U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2004
---------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
--------- ---------
Commission file number 0-11485
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ACCELR8 TECHNOLOGY CORPORATION
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1072256
------------------------------ -----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
303 East Seventeenth Avenue, Suite 108, Denver, Colorado 80203
-------------------------------------
(Address of principal executive office)
(303) 863-8088
-------------------------
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at June 11, 2004
------- ----------------------------
Common Stock, no par value 9,961,210
Accelr8 Technology Corporation -1- 10-QSB 4/30/04
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
April 30, 2004 (unaudited) and July 31, 2003
Statements of Operations 4
for the three months and nine months ended
April 30, 2004 and 2003 (unaudited)
Statements of Cash Flows 5
for the nine months ended April 30, 2004
and 2003 (unaudited)
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Item 3. Controls and Procedures 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
See Note 8 to unaudited financial statements.
Item 2. Changes in Securities and Use of Proceeds 22
Not applicable.
Item 3. Defaults of Senior Securities 22
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders 23
Not applicable
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
CERTIFICATION OF OFFICERS
Accelr8 Technology Corporation -2- 10-QSB 4/30/04
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Accelr8 Technology Corporation
Balance Sheets
ASSETS
April 30, July 31,
2004 2003
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 7,510,777 $ 8,711,951
Accounts receivable 75,259 5,809
Inventory (Note 10) 63,303 --
Prepaid expenses and other current assets 62,239 55,313
------------ ------------
Total current assets 7,711,578 8,773,073
Property and equipment, net (Note 4) 203,684 141,967
Investments, net 672,317 574,399
Intellectual property, net (Note 5) 4,103,977 4,255,934
------------ ------------
Total assets $ 12,691,556 $ 13,745,373
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 191,464 $ 177,309
Accrued compensation and other liabilities 31,859 39,155
Deferred revenue 65,025 --
Deferred maintenance revenue 120,153 150,366
------------ ------------
Total current liabilities 408,501 366,830
------------ ------------
Long-term liabilities:
Deferred compensation 728,567 649,399
------------ ------------
Total long-term liabilities 728,567 649,399
------------ ------------
Total liabilities 1,137,068 1,016,229
------------ ------------
Commitments and Contingencies (Notes 3, 8, 11, and 12)
Shareholders' equity (Notes 3, 6, and 9)
Common stock, no par value; 11,000,000 shares
authorized; 9,961,210 and 9,511,210 shares
issued and outstanding, respectively 12,863,020 12,488,020
Stock to be issued -- 375,000
Contributed capital 499,132 544,132
Accumulated deficit (1,534,064) (404,408)
Shares held for employee benefit (1,129,110 shares at cost) (273,600) (273,600)
------------ ------------
Total shareholders' equity 11,554,488 12,729,144
------------ ------------
Total liabilities and shareholders' equity $ 12,691,556 $ 13,745,373
============ ============
See accompanying notes to unaudited financial statements.
Accelr8 Technology Corporation -3- 10-QSB 4/30/04
Accelr8 Technology Corporation
Statements of Operations
(Unaudited)
Three Months Ended Nine months Ended
-------------------------- --------------------------
April 30, April 30, April 30, April 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues:
Consulting fees $ -- $ 5,000 $ -- $ 25,000
Product license and customer support fees 23,062 3,536 67,039 137,870
Resale of software and support purchased 85,354 252,417 263,724 475,940
OptiChem(TM)revenue 26,262 17,945 85,514 36,547
Provision for sales returns and allowances (2,375) (2,450) (5,265) (6,405)
----------- ----------- ----------- -----------
Net revenues 132,303 276,448 411,012 668,952
----------- ----------- ----------- -----------
Costs & expenses:
Cost of services 7,443 13,169 21,407 34,840
Cost of purchased software and
customer support for resale 14,724 44,137 50,535 82,901
Cost of sales-OptiChem 14,520 6,242 38,777 12,878
General and administrative 198,276 225,515 728,193 607,440
Marketing and sales 24,570 79,939 149,628 223,907
Research and development 127,829 121,941 408,194 344,225
Amortization 58,128 60,075 174,384 179,955
Depreciation 14,886 7,695 34,968 19,995
----------- ----------- ----------- -----------
Total Costs and Expenses 460,376 558,713 1,606,086 1,506,141
----------- ----------- ----------- -----------
Loss from operations (328,073) (282,265) (1,195,074) (837,189)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 15,808 22,070 48,084 83,537
Realized gain (loss) on investment -- -- 1,975 (2,593)
Unrealized gain (loss) on investment (22,270) 45,997 15,359 18,457
----------- ----------- ----------- -----------
Total other income (expense) (6,462) 68,067 65,418 99,401
----------- ----------- ----------- -----------
Loss before income taxes (334,535) (214,198) (1,129,656) (737,788)
Income tax benefit -- -- -- 19,431
----------- ----------- ----------- -----------
Net Loss $ (334,535) $ (214,198) $(1,129,656) $ (718,357)
=========== =========== =========== ===========
Net loss per share - basic and diluted $ (0.03) $ (0.02) $ (0.11) $ (0.08)
=========== =========== ========== ===========
Weighted average shares outstanding -
basic and diluted 9,961,210 9,421,322 9,961,210 9,414,507
=========== =========== =========== ===========
See accompanying notes to unaudited financial statements.
Accelr8 Technology Corporation -4- 10-QSB 4/30/04
Accelr8 Technology Corporation
Statements Of Cash Flows
For the Nine months Ended April 30, 2004 and 2003
(Unaudited)
2004 2003
----------- -----------
Cash flows from operating activities:
Net loss $(1,129,656) $ (718,357)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation 34,968 19,995
Amortization 174,384 179,955
Increase (decrease) in fair value of stock options granted for
consulting services (45,000) 37,490
Unrealized holding gain on investments (15,359) (18,457)
Realized gain on sale of investments, interest
and dividends reinvested (7,559) (1,891)
Net change in assets and liabilities:
Accounts receivable (69,450) (70,597)
Insurance recovery receivable -- 825,000
Inventory (63,303) --
Prepaid expenses and other (6,926) (24,092)
Income tax receivable and deferred tax asset -- 311,667
Accounts payable 14,155 16,775
Accrued liabilities (7,296) 643
Accrued settlement loss -- (450,000)
Deferred revenue 65,025 (2,200)
Deferred maintenance revenue (30,213) (33,157)
Deferred compensation 79,168 76,598
----------- -----------
Net cash (used in) provided by operating activities (1,007,062) 149,372
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (96,685) (24,164)
Purchase of intellectual property (22,427) (26,629)
Purchase of investments (75,000) (75,000)
----------- -----------
Net cash used in investing activities (194,112) (125,793)
----------- -----------
Cash flows from financing activities:
Employee stock option exercised -- 36,000
----------- -----------
Net cash provided by financing activities -- 36,000
----------- -----------
Net (decrease) increase in cash and cash equivalents (1,201,174) 59,579
Cash and cash equivalents, beginning of period 8,711,951 8,631,192
----------- -----------
Cash and cash equivalents, end of period $ 7,510,777 $ 8,690,771
=========== ===========
Supplemental information:
Cash received from income tax refunds -- $ 331,099
=========== ===========
See accompanying notes to unaudited financial statements.
Accelr8 Technology Corporation -5- 10-QSB 4/30/04
Accelr8 Technology Corporation
Notes to Unaudited Financial Statements
For the Nine Months Ended April 30, 2004
Note 1. Basis of Presentation
The financial statements included herein have been prepared by Accelr8
Technology Corporation (the "Company") without audit, pursuant to the rules and
regulations of the United States Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as allowed by such rules and regulations. The
Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with our annual audited financial statements dated July 31, 2003,
included in our annual report on Form 10-KSB as filed with the SEC.
Management believes that the accompanying unaudited financial
statements are prepared in conformity with generally accepted accounting
principles, which require the use of management estimates, and contain all
adjustments (including normal recurring adjustments) necessary to present fairly
the operations and cash flows for the periods presented. The results of
operations for the nine month and three month periods ended April 30, 2004 may
not be indicative of the results of operations for the year ended July 31, 2004.
Note 2. Reclassification
Certain reclassifications have been made in the fiscal 2003 financial
statements to conform to the classifications used in fiscal 2004. Such
reclassifications have no effect on net income (loss) as previously reported.
Note 3. Shareholders' Equity
Common Stock Options
At April 30, 2004, there were 762,500 stock options outstanding at
prices ranging from $1.45 to $3.25 with expiration dates between June 29, 2004
and August 1, 2011. There are no additional option shares available for issuance
under the Company's stock option plans. For the nine months ended April 30, 2004
and 2003, stock options exercisable into 762,500 and 740,000 shares of common
stock were not included in the computation of diluted earnings per share because
their effect was antidilutive.
Accelr8 Technology Corporation -6- 10-QSB 4/30/04
Note 4. Property and Equipment
Property and equipment are recorded at cost
and consisted of the following:
April 30, July 31,
2004 2003
--------- ---------
Computer equipment $ 30,060 $ 30,060
Laboratory and scientific equipment 273,940 177,255
Furniture and fixtures 11,114 11,114
--------- ---------
Total property and equipment 315,114 218,429
Accumulated depreciation (111,430) (76,462)
--------- ---------
Net property and equipment $ 203,684 $ 141,967
========= =========
Note 5. Intellectual Property
Intellectual property consisted of the following:
April 30, July 31,
2004 2003
----------- -----------
OptiChem technologies $ 4,454,538 $ 4,454,538
Patents 148,081 134,066
Trademarks 54,217 45,805
----------- -----------
Total intellectual property 4,656,836 4,634,409
Accumulated amortization (552,859) (378,475)
----------- -----------
Net intellectual property $ 4,103,977 $ 4,255,934
=========== ===========
Intellectual properties are recorded at cost and are being amortized
on a straight-line basis over their estimated useful lives of 20 years, which
approximates the patent and patent application life of the OptiChem
technologies. Amortization expense was $174,384 and $179,955 respectively, for
the nine months ended April 30, 2004 and 2003.
The Company routinely evaluates the recoverability of its long-lived
assets based upon estimated future cash flows from or estimated fair value of
such long-lived assets. If in management's judgment, the anticipated
undiscounted cash flows or estimated fair value are insufficient to recover the
carrying amount of the long-lived asset, the Company will determine the amount
of the impairment, and the value of the asset will be written down. Management
believes that the fair value of the technology exceeds the carrying value.
However, it is possible that future impairment testing may result in intangible
asset write-offs, which could adversely affect the Company's financial condition
and results of operations.
Accelr8 Technology Corporation -7- 10-QSB 4/30/04
Future amortization expense for the intangible assets is estimated as
follows:
Years Ending July 31,
---------------------
2004 (3 months) $ 58,123
2005 232,500
2006 232,500
2007 232,500
2008 232,500
Thereafter 3,115,854
----------
Total future amortization $4,103,977
==========
Accelr8 Technology Corporation -8- 10-QSB 4/30/04
Note 6. Employee Stock Based Compensation
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-Based Compensation--Transition and Disclosure--an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures about the method
of accounting for stock-based employee compensation and the effect of the method
used on reported results in both annual and interim financial statements. The
Company accounts for employee stock-based compensation arrangements using the
intrinsic value method in accordance with Accounting Principals Board ("APB")
No. 25 and related interpretations and has adopted the disclosure-only
provisions of SFAS No. 123 as amended by SFAS No. 148. The following table
illustrates the effect on net loss if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based compensation.
Nine Months Ended April 30,
2004 2003
------------------------------
Net loss - as reported $(1,129,656) $ (718,357)
Add: Stock-based compensation
expense included in reported net loss - -
Deduct: Total stock-based compensation expense
determined under fair value based method for all
awards (5,595) -
------------ ------------
Pro forma net loss $ (1,135,251) $ (718,357)
============ ============
Earnings per share:
Basic and diluted - as reported $ (.11) $ (.08)
============ ============
Basic and diluted - pro forma $ (.11) $ (.08)
============ ============
Note 7. Business Segment Information
The Company operates in two business segments: (i) selling software
tools for legacy code modernization and the resale of third party software and
(ii) selling surface chemistry within the general area of microarraying, which
includes DNA/RNA assays, protein-based assays and biosensors. Operating results
and other financial data for the three months and nine months ended April 30,
2004 and 2003 is presented for the principal business segments as follows:
Accelr8 Technology Corporation -9- 10-QSB 4/30/04
--------------------------------- ----------------------- ---------------------- -----------------------
Three Months Ended Software Tools Biosciences Total
April 30, 2004 Business
--------------------------------- ----------------------- ---------------------- -----------------------
Revenues $ 106,041 $ 26,262 $ 132,303
--------------------------------- ----------------------- ---------------------- -----------------------
Costs and expenses 141,454 318,922 460,376
--------------------------------- ----------------------- ---------------------- -----------------------
Interest income 7,904 7,904 15,808
--------------------------------- ----------------------- ---------------------- -----------------------
Segment loss (38,644) (295,891) (334,535)
--------------------------------- ----------------------- ---------------------- -----------------------
Total assets 8,254,618 4,436,938 12,691,556
--------------------------------- ----------------------- ---------------------- -----------------------
Intellectual property, net - 4,103,977 4,103,977
--------------------------------- ----------------------- ---------------------- -----------------------
Depreciation and amortization 1,176 71,838 73,014
expense
--------------------------------- ----------------------- ---------------------- -----------------------
--------------------------------- ----------------------- ---------------------- -----------------------
Three Months Ended Software Tools Biosciences Total
April 30, 2003 Business
--------------------------------- ----------------------- ---------------------- -----------------------
Revenues $ 258,503 $ 17,945 $ 276,448
--------------------------------- ----------------------- ---------------------- -----------------------
Costs and expenses 201,577 357,136 558,713
--------------------------------- ----------------------- ---------------------- -----------------------
Interest income 11,035 11,035 22,070
--------------------------------- ----------------------- ---------------------- -----------------------
Segment profit (loss) 90,960 (305,158) (214,198)
--------------------------------- ----------------------- ---------------------- -----------------------
Total assets 9,412,395 4,550,498 13,962,893
--------------------------------- ----------------------- ---------------------- -----------------------
Intellectual property, net - 4,469,578 4,469,578
--------------------------------- ----------------------- ---------------------- -----------------------
Depreciation and amortization 2,055 65,715 67,770
expense
--------------------------------- ----------------------- ---------------------- -----------------------
--------------------------------- ----------------------- ---------------------- -----------------------
Nine months Ended Software Tools Biosciences Total
April 30, 2004 Business
--------------------------------- ----------------------- ---------------------- -----------------------
Revenues $ 325,498 $ 85,514 $ 411,012
--------------------------------- ----------------------- ---------------------- -----------------------
Costs and expenses 497,672 1,108,414 1,606,086
--------------------------------- ----------------------- ---------------------- -----------------------
Interest income 24,042 24,042 48,084
--------------------------------- ----------------------- ---------------------- -----------------------
Segment loss (139,465) (990,191) (1,129,656)
--------------------------------- ----------------------- ---------------------- -----------------------
Total assets 8,254,618 4,436,938 12,691,556
--------------------------------- ----------------------- ---------------------- -----------------------
Intellectual property, net - 4,103,977 4,103,977
--------------------------------- ----------------------- ---------------------- -----------------------
Depreciation and amortization 3,528 205,824 209,352
expense
--------------------------------- ----------------------- ---------------------- -----------------------
--------------------------------- ----------------------- ---------------------- ----------------------------------
Nine months Ended Software Tools Biosciences Business Total
April 30, 2003
--------------------------------- ----------------------- ---------------------- ----------------------------------
Revenues $ 632,405 $ 36,547 $ 668,952
--------------------------------- ---------------------------------- ----------------------- ----------------------
Costs and expenses 514,520 991,621 1,506,141
--------------------------------- ----------------------- ---------------------- ----------------------------------
Interest income 41,769 41,768 83,537
--------------------------------- ----------------------- ---------------------- ----------------------------------
Segment profit (loss) 217,287 (935,644) (718,357)
--------------------------------- ----------------------- ---------------------- ----------------------------------
Tax benefit - 19,431 19,431
--------------------------------- ----------------------- ---------------------- ----------------------------------
Total assets 9,412,395 4,550,498 13,962,893
--------------------------------- ----------------------- ---------------------- ----------------------------------
Intellectual property, net - 4,469,578 4,469,578
--------------------------------- ----------------------- ---------------------- ----------------------------------
Depreciation and amortization 5,655 194,295 199,950
expense
--------------------------------- ----------------------- ---------------------- ----------------------------------
Accelr8 Technology Corporation -10- 10-QSB 4/30/04
Note 8. Legal Proceedings
Concluded legal matters
All claims and counterclaims in the litigation against Deloitte &
Touche LLP which the Company initiated on November 20, 2002, have been resolved,
and the litigation is concluded. The litigation and its conclusion were not
material to the Company's financial statements. The Company made no payments to
Deloitte & Touche LLP in connection with the litigation. This settlement
terminates all legal matters concerning the company and any of its officers,
directors, or employees.
Note 9. Non-Cash Financing
On October 30, 2002, the Company agreed to issue 375,000 shares of
common stock valued at $375,000 under a settlement agreement. In accordance with
instructions received on August 5, 2003, 93,750 shares of common stock were
issued in the names of plaintiffs' counsel. In January 2004, the Company
received instructions for issuing the balance of 281,250 shares of common stock
to the Settlement Fund. The shares were issued on February 2, 2004 and have been
delivered to plaintiffs' counsel.
Note 10. Inventory
The Company purchases raw materials (custom chemicals and glass
substrates) for producing OptArray slides. Raw material on hand at the end of
each reporting period is priced at cost based on the first-in first-out method.
There was no work-in-process or finished goods inventory at April 30, 2004, as
slides currently are made for specific orders and shipped as produced.
Note 11. Proof of Principle Testing Agreement
On April 12, 2004, the Company signed a proof of principle testing
agreement with a major life sciences company (the agreement has a non-disclosure
clause as to name of entity). Under the agreement, Accelr8 will develop a
customized surface coating to be applied to blank substrates provided by the
customer. The agreement calls for the delivery of twelve (12) unoptimized
experimental coated substrates within twenty-one (21) days of the effective date
of the agreement and the final fifty (50) customized coated substrates no later
than June 25, 2004. The agreement specifies a $60,000 payment to Accelr8 within
ten (10) business days of the signing of the agreement and an additional $30,000
payment within ten (10) business days after the final fifty customized
substrates are delivered. The Company delivered the first twelve (12) substrates
on April 19, 2004 and received the $60,000 payment on May 7, 2004. The $60,000
is recorded as deferred revenue at April 30, 2004. It is anticipated that the
total contract price of $90,000 will be earned and shown as income in the
quarter ended July 31, 2004.
Accelr8 Technology Corporation -11- 10-QSB 4/30/04
Note 12. Subsequent Event
On May 17, 2004, the Company entered into a letter of intent to sell
substantially all of its software migration tools business, as well as its
customer support and resale of purchased software business, for an aggregate
purchase price of $500,000; payable $100,000, at the time of closing and a
promissory note payable in three equal annual installments of $133,333 with
annual interest of 4% on the unpaid balance, payable quarterly. In addition, the
purchase price includes the waiver of any support by the Company to those
maintenance customers who have pre-paid their annual maintenance prior to the
closing. Since the purchaser will assume the responsibility of providing
customer support at the time of closing, all deferred maintenance at that time
will become income to Accelr8, and a net gain on the sale transaction will be
recorded. The letter of intent is not binding and contemplates a definitive
agreement after the potential purchaser has performed its due diligence. The
Company is not actively marketing the software migration tools business;
however, the Company continues to generate revenues from this segment, and the
terms and conditions of the potential sale, other than the general terms, have
yet to be determined. Accordingly, the Company is including this segment in
continuing operations until such time as a sale of the segment is probable.
Note 13. Deferred Maintenance
Purchase orders of $70,725 and $10,200 from two repeat customers for
their annual support fees totaling $80,925, were not included in receivables or
deferred maintenance as the support period begins after April 30, 2004, and the
related revenue has not been earned. The amounts were billed during April of
2004 when purchase orders were received and were paid in May 2004. The deferred
maintenance at April 30, 2004 plus these two additional invoices totals
approximately $200,000, which would result in income in the event of the
execution of a definitive agreement to sell the software migration business (See
Note 12 and Management's Discussion and Analysis of Financial Condition and
Result of Operations).
Item 2. Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
Result of Operations
--------------------
Forward Looking Information
Information contained in the following discussion of results of
operations and financial condition and in certain of the notes to the financial
statements included in this document contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which can
be identified by the use of words such as "may," "will," "expect," "anticipate,"
"estimate," or "continue," or variations thereon or comparable terminology. 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 following discussion should be read in
conjunction with the Company's unaudited 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
Accelr8 Technology Corporation -12- 10-QSB 4/30/04
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 its 10-KSB for the year ended July 31, 2003, could affect
the Company's actual results and cause actual results to differ materially from
those discussed in forward-looking statements.
Overview
Prior to January 2001, Accelr8 was primarily a provider of software
tools and consulting services. Since the acquisition of the OpTest suite of
technologies, the Company has focused primarily upon research and development
relating to the technologies acquired, and the development of revenue-producing
products related to that technology. The potential market opportunity in the
growing area of biosciences, coupled with unique patented technology that was
beyond initial development stage, led the Company to pursue a purchase agreement
with DDx, Inc.
On January 18, 2001, Accelr8 purchased the OpTest technology assets
from DDx and commenced investment in development and optimization of OpTest's
surface chemistry (OptiChem) and quantitation instrument (QuanDx(TM)). The
Company's proprietary surface chemistry and its quantitation instruments support
real-time assessment of medical diagnostics, food-borne pathogens, water-borne
pathogens, and bio-warfare assessments. Presently the Company holds for sale
advanced microarray slides and specialty microtiter plates coated with its
proprietary OptiChem activated surface chemistry for use in academic research,
drug discovery and molecular diagnostics. This surface coating has the ability
to shed sticky biomolecules that interfere with bio-analytical assays such as
microarrays and immunoassays. Management believes that this property
substantially improves analytical performance by enabling higher sensitivity,
greater reproducibility, and higher throughput by virtue of simplified
application methods.
The Company believes that the market for DNA/RNA and protein
microarrays is growing because of increased demand for gene analysis and
molecular diagnostics as measured by industry wide growth in unit sales, i.e.,
Affymetrix (NASDAQ:AFFX), Agilent (NYSE:A), and Applied Biosciences (NYSE:ABI).
In July 2003, the Company introduced its OptiPlate(TM) products, which
are 96- and 384-well glass bottom microtiter plates for multiplexed
microarraying. These products allow the customers to print a small microarray
(as many as 2,000 spots) in each well. As with OptArray slides, the products
support both DNA and protein arraying. The glass and chemical coatings are
identical to those used in OptArray slides. This high throughput mode is
essential in drug discovery and diagnostics where a lab must validate an assay
over a large number of individual samples. The Company knows of only one other
US company (Apogent Matrix) that is selling a plate for multiplexed
microarraying. The Company is exploring high volume manufacturing alternatives
at this time and expects to license the manufacture of OptiPlate to Schott
Nexterion after its new facility in Jena, Germany comes on line in late 2004.
Accelr8 Technology Corporation -13- 10-QSB 4/30/04
On October 15, 2003, the Company signed a supply agreement and a
letter of intent with SCHOTT Nexterion AG of Mainz, Germany ("Nexterion").
Nexterion is a wholly-owned division of SCHOTT Glas ("SCHOTT"), which is a
leading European manufacturer of precision glass. SCHOTT had sales of about 2
billion euros in 2002. SCHOTT formed the Nexterion division in 2002 to enter the
microarray market. In 2003, Nexterion acquired the microarray products of
Quantifoil (Jena, Germany), which is a market leader in the European microarray
slide market. Nexterion also made investments in two development stage companies
in the microarray market.
The Company is currently referring sales of its OptArray microarray
slides to Schott Nexterion who in turn, under their October 15, 2003 supply
agreement are fulfilling orders to university and government labs,
pharmaceutical, drug discovery, and diagnostic companies that rely upon
customized surface chemistry for their assays. The surface chemistry will be
customized to meet the specific requirements of large manufacturers, with the
intent of licensing its products to users.
The supply agreement with Nexterion has a term of six months from
October 15, 2003, and provides for the purchase of 5,000 slides at $10.50 each.
As of April 30, 2004, 2,600 slides have been delivered under the original supply
contract. The balance of 2,400 should be shipped by July 31, 2004. Nexterion
will purchase and resell Accelr8's OptArray microarray slides under the OptiChem
brand, and Accelr8 will continue to manufacture the microarraying products in
its Denver facility. Accelr8 will be Nexterion's sole supplier of permeable
hydrogel microarraying slides during the term of the supply agreement and will
provide sales training and also technical support to SCHOTT's customers as
required.
The letter of intent calls for negotiation of an exclusive technology
transfer license for Accelr8's OptiChem surface chemistry on microarraying
slides. Under the intended technology transfer license, SCHOTT will become the
exclusive outsource manufacturer for OptArray products starting in the third
calendar quarter of 2004. SCHOTT will manufacture the coated OptArray slides and
also negotiate an exclusive global distribution agreement to those products for
three years. The two companies will cooperatively market DNA slides coated with
OptiChem, while Schott Nexterion focuses exclusively on markets for OptiChem
protein slides. Management anticipates that there may be three potential sources
of revenue in the technology transfer agreement and exclusive distribution
agreement to be entered into with SCHOTT: (i) a one-time payment of an up front
licensing fee (upon signing the distribution agreement), (ii) royalties on sales
of OptiChem coated slides, and (iii) revenues from the purchase of custom coated
OptiChem slides featuring streptavidin and 96-well OptiChem coated plates. The
specific terms and conditions of the proposed licensing agreement have been
negotiated but not finalized. Though unlikely, it is possible that a definitive
agreement will not be reached with SCHOTT.
On April 12, 2004, the Company entered into a Proof of Principal
Testing Agreement (the "Testing Agreement") whereby the Company will focus on
the development of a customized substrate surface coating. Under the Testing
Agreement, Accelr8 will develop a customized surface coating to be applied to
blank substrates provided by the customer. The Testing Agreement calls for the
Accelr8 Technology Corporation -14- 10-QSB 4/30/04
delivery of twelve unoptimized experimental coated substrates within twenty-one
days of the effective date of the Testing Agreement and the final fifty
customized coated substrates no later than June 25, 2004. The contract specifies
a $60,000 payment to Accelr8 within ten business days of the signing of the
agreement and an additional $30,000 payment within ten business days after the
final fifty customized substrates are delivered. Pursuant to the Testing
Agreement, on April 19, 2004, the Company delivered the initial twelve
substrates and received the initial $60,000 payment. The Company anticipates
that the total contract price of $90,000 will be earned and shown as income in
the quarter ended July 31, 2004.
The Company continues to remain a provider of software tools and
modernization solutions for VMS Legacy Systems. However, in the past the Company
has taken steps to limit the costs associated with the conduct of its software
tools and consulting services business. On May 17, 2004, the Company entered
into a letter of intent to sell substantially all of its software migration
tools business, customer support and resale of purchased software business, for
an aggregate purchase price of $500,000; payable $100,000, at the time of
Closing and a promissory note payable in three equal annual installments of
$133,333 with annual interest of 4% on the unpaid balance payable quarterly. In
addition, the purchase price includes the waiver of any support by the Company
to those maintenance customers who have pre-paid their annual maintenance prior
to the closing. (See Note 12.) Accordingly, the Company is including this
segment in continuing operations until such time as a sale of the segment is
probable. While management believes that the consummation of the transaction is
likely, there can be no assurance that the transaction will close.
Changes in Results of Operations: Nine months ended April 30, 2004 compared to
nine months ended April 30, 2003.
The Company had no revenue from consulting fees for the nine months
ended April 30, 2004 as compared to $25,000 for the nine months ended April 30,
2003, primarily because the Company is not actively marketing this business
segment.
Product license and customer support fees for the nine months ended
April 30, 2004, were $67,039 compared with $137,870 during the nine months ended
April 30, 2003, a decrease of $70,831 or 51% as compared to the nine months
ended April 30, 2003, and represented 16% of net revenues. This decrease was due
to lack of any major sales in the current period because the company is not
actively marketing this business segment.
Revenues from the resale of purchased software including purchased
maintenance for the nine months ended April 30, 2004 were $263,724 compared with
$475,940 during the nine months ended April 30, 2003, a decrease of $212,216 or
45%, and represented 64% of net revenues. This decrease largely resulted from
the sale of fewer software tool sets and refocusing the corporate resources
towards the OptiChem product line.
Accelr8 Technology Corporation -15- 10-QSB 4/30/04
OptiChem revenues for the nine months ended April 30, 2004 were
$85,514 as compared to $36,547 for the nine months ended April 30, 2003,
resulting in an increase of $48,967, or 134% and represented 21% of net
revenues. The increase in OptiChem revenues is primarily the result of
increasing sales to the Company's two major repeat customers.
Provision for returns and allowances for the nine months ended April
30, 2004 was $5,265 and represented 1% of net revenues.
Due to the above factors, net revenues for the nine months ended April
30, 2004, amounted to $411,012, which represented a decrease of $257,940 or 39%
as compared to the nine months ended April 30, 2003.
During the nine months ended April 30, 2004, sales to the Company's
largest customer was $86,367, representing 21% of the Company's net revenues.
During the nine months ended April 30, 2003, sales to the Company's three
largest customers were $127,323, $78,035, and $67,200, representing 19%, 11%,
and 10% of net revenues. The loss of a major customer could have a significant
impact on the Company's financial performance in any given year.
Cost of services for the nine months ended April 30, 2004 was $21,407
compared to $34,840, a decrease of $13,433 or 39% as compared to the nine months
ended April 30, 2003. This decrease resulted largely from a net decrease in
software support salaries of $3,886, combined with reduced rent of $1,106,
reduced engineering consulting fees to support sales in the amount of $4,818
along with other miscellaneous reductions.
Cost of software purchased for resale, including purchased
maintenance, for the nine months ended April 30, 2004 was $50,535, a decrease of
$32,366 or 39% as compared to the nine months ended April 30, 2003. The decrease
is the result of decreased sales of purchased software including purchased
maintenance and variations in the product mix of items purchased.
Cost of sales-OptiChem was $38,777 for the nine months ended April 30,
2004 compared with $12,878 for the same period in 2003. The increase of $25,899
or 201% is attributable to the increased revenues associated with this product.
Accelr8 Technology Corporation -16- 10-QSB 4/30/04
General and administrative expenses for the nine months ended April
30, 2004 were $728,193, an increase of $120,753, or 20% as compared to the nine
months ended April 30, 2003. The following summarizes the major components of
the changes:
Accounting/Auditing $ 5,361
Consulting Fees 26,605
Corporate and Shareholder 78,815
Corporate Insurance (13,789)
Deferred Compensation 2,569
Employee Benefits 19,792
Legal Fees (42,913)
Payroll Taxes 9,339
Salaries 31,561
Travel 5,376
Miscellaneous other categories (1,963)
---------
$ 120,753
=========
The increase in accounting fees is considered a normal fluctuation.
The increased consulting fees arose from utilizing the consultants regarding
intellectual property for nine months in 2004 compared with four months in the
comparable period in 2003. Corporate and shareholder expenses rose principally
because of the original listing fee amounting to $55,000 for the American Stock
Exchange. Corporate insurance decreased because of a reduction in cost of the
directors, officers, and Company reimbursement liability coverage. Legal fees
decreased due to a conclusion of the legal action in prior periods. Salaries
together with related payroll taxes, employee benefits and travel expenses rose
in the normal course of business.
Marketing and sales expenses for the nine months ended April 30, 2004
were $149,628, a decrease of $74,279 or 33% as compared to the nine months ended
April 30, 2003. This decrease was mainly due to decreased consulting fees of
$9,894, decreased consultant stock option expense of $41,245, and $28,678 in
marketing expenses, which include advertising, promotional material, attendance
at trade shows, and telecommunications, offset by a increase in of $8,585 in
salaries and postage.
Research and development expenses for the nine months ended April 30,
2004 were $408,194, an increase of $63,969 or 19% as compared to the nine months
ended April 30, 2003. This increase was due to the continued development of
protein micro arrays for use in applications that leveraged the Company's
instruments plus an increase in salaried scientific personnel of $88,385 offset
by decreases in consulting fees of $6,558 and consultant's option expense of
$41,245.
Amortization for the nine months ended April 30, 2004 was $174,384, a
decrease of $5,571 or 3% as compared to the nine months ended April 30, 2003.
Accelr8 Technology Corporation -17- 10-QSB 4/30/04
Depreciation for the nine months ended April 30, 2004 was $34,968, an
increase of $14,973 or 75% as compared to the nine months ended April 30, 2003.
This increase results from additional laboratory equipment being depreciated.
As a result of these factors, loss from operations for the nine months
ended April 30, 2004 was $1,195,074, an increased loss of $357,885 or 43%, as
compared to loss from operations for the nine months ended April 30, 2003.
Interest income for the nine months ended April 30, 2004 was $48,084,
a decrease of $35,453 or 42% as compared to the nine months ended April 30,
2003. This decrease was primarily due to decreased interest rates in government
money market funds.
Realized gain on marketable securities held in the deferred
compensation trust for the nine months ended April 30, 2004 was $1,975, as
compared to a loss of $2,593 for the nine months ended April 30, 2003. The gain
(loss) was the result of selling trust investments plus interest and dividends
reinvested. Unrealized gain on marketable securities held in the deferred
compensation trust for the nine months ended April 30, 2004 was $15,359,
compared to unrealized gain of $18,457 for the nine months ended April 30, 2003.
The unrealized income was a result of the appreciation of the underlying assets.
The total of the realized gain (loss) and unrealized gain (loss) in marketable
securities is reflected as deferred compensation and included in general and
administrative expenses.
No income tax provision or benefit was recorded during the nine months
ended April 30, 2004, as compared to a tax benefit of $19,431 for the nine
months ended April 30, 2003. Deferred income tax assets and liabilities are
computed to determine differences between the financial statement basis and the
estimated income tax basis of assets and liabilities that will result in taxable
or deductible amounts in the future. As of April 30, 2004, a valuation allowance
has been recorded for the deferred tax asset, as management has not determined
that it is more likely than not that this amount of the deferred tax asset will
be realized.
As a result of these factors, net loss for the nine months ended April
30, 2004 was $1,129,656, an increased loss of $411,299 or 57% as compared to the
nine months ended April 30, 2003.
Changes in Results of Operations: Three months ended April 30, 2004 compared to
three months ended April 30, 2003.
The Company had no revenue from consulting fees for the nine months
ended April 30, 2004 as compared to $5,000 which were the result of support
provided for a single customer.
Product license and customer support fees for the three months ended
April 30, 2004 were $23,062, an increase of $19,526 or 552% as compared to
$3,536 during the three months ended April 30, 2003, and represented 17% of net
revenue. This increase was largely due to a lack of major sales during 2003.
Accelr8 Technology Corporation -18- 10-QSB 4/30/04
Revenues from the resale of purchased software for the three months
ended April 30, 2004 were $85,354, a decrease of $167,063 or 66% as compared to
$252,417 during the three months ended April 30, 2003, and represented 64% of
net revenue. This decrease was largely due to fewer license and support sales
and reflects the focusing of the Company's resources on the OptiChem product
line.
OptiChem revenues for the three months ended April 30, 2004, were
$26,262 as compared to $17,945 for the three months ended April 30, 2003 for an
increase in sales of $8,317 or 46% and represented 19% of net revenues. The
increase is a result of increasing sales to Schott.
Provision for returns and allowances for the three months ended April
30, 2004 was $2,375, and represented 2 % of net revenues.
Due to the factors above, net revenues for the three months ended
April 30, 2004 were $132,303, a decrease of $144,145 or 52%, as compared to $
276,448 during the three months ended April 30, 2003.
During the three months ended April 30, 2004, sales to the Company's
two largest customers were $28,025 and $22,615, representing 21% and 17% of the
Company's net revenues. During the three months ended April 30, 2003, sales to
the Company's three largest customers were $72,450, $43,125, and $36,900,
representing 26%, 16%, and 13% of net revenues. The loss of a major customer
could have a significant impact on the Company's financial performance in any
given year.
Cost of services for the three months ended April 30, 2004 was $7,443,
a decrease of $5,726 or 43% as compared to $13,169 during the three months ended
April 30, 2003. This decrease resulted largely from a reduction in software
support salaries, consulting fees, and depreciation.
Cost of software purchased for resale for the three months ended April
30, 2004 was $14,724, a decrease of $29,413 or 67% as compared to $44,137 during
the three months ended April 30, 2003. The decrease is the result of decreased
sales of purchased software including purchased maintenance and variations in
the product mix of items purchased.
Cost of sales-OptiChem for the three months ended April 30, 2004 was
$14,520, an increase of $8,278 or 133% as compared to $6,242 during the three
months ended April 30, 2003 and is a direct reflection of the increased sales.
Accelr8 Technology Corporation -19- 10-QSB 4/30/04
General and administrative expenses for the three months ended April
30, 2004 were $198,276, a decrease of $27,239 or 12% as compared to $225,515
during the three months ended April 30, 2003. The major components of the change
are as follows:
Corporate and shareholder $ 25,807
Corporate insurance (11,324)
Deferred compensation (67,560)
Employee benefits 9,654
Legal fees 2,236
Payroll taxes 3,115
Salaries 10,656
Miscellaneous other items 177
---------
$ (27,239)
=========
Corporate and shareholder expenses rose principally due to cost of
retaining a financial and corporate communications company amounting to $13,182,
cost of printing the annual report to shareholders and proxy statement which was
in the previous quarter in 2003, amounting to $8,813, and the monthly cost of
the American Stock Exchange annual listing fee amounting to $4,374. Corporate
insurance decreased because of a reduction in cost of the directors, officers,
and Company reimbursement liability coverage. Deferred compensation decreased
because of a change in market value of investments in the deferred compensation
trust. Legal fees, salaries together with related payroll taxes, and employee
benefits increased in the normal course of business
Marketing and sales expenses for the three months ended April 30, 2004
were $24,570, a decrease of $55,369 or 69% as compared to $79,939 during the
three months ended April 30, 2003. This decrease was largely comprised of a
decrease in consultant stock option expense in the amount of $30,407 due to a
decreased price of the Company's stock as compared to 2003 together with
decreases in consulting fees of $13,300, trade shows/travel expense of $8,100
and communications of $3,100.
Research and development expenses for the three months ended April 30,
2004 were $127,829, an increase of $5,888 or 5% as compared to $121,941 during
the three months ended April 30, 2003. The following summarizes the major
components of the increase:
Computer Supplies and Expense $ 1,335
Consulting Fees 1,500
Consultant Option Expense (30,407)
Laboratory Supplies and Expense (4,448)
Miscellaneous 1,149
Premises Rent 1,455
Salaries 30,135
Travel and Lodging (2,228)
Miscellaneous other 7,397
--------
$ 5,888
========
Accelr8 Technology Corporation -20- 10-QSB 4/30/04
The major increase is in salaries devoted to research in the OptiChem
line, offset by a decrease in consultant stock option expense due to a decreased
price of the Company's stock as compared to 2003. The fluctuations in the other
categories are considered normal in the ordinary course of business.
Amortization for the three months ended April 30, 2004 was $58,128, a
decrease of $1,947 or 3% as compared to $60,075 during the three months ended
April 30, 2003.
Depreciation for the three months ended April 30, 2004 was $14,886, an
increase of $7,191 or 93% as compared to $7,695 during the three months ended
April 30, 2003.
As a result of these factors, loss from operations for the three
months ended April 30, 2004 was $328,073, an increased loss of $45,808 or 16% as
compared to a loss from operations of $282,265 for the three months ended April
30, 2003.
Interest income for the three months ended April 30, 2004 was $15,808,
a decrease of $6,262 or 28% as compared to $ 22,070 during the three months
ended April 30, 2003. This decrease was primarily due to decreased interest
rates in government money market funds.
Unrealized gain (loss) on marketable securities held in the deferred
compensation trust for the three months ended April 30, 2004 was a loss of
$22,270 as compared to unrealized gain of $45,997 for the three months ended
April 30, 2003. The unrealized loss was a result of the change in market value
of the underlying assets. The unrealized loss in marketable securities is
reflected as decreased deferred compensation and included in general and
administrative expenses.
The Company has not recorded an income tax provision or benefit in
either period. Deferred income tax assets and liabilities are computed to
determine differences between the financial statement basis and the estimated
income tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future. As of April 30, 2004, a valuation allowance
has been recorded for the deferred tax asset, as management has not determined
that it is more likely than not that this amount of the deferred tax asset will
be realized.
As a result of these factors, net loss for the three months ended
April 30, 2004 was $334,535, an increased loss of $120,337 or 56% as compared to
a net loss of $214,198 during the three months ended April 30, 2003.
Capital Resources and Liquidity
At April 30, 2004, as compared to July 31, 2003, the Company's current
assets decreased 12% from $8,773,073 to $7,711,578, the Company's liquidity, as
measured by cash and cash equivalents, decreased by 14% from $8,711,951 to
$7,510,777, and the Company's working capital decreased by 13% from $8,406,243
to $7,303,077. During the same period, shareholders' equity decreased 9% from
$12,729,144 to $11,554,488, largely as a result of a net loss of $1,129,656.
Accelr8 Technology Corporation -21- 10-QSB 4/30/04
Cash and cash equivalents as of April 30, 2004 decreased by $1,201,174
as compared to fiscal year end, July 31, 2003. This decrease was largely the
result of a net loss of $1,129,656, an increase in accounts receivable of
$69,450, an increase in inventory of $63,303, and an increase in prepaid
expenses of $6,926, offset by depreciation and amortization of $209,352. The
Company utilized $1,007,062 in operating activities in the nine months ended
April 30, 2004 compared to cash flow provided in the amount of $149,372 in the
comparable period in 2003. The principal elements that gave rise to the
difference are the increase in net losses of $411,229 and a nonrecurring
decrease in accrued settlement losses of $450,000, offset by the nonrecurring
insurance recovery in the amount of $825,000 and the tax benefit from the net
operating loss carry back in the amount of $311,667.
The Company has historically funded its operations primarily through
equity financing and cash flow generated from operations. The Company
anticipates that current cash balances and working capital plus future positive
cash flow from operations will be sufficient to fund its capital and liquidity
needs in the foreseeable future.
Item 3. Controls and Procedures
-----------------------
An evaluation was conducted under the supervision and with the
participation of the Company's management, including Thomas V. Geimer, the
Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"),
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures as of April 30, 2004. Based on that evaluation, Mr.
Geimer concluded that the Company's disclosure controls and procedures were
effective as of such date to ensure that information required to be disclosed in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms. Such officers also confirm that there was no change in the
Company's internal control over financial reporting during the quarter ended
April 30, 2004 that has materially affected or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
See Note 8 to unaudited financial statements.
Item 2. Changes in Securities and Use of Proceeds
---------------------------------------------------
Not applicable.
Item 3. Defaults of Senior Securities
---------------------------------------
Not applicable.
Accelr8 Technology Corporation -22- 10-QSB 4/30/04
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
Not applicable.
Item 5. Other Information
The Company intends to issue a press release disclosing its third
quarter 2004 results on June 15, 2004. A copy of the press release is attached
to the quarterly report as Exhibit 99.1.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
a) Exhibits:
1. Exhibit 31.1 Certification of Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
2. Exhibit 31.2 Certification of Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
3. Exhibit 32.1 Certification of Officer Pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act 0f 2002.
4. Exhibit 99.1 Press Release to be filed on June 15, 2004
b) Reports on Form 8-K:
None
Accelr8 Technology Corporation -23- 10-QSB 4/30/04
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 14, 2004 ACCELR8 TECHNOLOGY CORPORATION
/s/ Thomas V. Geimer
-----------------------------------
Thomas V. Geimer, Secretary,
Chief Executive Officer and
Chief Financial Officer
/s/ James Godkin
-----------------------------------
James Godkin,
Principal Accounting Officer
Accelr8 Technology Corporation -24- 10-QSB 4/30/04