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ARYC > SEC Filings for ARYC > Form 10-Q on 21-Nov-2012All Recent SEC Filings

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Form 10-Q for ARRAYIT CORP


21-Nov-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 nine months ended September 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, 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 -Three and Nine Months Ended September 30, 2012 and 2011

Gross revenues for the three months ended September 30, 2012 and 2011 were $547,233 and $780,445, respectively, representing an 30% decrease in gross revenues for the period. Gross revenues for the nine months ended September 30, 2012 and 2011 were $1,850,935 and $2,561,837, respectively, representing a 28% 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 September 30, 2012 is approximately $355,250 and the backlog of orders was approximately $150,000 for the period ending September 30, 2011.

The cost of sales for the three months ended September 30, 2012 and 2011 were $252,003 and $451,065, respectively resulting in gross profit for the period of $295,230 and $329,380, respectively. The cost of sales for the nine months ended September 30, 2012 and 2011 amounted to $966,185 and $1,523,008, respectively, resulting in gross profit for the nine months ended September 30, 2012 and 2011 of $884,750 and $1,038,829, respectively. The Company's cost of sales is dependent upon product mix. During the third quarter of 2012, the gross margin was 58% versus 41% for the third quarter of 2011. The Company sold more microarray manufacturing services in the third quarter of 2012, which has a higher gross margin percentage than the instruments and consumables that were sold in the quarter ended September 30, 2011.

Selling, general and administrative expenses for the three months ended September 30, 2012 and 2011 were $297,745 and $359,764, respectively. The decrease of $62,019 is attributable to the cost of issuing stock during the three months ended September 30, 2011, and no shares were issued during the three months ended September 30, 2012.

Net loss from operations was $39,476 for the three months ended September 30, 2012, compared with a net loss from operations of $98,019 for the three months ended September 30, 2011. Net loss from operations for the nine months ended September 30, 2012 was $1,353,171, compared with a net loss from operations of $260,836 for the nine months ended September 30, 2011.

Legal expenses of $8,331 and $51,917 for the three months and nine months ended September 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 $23,621 and $74,542 for the three months and nine months ended September 30, 2011 were related to settling the lawsuit between Pediatrix and Arrayit's wholly owned subsidiary, TeleChem International, Inc.

Interest expense was $27,859 and $122,358 for the three months and nine months ended September 30, 2012, compared to $40,587 and $141,049 for the three months and nine months ended September 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 $44,407 and $10,124 for the three months ended September 30, 2012 and 2011, respectively, and $460,813 and $37,880 for the nine months ended September 30, 2012 and 2011, respectively.

Liquidity and Capital Resources

Cash flows provided by operations were $88,922 for the nine months ended September 30, 2012, and cash flows provided by operations were $134,163 for the nine months ended September 30, 2011. As of September 30, 2012, we had had a working capital deficiency of $8,269,390 and an accumulated deficit of $25,437,081. 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 perfect 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 nine months ended September 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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