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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   ----------
                                   FORM 10-KSB

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002

                                   ----------

                         COMMISSION FILE NUMBER 0-17714

                                   ----------

                                  XTRANA, INC.
             (Exact Name of Registrant as Specified in Its Charter)

                  DELAWARE                                    58-1729436
(State or Other Jurisdiction of Incorporation              (I.R.S. Employer
              or Organization)                             Identification No.)

590 BURBANK STREET, SUITE 205, BROOMFIELD, COLORADO               80020
    (Address of Principal Executive Offices)                    (Zip Code)

        Registrant's telephone number including area code (303) 466-4424

                                   ----------

        Securities registered pursuant to section 12(b) of the Act: None

           Securities registered pursuant to section 12(g) of the Act:

                               TITLE OF EACH CLASS

                     Common Stock, par value $.01 per share
                          Common Stock Purchase Rights

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State Issuer's revenues for its most recent fiscal year: $1,409,000.

The aggregate market value of Xtrana, Inc. Common Stock, $.01 par value, held by
non  affiliates,  computed  by  reference  to the average of the closing bid and
asked prices as reported by OTCBB on December 31, 2002, was $2,479,990.

Number of shares of Common  Stock of Xtrana,  Inc.,  $.01 par value,  issued and
outstanding as of March 21, 2003: 16,533,269.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Definitive  Proxy  Statement  for the 2003 Annual
Meeting are incorporated by reference into Part III of this Form 10-KSB.

Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
================================================================================


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                             INDEX TO ANNUAL REPORT

                                 ON FORM 10-KSB


PART I                                                                      PAGE

Item 1.    Business......................................................     3
Item 2.    Properties....................................................     9
Item 3.    Legal Proceedings.............................................     9
Item 4.    Submission of Matters to a Vote of Security-Holders...........    10

PART II

Item 5.    Market for the Registrant's Common Equity and Related
                Stockholder Matters......................................    10
Item 6.    Management's Discussion and Analysis of Financial
                Condition and Results of Operations......................    11
Item 7.    Financial Statements and Supplementary Data...................    22
Item 8.    Changes In and Disagreements With Accountants on
                Accounting and Financial Disclosure......................    22

PART III

Item 9.    Directors and Executive Officers..............................    22
Item 10.   Executive Compensation........................................    22
Item 11.   Security Ownership of Certain Beneficial Owners
                and Management...........................................    22
Item 12.   Certain Relationships and Related Transactions................    22
Item 13.   Exhibits, Financial Statement Schedules and Reports
                on Form 8-K..............................................    23
Item 14.   Controls and Procedures.......................................    24

SIGNATURES ..............................................................    25


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                                     PART I

ITEM 1. BUSINESS

OVERVIEW

         Xtrana,  Inc.  ("Xtrana" or the "Company")  develops and commercializes
technologies to simplify the analysis of DNA and RNA, so that nucleic acid-based
detection   systems   can  be  utilized   in   point-of-care,   point-of-service
applications. The proprietary assays developed by Xtrana are designed to be easy
to use outside of a traditional  molecular biology laboratory at a cost per test
that is competitive  with existing  rapid test  technologies.  These  diagnostic
tests are intended for use in drug  discovery,  detection of  environmental  and
food  contaminants,  forensics and identity testing,  human and animal diseases,
genetic predisposition to disease, and other applications.

         We were  initially  incorporated  in Delaware in 1987.  The name of the
company was changed from Biopool  International,  Inc., to Xtrana, Inc., in June
of 2001. Our corporate headquarters is located in Broomfield, Colorado, where we
conduct manufacturing operations as well as research and development activities.

         On August 10, 2000, we completed a merger with the former Xtrana, Inc.,
a company based in Denver, Colorado, and primarily engaged in the development of
new proprietary nucleic acid (DNA/RNA) testing technology.

         On December 21, 2001, we completed our strategy of divesting  ourselves
of our Hemostasis business segment by selling substantially all of the assets of
that  business  to  Trinity  Biotech  plc,  an  Irish  corporation,   for  total
consideration of US$6,250,000  plus the assumption of certain of our liabilities
associated with that business. The assets sold included the operations of Xtrana
located in Ventura,  California, and a wholly owned Swedish subsidiary,  Biopool
AB.  The total  consideration  of  US$6,250,000  consisted  of cash and notes as
follows:  (a)  US$3,658,500  in cash which was paid on December 21, 2001;  (b) a
note in the  amount of  US$855,200  due on  December  21,  2002,  which was paid
subsequent to December 31, 2002; (c) a note in the amount of US$1,166,200 due on
December 21, 2003;  and (d) a note in the amount of US$570,100  due December 21,
2004. The notes carry  interest at a rate of 5% per annum,  and are secured by a
second position on  substantially  all of the assets of Trinity Biotech plc that
are located in the United States.

NUCLEIC ACID (DNA/RNA) TESTING INDUSTRY

         The  growing  understanding  of  genetics  and  the  genetic  basis  of
biological  activity is driving  renewed  growth in the research and  commercial
testing markets.  Genomic  research is being applied to identify  specific genes
and to use the  identity of the gene to identify  its source,  as in  forensics,
paternity and pathogen testing,  or to reveal possible linkages between the gene
and biologic  activity and disease,  as in diagnostic  testing.  Highly specific
detection tests and, where applicable, precisely targeted therapeutic approaches
are being  designed to address  not only human  disorders  but also  veterinary,
environmental,  food safety, forensics, and other applications.  These new tests
and approaches  require  specialized  research  reagents,  supplies,  tools, and
instruments.   Currently,  demand  for  these  reagents,  supplies,  tools,  and
instruments  arise  from  both  academic  and  industrial  researchers  and from
commercial testing applications,  such as forensics,  paternity,  and diagnostic
testing.

         In order to  capitalize  on  increasing  demand  generated  by both the
research  and  commercial  markets,  the  Company,  along  with  other  industry
participants,  are  developing a wide range of products  and services  including
genomic information,  diagnostic tests and assays,  testing services,  drugs and
gene therapies, and environmental services. We are already participating in both
the  commercial  and research  segments of the  genetics  market.  Further,  one
segment of the commercial  market--human diagnostic  testing--offers  particular
opportunities  due to the size of the  market  and the  limited  development  of
nucleic acid-based testing products to date.


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         Historically,  the analysis of nucleic  acid has been a very  expensive
and time-consuming process,  requiring extensive and well-equipped  microbiology
laboratories  and highly  trained  personnel.  The process can be segmented into
three  independent  steps.  First,  the DNA or RNA  must be  extracted  from the
sample,  which could be blood,  tissue,  urine, food products,  or other organic
materials,  and isolated from contaminants.  This process is also referred to as
sample preparation.  Second, the specific gene sequence related to the target to
be analyzed is  amplified,  making  thousands of copies of the sequence if it is
present in the sample.  Lastly, the gene sequence must be detected and analyzed.
We have developed proprietary  technologies in sample preparation and detection,
and  are  pursuing  the  license  of an  amplification  technology.  Each of the
technologies,  once  commercialized,  could be marketed as standalone  products.
When  combined,   the  technologies  could  permit  the  development  of  rapid,
easy-to-use,  and  cost-effective  nucleic  acid  testing  devices  that  can be
employed either in a laboratory  setting or at the point of sample collection in
place of the current complex and time-consuming laboratory-based procedures.

STRATEGY

         Our  strategy  is to become  the  leader in the  development  of rapid,
easy-to-use,  cost-effective  nucleic  acid-based  technology  products.  We are
attempting  to develop  diagnostic  platforms  that  combine  all three steps of
nucleic  acid   analysis,   extraction,   amplification,   and   detection,   in
user-friendly,  point-of-service  products. Because our technology is applicable
to nearly any  nucleic  acid  testing  situation,  we believe we will be able to
successfully  develop an  extremely  broad  range of  potential  commercial  and
research applications using our proprietary technologies. In order to facilitate
this strategy, the Company:

         o        Divested itself of its Hemostasis  business segment by selling
                  substantially  all of the assets of that  business  to Trinity
                  Biotech  plc in order to fully  focus on the  development  and
                  sale of its nucleic acid-based technology products;

         o        Began  investing  more  resources in research and  development
                  than  in its  prior  operating  periods.  In  2001,  we  spent
                  $1,372,000 on research and development.  In 2002, research and
                  development  expenses  increased   approximately  $400,000  to
                  $1,785,000,  or 30% over 2001 levels. We anticipate a decrease
                  in research and development  spending in 2003 to approximately
                  $1,300,000 due to limited capital availability. We expect this
                  investment  will continue to advance our diagnostic  platforms
                  but based on the capital  currently  available to the Company,
                  we will not be able to commercialize these technologies on our
                  own. As a result,  the Company is actively pursuing  strategic
                  relationships  with  third  parties  to assist us in  bringing
                  these technologies to the commercial market; and

         o        Is continuing to expand its worldwide distribution network for
                  the sale of our  extraction  products,  as well as  evaluating
                  potential partners for the co-development  and/or distribution
                  of our diagnostic platforms.

         The  Company is  focused on  directly  participating  in the  following
industry segments for nucleic acid testing:

         o        EXTRACTION/SAMPLE PREPARATION - Total annual sales of reagents
                  for the preparation and  purification of nucleic acids in 2001
                  was estimated to be $760  million,  and is expected to grow to
                  over $1.3 billion annually by the year 2005.

         o        CLINICAL  DIAGNOSTICS - The total annual sales of all clinical
                  diagnostic  applications  was estimated to be in excess of $21
                  billion in 2001. Of this total, nucleic acid-based diagnostics
                  represented   approximately   7%,  or  $1.5  billion.   It  is
                  anticipated that the total clinical  diagnostics industry will
                  grow to over $35 billion by the year 2005.  The  nucleic  acid
                  segment is  expected  to grow at a much more rapid rate as new
                  technologies   enable  new  testing  and  render  old  testing
                  methodologies obsolete.



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         o        BIOLOGICAL  WARFARE  AGENT  DETECTION - The current and future
                  size  of  this  market  are  unknown  at  this  time,  but  we
                  anticipate  it  becoming a  significant  market in the area of
                  nucleic acid diagnostics.

         Because of our limited  size and  resources,  our current  strategy for
other industries and potential  applications for our products and  technologies,
including but not limited to food pathogen detection,  water pathogen detection,
veterinary  diagnostics,  and forensics, is to license our technologies to third
parties.

TECHNOLOGIES

         Xtra Bind(TM) is a family of nucleic acid extraction  matrices that the
Company  has  developed,   representing  the  foundation  technologies  for  the
Company's  current and future  commercial  products.  These matrices capture and
stabilize DNA and RNA and allow for enzymatic  manipulation of the nucleic acid,
resulting in an extremely rapid and efficient extraction protocol.

         The Xtra  Bind(TM)  matrices  are unique in that they not only serve to
selectively  bind DNA and RNA, but also  interface  with multiple  amplification
technologies and downstream  applications.  For example, DNA can be amplified by
Polymerase  chain  reaction  (PCR),  and RNA can be copied  and  amplified  by a
similar  process known as RT-PCR,  directly off of the solid phase bound nucleic
acid  without  elution.  This permits the use of our Xtra  Bind(TM)  material to
create an extremely  rapid  extraction  protocol and eliminates the need for the
vacuum filtration,  centrifugation,  or hazardous  chemicals commonly associated
with other extraction methods.  The protocol merely requires pipetting or liquid
handling steps for the addition of the sample, lysis buffer, and a wash buffer -
thus  making it  ideally  suited for  automated  platforms  and high  throughput
screening or sample processing.  Nucleic acid is highly stable when bound to the
Xtra Bind(TM) matrix and can be stored at room  temperature for extended periods
rather than using valuable freezer space.

         Additionally,    Xtra   Bind(TM)    provides    both    multiplex   and
re-amplification   capabilities.  The  multiplex  protocol  requires  no  primer
optimization  and can be used to amplify up to 25 targets in a single  reaction.
The Xtra Bind(TM) material also acts as an archival platform,  allowing the user
to re-amplify either the same target or different targets from the original Xtra
Amp(TM)  tube.  This ability to re-amplify  when  combined  with Xtra  Amp(TM)'s
multiplex capability provides researchers with a powerful and efficient tool.

         The Xtra Bind(TM) matrix can be coated on many different surfaces. This
capability,  combined with the simple and efficient extraction  protocol,  makes
this  material  ideal  for  incorporating  sample  preparation  onto  diagnostic
platforms.

         Historically,  the  Company  has  attempted  to  develop a  proprietary
amplification technology.  These efforts have not been successful,  and in early
2002 we ceased focusing resources on this area of development.  Instead,  we are
pursuing the license of an  amplification  technology  from a third  party.  The
Company is currently in active discussions with several parties regarding such a
license, and anticipates having a license in place by the middle of 2003.

         We also have several detection technologies that we have developed. Our
primary  detection  methodology  is  a  lateral  flow  strip  for  nucleic  acid
detection.  This patented  method is similar in function to the detection  strip
utilized in home pregnancy  tests. The sample is added to the lateral flow strip
post-amplification,  and in less than one minute a blue line will  appear on the
strip if the sample is present.  This qualitative  detection method is much more
rapid than  traditional  agarose gel methods,  and when used with Xtra  Bind(TM)
extraction, can provide higher levels of sensitivity.

         For  quantitative  detection,  where the user needs to know not only if
the sample is present,  but in what  number,  we have  developed  a  proprietary
florescence  detection method.  This strategy employs florescent probes that are
attached to the amplified product if it is present.  These florescent probes can
then be detected and counted.  The incorporation of the probes is similar to the
lateral flow technology in that it is simple and rapid.

         SCIP(TM)  (Self-Contained  Integrated  Particle) is a strategy  that we
have   developed  to  combine  all  three  aspects  of  nucleic  acid  analysis,
extraction,  amplification, and detection, into a self-contained,  point-of-care


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<PAGE>


device. We have several device patents surrounding the SCIP(TM) concept,  and it
is  envisioned  that SCIP(TM)  will be a family of  diagnostic  platforms,  each
specific to the  requirements  of various  applications.  We have numerous other
technologies in various areas of nucleic acid analysis.

PRODUCTS

         Our initial  commercial  product,  the Xtra Amp(TM)  Extraction System,
utilizes our proprietary  Xtra Bind(TM)  material,  and provides the user with a
rapid and  easy-to-use  extraction  kit. The Xtra Amp(TM) System is sold for use
with amplification and detection products and processes  currently  available in
the  marketplace.  This system  enables the extraction of nucleic acid with only
three minutes of hands-on time and the  elimination  of  centrifugation,  vacuum
filtration,  product  transfer,  or elution  steps,  all of which are  currently
necessary with competing  technologies.  This saves valuable laboratory time and
minimizes  the  risks  of  cross-contamination,  as the  entire  extraction  and
amplification  process  takes  place in the same  tube.  Additionally,  the Xtra
Amp(TM) kits provide for  long-term  dry storage of the nucleic acid sample that
can be used later for tracking or follow-up testing.

         Xtra Amp(TM) Extraction Kits are sold in 8x12 PCR tubes,  96-well plate
and  384-well  plate  formats.  The  kits  come  in  three  series  for  various
applications:

         o        SERIES I - For the  extraction and isolation of DNA from whole
                  blood, buccal swab, buffy coat fraction, and E. coli cells.

         o        SERIES  II - For the  extraction  and  isolation  of RNA  from
                  tissue culture cells.

         o        SERIES  III - For the  extraction  and  isolation  of DNA from
                  whole  tissues,  tissue culture  cells,  rodent tails,  yeast,
                  blood stains and plant.

CUSTOMERS

         Because  of the  limited  nature  of our  sales of  nucleic  acid-based
products to date, none of our current customers account for more than 10% of our
revenue.  We expect  this to change  over the course of the  current  year as we
increase our sales levels.

RESEARCH AND DEVELOPMENT

         All of our  research  and  development  activities  are  focused on the
development  of  technologies  that  can be  brought  to  market  in the form of
commercialized  products.  These research and  development  activities have been
funded by internal capital as well as via various  government  grants. The major
projects under development in 2003 are:

         o        Additional  Xtra Amp(TM)  applications,  including DNA and RNA
                  from viruses, thus continuing to broaden the product line.

         o        SCIP(TM)for  infectious  disease -  Intended  to be a point of
                  care  diagnostic  device for the doctor's  office.  Provides a
                  highly  simple  device:  sample in,  result  out.  The test is
                  processed  during the patient  visit,  thus  allowing for more
                  effective  treatment.  Device  design  is  a  base  unit  with
                  disposable  cartridges.  The first cartridge under development
                  is a test  for  chlamydia/gonorrhea.  Additionally,  work  has
                  begun  on  the  development  of  assay   chemistries  for  the
                  detection of respiratory  viruses,  which will also run on the
                  platform.  During  the  first  quarter  of 2003,  the  Company
                  completed work on a functional SCIP prototype.  This prototype
                  automates  the  extraction,  amplification  and  detection  of
                  chlamydia and  gonorrhea  from clinical  urine  samples.  This
                  prototype has  demonstrated the ability to detect targets down
                  to a single copy (single cell) of the target organism.


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         On November 8, 2000,  we were issued U.S.  patent  6,153,425,  entitled
"Self-Contained Device Integrating Nucleic Acid Extraction,  Amplification,  and
Detection."  This  patent is a  continuation,  in part,  of an  earlier  patent,
expanding  upon our  development  strategy  for a  self-contained  nucleic  acid
detection  system to include a modular  design that will interface with multiple
amplification technologies.

         On September 18, 2001, we were issued U.S.  patent  6,291,166  entitled
"Nucleic Acid Archiving." This patent covers the Xtra Bind(TM) family of nucleic
acid  extraction  matrices  representing  the  foundation  technologies  for the
Company's  current and future  commercial  products.  These matrices capture and
stabilize DNA and RNA and allow for enzymatic  manipulation of the nucleic acid,
resulting in an extremely rapid and efficient extraction protocol.

         In 2001,  we spent  $1,372,000  on research and  development.  In 2002,
research  and  development   expenses   increased   approximately   $400,000  to
$1,794,000,  or 30% over 2001 levels, and we anticipate a decrease that spending
in 2003 to approximately $1,300,000 due to capital constraints.

         In nucleic acid detection, we utilize the expertise of advisors. Two of
these are Michael P. Doyle, Ph.D., and Jim Mahony, Ph.D. Dr. Doyle is well known
in the food microbiology industry and provides  consultation  regarding our food
pathogen detection assays,  including E. COLI 0157:H7,  LISTERIA  MONOCYTOGENES,
SALMONELLA,  Coliforms,  and  Campylobacter.  He  received  his B.S.  degree  in
Bacteriology in 1973, an M.S. in Food  Microbiology in 1975, and a Ph.D. in Food
Microbiology  in 1977,  all  from the  University  of  Wisconsin-Madison.  After
working  for the  Ralston  Purina Co. from  1977-80,  he  accepted an  Assistant
Professor  position  at  the  Food  Research  Institute  at  the  University  of
Wisconsin-Madison in 1980. He remained there, advancing to full Professor in the
Department  of Food Science,  until 1991.  In 1991,  Dr. Doyle moved to Griffin,
Georgia,  where he  remains as  Professor  and  Director  of the Center for Food
Safety  and  Quality  Enhancement,  and Head,  Department  of Food  Science  and
Technology, University of Georgia. Dr. Mahony is well known in clinical virology
and  chlamydiology.  He is consulting and  collaborating on the development of a
SCIP(TM)-based  assay for urine  detection of  chlamydia  and  gonorrhea.  He is
Professor  and  Director  at  McMaster  University  Virology  and  Chlamydiology
Laboratory, Hamilton, Ontario, Canada. Dr. Mahony has authored 104 publications,
most of which deal with either chlamydia or gonorrhea.  He has also published 25
articles  in books,  all  discussing  STD's and  chlamydia.  His lab  frequently
conducts  and  publishes  validation  studies of new  methods for  detection  of
sexually  transmitted  disease  infectious  agents.  In August 2002,  Dr. Mahony
became a Director of the Company.

MANUFACTURING AND QUALITY CONTROL

         During  2002,  we  completed  the  transfer  of  Xtra  Amp(TM)  product
manufacturing to our Broomfield, Colorado facility.

         All  of  our  products  are   manufactured   in  accordance  with  Good
Manufacturing Practices for Medical Devices as promulgated by the FDA.

         On February 14, 2003, the Company received ISO 9001:2000 certification.
The  International  Organization  for  Standardization  ("ISO")  is a  worldwide
federation of national  standards for quality  management  representing over 140
countries.  The ISO 9000 series is a set of international standards referring to
quality  management.  ISO 9001 is the most  comprehensive  of the quality models
encompassing design, manufacturing, distribution and service systems.

SALES AND MARKETING

         We  anticipate  that sales of our nucleic  acid-based  products will be
worldwide.  The U.S.  typically  accounts  for some 35% of the  total  worldwide
diagnostics market, Europe approximately 35%, Japan 10%, and 20% for the rest of
the world.

         We sell our products  through  independent  distributors.  We currently
have exclusive distribution relationships for our nucleic acid-based products in
the United States, UK, Australia,  Canada, Italy, Spain and Japan. Additionally,
we have non-exclusive  distribution  relationships in other European and Pacific
Rim


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countries.  We actively work with our partner  distributors  in  supporting  our
customers,  and are  actively  seeking to add new  distributors  to broaden  our
market coverage.

         We augment these sales  activities  through active  participation  in a
number of key regional,  national,  and international industry trade shows, such
as  the  American   Association  of  Clinical  Chemistry,   Clinical  Laboratory
Management  Association,   Medica  (Dusseldorf,   Germany),  Analytica  (Munich,
Germany),  Cambridge  Health  Institute's  Genomics and  Proteomics  Sample Prep
(Boston,  MA), Frenzy 2002  (Washington,  DC), Drug Discovery 2002, NIH Research
Festival,  and the American Society for Human Genetics.  Additional  promotional
activity  is  conducted  via the web  site  and via  industry  journals  such as
BIOTECHNIQUES.

COMPETITION

         We compete on a worldwide basis against a number of companies,  some of
which are  subsidiaries of large  pharmaceutical,  chemical,  and  biotechnology
firms whose  financial  resources and research and  development  facilities  are
substantially  greater  than ours.  Specifically,  in the area of  nucleic  acid
extraction, we compete with, among others, Applied Biosystems,  Qiagen, Promega,
and Aclara Biosciences.

         Competition  is  based  upon a number  of  factors,  including  product
quality, customer service, price, continuous availability of product, breadth of
product  range,  and the strength and  effectiveness  of the sales and marketing
organization.  We  believe  our test kits and  reagents  compete on the basis of
relative ease of use, quality, accuracy, and precision.

SUPPLIERS

         We  obtain  raw  materials  from  numerous  outside  vendors.  Key  raw
materials include PCR tubes,  microtiter plates, and enzymes.  We generally have
more  than  one  source  for our  key raw  materials.  We  continually  evaluate
additional suppliers and are not dependent on any single vendor.

PATENTS, TRADEMARKS, AND PROPRIETARY INFORMATION

         We consider  the  protection  of  discoveries  in  connection  with our
research and development on test kits important to our business.  We seek patent
protection for technology when deemed appropriate and, to date, have been issued
six patents in the United States and foreign  jurisdictions  specific to nucleic
acid  diagnostics.  We also have five  patents  pending for  additional  nucleic
acid-related technologies.

         We are also reliant on trade secrets,  unpatented proprietary know-how,
and continuing  technological innovation to develop our competitive position. We
require that all of our employees  and  consultants  enter into  confidentiality
agreements  and agree to assign to us any  inventions  relating to our  business
made by them while in our employ, or in the course of services  performed on our
behalf. We perform an ongoing assessment of the value of our intangible assets.

         We have  established  rights in the  trademarks  "XTRANA,"  "Xtra Amp,"
"Xtra Bind," and "SCIP."

GOVERNMENT REGULATIONS

         The  manufacture  and  sale  of  diagnostic  products  are  subject  to
regulation by the FDA in the United States and by comparable regulatory agencies
in certain foreign countries in which our diagnostic  products are sold. The FDA
has  established  guidelines  and safety  standards  that are  applicable to the
pre-clinical  evaluation and clinical  investigation of diagnostic  products and
regulations  that govern the manufacture and sale of such products.  The FDA and
similar agencies in foreign countries have substantial regulations that apply to
the testing,  marketing  (including export), and manufacturing of products to be
used for the  diagnosis  of  disease.  In the  United  States,  many  diagnostic
products  may be accepted by the FDA  pursuant to a 510(k)  notification,  which
must  contain  information  that  establishes  that the  product in  question is
"substantially  equivalent" to similar  diagnostic  products  already in general
use.


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<PAGE>


         Our  manufacturing  facility,  as well as any additional  manufacturing
operations  that may be  established  within or outside the United  States,  are
subject to compliance with the FDA's Good Manufacturing  Practices  regulations.
We are  registered  as a  medical  device  manufacturer  with  the  FDA and as a
manufacturer  with  the U.S.  Drug  Enforcement  Administration.  We may also be
subject  to  regulation  under the  Occupational  Safety  and  Health  Act,  the
Environmental  Protection Act, the Toxic  Substance  Control Act, Export Control
Act, and other present and future laws of general application.

         We  believe  that  the  manufacture  and  use of our  products  have no
material adverse environmental impact.

         Except as we indicated above, we are not subject to direct governmental
regulation  other  than  the  laws  and  regulations   generally  applicable  to
businesses in the  jurisdictions in which we operate,  including those governing
the handling and disposal of hazardous wastes and other  environmental  matters.
Our research and  development  activities  involve the  controlled  use of small
amounts of hazardous materials and chemical compounds.  Although we believe that
our safety  procedures for handling and disposing of such materials  comply with
applicable  regulations,  the risk of  accidental  contamination  or injury from
these  materials  cannot  be  completely  eliminated.  In the  event  of such an
accident,  we could be held liable for resulting  damages.  This liability could
have a material adverse effect on us.

EMPLOYEES

         As of December 31, 2002, we had 27 regular employees,  of which 25 were
full-time  and  2  were  part-time  employees.  In  January  2003,  the  Company
implemented a reduction in force,  eliminating 10 positions  within the Company.
This reduction was the result of litigation  with Trinity Biotech and the impact
that this ongoing litigation might have on the Company's capital resources.

ITEM 2. PROPERTIES

         The Company leases a 14,671 square-foot corporate office,  research and
development,  and  manufacturing  facility in  Broomfield,  Colorado.  The lease
commenced  in  April  2001  and has a term of five  years.  Base  rent  for this
facility is  $214,894  per year,  increasing  3% per year.  We believe  that our
facilities are in good condition,  are adequately covered by insurance, and will
be adequate for our occupancy needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

         On January 24, 2002,  the Company  entered into a settlement  agreement
with  Instrumentation  Laboratory  Company with regard to a patent  infringement
filed on August 9, 2001, by  Instrumentation  Laboratory  Company  relating to a
product  sold by our  Hemostasis  operations.  As part  of the  settlement,  the
Company and  Instrumentation  Laboratory  Company have agreed to enter a consent
judgment with the court, and the Company paid damages and costs in the amount of
$20,000.  We do not believe  that the  settlement  had a material  impact on our
results of continuing operations.

         On  December  19,  2002,  Trinity  Biotech  plc filed suit  against the
Company in U.S.  District Court Southern District of New York alleging breach of
contract,  breach of the implied covenant of good faith and fair dealing, fraud,
negligent  misrepresentation,  unjust enrichment,  and violation of the Delaware
Consumer  Fraud Act in  conjunction  with the Company's  sale of its  Hemostasis
business to Trinity. The suit alleges that the Company misrepresented the status
of a single  product  that was the  subject  of the  Instrumentation  Laboratory
patent  infringement  suit  settled by the Company in January  2002.  Trinity is
seeking $1.2 million in damages, and $3 million in punitive damages. The Company
believes  that the suit  brought  by  Trinity  has no merit,  as the  product in
question and the patent infringement issues surrounding it, including settlement
discussions with Instrumentation Laboratory, were fully disclosed by the Company
during Trinity's due diligence and in the Asset Purchase Agreement. As a part of
the settlement  negotiations with Instrumentation  Laboratory the Company agreed
to stop selling the product more than 90 days prior to Trinity's purchase of the
business and settled the patent infringement suit in early 2002.


                                       9


<PAGE>


         The Company  has filed a counter  suit  against  Trinity in response to
Trinity's  suit,  seeking  $27  million in actual  damages,  and $30  million in
punitive damages for tortious  interference with prospective economic advantage,
breach of contract,  and breach of the covenant of good faith and fair  dealing.
The Company is also seeking a  declaratory  judgment that  Trinity's  suit is an
improper  attempt to avoid its  contractual  obligations to the Company  because
Trinity merely  instituted  litigation to force the Company to  renegotiate  the
terms of the sale of its Hemostasis business. There can be no guarantee that the
Company will be successful in its suit.

         The  litigation  with  Trinity  has had,  and will  continue  to have a
material impact on the Company.  The cost of defending the litigation has forced
us to radically  reduce the investment in our  commercial  products and those in
development.  In addition,  the possibility of raising additional capital, which
we  disclosed  as a possible  alternative  for the  Company  in our 10QSB  dated
September 30, 2002,  has been  seriously  undermined due to the existence of the
litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         There were no matters submitted during the fourth quarter of the fiscal
year covered by this Report to a vote of stockholders,  through the solicitation
of proxies, or otherwise.


                                     PART II

ITEM 5. MARKET  FOR  THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS

         Our common stock currently trades on the OTC Bulletin  Board(R) (OTCBB)
under the symbol XTRN.  The  following  sets forth the high and low trade prices
for our common stock for the periods indicated as reported by the OTCBB. We have
not paid any dividends  since our inception  and do not  contemplate  payment of
dividends in the foreseeable future.

                                            2002                    2001
                                   ---------------------   ---------------------
                                      HIGH        LOW         HIGH        LOW
                                   ---------   ---------   ---------   ---------
First quarter ..............       $   0.800   $   0.400   $   1.500   $   0.781

Second quarter .............           0.610       0.270       0.950       0.530

Third quarter ..............           0.450       0.170       0.850       0.420

Fourth quarter .............           0.360       0.140       1.480       0.430

(a)      On March 20,  2003,  the closing  trade price of our common  stock,  as
         reported by the OTCBB, was $0.12.

(b)      As of March 21, 2003, we had 233 holders of record of our common stock.
         A  large  number  of  shares  are  held in  nominee  name.  Based  upon
         information provided by our transfer agent, American Stock Transfer and
         Trust Company,  we had approximately  2,492 beneficial  shareholders on
         the same date.


                                       10


<PAGE>


EQUITY COMPENSATION PLAN INFORMATION


<TABLE>
<CAPTION>
                           NUMBER OF SECURITIES      WEIGHTED-AVERAGE     NUMBER OF SECURITIES
                             TO BE ISSUED UPON      EXERCISE PRICE OF    REMAINING AVAILABLE OR
                                EXERCISE OF            OUTSTANDING        FUTURE ISSUANCE UNDER
                           OUTSTANDING OPTIONS,     OPTIONS, WARRANTS      EQUITY COMPENSATION
                            WARRANTS AND RIGHTS         AND RIGHTS                PLANS
                           --------------------     -----------------    ----------------------
<S>                             <C>                       <C>                    <C>
Equity compensation
plans approved by
security holders........        1,891,179                 $0.83                  2,999,746

Equity compensation
plans not approved by
security holders........          684,755                 $0.91
                                ---------                 -----                  ---------

Total. .................        2,575,934                 $0.85                  2,999,746
                                =========                 =====                  =========
</TABLE>


ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         We  develop  and  market  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.

         Prior  to  December  2001,  we also  sold  Hemostasis  products  to the
worldwide IN VITRO diagnostics  market.  Our products were used, in general,  to
diagnose disease,  identify  individuals at risk for developing certain diseases
and monitor patients undergoing  therapy.  These products are typically referred
to as  reagents  or  test  kits  and  are  used  by  highly  trained  laboratory
technologists  utilizing  a wide range of testing  devices,  which  perform  the
ultimate analysis. Our IN VITRO diagnostic products were utilized by health care
professionals in hospital-based laboratories, commercial reference laboratories,
blood centers, and physician office laboratories.

         On August  10,  2000,  we merged  with  Xtrana,  Inc.,  pursuant  to an
Agreement and Plan of Reorganization  dated May 3, 2000, as further described in
our 8-K filed with the SEC on August 11, 2000.

         On December 21, 2001, we completed our strategy of divesting  ourselves
of our Hemostasis business segment by selling substantially all of the assets of
that  business  to  Trinity  Biotech  plc,  an  Irish  corporation,   for  total
consideration of US$6,250,000  plus the assumption of certain of our liabilities
associated with that business. The assets sold included the operations of Xtrana
located in Ventura,  California, and a wholly owned Swedish subsidiary,  Biopool
AB.  The total  consideration  of  US$6,250,000  consisted  of cash and notes as
follows:  (a)  US$3,658,500  in cash which was paid on December 21, 2001;  (b) a
note in the  amount of  US$855,200  due on  December  21,  2002,  which was paid
subsequent to December 31, 2002; (c) a note in the amount of US$1,166,200 due on
December 21, 2003;  and (d) a note in the amount of US$570,100  due December 21,
2004.  The notes  carry  interest at a rate of 5% per annum and are secured by a
second position on  substantially  all of the assets of Trinity Biotech plc that
are  located  in the  United  States.  As a  result  of  this  transaction,  our
continuing  operations  no  longer  include  the  sale of  Hemostasis  products.
Consequently,  the  discussion  of our results of  operations  should be read in
light of the significant changes in our business and with the understanding that
our  historical  results  of  operations  have  little  or no  relevance  to our
continuing operations.

         Our financial  statements have been prepared  assuming the Company will
continue as a going concern. For the year ended December 31, 2002, we incurred a
loss from continuing operations of approximately $11.2 million, which included a
goodwill  impairment charge of $8.5 million,  and sustained  negative cash flows
from operations of  approximately  $2.7 million.  This is a result of continuing
our development of our nucleic acid testing business. As described more fully in
Notes 2 and 3 to the financial statements, during the latter part of 2001 and in
2002,  the Company  transitioned  its core line of business  from  Hemostasis to
nucleic acid testing.  In  connection  with this  transition,  revenues from our
continuing operations have been substantially  reduced. The Company is currently
consuming cash to fund its  operations  and the research and  development of its
nucleic acid diagnostic  technologies.  Due to the cost of defending the Trinity


                                       11


<PAGE>


litigation and the slower than  anticipated  growth in Xtra Amp(TM)  sales,  the
Company may not have the ability to sustain its  operations  through the next 12
months. To address these capital pressures,  the Company has undertaken steps to
significantly  reduce its operating costs, and has retained an investment banker
to pursue  strategic  alternatives  for the Company.  These  alternatives  could
include a financing, a co-development arrangement,  the license of the Company's
technologies,  or  the  sale  of the  Company  or its  assets.  There  can be no
guarantee that these activities will be successful.

         We currently  manufacture  products  for  inventory  and ship  products
shortly after receipt of orders and anticipate that we will continue to do so in
the future. Accordingly, we have not developed a significant backlog of products
and do not  anticipate  we will  develop a material  backlog of  products in the
future.

         The  following  discussion  should  be read  in  conjunction  with  our
consolidated  financial statements provided under Part II, Item 8 of this annual
report on Form  10-KSB.  Certain  statements  contained  herein  may  constitute
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform  Act of 1995.  These  statements  involve  a number of risks,
uncertainties,  and other  factors  that could  cause  actual  results to differ
materially, as discussed more fully herein.

         The forward-looking information set forth in this annual report on Form
10-KSB  is as of  March  20,  2003,  and we  undertake  no duty to  update  this
information.  Should  events occur  subsequent  to March 20, 2003,  that make it
necessary  to update  the  forward-looking  information  contained  in this Form
10-KSB,  the  updated  forward-looking   information  will  be  filed  with  the
Securities and Exchange Commission in a quarterly report on Form 10-QSB or as an
earnings  release  included  as an exhibit to a Form 8-K,  each of which will be
available at the Securities and Exchange  Commission's  website at  www.sec.gov.
More  information  about  potential  factors  that could affect our business and
financial  results is included in the section entitled "Risk Factors"  beginning
on page 16 of this Form 10-KSB.

CRITICAL ACCOUNTING POLICIES

         Our discussion  and analysis of our financial  condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities.  On an on-going  basis,  we  evaluate  our  estimates.  We base our
estimates on historical  experience  and on various other  assumptions  that are
believed to be reasonable under the circumstances, the results of which form the
basis for making  judgments  about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

         Specifically, management must make estimates in the following areas.

         ALLOWANCE FOR DOUBTFUL ACCOUNTS

         The Company has $76,000 in gross trade  accounts  receivable and $5,000
in allowance for doubtful accounts on the consolidated balance sheet at December
31, 2002.  A review of our  allowance  for doubtful  accounts is done timely and
consistently  throughout  the year.  As of  December  31,  2002,  we believe our
allowance for doubtful accounts is fairly stated. If the financial  condition of
our customers were to  deteriorate,  resulting in an impairment of their ability
to make payments, additional allowances may be required.

         INVENTORY ADJUSTMENTS

         We review  the  components  of our  inventory  on a  regular  basis for
excess,  obsolete and  impaired  inventory  based on estimated  future usage and
sales.  Additionally,  material  write-downs  in  our  inventory  can  occur  if
competitive  conditions or new product introductions by our customers or us vary
from our current expectations.


                                       12


<PAGE>


         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  losses  in fiscal  2001 and 2002,  and  received  a going  concern
explanatory  paragraph  in the  Independent  Auditors  Report  of our  financial
statements  for the year ended  December 31, 2002. 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,  2002.  The  estimates  for deferred tax asset and the
corresponding  valuation  allowance require complex  judgments.  We periodically
review those estimates for reasonableness.  However,  because the recoverability
of the deferred tax assets is directly  dependent upon future operating results,
actual  recoverability  of deferred  tax assets may differ  materially  form our
estimates.

         We believe the following critical  accounting  policies affect our more
significant  judgments and estimates  used in  preparation  of our  consolidated
financial statements.

         REVENUE RECOGNITION

         Product  revenues are recorded on the day products are shipped from the
Company's 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.  The Company historically has been able to
estimate its percentage of completion on contracts reliably.  The Securities and
Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue  Recognition,"
("SAB  101")  provides  guidance  on  the  application  of  generally   accepted
accounting  principles to selected revenue  recognition  issues. We believe that
our  revenue  recognition  policy  is  consistent  with  this  guidance  and  in
accordance with generally accepted accounting  principles.  We do not anticipate
any changes to our revenue recognition and shipping policies in the future.

         LONG-LIVED ASSETS

         In October 2001,  the Financial  Accounting  Standards  Board  ("FASB")
issued Statement on Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived  Assets," which addresses financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
While SFAS No. 144  supersedes  SFAS No.121,  "Accounting  for the Impairment of
Long-Lived  Assets and for Long-Lived Assets to be Disposed Of," it retains many
of the fundamental  provisions of that statement.  The standard is effective for
fiscal years beginning after December 15, 2001. It is our policy, and consistent
with SFAS No. 144, to account for long-lived assets,  including intangibles,  at
amortized  cost. As part of an ongoing review of the valuation and  amortization
of long-lived assets,  management  assesses the carrying value of such assets if
facts and  circumstances  suggest  that  they may be  impaired.  If this  review
indicates that  long-lived  assets will not be  recoverable,  as determined by a
non-discounted  cash flow analysis over the remaining  amortization  period, the
carrying  value of the  Company's  long-lived  assets  would be  reduced  to its
estimated fair value based on discounted cash flows.  Long-lived  assets consist
primarily of leasehold improvements,  computer equipment,  office furniture, and
equipment.


                                       13


<PAGE>


         GOODWILL

         In June 2001, the Financial  Accounting Standards Board ("FASB") issued
Statements  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  Business
Combinations,  and SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS No.
141 requires  that the purchase  method of  accounting  be used for all business
combinations  initiated after June 30, 2001. SFAS No. 141 also includes guidance
on the initial  recognition  and  measurement  of goodwill and other  intangible
assets arising from business  combinations  completed  after June 30, 2001. SFAS
No. 142  prohibits  the  amortization  of goodwill  and  intangible  assets with
indefinite useful lives. SFAS No. 142 requires that these assets be reviewed for
impairment at least annually.  Intangible assets with finite lives will continue
to be amortized over their estimated useful lives. These statements are required
to be adopted by the  Company  on  January  1,  2002,  and for any  acquisitions
entered into after July 1, 2001. The Company adopted Statement 142 on January 1,
2002. The Company completed the transitional  goodwill impairment test utilizing
the present  value of future  cash flows  approach  at a 25%  discount  rate and
concluded  that no goodwill  impairment  existed at January 1, 2002.  Due to the
liquidity  issues  currently  facing  the  Company,   the  methodology  for  the
impairment test at December 31, 2002 was changed to a market approach.  Based on
that analysis (note 1) the company wrote off the entire net goodwill  balance of
$8.5 million.

RESULTS OF OPERATIONS

         REVENUE

         Revenue from continuing  operations was $1.4 million for the year ended
December 31,  2002,  compared  with $0.5  million for the year ended 2001.  This
represents an increase in revenue equal to $0.9 million,  or 180%.  The increase
was the result of an $0.8 million  increase in grant  revenue and a $0.1 million
increase in the sales of Xtra Amp(TM).

         We  expect  that  grant  revenue  over the next 12 months  will  remain
consistent with the levels experienced for the year ended December 2002 based on
grants and contacts  that have been  awarded to the  Company.  The sales of Xtra
Amp(TM)  should  increase  over  the  levels  experienced  during  2002,  as  US
distribution will be in place for the full year.  However,  the Company has been
forced to  significantly  reduce  its  sales,  marketing,  and  product  support
expenditures due to liquidity constraints, and this reduced spending will likely
have a negative impact on the sale of Xtra Amp kits.

         COSTS AND EXPENSES

         Cost of sales, from continuing  operations,  increased by $0.8 million,
or 255%,  to $1.0  million  in 2002,  the  result  of  increased  revenue.  As a
percentage of sales,  cost of goods sold from  continuing  operations was 74% in
2002 compared  with 62% in 2001.  This increase in cost as a percentage of sales
was the result of research and development grants, a portion of which was funded
on a cost  reimbursement  basis by various government grants. We anticipate that
our costs of sales will increase as our revenue  increases,  and should decrease
slightly as a  percentage  of sales due to  increased  sales of our Xtra Amp(TM)
kits,  which carry a lower cost of goods sold than the research and  development
grants.

         Selling,  general and administrative  expenses of continuing operations
decreased  by $0.6  million,  or 21%, to $2.3 million in 2002 as compared to the
prior year. The decrease  primarily  related to the  elimination of amortization
expense on the goodwill of $1.0 million, which was partially offset by increased
expenses relating to the transfer of  administrative  functions to Colorado from
California  after the sale of the  Hemostasis  operations,  and the  accrual  of
severance obligations relating to the reduction in force that was implemented by
the Company on December 31, 2002.

         Research and development  expenses of continuing  operations  decreased
$0.5 million in fiscal 2002, or 38%, from 2001 levels.  This decrease was due to
the increase in grant revenues,  which resulted in a reclassification  of direct
research  and  development  expenses  to cost of goods  sold.  We  anticipate  a
decrease  in research  and  development  spending  in 2003 due to the  liquidity
issues facing the Company.


                                       14


<PAGE>


         INCOME TAXES

         The  difference  between  our  effective  tax rate for 2002 and the 34%
federal  statutory  tax rate was  primarily  due to the effects of state  income
taxes,  non-deductible  goodwill  amortization,  and impairment,  as well as the
provision  for a  full  valuation  allowance  on all  net  deferred  tax  assets
available to the Company.

LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 2002,  the Company's  working  capital  position was
$2.2  million,  with a current  ratio of 4.6 to 1.0.  During the 4th  quarter of
2001,  the  Company  sold  substantially  all of the  assets  of its  Hemostasis
business for $6.25 million in cash and notes,  which  resulted in a $0.8 million
gain over net asset  value.  This  inflow of cash and current  notes  receivable
added to the Company's existing liquidity position.

         The Company  used cash of $2.7 million from  continuing  operations  in
2002 compared to $2.9 million in 2001. Net cash used in operating  activities is
primarily the result of loss form continuing  operations,  net of  depreciation,
amortization  and  impairment  charges.  The net cash  provided by  discontinued
operations  in 2001 was $0.7  million,  relating  to the sale of our  Hemostasis
business.

         Capital  expenditures  were $0.3 million in 2002. The majority of these
expenditures  relate to the move of  manufacturing  of the Xtra Amp(TM)  product
from  Ventura to the  Company's  facility in  Broomfield,  Colorado  and related
improvements   to  the  facility.   We  anticipate   capital   expenditures   of
approximately $0.2 million in 2003.

         The Company has never paid  dividends  on common stock and has no plans
to do so in fiscal 2003. Our earnings will be retained for  reinvestment  in the
business.

         The  following  table  summarizes  our  contractual  obligations  as of
December 31, 2002:


         CONTRACTUAL OBLIGATIONS           Payments Due by Period (in thousands)
                                           -------------------------------------
                                              2003      2004      2005      2006
                                              ----      ----      ----      ----

Operating Leases .......................      $229      $235      $242      $ 61

Contractual Cash Obligations ...........      $ 67      $ 47      $ 14


         The Company is currently  consuming cash to fund its operations and the
research and development of its nucleic acid diagnostic technologies. Due to the
cost of defending the Trinity  litigation and the slower than anticipated growth
in Xtra  Amp(TM)  sales,  the  Company  may not have the  ability to sustain its
operations through the next 12 months. To address these capital  pressures,  the
Company has undertaken  steps to  significantly  reduce its operating costs, and
has  retained an  investment  banker to pursue  strategic  alternatives  for the
Company.   These  alternatives  could  include  a  financing,  a  co-development
arrangement,  the  license  of the  Company's  technologies,  or the sale of the
Company or its assets.  There can be no guarantee that these  activities will be
successful.

RELATED PARTY TRANSACTIONS

         Stephen  K.  Schultheis  is also the chief  executive  officer of Ansys
Technologies, Inc. and from August 2000 until June 2002 served a director of the
Company. On October 1, 2001, the Company and Ansys entered into a Settlement and
Mutual Release  Agreement.  This Agreement  terminated certain letter agreements
between  Ansys and the  Company  that  among  other  things  had  granted  Ansys
exclusive  manufacturing  rights for the  Company's  Xtra Amp(TM)  products.  In
consideration for the termination of such rights, along with the transfer of all
trade secrets and  intellectual  property  relating to the  manufacture  of Xtra
Amp(TM)  from Ansys to the  Company,  the  Company  issued to Ansys a warrant to
purchase   166,389  shares  of  the  Company's  common  stock.  The  warrant  is
immediately exercisable at a strike price of $0.01 per share.


                                       15


<PAGE>


RECENTLY ISSUED ACCOUNTING STANDARDS

         In August  2001,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 143, Accounting for Asset Retirement  Obligations (SFAS 143). This
statement establishes  standards of accounting for asset retirement  obligations
arising from the  acquisition,  construction,  or development  and/or the normal
operation  of a  long-lived  asset.  SFAS  143 is  effective  for  fiscal  years
beginning after June 15, 2002.  Management does not believe that the adoption of
SFAS 143 will have a material effect of the financial statements.

         In April 2002,  the FASB approved for issuance  Statements of Financial
Accounting  Standards No. 145,  "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds
previous  accounting  guidance,   which  required  all  gains  and  losses  from
extinguishment  of debt be classified as an  extraordinary  item. Under SFAS 145
classification of debt extinguishment  depends on the facts and circumstances of
the transaction.  SFAS 145 is effective for fiscal years beginning after May 15,
2002 and  adoption is not  expected to have a material  effect on the  Company's
financial position or results of its operations.

         In July  2002,  the FASB  issued  Statements  of  Financial  Accounting
Standards  No.  146,  "Accounting  for Costs  Associated  with Exit or  Disposal
Activities"  (SFAS  146).  SFAS  146  requires   companies  to  recognize  costs
associated  with exit or disposal  activities when they are incurred rather than
at the date of a  commitment  to an exit or  disposal  plan.  Examples  of costs
covered  by SFAS 146  include  lease  termination  costs  and  certain  employee
severance  costs  that  are  associated  with  a   restructuring,   discontinued
operation,  plant closing, or other exit or disposal activity. SFAS 146 is to be
applied  prospectively to exit or disposal  activities  initiated after December
31, 2002. The adoption of SFAS 146 is not expected to have a material  effect on
the Company's financial position or results of its operations.

         In August 2002,  the FASB issued  Statements  of  Financial  Accounting
Standards No. 147, "Acquisitions of Certain Financial  Institutions" (SFAS 147).
SFAS 147 requires financial  institutions to follow the guidance in SFAS 141 and
SFAS 142 for  business  combinations  and  goodwill and  intangible  assets,  as
opposed to the previously  applied  accounting  literature.  This statement also
amends  SFAS  144  to  include  in its  scope  long-term  customer  relationship
intangible assets of financial  institutions.  The provisions of SFAS 147 do not
apply to the Company.

         In December  2002, the FASB issued  Statements of Financial  Accounting
Standards  No.148,  "Accounting  for  Stock-Based  compensation - Transition and
Disclosure - an amendment of FASB  Statement  123" (SFAS 123). For entities that
change their accounting for stock-based  compensation  from the intrinsic method
to the fair value  method under SFAS 123, the fair value method is to be applied
prospectively  to those  awards  granted  after the  beginning  of the period of
adoption  (the  prospective   method).  The  amendment  permits  two  additional
transition  methods for  adoption of the fair value  method.  In addition to the
prospective  method,  the entity can choose to either (i)  restate  all  periods
presented  (retroactive  restatement method) or (ii) recognize compensation cost
from the  beginning  of the fiscal year of adoption as if the fair value  method
had been used to account for awards (modified  prospective  method).  For fiscal
years  beginning  December 15, 2003,  the  prospective  method will no longer be
allowed.  The Company currently accounts for its stock-based  compensation using
the intrinsic value method as proscribed by Accounting  Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and plans on continuing using
this method to account for stock options, therefore, it does not intend to adopt
the transition  requirements  as specified in SFAS 148. The adoption of SFAS 148
is not expected to have a material effect on the Company's financial position or
results of its operations.

RISK FACTORS

         You should carefully  consider the following risk factors and all other
information  contained  in this report  before  purchasing  shares of our common
stock.  Investing in our common stock  involves a high degree of risk. If any of
the  following  events or  outcomes  actually  occur,  our  business,  operating
results,  and financial  condition would likely suffer. As a result, the trading
price of our common  stock  could  decline,  and you may lose all or part of the
money you paid to purchase our common stock.


                                       16


<PAGE>


RISKS RELATED TO OUR BUSINESS

         THE TRINITY BIOTECH  LITIGATION WILL CONTINUE TO HAVE A NEGATIVE IMPACT
ON OUR BUSINESS.  On December 19, 2002,  Trinity  Biotech plc filed suit against
the Company alleging breach of contract,  breach of the implied covenant of good
faith and fair dealing, fraud, negligent  misrepresentation,  unjust enrichment,
and  violation  of the  Delaware  Consumer  Fraud  Act in  conjunction  with the
Company's sale of its Hemostasis business to Trinity.  The suit alleges that the
Company  misrepresented  the status of a single  product that was the subject of
the  Instrumentation  Laboratory patent infringement suit settled by the Company
in January 2002.  Trinity is seeking $1.2 million in damages,  and $3 million in
punitive  damages.  The Company believes that the suit brought by Trinity has no
merit, as the product in question and the patent infringement issues surrounding
it, including settlement discussions with Instrumentation Laboratory, were fully
disclosed  by the  Company  during  Trinity's  due  diligence  and in the  Asset
Purchase   Agreement.   As  a  part   of  the   settlement   negotiations   with
Instrumentation  Laboratory  the Company agreed to stop selling the product more
than 90 days prior to Trinity's  purchase of the business and settled the patent
infringement suit in early 2002.

         The Company  has filed a counter  suit  against  Trinity in response to
Trinity's  suit,  seeking  $27  million in actual  damages,  and $30  million in
punitive damages for tortious  interference with prospective economic advantage,
breach of contract,  and breach of the covenant of good faith and fair  dealing.
The Company is also seeking a  declaratory  judgment that  Trinity's  suit is an
improper  attempt to avoid its  contractual  obligations to the Company  because
Trinity merely  instituted  litigation to force the Company to  renegotiate  the
terms of the sale of its Hemostasis business. There can be no guarantee that the
Company will be successful in its suit.

         The  litigation  with  Trinity  has had,  and will  continue  to have a
material impact on the Company.  The cost of defending the litigation has forced
us to radically  reduce the investment in our  commercial  products and those in
development.  In  addition,  the  possibility  of closing any type of  strategic
transaction could be significantly impacted by the existence of the litigation.

         GOING  CONCERN AND  LIQUIDITY  PROBLEMS.  Our auditors have included an
explanatory  paragraph in their audit  opinion with respect to our  consolidated
financial  statements  as  December  31,  2002.  The  paragraph  states that our
recurring losses from operations raise  substantial  doubts about our ability to
continue  as a  going  concern.  Due  to  the  cost  of  defending  the  Trinity
litigation,  combined with slower than anticipated  growth in Xtra Amp sale, the
company  may not have the  ability to  sustain  its  operations  for the next 12
months.

         We may not have  sufficient  working capital to sustain our operations.
We have been unable to generate  sufficient  revenues to sustain our operations.
We will  have to obtain  funds to meet our cash  requirements  through  business
alliances,  such as  strategic  or financial  transactions  with third  parties,
increase  our  revenue  and/or,  the  sale  of  securities  or  other  financing
arrangements,  or we may be required to curtail our  operations or seek a merger
partner.  Any of the  foregoing  may be on terms that are  unfavorable  to us or
disadvantageous to existing stockholders. In addition, no assurance may be given
that the Company will be successful in raising additional funds or entering into
business alliances.

         OUR  ABILITY TO RAISE THE CAPITAL  NECESSARY  TO MAINTAIN OR EXPAND OUR
BUSINESS IS UNCERTAIN.  In the future,  in order to expand our business  through
internal  development  or  acquisitions,   we  may  need  to  raise  substantial
additional  funds through equity or debt  financings,  research and  development
financings, or collaborative relationships. However, this additional funding may
not be available  or, if  available,  it may not be  available  on  economically
reasonable terms. In addition,  any additional funding may result in significant
dilution to existing stockholders.  If adequate funds are not available,  we may
be required to curtail our  operations  or obtain  funds  through  collaborative
partners that may require us to release material rights to our products.

         SALE OF THE HEMOSTASIS BUSINESS  SIGNIFICANTLY REDUCED OUR REVENUE. The
Hemostasis  business was a mature  operation that generated a relatively  stable
revenue base. The sale of this business to Trinity  Biotech plc in December 2001
eliminated 94.8% of the Company's  revenue for the year ended 2001. As a result,
the Company is dependent upon its current capital resources to fund its overhead
and operations.


                                       17


<PAGE>


Should sales of the  Company's  nucleic acid  products and  government  research
grants  not  materialize,  it may  become  necessary  for the  Company  to raise
additional capital to fund its operations.

         REDUCTION  OR  DELAYS  IN  RESEARCH  AND  DEVELOPMENT  BUDGETS  AND  IN
GOVERNMENT  FUNDING  MAY  NEGATIVELY  IMPACT OUR SALES.  Our  customers  include
researchers   at   pharmaceutical   and   biotechnology   companies,    academic
institutions,  and  government  and private  laboratories.  Fluctuations  in the
research and development  budgets of these  researchers and their  organizations
could have a  significant  effect on the demand for our  products.  Research and
development  budgets  fluctuate  due to  numerous  factors  that are outside our
control and are difficult to predict,  including changes in available resources,
spending priorities and institutional  budgetary policies. Our business could be
seriously  damaged by any  significant  decrease in life  sciences  research and
development expenditures by pharmaceutical and biotechnology companies, academic
institutions, or government and private laboratories.

         A   significant   portion  of  our  sales  has  been  to   researchers,
universities,  government laboratories, and private foundations whose funding is
dependent upon grants from  government  agencies such as the U.S.  Department of
Defense  and  similar  domestic  and  international  agencies.  In  addition,  a
significant  portion of our own revenue and our  anticipated  future  revenue is
from such grants.  Although the level of research  funding has increased  during
the past  several  years,  we cannot  assure you that this trend will  continue.
Government  funding of  research  and  development  is subject to the  political
process,  which is  inherently  fluid and  unpredictable.  Our  revenues  may be
adversely  affected  if we fail to receive a material  portion of the grants for
which we have  applied,  or if our  customers  delay  purchases  as a result  of
uncertainties  surrounding the approval of government  budget  proposals.  Also,
government  proposals to reduce or eliminate  budgetary  deficits have sometimes
included  reduced  allocations to the Department of Defense and other government
agencies  that  fund  research  and  development  activities.   A  reduction  in
government  funding for the Department of Defense or other  government  research
agencies could seriously damage our business.

         Many of our customers  receive funds from approved grants at particular
times of the year, as determined by the federal government.  Grants have, in the
past, been frozen for extended periods or have otherwise  become  unavailable to
various  institutions without advance notice. The timing of the receipt of grant
funds  affects  the timing of  purchase  decisions  by our  customers  and, as a
result, can cause fluctuations in our sales and operating results.

         OUR  OPERATING  RESULTS  MAY  FLUCTUATE  SIGNIFICANTLY.  Our  operating
results have fluctuated in the past and are likely to do so in the future. These
fluctuations  could cause our stock price to decline.  Some of the factors  that
could cause our  operating  results to  fluctuate  include:  (1)  expiration  or
termination of research  contracts  with  collaborators  or government  research
grants, which may not be renewed or replaced;  (2) the timing and willingness of
collaborators  to  commercialize  our  products;  (3) the timing,  release,  and
competitiveness of our products; and (4) general and industry-specific  economic
conditions,   which  may  affect  our   customers'   research  and   development
expenditures and use of our products. If revenue declines in a quarter,  whether
due to a delay in recognizing  expected revenue or otherwise,  our earnings will
decline because many of our expenses are relatively fixed in the short-term.  In
particular, research and development and general and administrative expenses are
not affected  directly by  variations  in revenue.  Due to  fluctuations  in our
revenue and operating expenses, we believe that period-to-period  comparisons of
our results of operations are not a good  indication of our future  performance.
It is possible that in some future  quarter or quarters,  our operating  results
will be below the  expectations  of securities  analysts or  investors.  In that
case, our stock price could fluctuate significantly or decline.

         FAILURE TO MANAGE OUR GROWTH AND  EXPANSION  COULD IMPAIR OUR BUSINESS.
Since we have sold the Hemostasis  business,  our sales and  profitability  will
increase  primarily  through  the  acquisition  or internal  development  of new
product lines, additional customers,  and new businesses.  We expect that future
acquisitions, if successfully consummated, will create increased working capital
requirements,   which  will  likely  precede  by  several  months  any  material
contribution  of an  acquisition  to our net income.  Our ability to achieve our
expansion objectives and to manage our growth effectively and profitably depends
upon a variety of factors,  including: (1) our ability to internally develop new
products;  (2) our ability to make profitable  acquisitions;  (3) integration of
new facilities into existing operations;  (4) hiring, training, and retention of
qualified  personnel;  (5)  establishment  of new  relationships or expansion of
existing  relationships  with customers and suppliers;  and (6)  availability of
capital.  In  addition,  the  implementation  of a growth  strategy


                                       18


<PAGE>


could place significant strain on our administrative,  operational and financial
resources and  increased  demands on our  financial  systems and  controls.  Our
ability to manage our growth successfully will require us to continue to improve
and expand these resources, systems and controls. If our management is unable to
manage growth  effectively,  our operating results could be adversely  affected.
Moreover, there can be no assurance that we will continue to successfully expand
or that growth or expansion will result in profitability.

         FAILURE  TO ATTRACT  AND  RETAIN  QUALIFIED  SCIENTIFIC  OR  PRODUCTION
PERSONNEL OR LOSS OF KEY  MANAGEMENT OR KEY  PERSONNEL  COULD HURT OUR BUSINESS.
Our  continued  success  depends to a  significant  extent on the members of our
management team.  Recruiting and retaining  qualified  scientific and production
personnel  in  order to  perform  research  and  development  work  and  product
manufacturing are critical to our success as well. Because the industry in which
we compete is very competitive,  we face significant  challenges  attracting and
retaining members of our management team and personnel base. Although we believe
we have been and will be able to attract and retain these  members of management
and  personnel,  there can be no  assurance  that we will be able to continue to
successfully attract such qualified individuals. In addition, we do not maintain
insurance on the lives of anyone at the Company. The loss of services of any key
employee could have a material adverse effect upon our business.

         IF WE FAIL TO  INTRODUCE  NEW  PRODUCTS,  OR OUR NEW  PRODUCTS  ARE NOT
ACCEPTED  BY  POTENTIAL  CUSTOMERS,  WE MAY  NOT  CAPTURE  MARKET  SHARE.  Rapid
technological change and frequent new product  introductions are typical for our
market.  Since we have sold the  Hemostasis  business,  our future  success will
depend on continuous,  timely  development and introduction of new products that
address  evolving  market  requirements.   We  believe  successful  new  product
introductions provide a significant competitive advantage because customers make
an investment  of time in selecting and learning to use a new product,  and then
are reluctant to switch.  To the extent we fail to introduce new and  innovative
products, we may not capture enough market share to be successful. An inability,
for  technological or other reasons,  to successfully  develop and introduce new
products could limit or reduce our growth rate and damage our business.

         In the past we have  experienced,  and are likely to  experience in the
future, delays in the development and introduction of products. We cannot assure
you that we will  keep pace  with the  rapid  rate of  change  in life  sciences
research,  or that our new products will adequately meet the requirements of the
marketplace or achieve market  acceptance.  Some of the factors affecting market
acceptance  of new  products  include:  (1)  availability,  quality,  and  price
relative to competitive products;  (2) the timing of introduction of the product
relative to  competitive  products;  (3)  scientists'  opinion of the  product's
usefulness;  (4) citation of the product in published research;  and (5) general
trends  in life  sciences  research.  The  expenses  or losses  associated  with
unsuccessful product development  activities or lack of market acceptance of our
new products could materially adversely affect our business,  operating results,
and financial condition.

         INTELLECTUAL  PROPERTY  OR OTHER  LITIGATION  COULD HARM OUR  BUSINESS.
Litigation regarding patents and other intellectual property rights is extensive
in the biotechnology  industry.  We are aware that patents have been applied for
and, in some cases,  issued to others,  claiming  technologies  that are closely
related to ours. In the event of an  intellectual  property  dispute,  we may be
forced to litigate.  This litigation could involve  proceedings  declared by the
U.S. Patent and Trademark Office or the International Trade Commission,  as well
as proceedings brought directly by affected third parties. Intellectual property
litigation  can be  extremely  expensive,  and  these  expenses,  as well as the
consequences should we not prevail, could seriously harm our business.

         If a third party claimed an  intellectual  property right to technology
we use, we might need to discontinue an important product or product line, alter
our products and  processes,  pay license fees,  or cease our affected  business
activities.  Although  we might under  these  circumstances  attempt to obtain a
license to this intellectual  property, we may not be able to do so on favorable
terms, or at all.

         In addition to intellectual  property  litigation,  other  substantial,
complex,  or extended  litigation  could result in large  expenditures by us and
distraction of our management. For example, lawsuits by employees, stockholders,
collaborators,  or distributors  could be very costly and substantially  disrupt
our business.  Disputes from time to time with companies or individuals  are not
uncommon in our  industry,  and we cannot assure you that we will always be able
to resolve them out of court.


                                       19


<PAGE>


         We regard our  trademarks,  trade  secrets,  and  similar  intellectual
property as important to our success.  We rely on trademark law and trade secret
protection  and  confidentiality   and/or  license  agreements  with  employees,
customers,  partners,  and others to protect  our  proprietary  rights.  We have
pursued the  registration  of our  trademarks  in the U.S. and  internationally.
Effective  trademark and trade secret  protection  may not be available in every
country in which our products are  available.  We cannot be certain that we have
taken adequate steps to protect our proprietary rights,  especially in countries
where the laws may not protect our rights as fully as in the United  States.  In
addition,  third parties may infringe or misappropriate our proprietary  rights,
and we could be required to incur significant expenses in preserving them.

         Our success  will depend in part on our ability to obtain and  maintain
meaningful patent protection for our products,  both in the United States and in
other countries. We rely on patents to protect some of our intellectual property
and  our  competitive  position.  We  own  issued  patents  and  pending  patent
applications,   including   both   domestic  and  foreign   patents  and  patent
applications.  We cannot assure you that any of the presently  pending or future
patent applications will issue as patents, or that any patents issued to us will
not be challenged, invalidated, held unenforceable, or circumvented. Further, we
cannot  assure you that claims in patents that have been issued,  or that may be
issued to us in the future,  will be sufficiently broad to prevent third parties
from  producing  competing  products  similar  in  design  to our  products.  In
addition, laws of foreign countries may not protect our intellectual property to
the same extent as would laws in the United States.  Failure to obtain  adequate
patent  protection for our proprietary  technology could have a material adverse
effect on our  business,  operating  results,  financial  condition,  and future
growth prospects.

         POTENTIAL  PRODUCT  LIABILITY  CLAIMS  COULD  AFFECT OUR  EARNINGS  AND
FINANCIAL  CONDITION.  Despite  product testing prior to sale, our products have
from time to time experienced  performance problems discovered after we sold the
products. If a customer experiences performance problems,  errors in shipment or
product defects, it could result in:

         o        injuries to persons;
         o        loss of sales;
         o        delays in or elimination of market acceptance;
         o        damage to our brand or reputation; and
         o        product returns.

         Although our distributors and manufacturers have return policies, if we
accept a product  returned by a customer,  but it is not  accepted for return by
the distributor,  we will incur the cost. Because we depend on third parties for
certain of the  components of our products,  if those  components are defective,
the performance of our products would be reduced or undermined.  Any increase in
the rate of returns would affect our financial condition,  operating results and
cash flows.

         ACCIDENTS  RELATED TO HAZARDOUS  MATERIALS COULD  ADVERSELY  AFFECT OUR
BUSINESS. Portions of our operations require the controlled use of hazardous and
radioactive materials. Although we believe our safety procedures comply with the
standards prescribed by federal, state, local, and foreign regulations, the risk
of  accidental  contamination  of property or injury to  individuals  from these
materials cannot be completely eliminated. In the event of an accident, we could
be liable for any damages that result, which could seriously damage our business
and results of operations.

RISKS ASSOCIATED WITH OUR INDUSTRY

         WE ARE  ENGAGED  IN A  COMPETITIVE  INDUSTRY,  AND WE MAY BE  UNABLE TO
CONTINUE TO COMPETE  EFFECTIVELY IN THIS INDUSTRY IN THE FUTURE.  We are engaged
in a  segment  of the  human  health  care  products  industry  that  is  highly
competitive.  Many of our competitors,  both in the United States and elsewhere,
are major pharmaceutical,  chemical,  and biotechnology  companies,  and many of
them  have  substantially  greater  capital  resources,   marketing  experience,
research  and  development  staffs,  and  facilities  than we do.  Any of  these
companies could succeed in developing  products that are more effective than the
products that we have or may develop and may also be more  successful than us in
producing and marketing their products.  Not only do we face intense competition
in the marketplace against our competitors,  but we also must compete with these
same  companies for the services of  personnel.  We expect this  competition  to
continue and intensify in the future.


                                       20


<PAGE>


         Our industry has also seen  substantial  consolidation in recent years,
which  has  led to the  creation  of  competitors  with  greater  financial  and
intellectual  property  resources  than us. In  addition,  we  believe  that the
success that others have had in our industry will attract new competitors.  Some
of our current  and future  competitors  also may  cooperate  to better  compete
against us. We may not be able to compete  effectively  against these current or
future competitors.  Increased  competition could result in price reductions for
our products,  reduced  margins,  and loss of market  share,  any of which could
adversely impact our business, financial condition, and results of operations.

         WE ARE  SUBJECT TO  EXTENSIVE  GOVERNMENT  REGULATION.  We operate in a
highly  regulated  industry.  Our  business is  currently  subject to  extensive
regulation, supervision, and licensing by federal, state, and local governmental
authorities.  Also,  from time to time we must expend  resources  to comply with
newly adopted  regulations,  as well as changes in existing  regulations.  If we
fail to comply  with these  regulations,  we could be  subject  to  disciplinary
actions or  administrative  enforcement  actions.  These actions could result in
penalties, including fines.

RISKS ASSOCIATED WITH OUR COMMON STOCK

         OUR PRINCIPAL  STOCKHOLDERS AND MANAGEMENT OWN A SIGNIFICANT PERCENTAGE
OF OUR CAPITAL STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR
AFFAIRS.  Our executive  officers,  directors,  and principal  stockholders will
continue to beneficially own 43% of our outstanding common stock, based upon the
beneficial ownership of our common stock as of March 1, 2003. In addition, these
same persons also hold options to acquire additional shares of our common stock,
which may increase their percentage ownership of the common stock further in the
future.  Accordingly,  these  stockholders:  (1)  will be able to  significantly
influence  the  composition  of our board of directors;  (2) will  significantly
influence  all  matters  requiring  stockholder  approval,  including  change of
control  transactions;  and (3) will continue to have significant influence over
our affairs.  This concentration of ownership of our common stock could have the
effect  of  delaying  or  preventing  a change  of  control  of us or  otherwise
discouraging a potential acquirer from attempting to obtain control of us. This,
in turn,  could have a negative  effect on the market price of our common stock.
It could also prevent our stockholders  from realizing a premium over the market
prices for their shares of common stock.

         OUR STOCK PRICE HAS BEEN  VOLATILE.  Our common  stock is quoted on the
OTC Bulletin  Board(R),  and there can be  substantial  volatility in the market
price of our common stock.  The trading price of our common stock has been,  and
is likely to  continue  to be,  subject  to  significant  fluctuations  due to a
variety  of  factors,  including:  (1)  variations  in our  quarterly  operating
results;  (2) the  gain  or  loss  of  significant  contracts;  (3)  changes  in
management; (4) announcements of technological innovations or new products by us
or our competitors; (5) legislative or regulatory changes; (6) general trends in
the  industry;   (7)  recommendations  by  securities  industry  analysts;   (8)
biological or medical  discoveries;  (9)  developments  concerning  intellectual
property,  including patents and litigation  matters;  (10) public concern as to
the safety of new  technologies;  (11)  developments in our  relationships  with
current or future customers and suppliers; and (12) general economic conditions,
both in the United States and abroad.

         In addition,  the stock market in general has experienced extreme price
and volume fluctuations that have affected the market price of our common stock,
as well as the stock of many biotechnology companies.  Often, price fluctuations
are unrelated to operating  performance of the specific companies whose stock is
affected.  In the past, following periods of volatility in the market price of a
company's  stock,  securities  class action  litigation has occurred against the
issuing company. If we were subject to this type of litigation in the future, we
could incur substantial costs and a diversion of our management's  attention and
resources, each of which could have a material adverse effect on our revenue and
earnings.  Any  adverse  determination  in this type of  litigation  could  also
subject us to significant liabilities.

         ANTI-TAKEOVER   PROVISIONS  IN  OUR   GOVERNING   DOCUMENTS  AND  UNDER
APPLICABLE  LAW  COULD  IMPAIR  THE  ABILITY  OF A THIRD  PARTY TO TAKE OVER OUR
COMPANY.  We are subject to various legal and  contractual  provisions  that may
impede a change in our control, including our adoption of a stockholders' rights
plan,  which  could  result in the  significant  dilution  of the  proportionate
ownership of any person that engages in an unsolicited  attempt to take over our
company.  These  provisions,  as well as other  provisions in our certificate of
incorporation  and bylaws and under the Delaware General  Corporations  Law, may
make it more  difficult


                                       21


<PAGE>


for a third party to acquire our company, even if the acquisition attempt was at
a premium over the market value of our common stock at that time.

         ABSENCE OF  DIVIDENDS  COULD  REDUCE OUR  ATTRACTIVENESS  TO YOU.  Some
investors favor companies that pay dividends,  particularly in general downturns
in the stock  market.  We have not  declared or paid any cash  dividends  on our
common  stock.  We  currently  intend to retain any future  earnings for funding
growth,  and we do not currently  anticipate paying cash dividends on our common
stock in the foreseeable future.  Because we may not pay dividends,  your return
on this investment likely depends on your selling our stock at a profit.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The  financial  statements  and  supplementary  data have been included
under Item 13.

ITEM 8. CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING   AND
FINANCIAL DISCLOSURE

         On  January  8,  2003 the  Company  dismissed  Ernst & Young LLP as the
Company's  principal   accountant.   The  decision  to  change  accountants  was
recommended by the Audit Committee of the Board of Directors.

         The Report of the Ernst & Young LLP on the financial  statements of the
company for the year ended December 31, 2001 did not contain an adverse  opinion
or  disclaimer  of opinion nor was it qualified  or modified as to  uncertainty,
audit scope or  accounting  principals.  The company does not believe that there
were any  disagreements  with  Ernst & Young  LLP on any  matter  of  accounting
principals or practices,  financial statement  disclosure,  or auditing scope or
procedure,  during the year ended  December  31, 2001 and during the  subsequent
interim period through  January 8, 2003 which,  if not resolved to Ernst & Young
LLP's satisfaction, would have caused Ernst & Young LLP to make reference to the
subject matter of the disagreement(s) in connection with its Reports.

         The  Company  engaged  Hein  +  Associates  LLP as  its  new  principal
independent accountant as of January 8, 2003.


                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS

         Incorporated by reference to the Company's  definitive  Proxy Statement
to be filed with the Securities  and Exchange  Commission on or before April 30,
2003.

ITEM 10. EXECUTIVE COMPENSATION

         Incorporated by reference to the Company's  definitive  Proxy Statement
to be filed with the Securities  and Exchange  Commission on or before April 30,
2003.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Incorporated by reference to the Company's  definitive  Proxy Statement
to be filed with the Securities  and Exchange  Commission on or before April 30,
2003.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Incorporated by reference to the Company's  definitive  Proxy Statement
to be filed with the Securities  and Exchange  Commission on or before April 30,
2003.


                                       22


<PAGE>


ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a) (1) and (2) The  following  consolidated  financial  statements  of
Xtrana, Inc., and subsidiaries are hereby included by reference to Item 7:

                                                                        Page No.
                                                                        --------

         Reports of independent auditors..............................    28

         Consolidated balance sheet as of December 31, 2002...........    30

         Consolidated statements of operations for the years ended
         December 31, 2002 and 2001...................................    32

         Consolidated statements of stockholders' equity for the
         years ended December 31, 2002 and 2001.......................    33

         Consolidated statements of cash flows for the years ended
         December 31, 2002 and 2001...................................    34

         Notes to consolidated financial statements...................    35

         Financial statement schedules
                  Schedules have been omitted since they are either not required
         or are not applicable.

         (3)  Listing of Exhibits

         Exhibit
           No.
         -------
            3.1  Certificate of Incorporation (1)
            3.2  By Laws (1)
            4.1  Shareholder Rights Plan (3)
           10.1  Executive Employment Agreement of Michael D. Bick, Ph.D. (4)
           10.2  1987 Stock Option Plan (1)
           10.2  1993 Stock Incentive Plan (2)
           10.3  2000 Stock Incentive Plan (5)
           10.4  Lease Agreement - Broomfield, Colorado (6)
           10.5  Asset  Purchase  Agreement  dated  November  9,  2001,
                 between  the  Registrant  and  Trinity  Biotech plc (7)
           24.1  Power of Attorney (included on signature page)
           99.1  Certificate of Chief  Executive  Officer and Chief Financial
                 Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
                 2002.
         -----------------------------------------------------------------------

         (1)      Incorporated  by  reference to the  Registrant's  Registration
                  Statement on Form S-1 (File No. 33-20584).
         (2)      Incorporated by reference to the Registrant's Annual Report on
                  Form 10-K for the fiscal year ended December 31, 1994.
         (3)      Incorporated by reference to Registrant's  Form 8-A filed June
                  26, 1998.
         (4)      Incorporated by reference to the Registrant's Annual Report on
                  Form 10-KSB for the fiscal year ended December 31, 1999.
         (5)      Incorporated  by reference to  Registrant's  Definitive  Proxy
                  Statement filed on June 23, 2000.
         (6)      Incorporated  by  reference  to  Registrant's  Form 8-K  filed
                  January 25, 2001.
         (7)      Incorporated by reference to the Registrant's Definitive Proxy
                  Statement filed on November 20, 2001.

        (b) Reports on Form 8-K filed during the fourth quarter of 2002:  None


                                       23


<PAGE>


ITEM 14. CONTROLS AND PROCEDURES

         (a)      Evaluation of disclosure controls and procedures

                  Based on an evaluation carried out under the supervision,  and
         with the  participation  of  Xtrana  management,  including  the  Chief
         Executive  Officer and the Chief  Financial  Officer  during the 90 day
         period  prior  to the  filing  of  this  report,  the  Company's  Chief
         Executive   Officer  and  Chief  Financial   Officer  believe  Xtrana's
         disclosure  controls and procedures,  as defined in Securities Exchange
         Act  Rules  13a-14  and  15d-14,  are to the best of  their  knowledge,
         effective.

         (b)      Changes in internal controls.

                  Subsequent to the date of this evaluation, the Chief Executive
         Office and Chief  Financial  Officer  are not aware of any  significant
         changes in the Company's  internal  controls,  including any corrective
         actions   with  regard  to   significant   deficiencies   and  material
         weaknesses,  or in other factors that could significantly  affect these
         controls to ensure that information  required to be disclosed by Xtrana
         in reports that it files or submits under the  Securities  Act of 1934,
         is recorded, processed, summarized and reported within the time periods
         specified in Securities and Exchange Commission rules and regulations.


                                       24


<PAGE>


                                   SIGNATURES


         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                    Xtrana, Inc.


Date:    March 28, 2003             BY:  /s/ Timothy J. Dahltorp
                                         ----------------------------
                                         Timothy J. Dahltorp
                                         Chief Executive Officer & Chief
                                         Financial Officer

         Each person whose  signature  appears  below  constitutes  and appoints
Timothy J. Dahltorp as his true and lawful  attorney-in-fact and agent with full
power of  substitution  and  re-substitution,  for him and his  name,  place and
stead,  in any and all  capacities  to sign  this  Form  10-KSB  and to file any
amendments  hereto under the Securities and Exchange Act of 1934 and to file the
same, with all exhibits  thereto,  and other documents in connection  therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent  full power and  authority  to do and  perform  each and every act and
thing requisite and necessary to be done in and about the foregoing, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said  attorney-in-fact  and agent or their substitutes,  may
lawfully do or cause to be done by virtue hereof.

         In accordance with Section 13 or 15(d) of the Exchange Act, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


/s/ Michael D. Bick           Chairman of the Board               March 28, 2003
------------------------
Michael D. Bick, Ph.D.


/s/ Timothy J. Dahltorp       Chief Executive Officer, Chief      March 28, 2003
------------------------      Financial Officer and Director
Timothy J. Dahltorp


/s/ John C. Gerdes            Chief Scientific Officer            March 28, 2003
------------------------
John C. Gerdes, Ph.D.         and Director


/s/ Douglas L. Ayer           Director                            March 28, 2003
------------------------
Douglas L. Ayer


/s/ N. Price Paschall         Director                            March 28, 2003
------------------------
N. Price Paschall


/s/ James H. Chamberlain      Director                            March 28, 2003
------------------------
James H. Chamberlain


/s/ James Mahony              Director                            March 28, 2003
------------------------
James Mahony, Ph.D.


                                       25


<PAGE>


                    CERTIFICATION OF CEO AND CFO PURSUANT TO
                 SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy Dahltorp, certify that:

         1. I have reviewed this annual report on Form 10-KSB of Xtrana, Inc.;

         2. Based on my  knowledge,  this  annual  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
annual report;

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

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure  controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
controls and  procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

                  c) presented in this annual report our  conclusions  about the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

                  a) all significant  deficiencies in the design or operation of
internal  controls  which could  adversely  affect the  registrant's  ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  b)  any  fraud,   whether  or  not  material,   that  involves
management or other  employees who have a significant  role in the  registrant's
internal controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this annual  report  whether or not there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    March 28, 2003

                                                     /s/ Timothy Dahltorp
                                                     ---------------------------
                                                     Timothy Dahltorp
                                                     Chief Executive Officer and
                                                     Chief Financial Officer


                                       26


<PAGE>





                          ANNUAL REPORT ON FORM 10-KSB

                              ITEM 13(A)(1) AND (2)

              LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
                                    SCHEDULES

                          YEAR ENDED DECEMBER 31, 2002

                                  XTRANA, INC.

                              BROOMFIELD, COLORADO




                                       27


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


Board of Directors and Stockholders
Xtrana, Inc.
Broomfield, CO


We have audited the  accompanying  balance sheet of Xtrana,  Inc. as of December
31, 2002, and the related  statements of operations,  stockholders'  equity, and
cash flows for the year ended December 31, 2002. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Xtrana, Inc. as of December 31,
2002 and the  results  of its  operations  and its cash flows for the year ended
December 31, 2002, in conformity with accounting  principles  generally accepted
in the United States of America.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue  as a going  concern.  As  discussed  in Note 2 to the  financial
statements,  the Company has suffered significant losses from operations for the
years ended  December  31, 2002 and 2001.  Management's  plans to address  these
matters  are  also  included  in  Note  2 to  the  financial  statements.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going  concern.  The financial  statements do not include any  adjustments  that
might result from the outcome of this uncertainty.



/s/ Hein + Associates LLP
-------------------------
HEIN + ASSOCIATES LLP

Denver, Colorado
March 5, 2003


                                       28


<PAGE>


                         REPORT OF INDEPENDENT AUDITORS


Board of Directors and Stockholders
Xtrana, Inc.


         We have audited the consolidated  balance sheet of Xtrana,  Inc., as of
December 31, 2001 (not included herein), and the related consolidated  statement
of  operations,  stockholders'  equity and cash  flows for the year then  ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

         We conducted our audit in accordance with auditing standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects, the consolidated financial position of Xtrana,
Inc., at December 31, 2001, and the  consolidated  results of its operations and
its cash flows for the year then ended in conformity with accounting  principles
generally accepted in the United States.




/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP

Denver, Colorado
March 13, 2002


                                       29


<PAGE>


                                  XTRANA, INC.

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 2002
                                 (in thousands)


ASSETS

CURRENT ASSETS
     Cash and cash equivalents .................................        $   568
     Accounts receivable, net of allowance for
        doubtful accounts of $5 ................................             71
     Note receivable ...........................................          2,053
     Inventories ...............................................             35
     Prepaid expenses and other current assets .................            101
--------------------------------------------------------------------------------

TOTAL CURRENT ASSETS ...........................................          2,828

RESTRICTED CASH ................................................            110

PROPERTY AND EQUIPMENT
     Leasehold improvements ....................................            723
     Processing and lab equipment ..............................            122
     Furniture and fixtures ....................................            259
--------------------------------------------------------------------------------

TOTAL PROPERTY AND EQUIPMENT ...................................          1,104
     Less accumulated depreciation .............................           (319)
--------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT, NET ....................................            785

NOTES RECEIVABLE ...............................................            570
PATENTS, NET OF AMORTIZATION OF $15 ............................            218
--------------------------------------------------------------------------------

TOTAL ASSETS ...................................................        $ 4,511
================================================================================


See accompanying notes to consolidated financial statements.


                                       30


<PAGE>


                                  XTRANA, INC.

                           CONSOLIDATED BALANCE SHEETS

                                DECEMBER 31, 2002
                        (in thousands except share data)
                                   (continued)


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable ..........................................            375
     Accrued payroll and payroll taxes .........................            134
     Other accrued liabilities .................................            121
--------------------------------------------------------------------------------

TOTAL CURRENT LIABILITIES ......................................            630

     Other long-term liabilities ...............................             40
--------------------------------------------------------------------------------

TOTAL LIABILITIES ..............................................            670

COMMITMENTS AND CONTINGENCIES (notes 2 and 6)

STOCKHOLDERS' EQUITY:
     Common stock, $.01 par value, 50,000,000 shares
        authorized; 16,533,269 shares issued and
        outstanding ............................................            165
     Additional paid-in capital ................................         19,438
     Accumulated deficit .......................................        (15,762)
--------------------------------------------------------------------------------

TOTAL STOCKHOLDERS' EQUITY .....................................          3,841
--------------------------------------------------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....................       $  4,511
================================================================================

See accompanying notes to consolidated financial statements.


                                       31


<PAGE>


                                  XTRANA, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       YEAR ENDED DECEMBER 31,
                                                      2002                 2001
--------------------------------------------------------------------------------
                                            (in thousands except per share data)

Grant revenue ...............................     $  1,268             $    459
Nucleic acid (DNA/RNA) testing kits .........          141                   20
--------------------------------------------------------------------------------
Total revenue ...............................        1,409                  479


Grant revenue ...............................          945                  284
Nucleic acid (DNA/RNA) testing kits .........          102                   11
--------------------------------------------------------------------------------
Total cost of sales .........................        1,047                  295


GROSS PROFIT ................................          362                  184
Operating expenses:
     Selling, general and administrative ....        2,361                1,983
     Research and development ...............          850                1,372
     Goodwill amortization and impairment
        charge ..............................        8,516                  989
--------------------------------------------------------------------------------

TOTAL OPERATING EXPENSES ....................       11,727                4,344
--------------------------------------------------------------------------------

Other income, net ...........................          165                   69
--------------------------------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS BEFORE TAXES       (11,200)              (4,091)
Income tax expense ..........................         --                   --
--------------------------------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS .............      (11,200)              (4,091)

DISCONTINUED OPERATIONS:
     Income (loss) from discontinued
        operations - net of income tax effect          (50)                 391
     Gain on disposal - net of income tax ...         --                    844
--------------------------------------------------------------------------------

NET LOSS ....................................     $(11,250)            $ (2,856)
================================================================================


WEIGHTED AVERAGE SHARES OUTSTANDING
     Basic ..................................       17,322               17,219
     Effect of dilutive shares ..............         --                   --
                                                  --------             --------

     Diluted ................................       17,322               17,219


BASIC AND DILUTED EARNINGS PER SHARE
     Continuing operations ..................      $ (0.65)               (0.24)
     Discontinued operations ................         0.00                 0.02
     Gain on disposal .......................         --                   0.05
                                                  --------             --------

     Net loss ...............................     $  (0.65)            $  (0.17)
                                                  ========             ========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       32


<PAGE>


                                  XTRANA, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (in thousands except share data)

<TABLE>
<CAPTION>
                                                                            ADDITIONAL                      ACCUMULATED
                                                         COMMON STOCK         PAID-IN       ACCUMULATED     OTHER COMPRE-
                                                     SHARES      AMOUNT       CAPITAL         DEFICIT       HENSIVE LOSS    TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>       <C>              <C>            <C>            <C>
BALANCE AT DECEMBER 31, 2000                      17,163,012      $ 171     $   19,280       $(1,656)       $  (535)       $ 17,260

    Net loss                                                                                  (2,856)                        (2,856)
    Foreign currency translation                          --         --             --                         (212)           (212)
    Net foreign currency translation gains,
       included in gain on disposal of
       discontinued operations                            --         --             --            --            747             747
                                                                                                                           --------
    Comprehensive loss                                    --         --             --            --             --          (2,321)
    Warrants issued in connection with the
       manufacturing agreement                            --         --            127            --             --             127

    Options issued to non-employees                       --         --              2            --             --               2

    Shares issued for exercise of warrants           163,851          2             (2)           --             --              --

    Shares canceled related to acquisition            (3,365)        --             --            --             --              --
                                                  ----------      ------    ----------     ---------        -------        --------

BALANCE AT DECEMBER 31, 2001                      17,323,498      $ 173     $   19,407     $  (4,512)       $     0        $ 15,068

    Net loss                                              --         --             --       (11,250)            --         (11,250)
    Shares issued for exercise of warrants           146,717          1             (1)                          --              --

    Options issued to non-employees                       --         --             23            --             --              23

    Shares canceled related to acquisition          (936,946)        (9)             9            --             --              --
                                                  ----------      -----     ----------     ---------        -------        --------

BALANCE AT DECEMBER 31, 2002                      16,533,269      $ 165     $   19,438     $ (15,762)       $     0        $  3,841
</TABLE>


See accompanying notes to consolidated financial statements.


                                       33


<PAGE>


                                  XTRANA, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         YEAR ENDED DECEMBER 31,
                                                            2002          2001
--------------------------------------------------------------------------------
                                                              (in thousands)

OPERATING ACTIVITIES
     Loss from continuing operations ...............     $(11,200)     $ (4,091)
     Adjustments to reconcile loss from
     continuing operations to net cash
     provided by continuing operating
     activities:
        Warrants issued in connection with
           manufacturing agreements ................         --             127
        Options issued to non-employees ............           23             2
        Depreciation ...............................          236            92
        Amortization ...............................         --           1,000
        Goodwill impairment charge .................        8,516          --
     Changes in operating assets and
     liabilities:
        Accounts receivable ........................          (25)           (9)
        Inventories ................................           31           (66)
        Prepaid expenses and other current
           assets ..................................          (77)           69
        Accounts payable and accrued expenses ......         (176)           24
--------------------------------------------------------------------------------

     Net cash used in continuing operating
        activities .................................       (2,672)       (2,852)

     Net cash provided by (used in)
        discontinued operating activities ..........          (50)          729
--------------------------------------------------------------------------------

NET CASH USED IN OPERATING ACTIVITIES ..............       (2,722)       (2,123)

INVESTING ACTIVITIES
     Additions to property and equipment ...........         (241)         (848)
     Additions to deferred patent cost .............          (85)         (139)
--------------------------------------------------------------------------------

NET CASH USED IN CONTINUING INVESTING
   ACTIVITIES ......................................         (326)         (987)

NET CASH PROVIDED BY DISCONTINUED
   INVESTING ACTIVITIES ............................         --           3,037
--------------------------------------------------------------------------------

NET CASH PROVIDED BY (USED IN) INVESTING
   ACTIVITIES ......................................         (326)        2,050

NET CASH PROVIDED BY CONTINUING
   FINANCING ACTIVITIES ............................         --            --

Effect of exchange rates - discontinued
   operations ......................................         --            (212)
--------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS ................................       (3,048)         (285)

CASH AND CASH EQUIVALENTS, BEGINNING
   OF YEAR .........................................        3,726         4,011
--------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, END OF YEAR .............     $    678      $  3,726
================================================================================

See accompanying notes to consolidated financial statements.


                                       34


<PAGE>


                                  XTRANA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

         Xtrana,  Inc.  ("Xtrana" or the  "Company"),  formerly known as Biopool
International,  Inc.,  was  incorporated  in 1987 in the state of Delaware.  The
Company develops and markets 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.

BASIS OF PRESENTATION

         Our financial  statements have been prepared  assuming the Company will
continue as a going concern. For the year ended December 31, 2002, we incurred a
loss from continuing  operations of approximately $2.7 million before a goodwill
impairment  charge of $8.5  million,  and  sustained  negative  cash  flows from
operations of approximately  $2.7 million.  This is the result of continuing our
development  of our nucleic acid testing  business.  As described  more fully in
Notes 2 and 3 to the financial statements, during the latter part of 2001 and in
2002,  the Company  transitioned  its core line of business  from  Hemostasis to
nucleic acid testing.  In  connection  with this  transition,  revenues from our
continuing operations have been substantially  reduced. The Company is currently
consuming cash to fund its  operations  and the research and  development of its
nucleic acid diagnostic  technologies.  Due to the cost of defending the Trinity
litigation,  combined  with the slower than  anticipated  growth in Xtra Amp(TM)
sales,  the Company may not have the ability to sustain its  operations  through
the next 12  months.  To  address  these  capital  pressures,  the  Company  has
undertaken steps to  significantly  reduce its operating costs, and has retained
an investment  banker to pursue strategic  alternatives  for the Company.  These
alternatives  could  include a  financing,  a  co-development  arrangement,  the
license of the Company's technologies, or the sale of the Company or its assets.
There can be no guarantee that these activities will be successful.

PRINCIPLES OF CONSOLIDATION

         The  consolidated  financial  statements  of the  Company  include  the
accounts of Xtrana,  Inc.,  and its wholly  owned  subsidiary.  All  significant
intercompany  balances and transactions  were eliminated in the consolidation of
the discontinued operations.

DISCONTINUED OPERATIONS

         The financial  information  presented in the notes to the  consolidated
financial statements excludes discontinued operations, except where noted.

REVENUES

         Product  revenues are recorded on the day products are shipped from the
Company's facilities.  Grant revenues are recorded when earned,  pursuant to the
respective grant agreements. Shipping costs are included in the cost of sales.

         Grant  revenues and profit on long-term  contracts  are recorded as the
contract  progresses  using the  percentage of completion  method of accounting,
which  relies on  estimates  of total  expected  contract  revenues  and  costs.
Revisions  in profit  estimates  are  reflected in the period in which the facts
that give rise to the revision become known.  Accordingly,  favorable changes in
estimates result in additional profit  recognition,  and unfavorable  changes in
estimates result in the reversal of previously  recognized  revenue and profits.
When estimates indicate a loss under a contract, cost of revenue is charged with
a provision for such loss.


                                       35


<PAGE>


As work progresses  under a loss contract,  revenue  continues to be recognized,
and a portion of the  contract  costs  incurred in each period is charged to the
contract loss reserve.

USE OF ESTIMATES

         The  preparation of financial  statements in conformity with accounting
principles  generally accepted in the United States requires  management to make
estimates and assumptions that affect the reported  amounts and  classifications
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.  Significant  estimates include the collectibility and classification
of the Company's  receivable  from Trinity  Biotech PLC (see notes 3 & 6) due to
the current  litigation with Trinity Biotech PLC. The receivable  collectibility
and classification could materially change in the near term.

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents  represent highly liquid  investments,  which
mature within three months of date of purchase.

INVENTORIES

         Inventories  are stated at the lower of cost  (first-in,  first-out) or
market.

PROPERTY AND EQUIPMENT

         Property and  equipment are stated at cost.  Depreciation  is generally
calculated on a  straight-line  basis over their estimated  useful lives,  which
range from 3 to 10 years.  Leasehold improvements are generally depreciated over
their  estimated  useful  lives or over the  period of the lease,  whichever  is
shorter.

GOODWILL

         During fiscal 2001,  the Company  amortized  goodwill  using a ten-year
life.  Beginning  January 1, 2002,  the Company  adopted  Statement of Financial
Accounting  Standards No. 142 (SFAS 142) "Goodwill and Other Intangible Assets,"
and as a result  ceased  amortizing  goodwill.  The Company  tests  goodwill for
impairment  annually or on an interim basis if an event or  circumstance  occurs
between the annual tests that may indicate  impairment of goodwill.  As a result
of the  Company's  impairment  test in the fourth  quarter of fiscal  2002,  the
Company wrote off its remaining goodwill of approximately  $8.5. Had the Company
not recorded  amortization  expense  during the year ended December 31, 2001 its
pro forma net loss and pro forma net loss per share would have been $(1,867) and
$(0.11) respectively.

DEFERRED PATENT COSTS

         The  Company  capitalizes  legal  costs  directly  incurred in pursuing
patent  applications as deferred patent costs. When such applications  result in
an issued patent,  the related costs are amortized over the remaining legal life
of the patents,  generally 15 years, using the straight-line method. The Company
reviews its issued patents and pending patent applications, and if it determines
to abandon a patent  application or that an issued patent no longer has economic
value, the unamortized  balance in deferred patent costs relating to that patent
is immediately expensed.

         It is  possible  the above  estimates  of future  economic  life of the
Company's   commercialization   revenues,   the  amount  of  anticipated  future
commercialization  revenues,  or both, will be reduced significantly in the near
term  due to  alternative  technologies  developed  by  other  biotechnology  or
pharmaceutical  companies.  As a result,  the carrying amount of deferred patent
costs may be reduced in the future.


                                       36


<PAGE>


LONG-LIVED ASSETS

         The Company  recognizes  impairment losses on long-lived assets used in
operations when indicators of impairment are present and the  undiscounted  cash
flows  estimated  to be  generated  by those  assets  are less than the  assets'
carrying  amount.  In such  circumstances,  those  assets  are  written  down to
estimated fair value. Long-lived assets consist primarily of computer equipment,
office furniture, equipment, and goodwill.

RESEARCH AND DEVELOPMENT COSTS

         Research and  development  costs are expensed when incurred and include
both internal research and development costs and payments to third parties.

INCOME TAXES

         The Company  accounts for income taxes in accordance with the Statement
of Financial  Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the  recognition  of deferred tax  liabilities  and assets at currently
enacted tax rates for the expected  future tax  consequences of events that have
been included in the financial  statements or tax returns. A valuation allowance
is  recognized  to reduce the net  deferred  tax asset to an amount that is more
likely than not to be  realized.  The tax  provision  shown on the  accompanying
statement of operations is zero since the deferred tax asset  generated from the
net operating loss is offset in its entirety by a valuation allowance.

FOREIGN CURRENCY TRANSLATION

         The financial  statements of Biopool Sweden are prepared in Swedish SEK
and translated into U.S.  dollars based on the current  exchange rate at the end
of the period for the balance  sheet and a weighted  average rate for the period
of the statement of operations. Translation adjustments are reflected as foreign
currency  translation  adjustments within  comprehensive income in stockholders'
equity. In 2001, as the result of the decision to sell our Hemostasis  business,
which included  Biopool  Sweden,  the Company  included the $747,000  cumulative
foreign  currency  translation  adjustment  in  the  gain  on  the  sale  of the
discontinued operations.

         Exchange  adjustments  resulting  from  transactions  denominated  in a
foreign currency are recognized in net earnings.

CONCENTRATION OF CREDIT RISK

         Financial  instruments,   which  potentially  subject  the  Company  to
concentrations of credit risk, consist principally of temporary cash investments
and trade  receivables.  At December 31, 2002,  substantially  all cash and cash
equivalents were on deposit with two financial  institutions.  Concentrations of
credit risk with respect to trade receivables are limited due to the majority of
the  outstanding   accounts  receivable  being  from  Government   institutions.
Generally,  the Company does not require collateral or other security to support
customer receivables.

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 common shares are outstanding options under the Company's
stock  option  plans and  outstanding  warrants,  which are  included  under the
treasury stock method.

         Options and warrants to purchase  1,941,757 and  1,515,756  shares with
exercise  prices  greater  than the average  market  prices of common stock were
outstanding  during the years ended  December  31, 2002 and 2001,  respectively.
These  options  and  warrants  were,  therefore,  excluded  from the  respective
computations  of  diluted  earnings  per share  because  their  effect  would be
anti-dilutive.


                                       37


<PAGE>


FAIR VALUE OF FINANCIAL INSTRUMENTS

         The  carrying  value  of  the  Company's  cash  and  cash  equivalents,
receivables,  payables and accrued  expenses  approximate  fair value due to the
short maturity of these instruments.

ACCOUNTING FOR STOCK BASED COMPENSATION

         Stock  option  grants  are set at the  closing  price of the  Company's
common  stock on the date of  grant.  Therefore,  under  the  principles  of APB
Opinion No. 25,  "Accounting for Stock Issued to Employees," the Company has not
recognized  compensation  expense  associated with the grant of stock options to
employees. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
use of option valuation  models to provide  supplemental  information  regarding
options  granted after 1994. Pro forma results of  operations,  which would have
resulted as a result of recognizing the fair value of such grants, are disclosed
in Note 8.

SEGMENT INFORMATION

         Statement of Financial  Accounting  Standards No. 131, Disclosure About
Segment of an Enterprise and Related Information,  establishes standards for the
reporting of information  about  operating  segments.  The Company's  continuing
operations constitute a single operating segment.

RECENT ACCOUNTING PRONOUNCEMENTS

         In August  2001,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 143, Accounting for Asset Retirement  Obligations (SFAS 143). This
statement establishes  standards of accounting for asset retirement  obligations
arising from the  acquisition,  construction,  or development  and/or the normal
operation  of a  long-lived  asset.  SFAS  143 is  effective  for  fiscal  years
beginning after June 15, 2002.  Management does not believe that the adoption of
SFAS 143 will have a material effect of the financial statements.

         In April 2002,  the FASB approved for issuance  Statements of Financial
Accounting  Standards No. 145,  "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds
previous  accounting  guidance,   which  required  all  gains  and  losses  from
extinguishment  of debt be classified as an  extraordinary  item. Under SFAS 145
classification of debt extinguishment  depends on the facts and circumstances of
the transaction.  SFAS 145 is effective for fiscal years beginning after May 15,
2002 and  adoption is not  expected to have a material  effect on the  Company's
financial position or results of its operations.

         In July  2002,  the FASB  issued  Statements  of  Financial  Accounting
Standards  No.  146,  "Accounting  for Costs  Associated  with Exit or  Disposal
Activities"  (SFAS  146).  SFAS  146  requires   companies  to  recognize  costs
associated  with exit or disposal  activities when they are incurred rather than
at the date of a  commitment  to an exit or  disposal  plan.  Examples  of costs
covered  by SFAS 146  include  lease  termination  costs  and  certain  employee
severance  costs  that  are  associated  with  a   restructuring,   discontinued
operation,  plant closing, or other exit or disposal activity. SFAS 146 is to be
applied  prospectively to exit or disposal  activities  initiated after December
31, 2002. The adoption of SFAS 146 is not expected to have a material  effect on
the Company's financial position or results of its operations.

         In August 2002,  the FASB issued  Statements  of  Financial  Accounting
Standards No. 147, "Acquisitions of Certain Financial  Institutions" (SFAS 147).
SFAS 147 requires financial  institutions to follow the guidance in SFAS 141 and
SFAS 142 for  business  combinations  and  goodwill and  intangible  assets,  as
opposed to the previously  applied  accounting  literature.  This statement also
amends  SFAS  144  to  include  in its  scope  long-term  customer  relationship
intangible assets of financial  institutions.  The provisions of SFAS 147 do not
apply to the Company.

         In December  2002, the FASB issued  Statements of Financial  Accounting
Standards  No.148,  "Accounting  for  Stock-Based  compensation - Transition and
Disclosure - an amendment of FASB  Statement  123" (SFAS 123). For entities that
change their accounting for stock-based  compensation  from the intrinsic method
to the fair value  method under SFAS 123, the fair value method is to be applied
prospectively  to those


                                       38


<PAGE>


awards  granted after the  beginning of the period of adoption (the  prospective
method). The amendment permits two additional transition methods for adoption of
the fair value method.  In addition to the  prospective  method,  the entity can
choose to either (i)  restate  all periods  presented  (retroactive  restatement
method) or (ii)  recognize  compensation  cost from the  beginning of the fiscal
year of adoption as if the fair value method had been used to account for awards
(modified prospective method). For fiscal years beginning December 15, 2003, the
prospective method will no longer be allowed. The Company currently accounts for
its stock-based  compensation  using the intrinsic value method as proscribed by
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  and plans on  continuing  using  this  method to  account  for stock
options,  therefore,  it does not intend to adopt the transition requirements as
specified  in SFAS  148.  The  adoption  of SFAS 148 is not  expected  to have a
material  effect  on  the  Company's   financial  position  or  results  of  its
operations.

2.       GOING CONCERN

         The accompanying  consolidated  financial statements have been prepared
on the  basis  that the  Company  is a going  concern,  which  contemplates  the
realization of assets and the  satisfaction  of liabilities in the normal course
of business.  The accompanying  financial statements reflect a loss of ($11,250)
and  ($2,856)  for the years ended  December  31,  2002 and 2001,  respectively.
Working capital and stockholders' equity is $2,198 and $3,841, respectively,  as
of December 31, 2002.

         The Company is currently  consuming cash to fund its operations and the
research and development of its nucleic acid diagnostic technologies. Due to the
cost of  defending  the  Trinity  litigation,  combined  with  the  slower  than
anticipated  growth in Xtra Amp(TM) sales,  the Company may not have the ability
to sustain its operations  through the next 12 months.  To address these capital
pressures,  the  Company  has  undertaken  steps  to  significantly  reduce  its
operating  costs,  and has  retained an  investment  banker to pursue  strategic
alternatives for the Company.  These alternatives  could include a financing,  a
co-development  arrangement,  the license of the Company's technologies,  or the
sale of the Company or its assets.  If the Company is not successful in entering
into any such  transaction,  any of which may  contain  terms that could have an
adverse  effect on future  operations,  the  Company  may be required to further
curtail operations or liquidate assets.

3.       DISCONTINUED OPERATIONS

         On  December  20,  2001,  the  shareholders  approved  the  sale of the
Hemostasis  business.  On December  21,  2001,  the  Company  closed the sale of
substantially  all of the assets of its Hemostasis  business to Trinity  Biotech
plc for total  consideration  of  US$6,250,000,  plus the  assumption of certain
liabilities.  The assets  sold  included  the  operations  located  in  Ventura,
California,  and the Company's wholly owned Swedish subsidiary,  Biopool AB. The
total  consideration  paid to the Company of US$6,250,000  consisted of cash and
notes as follows:  (a) US$3,658,500 in cash at closing; (b) a note in the amount
of  US$855,200  due one year from the closing date,  however,  the note was paid
subsequent to December 31, 2002;  (c) a note in the amount of  US$1,166,200  due
two years from the closing date;  and (d) a note in the amount of US$570,100 due
three years from the closing date.  The notes carry interest at a rate of 5% per
annum and are  secured by a second  position  on  substantially  all of the U.S.
assets of Trinity  Biotech plc.  Trinity  Biotech plc has filed suit against the
company (See Note 6). However,  the Company  believes that all notes  receivable
due from Trinity are fully  collectible,  and as such,  no allowance of bad debt
has been established for these notes as of December 31, 2002.

         The total amount in other  long-term  liabilities of $36,000 is related
to transaction costs that are the result of a broker  commission  payable over 3
years as follows:  $24,000 due December  21, 2003,  and $12,000 due December 21,
2004. This note bears interest at a rate of 5% per annum.

         The Hemostasis business was a distinct operating segment, whose sale is
accounted  for  as   discontinued   operations  in  accordance  with  ACCOUNTING
PRINCIPLES  BOARD  OPINION 30 - REPORTING  THE RESULTS OF OPERATIONS - REPORTING
THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS,  AND EXTRAORDINARY,  UNUSUAL
AND INFREQUENTLY  OCCURRING EVENTS AND  TRANSACTIONS.  As a result,  the Company
reclassified  its prior period  financial  statements to reflect the appropriate
accounting for the sale of the Hemostasis business, as discontinued operations.


                                       39


 <PAGE>


         The gain on the sale of the Hemostasis business was reduced by $747,000
to remove the cumulative foreign currency  translation  adjustment  generated by
the Sweden operations, which were disposed of in the sale transaction.

         A summary of the  results of  discontinued  operations  and net gain on
disposal is as follows:


YEAR ENDED DECEMBER 31,   (in thousands)                     2002         2001
-----------------------                                    --------------------

Sales ................................................     $  --        $ 8,689
                                                           =======      =======

Cost of goods sold ...................................        --          4,829
Selling, general and administrative and other ........        --          3,419
                                                           -------      -------

Income before taxes ..................................        --            441
Income tax ...........................................         (50)         (50)
                                                           -------      -------
Income from discontinued operations ..................        --            391
Net gain on disposal, net of income tax effect .......        --            844
                                                           -------      -------

         Net income from discontinued operations .....     $   (50)     $ 1,235
                                                           =======      =======


4. INVENTORIES (in thousands)

         Inventories consist of the following:
                                                               DECEMBER 31, 2002
                                                               -----------------
     Raw materials ..........................................         $  15
     Finished goods .........................................            20
                                                                      -----
                                                                      $  35
                                                                      =====

5.       REVOLVING LINE OF CREDIT

         As of December 31, 2002,  the Company had a $110,000  standby letter of
credit  issued  as a  security  deposit  in  conjunction  with the  lease of the
Broomfield,  Colorado,  facility. This letter of credit is secured by restricted
cash balances equal to the amount outstanding under the letter of credit.

6.COMMITMENTS AND CONTINGENCIES

LEASES

         The   Company   leases   certain   equipment   and   facilities   under
non-cancelable  operating leases.  Continuing  operations lease expense for 2002
and 2001 was approximately $285,000 and $226,000,  respectively. At December 31,
2002,  approximate future minimum annual lease commitments are $296,000 in 2003,
$282,000 in 2004, $256,000 in 2005, and $60,000 in 2006.

LITIGATION

         On March 26, 2001, the Company entered into a settlement agreement with
Agen  Biomedical  Ltd. with regard to a patent  infringement  filed on March 10,
2000,  by Agen. As a part of the  settlement,  the Company and Agen have entered
into a non-exclusive  license agreement for the underlying patent and all claims
by Agen and counter  claims made by us have been dropped.  As a part of the sale
of the  Hemostasis  business,  the Company signed an amendment to the settlement
agreement  that  consented to the  assignment  and  assumption of the settlement
agreement by Trinity Biotech plc. As a part of the agreement, the Company


                                       40


<PAGE>


made a lump sum payment of $250,000 to Agen, which is reflected as a transaction
cost in the gain on the sale of the  discontinued  operations as of December 31,
2001.

         On January 24, 2002,  the Company  entered into a settlement  agreement
with  Instrumentation  Laboratory  Company with regard to a patent  infringement
filed on August 9, 2001, by Instrumentation  Laboratory  Company. As part of the
settlement,  the Company and  Instrumentation  Laboratory Company have agreed to
enter a consent  judgment with the court,  and the Company agreed to pay damages
and costs in the amount of $20,000.  Management  of the Company does not believe
that the  settlement  will have a material  impact on the results of  continuing
operations.

         On  December  19,  2002,  Trinity  Biotech  plc filed suit  against the
Company  alleging  breach of  contract,  breach of the implied  covenant of good
faith and fair dealing, fraud, negligent  misrepresentation,  unjust enrichment,
and  violation  of the  Delaware  Consumer  Fraud  Act in  conjunction  with the
Company's sale of it's Hemostasis business to Trinity. The suit alleges that the
Company  misrepresented  the status of a single  product that was the subject of
the  Instrumentation  Laboratory patent infringement suit settled by the Company
in January 2002.  Trinity is seeking $1.2 million in damages,  and $3 million in
punitive  damages.  Management of the Company  believes that the suit brought by
Trinity has no merit,  as the product in  question  and the patent  infringement
issues  surrounding it, including  settlement  discussions with  Instrumentation
Laboratory,  were fully disclosed by the Company during  Trinity's due diligence
and in the Asset Purchase  Agreement.  As a part of the settlement  negotiations
the  Company  agreed to stop  selling  the  product  more than 90 days  prior to
Trinity's  purchase of the business and settled the patent  infringement suit in
early 2002.

         The Company  has filed a counter  suit  against  Trinity in response to
Trinity's  suit,  seeking  $27  Million in actual  damages,  and $30  Million in
punitive damages for tortious  interference with prospective economic advantage,
breach of contract,  and breach of the covenant of good faith and fair  dealing.
The Company is also seeking a  declaratory  judgment that  Trinity's  suit is an
improper  attempt to avoid its  contractual  obligations to the Company  because
Trinity merely  instituted  litigation to force the Company to  renegotiate  the
terms of the sale of its Hemostasis business. There can be no guarantee that the
Company will be successful in its suit.

         The  litigation  with  Trinity  has had,  and will  continue  to have a
material impact on the Company.  The cost of defending the litigation,  combined
with the  uncertainty of collections  under the remaining Notes due from Trinity
has forced us to radically reduce the investment in our commercial  products and
those in  development.  In  addition,  the  possibility  of  raising  additional
capital,  which we  disclosed as a possible  alternative  for the Company in our
10QSB  dated  September  30,  2002,  has been  seriously  undermined  due to the
existence of the litigation.

7.       STOCKHOLDERS' EQUITY

Effective August 10, 2000, the former Xtrana,  Inc. was merged with and into the
Company pursuant to an Agreement and Plan of  Reorganization  dated May 3, 2000,
between the former Xtrana and the Company,  as reported on the Company's Current
Report on Form 8-K filed with the Securities  and Exchange  Commission on August
11, 2000, and amended October 24, 2000. The Company issued  8,829,461  shares of
the Company's common stock in exchange for all the outstanding  capital stock of
the former Xtrana,  with an additional 540,000 shares to be issued in connection
with the exercise of certain warrants,  for a total of 9,369,461 shares.  During
2001, 270,000 of the 540,000 warrants were exercised using the cashless exercise
feature  for a total of  163,851  shares  issued.  Of the total  shares  issued,
936,946  shares  were  held  in  escrow  for  purposes  of  satisfying  Xtrana's
indemnification obligations.  These shares, less 3,365 shares that were canceled
pursuant to the merger  agreement  relating to excess warrants issued to certain
financial advisors,  were released to the former Xtrana shareholders on November
6, 2001. In addition,  936,946 shares were held in escrow and were  contingently
cancelable if certain  sales  objectives  for the Xtrana  business were not met.
Also,  an  additional  1,030,641  shares  were  issuable  to the  former  Xtrana
shareholders  if certain sales  objectives were exceeded.  The sales  objectives
were not achieved,  therefore,  the 936,946 shares in escrow were canceled,  and
the additional  1,030,641 shares were not issued.  The 936,946 contingent shares
were reflected as outstanding  common stock until canceled in the fourth quarter
of 2002 as the holders of these  shares had full right to vote the shares  while
in escrow.


                                       41


<PAGE>


8.       STOCK OPTION PLANS

         The Company has three stock option plans (the  "Plans") for the benefit
of employees,  officers,  directors,  and consultants of the Company.  Under the
Plans, a total of 5,226,639  shares of the Company's  common stock were reserved
for issuance.  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 2001 and 2002 was as follows:

                                 SHARES                         WEIGHTED AVERAGE
                               OUTSTANDING      PRICE RANGE      EXERCISE PRICE
                               -----------      -----------      --------------

BALANCE AT JANUARY 1, 2001      2,306,931     0.6600 - 2.6800        1.22

Granted                           509,000     0.4800 - 1.1875        0.69
Exercised                              --                  --          --
Cancelled                        (874,174)    0.6000 - 1.7500        1.09
                               ----------

BALANCE AT DECEMBER 31, 2001    1,941,757     0.4800 - 2.6800        1.14
Granted                           667,750     0.2300 - 0.7800        0.36
Exercised                              --                 --           --
Cancelled                        (718,328)    0.3200 - 2.6800        1.20
                               ----------

BALANCE AT DECEMBER 31, 2002    1,891,179     0.2300 - 2.5000        0.92

The following  information  summarizes stock options outstanding at December 31,
2002:

                                OUTSTANDING                   EXERCISABLE
                  -----------------------------------   ------------------------
                                  Weighted Average
                               ----------------------
                                Remaining                              Weighted
                               Contractual                              Average
                    Number       Life in     Exercise      Number      Exercise
Exercise Price    Outstanding    Months        Price     Exercisable     Price
--------------------------------------------------------------------------------
$ 0.01 - $ 0.31      112,750       114      $  0.230         36,666      0.230
$ 0.32 - $ 0.62      553,500       100      $  0.386        268,947      0.377
$ 0.63 - $ 0.93      430,500        78      $  0.711        198,663      0.735
$ 0.94 - $ 1.25      384,964        59      $  1.004        352,043      1.001
$ 1.26 - $ 1.56      355,715        60      $  1.472        224,463      1.456
$ 1.57 - $ 1.87       12,500        56      $  1.688         12,500      1.688
$ 2.19 - $ 2.25       41,250        38      $  2.396         41,250      2.396
                  -----------                            -----------
                   1,891,179        78      $  0.833      1,134,532      0.930

         At December 31, 2002, 2,999,746 shares were available for future grants
under the Plans.

         The weighted average remaining  contractual life of outstanding options
at  December  31,  2002,  was  7.6  years.   At  December  31,  2002  and  2001,
respectively,  there were  1,134,532  and  1,009,310  options  exercisable  with
weighted average exercise prices of $0.93 and $1.27.

         Pro forma  information  regarding net loss and earnings per share shown
below was  determined  as if the Company had  accounted  for its employee  stock
options  under the fair  value  method of SFAS No.  123.  The fair  value of the
options was estimated at the date of grant using a Black-Scholes  option pricing
model with the following weighted average assumptions:  risk-free interest rates
of  approximately  4.0% for 2002 and 5.0% in 2001;  dividend  yields of 0.0% for
2002 and 2001;  volatility factors of the expected market price of the Company's
common  stock of 167% for 2002 and  104%  for  2001;  and  expected  life of the
options of one to


                                       42


<PAGE>


five years as grouped by specific  employee  classifications.  These assumptions
resulted in weighted  average fair values of $0.32 and $0.42 per share for stock
options granted in 2002 and 2001, respectively.

         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating  the fair  value of traded  options.  The  Company's  employee  stock
options  have  characteristics  significantly  different  from  those of  traded
options such as vesting restrictions and extremely limited transferability.

         The Company's pro forma  information is as follows (in thousands except
per share data):

                                                        YEARS ENDED DECEMBER 31,
                                                           2002          2001
                                                        ----------    ---------

Loss from continuing operations, as reported ........   $  (11,200)   $  (4,091)
Deduct stock based employee compensation expense
     determined under fair value based method for all
     awards, net of related tax effects .............         (242)        (196)
                                                        ----------    ---------
Pro forma net loss form continuing operations .......   $  (11,442)   $  (4,287)
                                                        ==========    =========

Loss per share from continuing operations
Basic - as reported .................................       (0.65)        (0.24)
Basic - pro forma ...................................       (0.66)        (0.25)
Diluted - as reported ...............................       (0.65)        (0.24)
Diluted - pro forma .................................       (0.66)        (0.25)

         As of December 31, 2002,  the Company had 684,755  warrants to purchase
common stock outstanding and exercisable for prices ranging from $0.01 to $1.875
with a weighted  average  exercise  price of $0.9105  per  share.  The  weighted
average  remaining  contractual life of these warrants at December 31, 2002, was
4.9 years. These warrants have expiration dates ranging from 2003 to 2011.

9.       INCOME TAXES

         The reconciliation of income tax attributable to continuing  operations
computed at the U.S.  Federal  Statutory rates to the income tax provision is as
follows:

                                                        YEARS ENDED DECEMBER 31,
                                                                 2002      2001
                                                                 ----      ----

Tax at U.S. statutory rate (34%) ...........................      -34%      -34%
Permanent differences ......................................       26%       13%
Effect of gain on sale .....................................       --        12%
State income tax expense net of federal benefit ............        2%       -2%
Valuation allowance ........................................        6%       11%
                                                                 ----      ----

     Net expense (benefit) .................................     0.00%     0.00%
                                                                 ====      ====


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<PAGE>


         The components of the Company's  deferred tax assets and liabilities at
December 31, 2002 are as follows:

                                                          CURRENT      LONG TERM
                                                          -------       -------
Deferred tax assets:
     Net operating loss carryforwards ..............      $  --         $ 2,225
     Other .........................................           31             7
     Accumulated depreciation amortization .........         --              82
     R & D credit ..................................         --             158
     Foreign tax credit ............................         --             564
     Valuation reserve .............................          (31)       (3,036)
                                                          -------       -------
  Subtotal .........................................         --            --

Net deferred tax (liability) asset .................      $  --         $  --
                                                          =======       =======

         At December 31, 2002,  the Company had  available  net  operating  loss
carryforwards  of approximately  $5,970 in the United States.  The United States
carryforwards  expire in varying amounts through 2022.  Under section 382 of the
Internal  Revenue  Code,  the  utilization  of the  federal net  operating  loss
carryforwards  may be limited based on changes in the percentage of ownership in
the Company

10.      RETIREMENT PLAN

         The Company has a defined contribution plan for its domestic operations
under which  employees who have satisfied  minimum age and service  requirements
may defer compensation  pursuant to Section 401(k) of the Internal Revenue Code.
Participants in the plan may contribute between 1% and 20% of their pay, subject
to the limitations placed by the IRS. The Company, at its discretion,  may match
a portion of the amount contributed by the employee.  The Company  contributions
are offset by forfeitures of unvested balances for terminated employees. The net
Company contributions were $29,000 and $21,000 in 2002 and 2001, respectively.

11.      RELATED PARTY TRANSACTIONS

         Stephen  K.  Schultheis  is also the chief  executive  officer of Ansys
Technologies and served as a director of the Company from August 2000 until June
2002. On October 1, 2001, the Company and Ansys Technologies, Inc., entered into
a Settlement and Mutual Release  Agreement.  This Agreement  terminated  certain
letter  agreements  between  Ansys and the Company  that among other  things had
granted Ansys  exclusive  manufacturing  rights for the  Company's  Xtra Amp(TM)
products.  In consideration  for the termination of such rights,  along with the
transfer  of  all  trade  secrets  and  intellectual  property  relating  to the
manufacture  of Xtra Amp(TM) from Ansys to the  Company,  the Company  issued to
Ansys a warrant to purchase  166,389 shares of the Company's  common stock.  The
warrant is immediately exercisable at a strike price of $0.01 per share.


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