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ARYC > SEC Filings for ARYC > Form 10-Q/A on 22-Oct-2012All Recent SEC Filings

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Form 10-Q/A for ARRAYIT CORP


22-Oct-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the six months ended June 30, 2012, this "Management's Discussion and Analysis" should be read in conjunction with the Consolidated Unaudited Financial Statements, including the related notes, appearing in Item 1 of this Quarterly Report, as well as the Company's Annual Report on Form 10-KA for the year ended December 31, 2011. The preparation of this Quarterly Report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results reported in the future will not differ from those estimates or that revisions of these estimates may not become necessary in the future.

Forward-Looking Statements

This Quarterly Report on Form 10-Q/A, includes statements that constitute "forward-looking statements." These forward-looking statements are often characterized by the terms "may," "believes," "projects," "expects," or "anticipates," and do not reflect historical facts. Specific forward-looking statements contained in this portion of the Annual Report include, but are not limited to the Company's (i) expectation that certain of its liabilities listed on the balance sheet under the headings "Accounts Payable," "Accrued Liabilities" and "Note Payable" will be retired by issuing stock versus cash during the next 24 months; (ii) expectation that it will continue to devote capital resources to fund continued development of the Arrayit technology; (iii) anticipation that it will incur significant capital expenditures to further its deployment of the Arrayit offerings; and (iv) anticipation of a significant increase in operational and SG&A costs as it accelerates the development and marketing of the Arrayit operations.

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those to be identified in our Annual Report on Form 10-KA for the year ended December 31, 2011 in the section titled "Risk Factors," as well as other factors that we are currently unable to identify or quantify, but may exist in the future.

In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.

Results of Operations

Comparison of Operating Results -Six Months Ended June 30, 2012 and 2011

Gross revenues for the three months ended June 30, 2012 and 2011 were $735,427 and $804,125, respectively, representing an 8.5% decrease in gross revenues for the period. Gross revenues for the six months ended June 30, 2012 and 2011 were $1,303,702 and $1,781,392, respectively, representing a 27% decrease in gross revenues for the period. The Company has an increasing backlog of orders to fulfill, and attributes the decrease in gross revenues to a shortage of working capital to fulfill orders more timely. The backlog of orders for the period ending June 30, 2012 is approximately $688,000 and the backlog of orders was approximately $350,000 for the period ending June 30, 2011.

The cost of sales for the three months ended June 30, 2012 and 2011 were $361,859 and $519,391, respectively resulting in gross profit for the period of $373,568 and $284,734, respectively. The cost of sales for the six months ended June 30, 2012 and 2011 amounted to $714,182 and $1,071,942, respectively, resulting in gross profit for the six months ended June 30, 2012 and 2011 of $589,520 and $709,450, respectively. The Company's cost of sales is dependent upon product mix. During the second quarter of 2012, the gross margin was 51% versus 40% for the second quarter of 2011. The Company sold more microarray manufacturing services in the second quarter of 2012, which has a higher gross margin percentage than the instruments and consumables that were sold in the quarter ended June 30, 2011.

Selling, general and administrative expenses for the three months ended June 30, 2012 and 2011 were $395,029 and $333,278, respectively. The increase of $61,751 is attributable to the cost of issuing stock in Arrayit Diagnostics in exchange for a 20% royalty on sales previously owned by consultants and investors, which is now cancelled. No further royalties are due and payable by Arrayit Diagnostics to consultants and investors going forward. The royalty agreement between Wayne State University and Arrayit Diagnostics is not affected, and remains in place.

Net loss from operations was $62,620 for the three months ended June 30, 2012, compared with a net loss from operations of $92,225 for the three months ended June 30, 2011. Net loss from operations was $1,219,196, compared with a net loss from operations of $62,354 for the six months ended June 30, 2011. The increase in net loss is the result of the one-time charge to settle the royalty agreement with consultants and investors in Arrayit Diagnostics.

Legal expenses of $16,159 and $43,586 for the three months and six months ended June 30, 2012 were attributable to the cost of preparing the Form S-1 for Arrayit Diagnostics and maintenance fees on the patents of TeleChem International, Inc. and Arrayit Corporation. Legal expenses of $35,529 and $50,920 for the three months and six months ended June 30, 2011 were related to settling the lawsuit between Pediatrix and Arrayit's wholly owned subsidiary, TeleChem International, Inc.

Interest expense was $52,096 and $94,499 for the three months and six months ended June 30, 2012, compared to $53,031 and $100,462 for the three months and six months ended June 30, 2011. The interest costs for 2012 and 2011 include the amortized cost of debt arrangement fees and warrants issued in connection with financing. The decrease in interest costs was the result of negotiating lower interest rates on past due balances with creditors.

Net loss attributable to the non-controlling interest in our Arrayit Diagnostics, Inc. subsidiary amounted to $55,552 and $15,089 for the three months ended June 30, 2012 and 2011, respectively, and $416,404 and $27,755 for the six months ended June 30, 2012 and 2011, respectively. The increase is due to the issuance of stock for consulting by Arrayit Diagnostics, Inc. On December 12, 2011, Arrayit Corporation signed an Agreement and Plan of Distribution with its subsidiary, Arrayit Diagnostics, Inc., whereby 19,350,000 shares of common stock of Arrayit Diagnostics (61% of the total outstanding) owned by Arrayit Corporation will be distributed ratably to the shareholders of Arrayit Corporation on the record date which will become effective date of the Form S-1 registration statement to be submitted to the SEC by Arrayit Diagnostics, Inc.

Liquidity and Capital Resources

Cash flows used in operations were $100,196 for the six months ended June 30, 2012, and cash flows provided by operations were $94,664 for the six months ended June 30, 2011. The increase in cash used in operations is largely the result of a one-time charge to settle the royalty agreement with investors in Arrayit Diagnostics for stock in Arrayit Diagnostics. As of June, 2012, we had had a working capital deficiency of $8,239,187 and an accumulated deficit of $25,442,014. The working capital deficiency, in addition to amounts payable in the normal course of business, is primarily attributable to accrued legal expenses, deferred compensation, and judgement interest.

We currently have no commitments, understandings or arrangements for any additional working capital. If we are unable to secure additional financing to cover our operating losses until breakeven operations can be achieved we may not be able to continue as a going concern. We are not aware of any trends, events or uncertainties that have a material impact upon our short-term or long-term liquidity.

We estimate that we may require approximately $1,200,000 over the next twelve
(12) months to meet our expenses and to continue to prefect our proprietary microarray technology. We may require additional funds over the next eighteen
(18) months to assist in realizing our business objectives. The amount and timing of additional funds required will be dependent on a variety of factors and cannot be determined at this time. The Company has been successful in paying its operating costs and funding its development from operations supplemented by short term borrowings from officers and third parties. We cannot be certain that we will be able to raise any additional capital to fund our ongoing operations.

Even if we cannot raise additional capital, we believe that we will be able to continue operations for the next 12 months, based on the funding currently provided and revenues that we anticipate generating in the near future. Our investors should assume that any additional funding may cause substantial dilution to current stockholders. In addition, we may not be able to raise additional funds on favorable terms, if at all.

Source of Liquidity

During the six months ended June 30, 2012, the Company relied upon short term loans and extended terms from its creditors to finance its loss from operations.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Forward-Looking Statements

This document contains forward-looking statements that involve risks and uncertainties. We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking statements. You should not place too much reliance on these forward-looking statements.

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