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, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-11485
ACCELR8 TECHNOLOGY CORPORATION
------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1072256
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
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 April 30, 2002
- -------------------------- -----------------------------
Common Stock, no par value 9,423,210
Accelr8 Technology Corporation
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - as of
April 30, 2002 and July 31, 2001 3
Statements of Operations
for the nine months and three months ended
April 30, 2002 and 2001 4
Statements of Cash Flows
for the nine months ended April 30, 2002 and 2001 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Accelr8 Technology Corporation
Balance Sheets
(Unaudited)
April 30, July 31,
2002 2001
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,606,512 $ 9,522,343
Accounts receivable, net 33,155 69,370
Prepaid expenses and other current assets 79,753 60,691
------------ ------------
Total current assets 8,719,420 9,652,404
------------ ------------
Property and equipment, net 65,115 82,274
------------ ------------
Investments 507,930 511,896
------------ ------------
Intellectual property, net 537,429 485,170
------------ ------------
Goodwill 4,217,069 --
------------ ------------
Total assets $ 14,046,963 $ 10,731,744
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 105,272 $ 153,328
Accrued liabilities 20,584 219,737
Deferred revenue -- 825
Deferred maintenance revenue 124,540 153,204
------------ ------------
Total current liabilities 250,396 527,094
------------ ------------
Long Term Liabilities:
Deferred tax liabilities 6,358 6,358
Other long term liabilities 564,180 586,896
------------ ------------
Total long term liabilities 570,538 593,254
------------ ------------
Total liabilities 820,934 1,120,348
------------ ------------
Shareholders' Equity
Common stock, no par value; 11,000,000 shares authorized;
9,423,210 and 7,632,817 shares issued and outstanding,
respectively 12,353,450 8,197,795
Contributed capital 315,049 315,049
Retained earnings 831,130 1,372,152
Shares held for employee benefit (1,129,110 shares at cost) (273,600) (273,600)
------------ ------------
Total shareholders' equity 13,226,029 9,611,396
------------ ------------
Total Liabilities And Shareholders' Equity $ 14,046,963 $ 10,731,744
============ ============
3
Accelr8 Technology Corporation
Statements of Operations
(Unaudited)
Nine Months Three Months
Ended April 30 Ended April 30
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues:
Consulting fees $ -- $ 38,250 $ -- $ --
Product license and customer support fees 161,612 318,179 48,169 63,781
Resale of software and support purchased 242,082 414,761 74,393 88,479
Provision for sales returns and allowances (3,680) (6,330) (1,235) (1,295)
----------- ----------- ----------- -----------
Net Revenues 400,014 764,860 121,327 150,965
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of services 111,221 273,187 24,143 66,819
Cost of software and support purchased for resale 36,942 70,248 11,736 15,920
General and administrative 462,765 413,157 85,543 100,692
Marketing and sales 149,232 198,257 50,025 55,206
Research and development 237,988 138,488 83,718 77,788
Amortization 6,345 446,400 -- 128,490
Loss on impairment -- 255,445 -- --
Depreciation 15,975 54,355 5,325 18,205
----------- ----------- ----------- -----------
Total Costs and Expenses 1,020,468 1,849,537 260,490 463,120
----------- ----------- ----------- -----------
Loss from operations (620,454) (1,084,677) (139,163) (312,155)
----------- ----------- ----------- -----------
Other income (expense)
Interest income 156,888 449,991 36,737 124,154
Gain (loss) on asset disposal 11,153 (28,877) 700 (28,877)
Realized gain (loss) on investment (5,566) 42,801 (1,304) 9,205
Unrealized gain (loss) on investment (79,113) (308,310) (47,877) (141,106)
Abandoned trademark (3,930) -- --
Other -- (32,500) -- (50,000)
----------- ----------- ----------- -----------
Total other income (expense) 79,432 123,105 (11,744) (86,624)
----------- ----------- ----------- -----------
Loss before income taxes (541,022) (961,572) (150,907) (398,779)
Income tax benefit -- 164,028 -- 49,900
----------- ----------- ----------- -----------
Net Loss $ (541,022) $ (797,544) $ (150,907) $ (348,879)
=========== =========== =========== ===========
Weighted average shares outstanding - basic 8,006,383 7,679,840 8,642,137 7,635,233
=========== =========== =========== ===========
Net loss per share - basic $ (.07) $ (.10) $ (.02) $ (.05)
----------- ----------- ----------- -----------
Weighted average shares outstanding - diluted 8,006,383 7,679,840 8,642,137 7,635,233
=========== =========== =========== ===========
Net loss per share - diluted $ (.07) $ (.10) $ (.02) $ (.05)
=========== =========== =========== ===========
4
Accelr8 Technology Corporation
Statements of Cash Flows
(Unaudited)
Nine Months
Ended April 30
----------------------------
2002 2001
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (541,002) $ (797,544)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization 6,345 446,490
Depreciation 15,975 54,355
Loss on impairment -- 255,445
Loss on abandoned trademarks 3,906 --
(Gain) loss from disposal of assets (11,153) 32,677
Unrealized holding (gain)/loss on investments 79,113 308,310
Realized gain (loss) on sale of investments, interest and
dividends reinvested (167) (47,226)
Deferred income tax benefit -- 174,554
Net change in assets and liabilities:
Accounts receivable 36,215 218,149
Inventory 2,625 (3,500)
Prepaid expenses (21,687) (8,492)
Accounts payable (48,056) (7,172)
Accrued liabilities (199,153) (98,549)
Deferred revenue (825) (218,838)
Deferred maintenance revenue (28,664) 68,067
Other long-term liabilities (22,716) (204,834)
------------ ------------
Net cash provided (used) by operating activities (729,244) 171,892
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Software development costs -- (32,944)
Purchase of property and equipment -- (521,864)
Purchase of intellectual property (62,509) --
Proceeds from sales of fixed assets 12,336 --
Purchase of investments (75,000) (75,000)
------------ ------------
Net cash used in investing activities (125,173) (629,808)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Repurchase of common stock (63,214) (104,081)
Employee stock option exercised 1,800 --
------------ ------------
Net cash used from financing activities (61,414) (104,081)
------------ ------------
Net (decrease) in cash and cash equivalents (915,831) (561,997)
Cash and cash equivalents, beginning of period 9,522,343 10,359,581
------------ ------------
Cash and cash equivalents, end of period $ 8,606,512 $ 9,797,584
============ ============
NON-CASH FINANCING AND INVESTING ACTIVITY:
The Company issued 906,897 and 906,896 shares of common stock on January
18, 2002 and April 18, 2002 respectively to DDx, Inc. as provided for in the
Asset Purchase Agreement, as extended. The amount of the transaction was valued
at the average closing price of the Company's stock over the previous 120
trading days, or $2.51 and $ 2.14 per share respectively, for a total of $
4,217,069. See Note 10.
5
Accelr8 Technology Corporation
Notes to Financial Statements
For the nine months ended April 30, 2002 and 2001
Note 1. Financial Statements
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 the Company's annual audited financial statements dated July
31, 2001, included in the Company's annual report on Form 10-KSB as filed with
the SEC. While management believes the procedures followed in preparing these
financial statements are reasonable, the accuracy of the amounts are, in some
respects, dependent upon the facts that will exist later in the year.
Management of the Company believes that the accompanying unaudited
financial statements have been 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.
Note 2. Reclassification
Certain reclassifications have been made in the 2001 financial statements
to conform to the classifications used in 2002.
Note 3. Income Taxes
There was no income tax expense attributable to income from operations for
the nine months ended April 30, 2002 due to the loss incurred from operations.
The Company's net deferred tax asset for future deductions and its net operating
loss carry forward in excess of future taxable amounts is offset by a valuation
allowance. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at April 30,
2002 and 2001 are as follows:
6
2002 2001
--------- ---------
Net operating loss $ 422,123 $ 102,387
Deferred income 44,515 56,881
Tax credits -- 21,208
--------- ---------
Total gross deferred taxes 466,638 180,476
Valuation allowance (466,638) (180,476)
--------- ---------
Net deferred tax asset $ 0 $ 0
========= =========
Deferred tax liabilities -
Amortization and depreciation $ 6,358 $ 160,517
========= =========
Note 4. Earnings Per Share
Nine Months Ended Nine Months Ended
April 30, 2002 April 30, 2001
-------------------------------------- --------------------------------------
Loss Shares Earnings Loss Shares Earnings
(Numerator) (Denominator) Per Share (Numerator) (Denominator) Per Share
----------- ------------- --------- ----------- ------------- ---------
Net Loss $ (541,022) $ (797,544)
----------- -----------
Basic loss per share:
Loss available to
common shareholders (541,022) 8,006,383 $ (.07) (797,544) 7,679,840 $ (.10)
Effect of dilutive securities:
Stock options
----------- ----------- ------- ----------- ----------- -------
Diluted loss per share $ (541,022) 8,006,383 $ (.07) $ (797,544) 7,679,840 $ (.10)
=========== =========== ======= =========== =========== =======
Three Months Ended Three Months Ended
April 30, 2002 April 30, 2001
-------------------------------------- --------------------------------------
Loss Shares Earnings Loss Shares Earnings
(Numerator) (Denominator) Per Share (Numerator) (Denominator) Per Share
----------- ------------- --------- ----------- ------------- ---------
Net Loss $ (150,907) $ (348,879)
Basic loss per share:
Loss available to
common shareholders (150,907) 8,642,137 $ (.02) (348,879) 7,635,233 $ (.05)
Effect of dilutive securities:
Stock options
----------- ----------- ------- ----------- ----------- -------
Diluted loss per share $ (150,907) 8,642,137 $ (.02) $ (348,879) 7,635,233 $ (.05)
=========== =========== ======= =========== =========== =======
7
Note 5. Repurchase of Common Stock
On July 30, 1998 the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's common stock. The Repurchase of the Company's
common stock was based upon the Board of Directors' belief that the Company's
common stock was undervalued considering the Company's potential earnings and
prospects for future operations. Repurchases may be made periodically in the
open market, block purchases or in privately negotiated transactions, depending
on market conditions and other factors. The Company has no commitment or
obligation to repurchase all or any portion of the shares.
Between August 1, 2001 and April 30, 2002 the Company repurchased a total
of 28,400 shares of its common stock at a cost of $63,214. During the nine month
period ended April 30, 2001 the Company repurchased a total of 126,000 shares of
its common stock at a cost of $104,081.
Note 6. Common Stock Options
At April 30, 2002, there were 739,500 option shares outstanding at prices
ranging from $.36 to $4.00 with expiration dates between July 31, 2002 and
August 27, 2011. Included in the 739,500 options are 201,500 options that do not
expire as long as the recipient remains an employee of the Company. The
remaining number of option shares available for issuance under the Company's
stock option plans was 459,500.
Five thousand stock option shares, at a price of $.36 and totaling $1,800 were
exercised during the nine months ended April 30, 2002.
Note 7. Legal Proceedings
The Company is a party to certain legal proceedings, the outcome of which
management believes will not have a significant impact upon the financial
position of the Company. The Company is not able to predict the outcome of the
pending legal matters described below with any degree of certainty, and there
can be no assurance that the resolution of one or more of the cases described
below may not have a material adverse effect on the Company.
Concluded legal matters
On November 16, 1999, the United States Securities and Exchange Commission
("SEC") filed suit in the United States District Court for the District of
Colorado against the Company, Thomas V. Geimer, Harry J. Fleury, and James
Godkin, captioned Securities and Exchange Commission v. Accelr8 Technology
Corporation, et al., Civil Action No. 99-D-2203. The SEC sought an injunction
permanently restraining and enjoining each defendant from violating Section
10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder; Section 13(a) of the Securities Exchange Act of 1934, and Rules
12b-20, 13a-1, and 13a-13 promulgated thereunder, and, in addition, that Mr.
Geimer and Mr. Godkin be enjoined from future violations of Section 13(b)(2) of
the Securities Exchange Act of 1934. Section 10(b) of the Exchange Act and Rule
10b-5 thereunder relate to securities fraud. Section 13 of the Exchange Act and
the rules thereunder relate to reporting and record keeping. The SEC alleged
that the defendants made material misrepresentations of fact regarding the
capability of certain of the Company's products, and the Company's financial
condition, including its revenues and earnings. The SEC also alleged that Mr.
Geimer and Mr. Godkin failed to implement, or circumvented, a system of internal
accounting controls, falsified books and records, and made misrepresentations to
the Company's accountants. On July 12, 2001, the defendants, without admitting
8
or denying the allegations of the Third Amended Complaint filed by the SEC,
consented to the entry of Final Orders in which the court dismissed the
securities fraud claims against all defendants with prejudice, made no findings
that any violation of law occurred, and enjoined the defendants from future
violations of Section 13 of the Exchange Act, and the regulations thereunder
referred to above. In addition, Mr. Geimer paid a civil penalty of $65,000, Mr.
Fleury paid a civil penalty of $20,000, and Mr. Godkin paid a civil penalty of
$20,000. All costs, expenses, civil penalties, and liabilities incurred by the
defendants in defending and settling this matter were borne by the Company. No
further action is anticipated in this matter.
On May 24, 2000, William Dews, an alleged shareholder of Accelr8, filed a
derivative action on behalf of the Company, against Thomas V. Geimer, A.
Alexander Arnold III and David C. Wilhelm, captioned John William Dews v. Thomas
V. Geimer, et al., Civil Action No. 00-CV-2785 (District Court, City and County
of Denver, Colorado). This action alleged various breaches of fiduciary duty
arising out of the activities alleged by the SEC, as well as the Company's
determination to defend against the SEC's allegations. In January 2002 the
parties reached an agreement under which the complaint was dismissed without
prejudice upon an exchange of releases, with no payments being made by the
defendants. The Company paid the cost of defense in accordance with
indemnification agreements with Mr. Geimer, Mr. Wilhelm, and Mr. Arnold.
Pending legal matters
On May 4, 2000, Harley Meyer filed in the United States District Court for
the District of Colorado a putative class action against the Company, Thomas V.
Geimer and Harry J. Fleury. On June 2, 2000, Charles Germer filed in the United
States District Court for the District of Colorado a putative class action
against the Company, Thomas V. Geimer and Harry J. Fleury. On June 8, 2000,
William Blais filed in the United States District Court for the District of
Colorado a putative class action against the Company, Thomas V. Geimer and Harry
J. Fleury. On June 20, 2000, Diana Wright filed in the United States District
Court for the District of Colorado a putative class action against the Company,
Thomas V. Geimer and Harry J. Fleury. On August 14, 2000, Derrick Hongerholt
filed in the United States District Court for the District of Colorado a
shareholder derivative action against Thomas V. Geimer, David C. Wilhelm, A.
Alexander Arnold III, Harry J. Fleury, James Godkin and the Company as a nominal
defendant. These actions have been consolidated under the caption In re Accelr8
Technology Corporation Securities Litigation, Civil Action No. 00-K-938. On
October 16, 2000, a Consolidated Amended Class Action Complaint was filed which
added James Godkin as a defendant. The Consolidated Amended Complaint alleges
violations of Section 10(b) of the Securities Exchange Act of 1934, and Rule
10b-5 thereunder, essentially making the same allegations as were made by the
SEC in its initial complaint. The defendants have answered the Consolidated
Amended Complaint, in which they denied liability and raised affirmative
defenses. On January 23, 2001, the Court granted the Plaintiff's Motion for
Class Certification. The defendants have answered the Hongerholt derivative
complaint, and have denied all claims. The Company and the individual defendants
believe they have substantial defenses to both the class and derivative claims,
but there are no assurances that the resolution of these actions will not have a
material adverse effect on the Company. The consolidated class actions,
including the Hongerholt derivative action, have not been set for trial. The
Company is paying the costs of its own defense, as well as the costs of defense
of the individual defendants under its indemnification obligations. It is
possible that these costs may be material to the Company and to date have
totaled approximately $77,000.
9
On July 14, 2000, the Agricultural Excess and Surplus Insurance Company
(the "Insurance Company"), which is the carrier of Accelr8's director and
officer liability policy, filed in the United States District Court for the
District of Colorado an action for a declaratory judgment seeking to rescind
Accelr8's directors and officers liability policy, captioned Agricultural Excess
and Surplus Insurance Company v. Accelr8 Technology Corporation, Civil Action
No. 00-B-1417. That policy has a $1 million limit, with a $100,000 deductible.
The Insurance Company alleges that it was fraudulently induced to enter into the
contract of insurance through knowing material misrepresentations made by the
Company in its Form 10-KSB filed with the SEC, concerning the capabilities of
certain of the Company's products. The defendants have answered the Complaint,
in which they denied the claim for rescission, and have filed a counterclaim
seeking damages for the insurer's bad faith. Although the Company believes the
Insurance Company's claim for rescission to be not well-founded, there is no
assurance that the Company will succeed in the litigation. If the Company is
unsuccessful, it will lose the benefits otherwise available under the policy.
Trial date has been scheduled for March 10, 2003. The Company is bearing the
cost of litigation for all defendants. These costs to date have totaled
approximately $14,000.
Note 8. Stock Option Exchange Program
In recognition of the decline in the Company's stock price and the fact
that options previously granted did not provide the intended incentive to the
outside directors and to the Company's Chairman of the Board, the Board of
Directors approved the voluntary exchange of certain stock options held by those
individuals effective January 31, 2001. Each of the three directors agreed to
exchange certain currently outstanding options for new options. Pursuant to the
terms of the exchange, the exercise price per share of the new options is equal
to the market price of the Company's common stock on the date of grant. The date
of grant for the new options was August 1, 2001, which was the first business
day that was at least six months after the date that the Company and the
directors agreed to cancel the options tendered and accepted the exchange for
the new options. Two of the directors each exchanged options to acquire an
aggregate of 50,000 shares (25,000 shares exercisable at $7.25 per share and
25,000 shares exercisable at $2.50 per share) for options to acquire 50,000
shares of the Company's common stock at an exercise price of $1.45 per share.
The Company's Chairman exchanged options to acquire an aggregate of 200,000
shares (100,000 shares exercisable at $12.00 per share and 100,000 shares
exercisable at $2.50 per share) for options to acquire 200,000 shares of the
Company's common stock at an exercise price of $1.45 per share. The new options
expire ten years from the date of grant.
Note 9. FASB No. 142, "Goodwill and Other Intangible Assets"
In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 eliminates the systematic amortization of all goodwill and
other intangible assets over a prescribed estimated useful life, which presumes
that these are wasting assets. Instead, goodwill and intangible assets that have
indefinite useful lives will not be amortized but rather will be tested at least
annually for impairment. Intangible assets that have finite useful lives will
continue to be amortized over their useful lives. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, however early application is
permitted for entities with fiscal years beginning after March 15, 2001. The
Company adopted SFAS No. 142 beginning November 1, 2001.
10
Note 10. Issuance of Common Stock
On January 18, 2002 and April 18, 2002 the Company issued 906,897 and
906,896 shares of common stock respectively to DDx, Inc. as provided for in the
Asset Purchase Agreement between the Company and DDx, Inc. ("DDx") that was
entered into on January 18, 2001 (the "Asset Purchase Agreement"). The amount of
the transaction was valued at the average closing price of the Company's stock
over the previous 120 trading days, or $2.51 and $ 2.14 respectively per share,
for a total of $ 4,217,069. The shares were issued in connection with the
acquisition of certain technology assets by the Company from DDx.
The 906,897 shares had been held in escrow under the terms of the Asset
Purchase Agreement, and were to be released to DDx upon the consummation of one
OpTest Technology Transfer event to a third party (the "First Technology
Transfer Event"). The 906,896 shares had been held in escrow to be released to
DDx upon the consummation of a second OpTest Technology Transfer event to a
third party (the "Second Technology Transfer Event"). Under the original terms
of the Asset Purchase Agreement, if no such Technology Transfer Events were
consummated by January 17, 2002, then the stock was to be released from escrow
by the Escrow Agent to the Company. The First Technology Transfer Event occurred
on a timely basis, and the Company entered into an agreement that provided for
an additional three month period (i.e., until April 17, 2002) for the Second
Technology Transfer Event to occur (The "Second Technology Transfer Event")
occurred during the extended period.
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 of the Company 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 that 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 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, whether potential customers decide to
modernize their legacy systems or to abandon those systems and purchase or
develop new systems, the extent to which new products and services developed and
offered by the Company are accepted in the marketplace, 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, could affect the
Company's actual results and cause actual results to differ materially from
those discussed in the Company's forward-looking statements.
11
Changes in Results of Operations: Nine months ended April 30, 2002 compared to
Nine months ended April 30, 2001
Net revenues for the nine months ended April 30, 2002, were $400,014 after
a provision of $3,680 or 1% of gross revenues for possible returns and
adjustments, a decrease of $364,846 or 47.70% as compared to the nine months
ended April 30, 2001. There were no consulting fees for the nine months ended
April 30, 2002, a decrease of $38,250 or 100% as compared to the nine months
ended April 30, 2001. Product license and customer support fees for the nine
months ended April 30, 2002, were $161,612 a decrease of $156,567 or 49.2% as
compared to the nine months ended April 30, 2001, and represented 40.4% of net
revenues. Revenues from the resale of purchased software for the nine months
ended April 30, 2002, were $ 242,082 a decrease of $172,679 or 41.6% as compared
to the nine months ended April 30, 2001, and represented 60.5% of net revenues.
Management believes that the U.S. economic slowdown, which began in the
second quarter of 2001, has extended into the second quarter of 2002 and
continues to negatively impact and delay IT spending decisions by private,
public and government enterprises. Further, management believes that during the
past nine months ended April 30, 2002 purchasing related to the company's
specific migration software tools and services continued to be delayed by the
macro economic conditions of the U.S. as well as by the confusion surrounding
the final outcome of the Compaq/Hewlett Packard merger.
Based on the increased number of inquiries that we have received from the
Compaq installed base of Digital Equipment Corporation (DEC) users, we believe
that demand for the company's migration tools and services may increase going
into the second half of 2002. This will be influenced by HP's announcement of
new operating systems and hardware solutions to be supported in the future.
The Company's other business unit, OpTest, has continued to refine and
optimize its surface chemistry for microarray slides. The focus of the
scientific team has been the development of third party outsourcing contracts to
enable the large scale manufacturing and overnight delivery capability that will
be necessary should demand for OptArray(TM) microarray slides exceed readily
available in-house supply. Developing manufacturing protocols and streamlining
manufacturing processes have been the primary concern of the scientific team
this quarter. The scientific agenda has also included development of a
customized surface for a proteomics customer who has a proprietary probe
technology. Management believes that successful implementation of this unique
application could, when licensed, contribute to immediate recognition of the
OptiChem(TM) surface chemistry as a new benchmark for protein-based
applications. A second commercial release of our OptArray(TM) microarray slides
should occur by June 15, 2002, which will feature amine-reactive and
thiol-reactive surfaces for microarrays. During the period Sales of OptiChem(TM)
microarray slides, while insignificant in dollar amount, have been successful in
creating interest in the company's entry into the microarray marketplace.
12
During the nine months ended April 30, 2002 the company commenced
presentations of the new field portable prototype of QuanDx(TM), a test
instrument that uses light scattering technology for quantification of bacteria,
DNA, or proteins on the company's custom coated microarray surfaces.
The initial response from several large instrument manufacturers has been
positive, however, another phase of miniaturization and cost reducing design is
necessary for product commercialization.
During the nine months ended April 30, 2002 sales to the Company's three
largest customers were $79,400; $56,650; and $55,744 representing 19.8%; 14.2%
and 13.9% of the Company's net revenues. During the nine months ended April 30,
2001 sales to the Company's two largest customers were $231,027 and $118,450
representing 30.2% and 15.5% of the Company's net revenues. The loss of a major
customer could have a significant impact on the Company's financial performance
in any given period.
Cost of services, including amortization of software development costs,
loss due to impairment of software development costs and depreciation for the
nine months ended April 30, 2002 was $116,891 a decrease of $899,166 or 88.5% as
compared to the nine months ended April 30, 2001. This decrease resulted from
the fact that the Company had previously amortized or written off all of its
capitalized software development costs, and a substantial reduction in
depreciation and engineering salaries and related employee costs.
Cost of software purchased for resale for the nine months ended April 30,
2002 was $36,942 a decrease of $33,306 or 47.4% as compared to the nine months
ended April 30, 2001. The decrease in software purchased for resale results from
decreased revenue from resale of purchased software and variations in the
product mix of items sold.
General and administrative expenses for the nine months ended April 30,
2002 were $462,765 an increase of $49,608 or 12.0% as compared to the nine
months ended April 30, 2001 primarily due to change in value of marketable
securities in the Company's deferred compensation trust offset by a decrease in
legal fees, and decreased salaries and related employee costs due to a lesser
number of employees.
Marketing and sales expenses for the nine months ended April 30, 2002 were
$149,232 a decrease of $49,025 or 24.7% as compared to the nine months ended
April 30, 2001. This decrease was due to decreased costs of telecommunications,
premises rent, and marketing expenses.
Research and development expenses for the nine months ended April 30, 2002
including amortization and depreciation were $ 254,638 an increase of $ 102,820
as compared to the nine months ended April 30, 2001. This increase was largely
due to an increase in salaried scientific personnel, scientific consulting fees,
and laboratory rent and supplies plus amortization and depreciation for the
continued development of the OpTest technologies purchased January 18, 2001.
13
As a result of these factors, loss from operations for the nine months
ended April 30, 2002 was $620,454 a decrease of $464,223 or 42.8% as compared to
loss from operations of $1,084,677 for the nine months ended April 30, 2001.
Interest income for the nine months ended April 30, 2002 was $156,888 a
decrease of $293,103 or 65.1% as compared to the nine months ended April 30,
2001. This decrease was primarily due to a decline in interest rates and a
lesser amount of cash earning interest during the period.
Realized loss on marketable securities held in the deferred compensation
trust for the nine months ended April 30, 2002 was $5,566 a decrease of $48,367
or 113% as compared to the nine months ended April 30, 2001. This loss was the
result of selling trust investments.
Unrealized loss on marketable securities held in the deferred compensation
trust for the nine months ended April 30, 2002 was $79,113 a decreased loss of
$229,197 or 74.3% as compared to the nine months ended April 30, 2001. This loss
was the result of the changing market value of securities held by the deferred
compensation trust.
Gain on asset disposal for the nine months ended April 30, 2002 was $11,153
an increase of $40,030 or 139% as compared to the nine months ended April 30,
2001. This gain resulted largely from sale of fully depreciated assets.
Loss from abandoned trademarks for the nine months ended April 30, 2002 was
$3,930. There was no similar activity for the nine months ended April 30, 2001.
There was no other income for the nine months ended April 30, 2002, a
decrease of $32,500 over the nine months ended April 30, 2001.
Because the Company incurred a net loss for the period and can no longer
carry back its operating losses, the nine months ended April 30, 2002 has
neither a tax provision nor a tax benefit. The tax benefit for the nine months
ended April 30, 2001 was $164,028.
As a result of these factors net loss for the nine months ended April 30,
2002 was $541,022 a decrease of $ 256,522 or 32.2% as compared to the nine
months ended April 30, 2001.
Capital Resources and Liquidity
At April 30, 2002, as compared to July 31, 2001, the Company's current
assets decreased 9.7% from $9,652,404 to $8,719,420; the Company's liquidity, as
measured by cash and cash equivalents, decreased by 9.6% from $9,522,343 to
$8,606,512; and the Company's working capital decreased by 7.2% from $9,125,310
to $8,469,024. During the same period, shareholders' equity increased 37.6% from
$9,611,396 to $ 13,266,029 as a result of issuing 1,813,793 shares of common
stock at a total value of $ 4,217,069 for purchase of the OpTest technology
assets, reduced by a net loss of $541,022 and cost of repurchasing 28,400 shares
of company stock in the amount of $63,214 plus the exercise of 5,000 stock
options at a price of $.36 and totaling $1,800 during the nine months ended
April 30, 2002.
14
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.
Changes in Results of Operations: Three months ended April 30, 2002 compared to
three months ended April 30, 2001
Net revenues for the three months ended April 30, 2002 were $121,327 after
a provision of 1,235 or 1% of gross revenues for possible sales returns and
adjustments, a decrease of $29,638 or 19.6% as compared to the three months
ended April 30, 2001. There were no consulting fees for the three months ended
April 30, 2002, or for the three months ended April 30, 2001. Product license
and customer support fees for the three months ended April 30, 2002, were
$48,169 a decrease of $ 15,612 or 24.5% as compared to the three months ended
April 30, 2001, and represented 39.7% of net revenue. Revenues from the resale
of purchased software for the three months ended April 30, 2002 were $74,393 a
decrease of $14,086 or 15.9% as compared to the three months ended April 30,
2001, and represented 61.3% of net revenue.
Management believes that the U.S. economic slowdown, which began in the
second quarter of 2001, has extended into the second quarter of 2002 and
continues to negatively impact and delay IT spending decisions by private,
public and government enterprises. Further, management believes that during the
three months ended April 30, 2002 purchasing related to the company's specific
migration software tools and services continued to be delayed by the macro
economic conditions of the U.S. as well as by the confusion surrounding the
final outcome of the Compaq/Hewlett Packard merger.
Based on the increased number of inquiries that we have received from the
Compaq installed base of Digital Equipment Corporation (DEC) users, we believe
that demand for the company's migration tools and services may increase going
into the second half of 2002. This will be influenced by HP's announcement of
new operating systems and hardware solutions to be supported in the future.
The Company's other business unit, OpTest, has continued to refine and
optimize its surface chemistry for microarray slides. The focus of the
scientific team has been the development of third party outsourcing contracts to
enable the large scale manufacturing and overnight delivery capability that will
be necessary should demand for OptArray(TM) microarray slides exceed readily
available in-house supply. Developing manufacturing protocols and streamlining
manufacturing processes have been the primary concern of the scientific team
this quarter. The scientific agenda has also included development of a
customized surface for a proteomics customer who has a proprietary probe
technology. Management believes that successful implementation of this unique
application could, when licensed, contribute to immediate recognition of the
OptiChem(TM) surface chemistry as a new benchmark for protein-based
applications. A second commercial release of our OptArray(TM) microarray slides
should occur by June 15, 2002, which will feature amine-reactive and
thiol-reactive surfaces for microarrays. During the period sales of OptiChem(TM)
microarray slides, while insignificant in dollar amount, have been successful in
creating interest in the company's entry into the microarray marketplace.
15
During the three months ended April 30, 2002, the Company had sales in
excess of 10% of net revenues to two customers in the amount of $56,650 and
$24,100 representing 46.7% and 19.9% of the Company's net revenues respectively.
In comparison, the Company had sales in excess of 10% of total revenues to three
customers of $56,550; $33,700 and $17,115 representing 37.5%, 22.3% and 11.3%
respectively of the net revenues for the three months ended April 30, 2001. The
loss of a major customer could have a significant impact on the Company's
financial performance in any given year.
Cost of services, including amortization and depreciation for the three
months ended April 30, 2002 was $26,033 a decrease of $ 174,061 or 87.0% as
compared to the three months ended April 30, 2001. This decrease resulted from
the fact that the Company had previously amortized or written off all of its
capitalized software development costs and a substantial reduction in
depreciation, engineering salaries and related employee expenses.
Cost of software purchased for resale for the three months ended April 30,
2002, was $11,736 a decrease of $4,184 or 26.3% as compared to the three months
ended April 30, 2001. The decrease in software purchased for resale results from
decreased revenue from resale of purchased software and by variations in the
product mix of items sold.
General and administrative expenses for the three months ended April 30,
2002, were $85,543 a decrease of $15,149 or 15.0% as compared to the three
months ended April 30, 2001, primarily due to a change in value of marketable
securities in the Company's deferred compensation trust offset by a decrease in
legal fees, and decreased salaries and related employee costs due to a lesser
number of employers.
Marketing and sales expenses for the three months ended April 30, 2002,
were $50,025 a decrease of $5,181 or 9.4% as compared to the three months ended
April 30, 2001. This decrease was largely due to decreased costs of
telecommunications.
Research and development expenses for the quarter ended April 30, 2002
including amortization and depreciation were $87,153 a decrease of $4,055 as
compared to the quarter ended April 30, 2001. This decrease was largely due to a
decrease in amortization and consulting fees partially offset by an increase in
salaried scientific personnel, rent, and laboratory expense and supplies for the
continued devlopment of the OpTest technologies purchased January 18, 2001.
As a result of these factors, loss from operations for the three months
ended April 30, 2002 was $139,163 a decrease of $172,992 or 55.4% as compared to
loss from operations of $ 312,155 for the three months ended April 30, 2001.
16
Interest income for the three months ended April 30, 2002 was $36,737 a
decrease of $87,417 or 70.4% as compared to the three months ended April 30,
2001. This decrease was primarily due to a decline in interest rates and a
lesser amount of cash earning interest during the quarter.
Realized loss on marketable securities held in the deferred compensation
trust for the three months ended April 30, 2002 was $1,304 a decrease of $10,509
as compared to the three months ended April 30, 2001. This loss was the result
of selling trust investments plus interest earned. Unrealized loss on marketable
securities held in the deferred compensation trust for the three months ended
April 2002 was $47,877 a decreased loss of $93,229 as compared to the three
months ended April 30, 2001. This gain was the result of the changing market
value of securities held by the trust.
Gain on disposal of assets no longer needed for the Company's business for the
three months ended April 30, 2002 was $700 an increase of $29,577 or 102% as
compared to the three months ended April 30, 2001.
There was no other income or expense for the three months ended April 30,
2002.
Because the Company incurred a net loss for the period and can no longer
carry back its operating losses, the three months ended April 30, 2002 has
neither a tax provision nor a tax benefit. The tax benefit for the three months
ended April 30, 2001 was $49,900.
As a result of these factors net loss for the three months ended April 30,
2002 was $150,907 a decreased loss of $197,972 or 56.7% as compared to the three
months ended April 30, 2001.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Please see Note 7 to the financial statements for information with respect
to concluded and pending legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
- -------------------------------------------------
On January 18, 2002, and April 18, 2002 the Company issued 906,897 and
906,896 shares of common stock to DDx, Inc. as provided for in the Asset
Purchase Agreement between the Company and DDx, Inc. ("DDx") that was entered
into on January 18, 2001 (the "Asset Purchase Agreement"). The amount of the
transaction was valued at the average closing price of the Company's stock over
the previous 120 trading days, or $2.51 and $2.14 respectively per share, for a
total of $4,217,069. The shares were issued in connection with the acquisition
of certain technology assets by the Company from DDx, that was more fully
described in a Form 8-K filed with the Securities and Exchange Commission on
January 26, 2001.
17
The 906,897 shares had been held in escrow under the terms of the Asset
Purchase Agreement, and were to be released to DDx upon the consummation of one
OpTest Technology Transfer event to a third party (the "First Technology
Transfer Event"). There were 906,896 shares remaining in escrow that were to be
released to DDx upon the consummation of a second OpTest Technology Transfer
event to a third party (the "Second Technology Transfer Event"). Under the
original terms of the Asset Purchase Agreement, if no such Technology Transfer
Events were consummated by January 17, 2002, then the stock was to be released
from escrow by the Escrow Agent to the Company. The First Technology Transfer
Event occurred on a timely basis, and the Company entered into an agreement that
provided for an additional three month period (i.e., until April 17, 2002) for
the Second Technology Transfer Event to occur (The "Second Technology Transfer
Event") occurred during the extended period.
The 906,897 and 906,896 shares were issued directly by the Company to DDx
under the exemption from the registration requirements of the Securities Act of
1933, as amended, provided by Section 4(2). No commissions or other remuneration
were paid in connection with the issuance of these shares, and DDx made
appropriate investment representations to the Company.
18
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None.
Item 5. Other Information
- -------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: There are no exhibits for the three months ended April 30,
2002.
b) Reports on Form 8-K: None.
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.
Date: June 14, 2002
ACCELR8 TECHNOLOGY CORPORATION
/s/ Thomas V. Geimer
---------------------------------------------
Thomas V. Geimer, Principal Financial Officer
19