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AXK > SEC Filings for AXK > Form 10-Q on 14-Dec-2011All Recent SEC Filings

Show all filings for ACCELR8 TECHNOLOGY CORP

Form 10-Q for ACCELR8 TECHNOLOGY CORP


14-Dec-2011

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations.

Forward Looking Information

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company, intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements, which can be identified by the use of words such as "may," "will," "expect," "anticipate," "estimate," or "continue," or variations thereon or comparable terminology, include the plans and objectives of Management for future operations, including plans and objectives relating to the products and future economic performance of the Company. In addition, all statements other than statements of historical facts that address activities, events, or developments the Company expects, believes, or anticipates will or may occur in the future, and other such matters, are forward-looking statements.

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on assumptions that the Company will retain key management personnel, the Company will be successful in the development of the BACcel™ system, the Company will obtain sufficient capital to complete the development of the BACcel™ system, the Company will find a long term strategic partner to assist in developing, manufacture and taking the BACcel™ system to market, the Company will be able to protect its intellectual property, the Company's ability to respond to technological change, that the Company will accurately anticipate market demand for the Company's products and that there will be no material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion should be read in conjunction with the Company's unaudited condensed financial statements and related notes included elsewhere herein. The Company's future operating results may be affected by various trends and factors which are beyond the Company's control. These include, among other factors, general public perception of issues and solutions, and other uncertain business conditions that may affect the Company's business. The Company cautions the reader that a number of important factors discussed herein, and in other reports, filed with the Securities and Exchange Commission including but not limited to the risks in the section entitled "Risk Factors" are in its Form 10-K for the fiscal year ended July 31, 2011, could affect the Company's actual results and cause actual results to differ materially from those discussed in forward-looking statements.

Overview

Our vision is to develop and commercialize an innovative, integrated system to rapidly identify bacteria and their mechanisms of antibiotic resistance in critically ill patients. Our business strategy for primary products in vertical markets is to prove the validity of our technology and recruit an industry leader as a commercial partner or licensee. We also plan to spin off specific OEM technology components through additional licensed applications that do not compete with our platform licensees.

We envision our continuing role as licensor and alliance partner as one of leading the technical development of new technology, validating the application methods, expanding platform applications, and integrating additional capabilities into our proprietary platforms.

Since 2007, we have focused our efforts on the development of an innovative rapid diagnostic platform, the BACcel™ system, intended for rapid diagnosis in life-threatening bacterial infections. Our goal is to reduce the failure rate of initial therapy by shortening the lab turnaround time to less than 8 hours, rather than the 2-3 days now required. Rapid testing would provide guidance in time to influence initial therapy.

The BACcel™ system applies our proprietary technology to eliminate time-consuming bacterial culturing, thus eliminating the major source of delay with current testing methods. Proprietary technologies include our patented analytical methods, and our patented OptiChem® surface coatings. The BACcel™ system includes a fixed instrument and proprietary single-use (disposable) test cassettes. Each cassette tests a single patient specimen and then must be discarded.

The BACcel™ system uses long-accepted bacteriological testing principles, but applies our proprietary technology to adapt them to analyze live bacteria extracted directly from a patient specimen. The instrumentation uses an automated digital microscope to measure the responses of extracted live bacterial cells to various test conditions. The system analyzes thousands of these individual cells to arrive at organism identification and antibiotic resistance characteristics.

Based on data obtained during development, Management believes that the BACcel™ system will identify the organisms present in a patient's specimen and count the number of organisms of each type in less than 2 hours after receiving a specimen. Management believes that the BACcel™ system will then additionally report major categories of antibiotic resistance mechanism present for each type of organism within a total of 4-6 hours after receiving a specimen. The clinical purpose is to narrow the drug choices available for initial therapy by rapidly reporting presumptive identification and major resistance types, thus ruling out antibiotic classes that are most likely to fail.

Management believes that the BACcel™ system is the only new diagnostic technology under development that will address a clinically adequate range of species and antibiotic resistance mechanisms needed to help manage critical infectious diseases. Management also believes that other rapid technologies, such as gene detection, are better suited to screening non-infected carriers of a small number of species and resistance mechanisms, but are too limited to compete with the BACcel™ platform for managing infected patients.

During the quarter ended October 31, 2011, the Company applied the latest prototype version of the automated BACcel™ system to define technical specifications needed for produce design and market launch in international clinical markets and research markets in the US.

Preliminary analysis of data in a prospective pilot clinical study at Denver Health revealed positive results that the principle investigators presented in May 2011 at a major medical congress. This study continues under Institutional Review Board authorization and patient informed consent. In it, the investigators examine a series of new respiratory specimens acquired from ICU patients started on mechanical ventilation. They compare results from BACcel™ rapid analysis with those standard cultures performed on portions of the same specimens. The study's purpose is to assess BACcel™ analytical accuracy and speed when used as intended for an important medical application. The study also has an objective to assess whether repeated monitoring, pre-symptomatic, and rapid analysis affects treatment decisions if a patient begins to exhibit symptoms of infection. Accelr8 also began to expand the diagnostic scope of the BACcel™ system with studies on additional specimen types and medical indications. In particular, the company began studies for rapid analysis of positive blood cultures. Feasibility studies showed that the BACcel™ system has the potential to reduce the typical 3-4 day turnaround time for cultures to second-day results. In addition, the company demonstrated feasibility for an innovative specimen preparation method that can reduce specimen handling time from 45 minutes to 10 minutes. The new BAC-Xtrax™ technology can be fully automated and integrated into the BACcel™ system for full "specimen-to-answer" performance. The BAC-Xtrax™ technology could also enable a stand-alone product for hospital and research labs.

On June 14, 2010 the Company entered into an Evaluation Agreement and Letter of Intent with Novartis for a technical evaluation project with the Company's BACcel™ rapid diagnostic technology. The agreement includes a first right of refusal option for the diagnostics company to license the BACcel™ technology and commercialize clinical diagnostics instruments using Accelr8's technology. Under the agreement, Accelr8 received initial payments of $220,000 during the fiscal year ended July 31, 2010 and will continue to receive monthly funding until completion of data evaluation. Since the initial agreement, there were three amendments to the Letter of Intent extending the evaluation period to September 30, 2011. The evaluation agreement with Novartis expired on September 30, 2011 without Novartis exercising its option for licensing the Company's BACcel™ system intellectual property. The Company intends to continue to seek a long term strategic partner to assist in developing, manufacture and taking the BACcel™ system to market.

Subject to the receipt of capital, during the fiscal year ending July 31, 2012 we intend to continue technical validation of the BACcel™ system methods, continue field studies including pilot clinical studies at Denver Health and Barnes-Jewish Hospital, continue to publish the results of internal and collaborative studies, and seek a strategic partner or licensee for BACcel™ product commercialization.

Recently Issued Accounting Pronouncements

In October 2009, the FASB issued ASU-2009-13, Multiple-Deliverable Revenue Arrangements. We adopted this standard on August 1, 2010 for revenue arrangements entered into or materially modified after that date. The standard requires an allocation of revenue among separate deliverables using the relative fair value method. The adoption of this standard did not have a material effect on the financial statements for the year ended July 31, 2011.

In June 2011, the FASB issued new accounting standards which require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of changes in shareholders' equity. The new accounting rules will be effective for the Company in fiscal 2013. The Company does not expect the adoption of the new accounting rules to have a material effect on the Company's financial condition or results of operations.

Changes in Results of Operations: Three months ended October 31, 2011 compared to three months ended October 31, 2010

During the three months ended October 31, 2011, OptiChem® royalty revenues were $12,008 as compared to $11,883 during the three month period ended October 31, 2010, an increase of $125, or 1.05%. The increase was a result of licensing of OptiChem® technology to Nanosphere, one of Schott's principal customers for the Optichem technology and the resulting reduction in royalty income from Schott.

Technical development fees during the three-month period ended October 31, 2011 were $140,000 as compared to $210,000 during the three-month period ended October 31, 2010, a decrease of 70,000 or 33.33%. The technical development fees during the fiscal year ended July 31, 2011 and 2010 were the result of the development agreement with Novartis that began in June of 2010 and that ended during the three months ended October 30, 2011.

During the period ended October 31, 2010, we applied for and were notified of acceptance for the Qualified Therapeutic Discovery Grant. Our original submission disclosed eligible expenditures subject to the grant which were certified in the amount of $488,958. The grant awarded 50% of the certified expenditures and grant funds totaling $244,479 have been recorded as income. Grant income was not earned during the three months ended October 31, 2011.

Research and development expenses for the three months ended October 31, 2011 were $104,162 as compared to $111,050 during the three months ended October 31, 2010, a decrease of $6,888 or 6.2%. The decrease was primarily the result of decreases in lab supplies, consulting, and clinical trial expenditures of approximately $15,000 with increases of approximately $7100 in salaries and vacation accruals.

During the three months ended October 31, 2011, general and administrative expenses were $458,983 as compared to $235,567 during the three-month period ended October 31, 2010, an increase of $223,416 or 94.8%. The increase was primarily the result of stock based compensation charges of $272,529.

The increase in amortization was negligible for the three months ended October 31, 2011 as compared to the three-month period ended October 31, 2010.

Marketing and sales expenses for the three months ended October 31, 2011 were $4,170 as compared to $5,993 during the three months ended October 31, 2010. The decrease was primarily due to travel related costs in connection with industry conferences and visiting technological development partners.

Depreciation for the three months ended October 31, 2011 was $515 as compared to $599 during the three months ended October 31, 2010, a decrease of $84 or 14%. The decreased depreciation was the result of the increased age of assets.

As a result of the above factors, loss from operations for the three months ended October 31, 2011 was $429,909 as compared to income of $49,974 during the three months ended October 31, 2010, a decrease in income of $479,883.

Interest and dividend income during the three months ended October 31, 2011 was $4,003 as compared to $3,447 during the three months ended October 31, 2010 an increase of $556 or 16.1%. Interest income increased as a result of the recognition of interest imputed related to our long term accounts receivable.

Unrealized holding gain/(loss) on investments held in the deferred compensation trust for the three months ended October 31, 2011 was $4,368 as compared to a gain of $13,829 for the three months ended October 31, 2010, a decrease of $18,197 or 131.5%. The change was a result of decreased value of the underlying securities and general market conditions.

As a result of these factors, net loss for the three months ended October 31, 2011 was $430,274 as compared to net income of $67,250 during the three months ended October 31, 2010, a decrease in income of $497,524.

Capital Resources and Liquidity

During the three months ended October 31, 2011, we did not generate positive cash flows from operating activities.

The Company has historically funded its operations generally through its existing cash balances, cash flow generated from operations and sales of equity securities. Our primary use of capital has been for the research and development of the BACcel™ system and general and administrative expenses.

Notwithstanding our investments in research and development, there can be no assurance that the BACcel™ system or any of our other products will be successful, or even if they are successful, will provide sufficient revenues to continue our current operations. Our working capital requirements are expected to increase in line with the growth of our business. We have no lines of credit or other bank or off balance sheet financing arrangements.

At October 31, 2011, as compared to July 31, 2011, cash and cash equivalents decreased by $190,871 from $775,856 to $584,985, or approximately 24.6% and the Company's working capital increased $364,351 or 44.2% from $824,344 to $1,118,695. During the same period, shareholders' equity decreased from $4,815,476 to $4,657,730 as a result of our net loss during the three months ended October 31, 2011.

The net cash used in operating activities was $99,670 during the three months ended October 31, 2011 compared to net cash used in operating activities of $42,040 during the three months ended October 31, 2010. The principal elements that gave rise to the increase in net cash used in operating activities were primarily the result of decreased revenues from technical development fees of $70,000 and the fact that the Company received grant funds during the three months ended October 31, 2010 and it did not receive during the three months ended October 31, 2011.

Cash used by investing activities during the three months ended October 31, 2011 was $190,871. The cash used by investing activities was the result additional patent expenditures.

Management believes that current cash balances plus cash flow from operations will be sufficient to fund our capital and liquidity needs for the next twelve months given the new licensing and deferred revenue agreement with SCHOTT totaling $150,000.

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