late 2005 and to the write off of Alpha Array related inventory which resulted in higher manufacturing overhead cost during the third quarter of 2005.

Sales and Marketing Expenses

Sales and marketing expenses were $933,044 and $1,134,053 for the three- month periods ended September 30, 2006 and 2005, respectively, representing a decrease of 17.7%. Sales and marketing expenses were $3,073,621 and $3,562,174 for the nine- month periods ended September 30, 2006 and 2005, respectively, representing a decrease of 13.7%. Sales and marketing expenses as a percentage of revenues decreased from 36% for the three- month period ended September 30, 2005 to 28% for the three- month period ended September 30, 2006. Sales and marketing expenses as a percentage of revenues decreased from 44% for the nine- month period ended September 30, 2005 to 32% for the nine- month period ended September 30, 2006. These decreases in sales and marketing expenses were primarily due to a change in commission structure for the year 2006 and overall reductions in tradeshow attendance and advertising expenses. We anticipate sales and marketing expenses to increase as we fill open sales and technical support positions and implement new customer relationship management software.

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Research and Development Expenses

Research and development expenses were $246,256 and $358,653 for the three-month periods ended September 30, 2006 and 2005, respectively, representing a decrease of 31.3%. Research and development expenses were $983,729 and $1,165,468 for the nine-month periods ended September 30, 2006 and 2005, respectively, representing a decrease of 15.6%. Research and development expenses as a percentage of revenues decreased from 11% for the three- month period ended September 30, 2005 to 7% for the three- month period ended September 30, 2006. Research and development expenses as a percentage of revenues decreased from 14% for the nine- month period ended September 30, 2005 to 10% for the nine- month period ended September 30, 2006. These decreases in research and development spending were driven by the completion in mid 2005 of the design phase of the Company’s microarray products and their subsequent launch. Also, during the third quarter of 2006, the Company cut employee and consultants work hours. We anticipate research and development expenses to continue to decline as a percentage of revenues over the remainder of 2006 due to the expected increase in revenues.

General and Administrative Expenses

General and administrative expenses were $639,940 and $336,074 for the three- month periods ended September 30, 2006 and 2005, respectively, representing an increase of 90.4%. General and administrative expenses were $1,750,978 and $1,110,044 for the nine- month period ended September 30, 2006 and 2005, respectively, representing an increase of 57.7%. The general and administrative expenses as a percentage of revenues increased from 11% for the three- month period ended September 30, 2005 to 19% for the three- month period ended September 30, 2006. The general and administrative expenses as a percentage of revenues increased from 14% for the nine- month period ended September 30, 2005 to 18% for the nine- month period ended September 30, 2006. Certain of these increased expenses related to one-time events occurring during the nine- month period ending September 30, 2006, including payment of severance to former senior executives, recruiting fees, and costs related to the change of our trading symbol. However, other portions of the increased costs, such as higher audit fees, legal fees, board fees, insurance expenses, and proxy related expenses reflect the increased costs of operating as a public company (results for the nine- month period ended September 30, 2005 reflect Alpha CA’s status as a private company) and are expected to continue to be incurred in the future.

Other Income (Expense)

Interest expenses were $77,918 and $79,808 for the three-month periods ended September 30, 2006 and 2005, respectively, representing a decrease of 2.4 %. Interest expenses were $236,012 and $241,676 for the nine-month periods ended September 30, 2006 and 2005, respectively, representing a decrease of 2.3%. The lower expenses were attributable primarily to lower outstanding balance owed on a term note.

Liquidity and Capital Resources

From inception through September 30, 2006, Alpha CA had raised a total of $1,956,076, net of offering costs, in convertible notes that were converted into redeemable convertible preferred stock in 2004, a total of $7,615,319, net of offering costs, from the sale of redeemable convertible preferred stock, and a total of $375,000 from the sale of convertible notes described below. As a result of the closing of the merger with Xtrana, on October 3, 2005 Alpha CA received an additional $2,033,000 in cash. As of September 30, 2006, we had $390,764 in cash and a working capital deficit.

At September 30, 2006, we had the following capital resources available:

• BFI Business Finance Line of Credit – On March 9, 2004, Alpha CA established a line of credit in the maximum amount of $1 million with BFI Business Finance (“BFI”). As of September 30, 2006, the Company had drawn $885,027 leaving $114,973 available to draw. The interest rate is variable. As of September 30, 2006, the annual interest rate was 11.39% and the outstanding balance was subject to a 0.50% per month administrative fee.

Cash provided by (used in) operating activities was $313,829 and $(940,196) for the nine months ending September 30, 2006 and September 30, 2005, respectively, driven primarily by decreased use of cash to fund operating losses.

14

Cash used in investing activities was $(329,211) and $(213,124) for the nine- month periods ending September 30, 2006 and 2005, respectively, to purchase property and equipment needed to support our operations. These amounts include costs of demonstration systems used by our sales teams and which, in some cases, are ultimately sold to customers.

Net cash (used in) provided by financing activities was $(139,519) and $1,115,808, for the nine- month periods ending September 30, 2006 and 2005, respectively. In the nine months ending September 30, 2006, $375,000 was provided from issuance of debt obligations, we repaid $520,939 of debt obligations, $14,488 was provided from exercise of warrants, and $(8,068) was used to repurchase common stock. In the nine- month period ending September 30, 2005, $1,500,000 was provided from issuance of debt obligations and $846 received from exercise of employee stock options, this was offset by $(385,038) in repayment of debt obligations.

If our capital resources are unable to meet our capital requirements, we will have to raise additional funds. We may be unable to raise sufficient additional capital when we need it or to raise capital on favorable terms. The sale of equity or convertible debt securities in the future may be dilutive to our stockholders, and debt financing arrangements may require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to us or our stockholders. If we are unable to obtain adequate funds on reasonable terms, we may be required to curtail operations significantly or to obtain funds by entering into financing agreements on unattractive terms.

Item 3. Controls and Procedures

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

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with our evaluation that occurred during the quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 21, 2006, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) between the Company and ETP/FBR Venture Capital II, LLC (the “Purchaser”), the Company completed a private placement offering of a subordinated Senior Convertible Note in the principal amount of $375,000 due in 2011 (the “Note”) and a warrant to purchase 125,000 shares of the Company’s common stock (the “Warrant”). The Note is convertible into shares of common stock of the Company at an initial conversion price of $1.60 per share of common stock. The description of the Purchase Agreement, the Note and the Warrant are set forth in Item 1.01 of the Current Report on Form 8-K filed August 2, 2006, is incorporated by reference herein. William Snider, a director of the Company, is a general partner of the Purchaser. William Snider is also a general partner of ETP/FBR Venture Capital LLC, which currently owns approximately 15% of common stock of the Company, as reported in the Company’s Proxy Statement filed with the Securities and Exchange Commission on May 1, 2006. The Company will use the proceeds from the private placement for general corporate purposes.

Item 6. Exhibits

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

15

SIGNATURES

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

Date: November 13, 2006	Alpha Innotech Corp.
	/s/ Ronald Bissinger
	Ronald Bissinger
	Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

16

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CEO PURSUANT TO

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

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald Bissinger, certify that:

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

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

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

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

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

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

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

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

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

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

Date: November 13, 2006
	/s/ Ronald Bissinger
	Ronald Bissinger
	Chief Executive Officer and Chief Financial Officer
	(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Quarterly Report on Form 10-QSB for the Quarter Ended September 30, 2006 (the “Report”) by Alpha Innotech Corp. (“Registrant”), the undersigned hereby certify that:

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

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

Dated: November 13, 2006

/s/ Ronald Bissinger

Ronald Bissinger

Chief Executive Officer and Chief Financial Officer

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