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ARYC > SEC Filings for ARYC > Form 10-Q on 15-May-2013All Recent SEC Filings

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Form 10-Q for ARRAYIT CORP


Quarterly Report


For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months ended March 31, 2013, 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-K/A for the year ended December 31, 2012. 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-K/A for the year ended December 31, 2012 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 Months Ended March 31, 2013 and 2012

Gross revenues for the three months ended March 31, 2013 and 2012 were $942,916 and $568,275, respectively, representing a 66% increase in gross revenues for the period. The Company was able to fulfill some of its backlog of orders, and attributes the increase in gross revenues to fulfilling orders for high-throughput instruments, in particular NanoPrint LM60, SpotBot Titan and InnoScan 710AL. The current backlog of orders for the period ending March 31, 2013 is approximately $270,549 and the backlog of orders was approximately $95,183 for the period ending March 31, 2012.

The cost of sales for the three months ended March 31, 2013 and 2012 were $455,512 and $352,323, respectively resulting in gross profit for the period of $487,404 and $215,952, respectively. The Company's cost of sales is dependent upon product mix. During the first quarter of 2013, the gross margin was 52% versus 38% for the first quarter of 2012. The Company sold more high-throughput instruments in the first quarter of 2013, which has a higher gross margin percentage than the entry level instruments and consumables that were sold in the quarter ended March 31, 2012.

Selling, general and administrative expenses for the three months ended March 31, 2013 and 2012 were $250,520 and $1,344,651, respectively. The decrease of $1,094,131 is largely attributable to consulting fees incurred during the three months ended March, 31, 2012.

Legal expenses of $30,215 for the three months ended March 31, 2013 were mostly attributable to litigation with Baker Hughes against our subsidiary TeleChem International, Inc. and Arrayit Corporation, and were also attributable to litigation with Recap Marketing and Consulting LLP against Arrayit Corporation, and to patent maintenance expenses. Legal expenses of $27,427 for the three months ended March 31, 2012 were mostly attributable to settling the lawsuit between Pediatrix and Arrayit's wholly owned subsidiary, TeleChem International, Inc.

Net income from operations was $235,478 for the three months ended March 31, 2013, compared with a net loss from operations of $1,198,979 for the three months ended March 31, 2012. The increase in net income is due to the increase in revenues over the same period of the prior year, and due to deconsolidation of the financial reporting of Avant Diagnostics, Inc.

Interest expense was $118,574 for the three months ended March 31, 2013, compared to $42,403 for the three months ended March 31, 2012. The interest costs for 2013 and 2012 include the amortized cost of debt arrangement fees and warrants issued in connection with financing. The increase in interest costs was the result of additional interest accrued related to judgment settlements.. Other income for the three months ended March, 31, 2013 includes gain on extinguishment of liabilities of $142,071 and bad debt recovery of $5,312.

Liquidity and Capital Resources

Cash flows provided by operations were $42,422 for the three months ended March 31, 2013, and $60,822 for the three months ended March 31, 2012. As of March 31, 2013, we had a working capital deficiency of $7,425,032 and an accumulated deficit of $24,080,111. 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 judgment 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 $1,800,000 over the next twelve
(12) months to meet our expenses and to expand current operations to meet customer demands for our products and services. We may require additional funds over the next eighteen (18) months to assist in realizing our business objectives and for continuing research and development. 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 three months ended March 31, 2013, the Company relied upon short term loans and extended terms from its creditors to finance its 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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