Alamar Biosciences Inc. said Wednesday it was laying off 17 of its33 employees and not accepting $2.5 million it recently raised in aprivate financing as a result of a lawsuit it filed against microbiologycompany Difco Laboratories Inc.

The Sacramento, Calif., company said Monday that it had filed suitin U.S. District Court alleging that Difco, of Detroit, while under aconfidentiality and non-useagreement, misappropriated Alamar's proprietary technology used indetermining bacterial susceptibility. Alamar CEO Kenneth Millertold BioWorld that Difco got a patent on the technology even thoughif filed for the patent after Alamar.

"With the revelation of the Difco patent issue, we elected not toaccept the financing so those investors would be able to see whataction we would take," Miller said.

Miller said Alamar reported cash and equivalents of $761,000 as ofJune 30. It had revenues of $382,000 in that quarter, and $984,000 inrevenues and $1.99 million in operating expenses for the ninemonths that ended June 30. Miller said financial statements for thequarter that ended Sept. 30 would be released in December, and hewas unable to comment on Alamar's current cash position.

The cutbacks allow Alamar to pursue the lawsuit and to supply itscurrent U.S. customers and international distributors, Miller said.

"We are going to support our customers," he said. "We will havesales and revenues. We're going to look for additional financing.We're also hopeful of being successful with this lawsuit."

The suit, filed in Sacramento, seeks $25 million in compensatorydamages, an injunction against further use of Alamar's technology,patent rights and punitive damages.

Alamar calls the technology at issue the Alamar Redox System. Ituses redox fluorescence to detect organism growth, and is the keytechnology in the company's product line.

Miller said the companies were considering a joint venture or otheralliance a few years ago when Difco agreed to the non-useagreement. He wouldn't comment on whether Difco's issued patentcovers the exact technology included in Alamar's application.

Most of the layoffs were in sales, marketing and research anddevelopment.

Alamar's stock (NASDAQ:ALMR) closed at 50 cents per shareWednesday, up 6 cents. _ Jim Shrine

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