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, 2005
|_| 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 (I.R.S. Employer
incorporation or organization) Identification No.)
2401 Merced St., San Leandro, CA94577 (510) 483-9620
(Address of principal executive offices) (Registrant's telephone number
including area code)
XTRANA, INC.
P.O. BOX 668, SEDALIA, COLORADO 80135
(Former name or former address, if changed since last report)
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 [ ]
As of November 14, 2005, there were 9,725,809 shares of the issuer's Common
Stock, $.01 par value per share, outstanding.
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [_] No [X]
Transitional Small Business Disclosure Format: Yes [_] No [X]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALPHA INNOTECH CORP. (formerly Xtrana, Inc.)
(A Development Stage Enterprise)
BALANCE SHEET
(in thousands except share data)
September 30, December 31,
2005 2004
(Unaudited) ***
-------- --------
(in thousands except share data)
ASSETS
Current assets
Cash and cash equivalents .................... $ 2,033 $ 2,397
Notes Receivable $500 (net of reserve of $500) -- --
Prepaid expenses and other current assets .... 23 13
-------- --------
Total current assets .............................. 2,056 2,410
TOTAL ASSETS ...................................... $ 2,056 $ 2,410
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .......................... $ 26 $ 59
Accrued liabilities ....................... 91 56
-------- --------
Total current liabilities ......................... 117 115
Stockholders' equity:
Common stock, $.01 par value, 5,000,000 shares
authorized; 1,653,327 shares
issued and outstanding in 2005 and 2004 ...... 165 165
Other stockholders' equity ........................ 19,446 19,446
Accumulated deficit ............................... (18,574) (18,574)
Retained earnings during development stage ........ 902 1,258
-------- --------
Total stockholders' equity ........................ 1,939 2,295
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 2,056 $ 2,410
======== ========
*** Amounts derived from the audited financial statements for the year ended
December 31, 2004.
See accompanying notes to condensed financial statements.
2
ALPHA INNOTECH CORP. (formerly Xtrana, Inc.)
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
------- ------- ------- -------
(in thousands except per share data)
Sales .................................. $ -- $ -- $ -- $ 102
Cost of sales .......................... -- -- -- 79
------- ------- ------- -------
Gross profit ........................... -- -- -- 23
Operating expenses:
Selling, general, administrative .. 134 236 397 1,328
Research and development .......... -- -- -- 98
------- ------- ------- -------
Total operating expense ................ 134 236 397 1,426
Gain on sale of intellectual property .. -- -- -- 3,310
Other income, net ...................... 19 3 41 8
------- ------- ------- -------
Income (loss) from continuing operations
Before taxes ...................... (115) (239) (356) 1,915
------- ------- ------- -------
Net income (loss) ...................... $ (115) $ (239) $ (356) $ 1,915
======= ======= ======= =======
Weighted average shares outstanding
Basic ............................. 1,653 1,653 1,653 1,653
Effect of dilutive shares ......... -- -- -- --
------- ------- ------- -------
Diluted ........................... 1,653 1,653 1,653 1,653
======= ======= ======= =======
Basic and diluted earnings per share
Net income (loss) - Continuing
operations ................. $ (0.07) $ (0.15) $ (0.22) $ 1.16
See accompanying notes to condensed financial statements.
3
ALPHA INNOTECH CORP. (formerly Xtrana, Inc.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2005 2004
--------------------------------------------------------------------------------
(in thousands)
Operating activities ....................... $ (364) $(1,453)
Investing activities ....................... -- 3,637
Net increase (decrease) in cash ............ (364) 2,184
Cash, beginning of period .................. 2,397 948
------- -------
Cash, end of period ........................ $ 2,033 $ 3,132
======= =======
See accompanying notes to condensed financial statements.
4
ALPHA INNOTECH CORP. (formerly Xtrana, Inc.)
September 30, 2005
Notes to Condensed Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
On January 26, 2004, Alpha Innotech Corp. (formerly Xtrana, Inc. see Note 4)
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 Xtrana's intellectual property, other than
trademarks and trade names.
On December 14, 2004, Alpha Innotech Corp. (formerly Xtrana, Inc. see Note 4)
entered into the previously disclosed Agreement and Plan of Merger (as amended
on each of April 6, 2005, July 6, 2005 and August 25, 2005, the "Merger
Agreement") with Alpha Innotech Corporation, a California corporation ("Alpha
CA"), and AIC Merger Corporation, our wholly-owned subsidiary ("Merger Sub").
The closing of the transactions contemplated under the Merger Agreement occurred
on October 3, 2005.
References to the "Company", "we", "us" and "our" refer to Alpha Innotech Corp.
(formerly, Xtrana, Inc.)
The accompanying unaudited financial statements of Alpha Innotech Corp. (the
"Company") have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended September 30, 2005,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2005. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 2004.
The balance sheet at December 31, 2004, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
Subsequent to September 30, 2005, the Company approved a 1:10 stock split.
Accordingly, all common stock reflected in the accompanying financial statements
and notes reflect the split.
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.
5
Had compensation cost for the stock based compensation 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 loss and net loss per share would have
been increased to the pro forma amounts indicated below:
Nine Months Ended
September 30,
-------------------------
2005 2004
--------- ---------
Net income (loss) - as reported .............. $ (356) $ 1,915
Effect of stock-based compensation
included in reported net loss ............. -- --
Effect of stock-based compensation
per SFAS 123 .............................. -- (49)
--------- ---------
Net loss applicable to common stock -
pro forma ................................. $ (356) $ 1,866
========= =========
Basic and diluted:
Loss per share - as reported .............. $ (0.22) $ 1.16
Effect of stock-based compensation
included in reported net loss .......... -- --
Effect of stock-based compensation
per SFAS 123 ........................... -- --
--------- ---------
Net loss applicable to common stock
pro forma .............................. $ (0.22) $ 1.16
========= =========
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Nine Months Ended September 30,
-----------------------------
2005 2004
----------- -----------
Risk-free interest ........................ NA 4.0%
Expected life ............................. NA 6.9 years
Expected volatility ....................... NA 167.0%
Expected dividend ......................... NA -
The expected life was determined based on the options' vesting period and
exercise behavior of the employees.
NOTE RECEIVABLE
Pursuant to the terms of the Merger Agreement, Xtrana made a loan to Alpha CA in
the amount of $500,000 on December 16, 2004. The obligations under the loan were
secured by a second priority lien and security interest in substantially all
assets of Alpha CA. The loan bore interest at the rate of 6% per annum. This
loan and the security interest terminated upon closing of the Merger on October
3, 2005.
6
2. STOCK OPTION PLANS
At September 30, 2005, the Company had two stock option plans (the "Plans") for
the benefit of employees, officers, directors, and consultants of the Company.
As of September 30, 2005, a total of 394,663 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 2005 and 2004 was as follows:
SHARES WEIGHTED AVERAGE
OUTSTANDING PRICE RANGE EXERCISE PRICE
BALANCE AT JANUARY 1, 2004 168,905 $ 2.300 - $25.000 $8.20
--------------------------------------------------------------------------------
Granted -- -- --
Exercised -- -- --
Cancelled (59,582) $ 2.600 - $15.000 11.00
---------
Balance at September 30, 2004 109,323 $ 2.300 - $25.000 6.70
Granted -- -- --
Exercised -- -- --
Cancelled (2,160) $10.300 - $10.300 10.30
---------
Balance at December 31, 2004 107,163 $ 2.300 - $25.000 6.70
Granted -- -- --
Exercised -- -- --
Cancelled (3,100) $ 9.375 - $ 9.375 9.40
------------------------------------------------
Balance at September 30, 2005 104,063 $ 2.300 - $25.000 $6.60
The following information summarizes stock options outstanding at September 30,
2005:
OUTSTANDING EXERCISABLE
---------------------------------- ----------------------
WEIGHTED AVERAGE
---------------------
REMAINING WEIGHTED
CONTRACTUAL AVERAGE
NUMBER LIFE IN EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING MONTHS PRICE EXERCISABLE PRICE
-----------------------------------------------------------------------------
$ 0.00 - $ 3.10 11,000 83 $ 2.300 11,000 $ 2.300
$ 3.10 - $ 6.30 49,500 79 $ 3.700 47,896 $ 3.700
$ 6.30 - $ 9.40 9,700 61 $ 7.090 9,525 $ 7.080
$ 9.40 - $ 12.5 27,663 46 $ 9.930 27,663 $ 9.930
$ 12.5 - $ 15.6 825 5 $14.380 825 $14.380
$ 15.6 - $ 18.8 1,250 23 $16.870 1,250 $16.870
$ 21.9 - $ 25.0 4,125 18 $23.960 4,125 $23.960
----------------------------------------------------------
104,063 65 $ 6.570 102,284 $ 6.610
At September 30, 2005, 298,500 shares were available for future grants under the
2000 Stock Incentive Plan. No further grants may be made under the 1993 Stock
Incentive Plan.
7
The weighted average remaining contractual life of outstanding options at
September 30, 2005, was 5.4 years. At September 30, 2005 and 2004, respectively,
there were 102,284 and 104,494 options exercisable with weighted average
exercise prices of $6.60 and $6.80.
As of September 30, 2005, the Company had 67,476 warrants to purchase common
stock outstanding and exercisable for prices ranging from $0.10 to $18.75 with a
weighted average exercise price of $9.047 per share. The weighted average
remaining contractual life of these warrants at September 30, 2005, was 2.2
years. These warrants have expiration dates ranging from 2005 to 2010.
3. EARNINGS PER SHARE
Basic earnings per share is based upon the weighted average number of common
shares outstanding. Diluted earnings per share is based upon the weighted
average number of common shares and dilutive potential common shares
outstanding. Potential dilutive shares are outstanding options under the
Company's stock option plans and outstanding warrants, which are included under
the treasury stock method.
4. MERGER AGREEMENT WITH ALPHA INNOTECH CORPORATION
On December 14, 2004, the Company, incorporated in Delaware and then trading
over the counter as Xtrana, Inc., entered into the Merger Agreement with Alpha
CA. Alpha CA, a privately held company founded in 1992, is a supplier of
bioanalytical systems for life science and drug discovery markets with core
expertise in quantitative imaging, informatics, and molecular biology. Alpha CA
maintains its corporate offices in San Leandro, California and has distributors
located in over 35 countries around the world.
The closing of the transactions contemplated under the Merger Agreement occurred
on October 3, 2005. At the closing, pursuant to the terms of the Merger
Agreement, a wholly-owned subsidiary of Xtrana (the "Merger Sub") was merged
with and into Alpha CA, with Alpha CA continuing after the merger as the
surviving corporation and our wholly-owned subsidiary (such transactions are
referred to as the "Merger"). In exchange for all the issued and outstanding
equity securities of Alpha CA, we issued to the former shareholders of Alpha CA
an aggregate of 8,072,484 shares of our common stock. As a result of the Merger,
the former Alpha CA shareholders hold approximately 83% of our issued and
outstanding common stock and Xtrana stockholders who held our common stock
immediately prior to the Merger hold approximately 17% of our issued and
outstanding common stock (excluding options and warrants). Following the merger,
the board of directors consists of two continuing Xtrana board members and four
board members of Alpha CA.
Pursuant to the Merger Agreement, of the total Merger consideration, 500,000
shares of common stock have been deposited in escrow to satisfy Alpha CA's
potential indemnification obligations under the Merger. An additional 500,000
treasury shares of Xtrana common stock have been deposited in escrow to satisfy
our potential indemnification obligations under the Merger Agreement. These
shares will be released from escrow in the event that no indemnification claims
are brought by the respective parties on or prior to March 31, 2006.
Pursuant to the Merger Agreement, we assumed all outstanding Alpha CA stock
options and warrants on substantially identical terms, with proportionate
adjustments of the number of underlying shares and exercise price of the options
and warrants based on the applicable exchange ratio.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in this Form 10-QSB is intended to update the
information contained in our Annual Report on Form 10-KSB for the year ended
December 31, 2004 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 last Report on Form 10-KSB.
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. In May 2004, we completed the sale of
substantially all our assets to the Applied Biosystems Group of Applera
Corporation. The sale of assets to Applied Biosystems resulted in net proceeds
to us of approximately $3.4 million after payment of all expenses associated
with the transaction. After complying with the requirements of the agreement
with Applied Biosystems to provide consulting services, we terminated all of our
remaining employees. In May 2004, we terminated the lease for our prior
executive offices pursuant to an early termination agreement. As a result, as of
September 30, 2005, we no longer had any continuing operations or significant
assets other than cash.
Our Board of Directors believed that we could 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. As a result of the
Board's review of potential enterprises for a business combination, we entered
into a definitive agreement to merge with Alpha CA in December 2004 as described
in Note 4 above. That merger was completed on October 3, 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.
9
Specifically, management must make estimates in the following areas.
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 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 from 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.
RESULTS OF OPERATIONS
REVENUE
Revenue from continuing operations was $0.0 million for the nine months
ended September 30, 2005, compared with $0.1 million for the same period of
2004. The decrease was the result of the sale of our intellectual property to
Applied Biosystems in May 2004 and discontinuance of our operations. Revenue
from continuing operations was $0.0 million for the three months ended September
30, 2004
10
and 2005. The decrease was the result of the sale of our intellectual property
to Applied Biosystems in May 2004 and discontinuance of our operations.
COSTS AND EXPENSES
Cost of sales, from continuing operations, decreased to $0.0 million
for the nine months and three months ended September 30, 2005, as a result of
the sale of the intellectual property to Applied Biosystems and discontinuance
our operations.
Selling, general and administrative expenses of operations decreased by
$0.9 million, or 80%, to $0.4 million for the nine months ended September 30,
2005 as compared to the same period of the prior year. The decline of $0.9
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 to
Applied Biosystems in 2004. Selling, general and administrative expenses of
operations decreased by $0.1 million, or 43%, to $0.1 million for the three
months ended September 30, 2005 as compared to the same period of the prior
year. The decline of $0.1 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 to Applied Biosystems in 2004.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2005, we had cash and cash equivalents of $2.0
million. As of September 30, 2005, our working capital position was $1.9
million, with a current ratio of 19.0 to 1.0.
We used cash of $0.4 million from operating activities during the nine
months ended September 30, 2005 compared to $1.9 generated in same period of
2004.
We have never paid dividends on common stock and have no plans to do so
in fiscal 2005.
Subsequent to the sale of our intellectual property to Applied
Biosystems, we no longer had any continuing operations, no longer generated any
revenues and terminated our remaining employees and liquidated substantially all
of our assets. Our remaining expenses consisted primarily of legal and
accounting expenses, compensation for our management team and director fees.
As of September 30, 2005, we had cash and cash equivalents of $2.0
million. After the completion of the Merger with Alpha CA, we used most of these
funds to repay our outstanding balance on the BFI Business Finance Line of
Credit (described below), to pay the costs associated with the transaction and
other payables. As a result, we have substantially depleted these funds. We
believe that current cash balances, future cash flows from operations and the
BFI Business Finance Line of Credit will be sufficient to meet our anticipated
cash need for the next fiscal quarter. Our ability to increase sales and gross
margins and manage our operating expenses to a level that can be financed by
existing cash is critical to our ability to continue as a going concern. If our
products do not achieve market acceptance our cash flows will also suffer.
BFI BUSINESS FINANCE LINE OF CREDIT - In connection with funding of
operations and development of new products on March 9, 2004, Alpha CA
established a line of credit with BFI Business Finance ("BFI"), in which BFI
uses Alpha CA's accounts receivable as collateral to obtain advances from BFI up
to 80% of Alpha CA's accounts receivable balance at the time of the borrowing,
11
but with principal advances not to exceed $1 million. The interest rate of the
line of credit is variable, and bears interest at a rate of 3% over prime.
We may require additional funds to support our working capital
requirements or for other purposes and may seek to raise additional funds
through public or private equity or debt financing or from other sources. We
cannot assure you that additional financing will be available on acceptable
terms, or at all. If adequate funds are not available to satisfy either short-
or long-term capital requirements, we might be required to limit our operations
significantly and our business might fail.
OFF-BALANCE SHEET ARRANGEMENTS
At September 30, 2005, 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
In March 2004, we entered into a consulting agreement with Mr. James
Chamberlain, a member of the Board of Directors, pursuant to which we have
engaged Mr. Chamberlain as our interim Chief Executive Officer and interim Chief
Financial Officer. The agreement provided for payments of $5,000 per month until
the earlier of September 2004 or the closing of a merger transaction. While the
consulting agreement has terminated, we paid Mr. Chamberlain a monthly fee of
$5,000 for his services through September 30, 2005.
RISK FACTORS
Investing in the Company contains significant and material risks. You should
carefully consider the following risk factors and all other information
contained in this report as well as recent filings with the Securities and
Exchange Commission, particularly the Company's October 7, 2005 filing on Form
8-K. If any of the following events or outcomes actually occurs, our business,
operating results, and financial condition would likely suffer.
The following risks pertain to the Company post-merger with Alpha CA. Since the
closing of the transaction on October 3, 2005, Alpha CA will constitute all of
the continuing operations of the Company.
WE HAVE A HISTORY OF OPERATING LOSSES AND MAY INCUR FUTURE LOSSES.
Alpha CA, which will constitute all of the continuing operations of the Company,
has not been profitable since 1999. Its losses were $3.3 million, $2.0 million
and $2.6 million for fiscal years 2004, 2003 and 2002, respectively and it had
an accumulated deficit of $14.2 million as of December 31, 2004 and $17.1
million as of September 30, 2005. Alpha CA's losses have resulted principally
from costs incurred in research and development, manufacturing and from selling,
general and administrative costs associated with its operations.
Our ability to generate significant revenues and attain profitability is
dependent in large part on our ability to expand our customer base, increase
sales of our current products to existing customers, manage our expense growth,
and enter into additional supply, license and collaborative arrangements
12
as well as on our ability to successfully manufacture and commercialize products
incorporating our technologies in new applications and in new markets.
THERE IS A RISK THAT WE MAY NOT BE ABLE TO CONTINUE OPERATING AS A GOING
CONCERN.
Alpha CA received a going concern opinion from its independent auditors as
detailed in the notes to the consolidated audited financial statements for the
years ended December 31, 2004 and 2003. Our ability to increase sales and gross
margins and manage our operating expenses to a level that can be financed by
existing cash is critical to our ability to continue as a going concern. We may
remain dependent upon additional financing transactions in order to continue
operations, and such additional financing may not be available at all or on
terms which would be acceptable to us.
ADDITIONAL FINANCING WILL LIKELY BE REQUIRED FOR OUR FUTURE BUSINESS AND
OPERATIONS.
We will likely require additional capital resources in order to conduct our
operations and develop our products. Our capital resources may not be sufficient
to fund our current level of operations over the near term, and we cannot
guarantee that any additional capital can be raised on favorable terms or even
at all.
WE ARE DEPENDENT UPON CONTINUATION OF OUR CURRENT LOAN FACILITIES FOR WORKING
CAPITAL.
We are highly dependent for operating cash from the existing line of credit from
BFI Business Finance. Any default by us on conditions of this loan facility
could result in a severe lack of working capital.
OUR BUSINESS DEPENDS ON RESEARCH AND DEVELOPMENT SPENDING BY PHARMACEUTICAL AND
BIOTECHNOLOGY COMPANIES AND ACADEMIC AND GOVERNMENTAL RESEARCH INSTITUTIONS, AND
THERE CAN BE NO ASSURANCE THAT SUCH SPENDING WILL CONTINUE.
We expect that our revenues in the foreseeable future will be derived primarily
from products and services provided to pharmaceutical and biotechnology
companies and academic, governmental and other research institutions. Our
success will depend upon their demand for and use of our products and services.
Our operating results may fluctuate substantially due to reductions and delays
in research and development expenditures by these customers. For example,
reductions in capital expenditures by these customers may result in lower than
expected instrumentation sales. These reductions and delays may result from
factors that are not within our control, such as:
o changes in economic conditions;
o changes in government programs that provide funding to
companies and research institutions;
o changes in the regulatory environment affecting life sciences
companies and life sciences research;
o market-driven pressures on companies to consolidate and reduce
costs; and
13
o other factors affecting research and development spending.
WE MUST SPEND A SIGNIFICANT AMOUNT OF TIME AND RESOURCES TO DEVELOP PRODUCTS,
AND IF THESE PRODUCTS DO NOT ACHIEVE COMMERCIAL ACCEPTANCE, OUR OPERATING
RESULTS MAY SUFFER.
We expect to spend a significant amount of time and resources to develop new
products and refine existing products. In light of the long product development
cycles inherent in our industry, these expenditures will be made well in advance
of the prospect of deriving revenues from the sale of new products. Our ability
to commercially introduce and successfully market new products is subject to a
wide variety of challenges during this development cycle that could delay
introduction of these products. If we do not achieve market acceptance of new
products, our operating results will suffer.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS AND WE WILL FACE DELAYS IN
MANUFACTURING OF OUR PRODUCTS IF SHIPMENTS FROM THESE SUPPLIERS ARE DELAYED OR
INTERRUPTED.
We depend on our vendors to provide components of our products in required
volumes, at appropriate quality and reliability levels, and in compliance with
regulatory requirements. If supplies from these vendors were delayed or
interrupted for any reason, we would not be able to produce or sell products in
a timely fashion or in sufficient quantities or under acceptable terms.
OUR DEPENDENCE ON CONTRACT MANUFACTURING AND OUTSOURCING OTHER PORTIONS OF OUR
SUPPLY CHAIN MAY ADVERSELY AFFECT OUR ABILITY TO BRING PRODUCTS TO MARKET.
As part of our efforts to streamline operations and to cut costs, we have been
outsourcing and will continue to evaluate additional outsourcing of certain
operations. If our contract manufacturers or other outsourcers fail to perform
their obligations in a timely manner or at satisfactory quality levels, our
ability to timely bring products to market could suffer.
IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH COLLABORATIVE PARTNERS, WE
MAY HAVE DIFFICULTY DEVELOPING AND SELLING OUR PRODUCTS AND SERVICES.
We believe that our success in penetrating ours target markets depends in part
on our ability to develop and maintain collaborative relationships with key
companies as well as with key academic researchers. We consider DigiOpt to be
one such key collaborative relationship. Relying on these or other collaborative
relationships is risky to our future success because:
o our partners may develop technologies or components
competitive with our products;
o some of our agreements may terminate prematurely due to
disagreements between us and our partners;
o our partners may not devote sufficient resources to the
development and sale of our products;
o our partners may be unable to provide the resources required
for us to progress in the collaboration on a timely basis;
14
o our collaborations may be unsuccessful; or
o we may not be able to negotiate future collaborative
arrangements on acceptable terms.
IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH, AND FULFILL OUR CONTRACTUAL
OBLIGATIONS TO, OUR SELLING AND DISTRIBUTION PARTNERS, OUR GROWTH AND FINANCIAL
RESULTS MAY BE ADVERSELY AFFECTED.
As a small company, we must continue to nurture current and future distribution
partners in order to continue to grow. Any issue that materially affects our
ability to deliver and support products with any of our current or future
distribution partners could significantly impact financial results.
OUR CURRENT SALES, MARKETING AND TECHNICAL SUPPORT ORGANIZATION MAY LIMIT OUR
ABILITY TO SELL OUR NEWER PRODUCTS.
We believe that the market for microplate format arrays and their readers is
still evolving, and that initial sales for these readers will require
significant support from our in-house applications scientists. We may not have
sufficient in-house resources to support worldwide sales of these products.
WE FACE INTENSE COMPETITION FROM OTHER COMPANIES.
Our products face competition from other companies, including Bio Rad, Kodak,
Fuji, UVP, Perkin Elmer, Molecular Devices and Tecan, that have more financial
resources, technical staff and manufacturing and marketing capabilities than we
do. It may be difficult for us to compete with larger companies investing
greater resources in development, marketing and distribution of their products.
DUE TO THE INTERNATIONAL NATURE OF OUR BUSINESS, POLITICAL OR ECONOMIC
CHANGES OR OTHER FACTORS COULD HARM OUR BUSINESS.
For the quarter ending September 30, 2005, 36% of Alpha CA's revenue was
generated from sales outside the United States. Though such transactions are
denominated in U.S. dollars, our future revenue, gross margin, expenses and
financial condition are still affected by such factors as changes in foreign
currency exchange rates, unexpected changes in, or impositions of, legislative
or regulatory requirements, including export and trade barriers and taxes;
longer payment cycles and greater difficulty in accounts receivable collection.
We are also subject to general geopolitical risks in connection with
international operations, such as political, social and economic instability,
potential hostilities and changes in diplomatic and trade relationships. We
cannot assure investors that one or more of the foregoing factors will not have
a material adverse effect on our business, financial condition and operating
results or require us to modify our current business practices.
THIRD PARTIES MAY CLAIM THAT WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, AND
WE COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED
FROM SELLING PRODUCTS.
While we do not believe that any of our products infringe the valid intellectual
property rights of third parties, we may be unaware of intellectual property
rights of others that may cover some of our technology, products or services.
Any litigation regarding patents or other intellectual property could be costly
and time-consuming and could divert our management and key personnel from our
business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to
15
enter into costly license agreements. However, we may not be able to obtain
license agreements on terms acceptable to us, or at all. We also may be subject
to significant damages or injunctions against development and sale of certain of
our products.
THIRD PARTIES MAY INFRINGE OUR INTELLECTUAL PROPERTY, AND WE MAY EXPEND
SIGNIFICANT RESOURCES ENFORCING OUR RIGHTS OR SUFFER COMPETITIVE INJURY.
Our success depends in large part on our proprietary technology. We rely on a
combination of patents, copyrights, trademarks, trade secrets, confidentiality
provisions and licensing arrangements to establish and protect our proprietary
rights. If we fail to successfully enforce our intellectual property rights, our
competitive position could suffer, which could harm our operating results.
Our pending patent and trademark registration applications may not be allowed,
or competitors may challenge the validity or scope of our patents, copyrights or
trademarks. In addition, our patents may not provide us a significant
competitive advantage.
We may be required to spend significant resources to monitor and police our
intellectual property rights. We may not be able to detect infringement and our
competitive position may be harmed before we do so. In addition, competitors may
design around our technology or develop competing technologies. Intellectual
property rights and our ability to enforce them may also be unavailable or
limited in some foreign countries, which could make it easier for competitors to
capture market share and result in lost revenues.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
SKILLED PERSONNEL, OUR BUSINESS MAY SUFFER.
We depend substantially on the principal members of our management, including
Haseeb Chaudhry, Chief Executive Officer and Darryl Ray, Chief Operating Officer
and Chief Financial Officer. Any officer or employee can terminate his or her
relationship with us at any time and work for one of our competitors. Our
ability to operate successfully and manage our potential future growth depends
significantly upon retaining key research, technical, sales, marketing,
managerial and financial personnel, and attracting and retaining additional
highly qualified personnel in these areas. We face intense competition for such
personnel from numerous companies in the highly competitive northern California
area. The inability to attract and retain these personnel could result in delays
in the research, development and commercialization of potential products.
TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, WE MAY NEED TO GRANT LARGE
STOCK-BASED INCENTIVES THAT COULD BE DILUTIVE TO OUR SHAREHOLDERS AND WE MAY BE
REQUIRED TO OFFER HIGHLY COMPETITIVE SALARIES WHICH WOULD INCREASE FUTURE
OPERATING COSTS.
To attract and retain skilled personnel, we may be required to issue large stock
option grants or other equity incentives which may be significantly dilutive to
existing shareholders. Due to application of SFAS 123(R), such equity incentives
would require us to record compensation expenses that would adversely impact
earnings. If we are required to pay highly competitive base salaries and cash
bonuses to attract and retain skilled personnel, our operating results would
also suffer.
16
INTEGRATING ACQUIRED TECHNOLOGIES MAY BE COSTLY AND MAY NOT RESULT IN
TECHNOLOGICAL ADVANCES.
We have licensed certain technologies and are working with collaborators to
integrate those technologies into future products. However, market advances
resulting from the integration of technologies may not be achieved as
successfully or rapidly as anticipated, if at all.
IF WE LOSE SOME OR ALL RIGHTS TO THE DIGITAL OPTICAL IMAGING PATENTS, OUR
BUSINESS MAY SUFFER.
Under the terms of an agreement between Digital Optical Imaging Corporation
("DigiOpt") and Alpha CA, we received certain exclusive rights to make and sell
products incorporating the inventions disclosed in four United States patents.
We are working with strategic partners to incorporate these technologies into
future products. Under the terms of the agreement, we are obligated to pay
certain patent prosecution costs and maintenance fees. Failure to pay these
costs and fees as they arise may lead to abandonment of the rights. Furthermore,
under the terms of the agreement, DigiOpt may convert the exclusive license to
non-exclusive if we do not make our first commercial sale of a product
incorporating the licensed technology by August 4, 2006, and may terminate the
license if we do not make our first commercial sale of a product incorporating
the licensed technology by February 4, 2007. Loss of these exclusive rights by
abandonment, conversion, or termination would impair our ability to develop and
market new products.
IF WE SUFFER LOSS TO OUR FACTORIES, FACILITIES OR DISTRIBUTION SYSTEM DUE TO
CATASTROPHE, OUR OPERATIONS COULD BE SERIOUSLY HARMED.
Our factories, facilities and distribution system are subject to catastrophic
loss due to fire, flood, terrorism or other natural or man-made disasters. In
particular, our production facilities and headquarters in California could be
subject to a catastrophic loss caused by earthquake. If these facilities were to
experience a catastrophic loss, it could disrupt our operations, delay
production, shipments and revenue and result in large expenses to repair or
replace the facility. Although we carry insurance for property damage and
business interruption, we do not carry insurance or financial reserves for
interruptions or potential losses arising from earthquakes.
CHANGES IN ACCOUNTING AND FINANCIAL REPORTING RULES AND REGULATIONS, INCLUDING
COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002, COULD MATERIALLY AFFECT OUR
FINANCIAL RESULTS.
The generally accepted accounting principles (GAAP) with which our financial
statements comply are subject to interpretation by the Securities and Exchange
Commission and various other regulatory and advisory bodies. A change in the
interpretation or application of these principles could significantly affect our
financial results and may even retroactively affect previously reported
financial statements.
The Sarbanes-Oxley Act of 2002 requires changes in our corporate governance and
compliance practices. In particular, compliance with Section 404 of the
Sarbanes-Oxley Act will increase financial and legal costs by an as yet
undetermined amount and therefore the impact on future financial results cannot
be quantified. The increased liability exposure stipulated by the Sarbanes-Oxley
Act may also make it difficult to attract and retain qualified members of our
board of directors and executive officers.
17
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 a significant fraction of our outstanding common stock. 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:
o will be able to significantly influence the composition of our
board of directors;
o will significantly influence all matters requiring stockholder
approval, including change of control transactions; and
o 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.
OUR STOCK IS TRADING ON THE OTC BULLETIN BOARD AND THEREFORE INVESTORS MAY
SUFFER FROM A LACK OF LIQUIDITY AND SIGNIFICANT PRICE FLUCTUATIONS OF OUR STOCK.
Our common stock is trading on the OTC bulletin board. The average daily trading
volume of our common stock has historically been low, even when compared to that
of other bioanalytical companies. Because of our relatively low trading volume,
our stock price can be highly volatile. In addition, because currently only the
shares held by the former Xtrana shareholders are registered, there is a
relatively small amount of common stock available for trade. Investors therefore
may experience limited or even no liquidity, and the trading price of our stock
may fluctuate widely and unpredictably.
18
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements give effect
to the reverse acquisition of Alpha CA by Xtrana and are based on the estimates
and assumptions set forth herein and in the notes to such statements.
On December 14, 2004, Xtrana and Alpha CA entered into the Merger Agreement. The
closing of the transactions contemplated under the Merger Agreement occurred on
October 3, 2005. The following has occurred:
o Immediately prior to the completion of the proposed reverse
acquisition, Xtrana effected a reverse stock split pursuant to
which ten shares of Xtrana's outstanding common stock were
exchanged for one new share of common stock resulting in
approximately 1,653,000 shares being outstanding.
o Each share of Alpha CA common and preferred stock issued and
outstanding at the closing of the merger was converted into
shares of the newly issued Xtrana common stock (approximately
8,073,000 shares).
o Xtrana's wholly-owned subsidiary ("Merger Sub") merged with
and into Alpha CA.
o Alpha Innotech is the surviving corporation for financial
reporting purposes.
o The separate existence of Xtrana and Merger Sub ended.
o Xtrana changed its name to Alpha Innotech Corp.
The transaction has been accounted for as a reverse acquisition and a
recapitalization. Alpha CA is the acquirer for accounting purposes.
The following unaudited pro forma consolidated financial information gives
effect to the above. The unaudited pro forma financial information was prepared
from (1) Xtrana's audited historical financial statements included in Xtrana's
Form 10-KSB for the year ended December 31, 2004, (2) Xtrana's unaudited
historical financial statement included in Xtrana's 10-QSB for the period ended
September 30, 2005, (3) Alpha CA's audited historical financial statements for
the year ended December 31, 2004 included in Appendix C of Xtrana's Definitive
Proxy Statement on Schedule 14A, and (4) Alpha CA's unaudited historical
financial statements as of and for the period ended September 30, 2005.
The unaudited pro forma consolidated balance sheet at September 30, 2005 assumes
the effects of the above took place as of September 30, 2005.
The unaudited pro forma consolidated statement of operations combines the
historical statement of operations of Xtrana and Alpha CA for the twelve months
ended December 31, 2004. The unaudited pro forma consolidated statement of
operations combines the historical statement of operations of Xtrana and Alpha
CA for the period ended September 30, 2005. The unaudited pro forma consolidated
statements of operations assume that the effects of the above took place at the
beginning of period presented.
The unaudited pro forma consolidated financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of the
future operating results of financial position of the consolidated companies.
19
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 2005 (in thousands)
Historical Pro Forma
-------------------- --------------------------------------------------
Conversion
Xtrana Of Restate
Alpha CA Inc. Preferred Merger Capital Consolidated
-------- -------- -------- -------- -------- --------
ASSETS
Current assets:
Cash and cash equivalents ......... $ 3 $ 2,033 $ -- $ -- $ -- $ 2,036
Accounts receivable, net .......... 1,630 -- -- -- -- 1,630
Inventory, net .................... 835 -- -- -- -- 835
Prepaid expenses and other
current assets 178 23 -- -- -- 201
-------- -------- ------- -------- -------- --------
Total current assets .......... 2,646 2,056 -- -- -- 4,702
Property and equipment, net ............ 1,204 -- -- -- -- 1,204
Other assets ........................... 75 -- -- -- -- 75
-------- -------- ------- -------- -------- --------
Total assets ...................... $ 3,925 $ 2,056 $ -- $ -- $ -- $ 5,981
======== ======== ======= ======== ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................. $ 2,209 $ 26 $ -- $ -- $ -- $ 2,235
Accrued liabilities ............... 1,092 91 -- -- -- 1,183
Debt .............................. 1,826 -- -- (2) (500) -- 1,326
Deferred revenue .................. 645 -- -- -- -- 645
Other liabilities ................. 183 -- -- -- -- 183
-------- -------- ------- -------- -------- --------
Total current liabilities ..... 5,955 117 -- (500) -- 5,572
-------- -------- ------- -------- -------- --------
Debt, less current portion ............. 900 -- -- -- -- 900
Commitments and contingencies .......... -- -- -- -- -- --
-------- -------- ------- -------- -------- --------
Redeemable convertible preferred stock:
Series A preferred stock .......... 10,768 -- (1) (10,768) -- -- --
Series A-1 preferred stock ........ 2,317 -- (1) (2,317) -- -- --
-------- -------- ------- -------- -------- --------
Total redeemable convertible
preferred stock ............ 13,085 -- (13,085) -- -- --
-------- -------- ------- -------- -------- --------
Shareholders' equity (deficit) :
Common stock ...................... 1,148 165 (1) 13,085 (2) (165)(3) (14,136) 97
Additional paid-in capital ........ -- 19,446 -- (2) (17,007)(3) 14,136 16,575
Accumulated deficit ............... (17,163) (18,574) -- (2) 18,574 -- (17,163)
Retained earnings during
development stage .............. -- 902 -- (2) (902) -- --
-------- -------- ------- -------- -------- --------
Total shareholders' equity
(deficit) .................. (16,015) 1,939 13,085 500 -- (491)
-------- -------- ------- -------- -------- --------
Total liabilities, redeemable
convertible preferred
stock and shareholders'
equity (deficit) ........ $ 3,925 $ 2,056 $ -- $ -- $ -- $ 5,981
======== ======== ======= ======== ======== ========
20
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2005 (in thousands)
Historical Pro Forma
-------------------- --------------------------------------------------
Conversion
Xtrana Of Restate
Alpha CA Inc. Preferred Merger Capital Consolidated
-------- -------- -------- -------- -------- --------
Revenue:
Products ....................... $ 8,159 $ -- $ -- $ -- $ -- $ 8,159
------- ------- ------- ------- ------- -------
Total revenues ............. 8,159 -- -- -- -- 8,159
Cost of sales:
Products ....................... 4,489 -- -- -- -- 4,489
------- ------- ------- ------- ------- -------
Total cost of sales ........ 4,489 -- -- -- -- 4,489
------- ------- ------- ------- ------- -------
Gross profit .......... 3,670 -- -- -- -- 3,670
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing ............ 3,562 -- -- -- -- 3,562
Research and development ....... 1,166 -- -- -- -- 1,166
General and administrative ..... 979 397 -- -- -- 1,376
------- ------- ------- ------- ------- -------
Total operating expenses ... 5,707 397 -- -- -- 6,104
------- ------- ------- ------- ------- -------
Loss from operations .. (2,037) (397) -- -- -- (2,434)
Other income (expense):
Interest expense ............... (242) -- -- -- -- (242)
Other income (expense), net .... (3) 41 -- -- -- (38)
------- ------- ------- ------- ------- -------
Total other income (expense) (245) 41 -- -- -- (204)
------- ------- ------- ------- ------- -------
Net Loss .............. (2,282) (356) -- -- -- (2,638)
Accretions on preferred stock ....... (631) -- (1) 631 -- -- --
------- ------- ------- ------- ------- -------
Net loss applicable to common
stockholders ................ $(2,913) $ (356) $ 631 $ -- $ -- $(2,638)
======= ======= ======= ======= ======= =======
Basic and diluted net loss per share $ (0.36) $ (0.22) -- -- -- $ (0.27)
======= ======= ======= ======= ======= =======
Number of shares used in computing
basic and diluted net loss
per share ........................ 8,073 1,653 -- -- -- 9,726
======= ======= ======= ======= ======= =======
21
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year ended December 31, 2004 (in thousands)
Historical Pro Forma
-------------------- --------------------------------------------------
Conversion
Xtrana Of Restate
Alpha CA Inc. Preferred Merger Capital Consolidated
-------- -------- -------- -------- -------- --------
Revenue:
Products ....................... $ 10,511 $ -- $ -- $ -- $ -- $ 10,511
Grants ......................... -- 102 -- -- 102
-------- -------- -------- -------- -------- --------
Total revenues ............. 10,511 102 -- -- -- 10,613
Cost of sales:
Products ....................... 5,378 -- -- -- -- 5,378
Grants ......................... -- 79 -- -- -- 79
-------- -------- -------- -------- -------- --------
Total cost of sales ........ 5,378 79 -- -- -- 5,457
-------- -------- -------- -------- -------- --------
Gross profit .......... 5,133 23 -- -- -- 5,156
-------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing ............ 3,925 -- -- -- -- 3,925
Research and development ....... 1,963 99 -- -- -- 2,062
General and administrative ..... 1,968 1,492 -- -- -- 3,460
-------- -------- -------- -------- -------- --------
Total operating expenses ... 7,856 1,591 -- -- -- 9,447
-------- -------- -------- -------- -------- --------
Loss from operations .. (2,723) (1,568) -- -- -- (4,291)
Other income (expense):
Interest expense ............... (574) -- -- -- -- (574)
Other income (expense), net .... (1) 16 -- -- -- 15
Reserve for loss on note
receivable .................. -- (500) -- -- -- (500)
Gain on sale of intellectual
property .................... -- 3,310 -- -- -- 3,310
-------- -------- -------- -------- -------- --------
Total other income (expense) (575) 2,826 -- -- -- 2,251
-------- -------- -------- -------- -------- --------
Net Loss .............. (3,298) 1,258 -- -- -- (2,040)
Accretions on preferred stock ....... (704) -- (1) 704 -- -- --
-------- -------- -------- -------- -------- --------
Net loss applicable to common
stockholders ................ $ (4,002) $ 1,258 $ 704 $ -- $ -- $ (2,040)
======== ======== ======== ======== ======== ========
Basic and diluted net loss per share $ (0.50) $ (0.76) -- -- -- $ (0.21)
======== ======== ======== ======== ======== ========
Number of shares used in computing
basic and diluted net loss per
share ............................ 8,073 1,653 -- -- -- 9,726
======== ======== ======== ======== ======== ========
22
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
1. Accounting treatment applied as a result of the merger
The transaction is being accounted for as a reverse acquisition and
recapitalization. Alpha CA is the acquirer for accounting purposes. Xtrana is
the issuer. The historical financial statements for the periods prior to the
acquisition become those of the acquirer. In a recapitalization, historical
stockholders' equity of the acquirer prior to the merger is retroactively
restated for the equivalent number of shares received in the merger after giving
effect to any difference in par value of the issuer's and acquirer's stock with
an offset to additional paid-in capital. Accumulated deficit of the acquirer is
carried forward after the acquisition. Operations prior to the merger are those
of the accounting acquirer. Earnings per share for the periods prior to the
merger are restated to reflect the equivalent number of shares outstanding.
2. Shares issued and outstanding prior to the merger, as of September 30,
2005, were as follows:
Xtrana:
Common Stock .................................... 1,653,327
Alpha CA:
Series A Redeemable Convertible Preferred Stock . 10,533,334
Series A-1 Redeemable Convertible Preferred Stock 7,343,418
Common Stock .................................... 23,180,587
3. The following is a reconciliation of the shares used in calculating the
per share information as of September 30, 2005:
Type Original Number
Of Shares Conversion Of
Entity Stock Outstanding Factor Shares
---------------- ---------- ----------- ---------- ----------
Xtrana Common 1,653,327 1.00 1,653,327
----------
Alpha CA Series A 10,533,334 .3033634 3,195,428
Alpha CA Series A-1 7,343,418 .3033634 2,227,724
Alpha CA Common 23,180,587 .1142909 2,649,330
----------
Alpha CA 8,072,482
----------
Total 9,725,809
==========
23
4. The following is a reconciliation of the shares used in calculating the
per share information as of December 31, 2004:
Type Original Number
Of Shares Conversion Of
Entity Stock Outstanding Factor Shares
---------------- ---------- ----------- ---------- ----------
Xtrana Common 1,653,327 1.00 1,653,327
----------
Alpha CA Series A 10,533,334 .3033634 3,195,428
Alpha CA Series A-1 7,343,418 .3033634 2,227,724
Alpha CA Common 23,177,526 .1142909 2,648,980
----------
Alpha CA 8,072,132
----------
Total 9,725,459
==========
5. Adjustments to the unaudited pro forma consolidated balance sheet
The adjustments to the unaudited pro forma consolidated balance sheet
as of September 30, 2005 have been calculated as if the reverse
acquisition occurred on that date and are as follows:
(1) To reflect the conversion of Alpha CA's preferred stock into
Xtrana's common stock.
(2) To reflect the elimination of intercompany transactions.
(3) To reflect the revised amounts for common stock, additional
paid-in capital and accumulated deficit.
6. Adjustments to the unaudited pro forma consolidated statement of
operations
The adjustments to the unaudited pro forma consolidated statements of
operations for the periods ended December 31, 2004 and September 30,
2005 have been calculated as if the merger occurred as of January 1,
2004 and are as follows:
(1) To eliminate accretion on preferred stock.
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 have 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 our third fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
EXHIBIT NO. DESCRIPTION
31.1 Certificate of our Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
31.2 Certificate of our 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.
25
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 14, 2005 Alpha Innotech Corp.
/S/ HASEEB CHAUDHRY
--------------------------------
Haseeb Chaudhry
Chief Executive Officer
/S/ DARRYL RAY
--------------------------------
Darryl Ray
Chief Financial Officer
26