form10q5202010.htm
 

 




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


 
 
 
(Mark One)
 
 
 
 
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended March 31, 2010
Or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Transition Period From          to

Commission File No. 001-16381

ARRAYIT CORPORATION
(Exact name of registrant as specified in its charter)


 

 
Nevada
76-0600966
(State of other jurisdiction of incorporation)
(I.R.S. Employer Identification No.)
 
 
524 East Weddell Drive Sunnyvale, CA
94089
(Address of Principal Executive Office)
(Zip Code)


Registrant’s telephone number, including area code: (408) 744-1331

Securities registered pursuant to Section 12 (b) of the Act:  NONE

Securities registered pursuant to Section 12 (g) of the Act: Common Stock $0.001 par value


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o


 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o      No  o


 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
 
 
 
 
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company   þ 
(Do not check if a smaller reporting company)


 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ

 

There were 23,306,545 shares of the Registrant’s common stock outstanding at May 21, 2010.


 

 
 


 
1

 


 

 
Form 10-Q
For the Quarterly Period Ended March 31, 2010

 
TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
PART I. FINANCIAL INFORMATION
 
Item 1.
 
 
Consolidated Financial Statements
 
 
 
 
 
 
 
 
Consolidated Balance Sheets at March 31, 2010 (unaudited) and December 31, 2009
 
 
4
 
 
 
 
 
 
 
5
 
 
 
 
 
Consolidated Statement of Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)
 
 
6
 
 
 
 
 
 
 
7
 
 
 
 
 
 
18
 
 
 
 
 
 
23
 
 
 
 
 
 
23
 
 
 
 
 
 
 
24
 
 
 
 
 
 
24
 
 
 
 
 
 
24
 
 
 
 
 
 
24
 
 
 
 
 
 
24
 
 
 
 
 
 
24
 
 
 
 
 
 
24
 
         Signatures
 
 
25
 
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2


 


 


 

 
 

 


 
2

 


 
This report contains trademarks and trade names that are the property of Arrayit Corporation and its subsidiaries, and of other companies, as indicated.
 
 
FORWARD-LOOKING STATEMENTS

 
Portions of this Form 10-Q, including disclosure under “Management’s Discussion and Analysis or Plan of Operation,” contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements are subject to risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. You should not unduly rely on these statements. Forward-looking statements involve assumptions and describe our plans, strategies, and expectations. You can generally identify a forward-looking statement by words such as may, will, should, expect, anticipate, estimate, believe, intend, contemplate or project. Factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, among others,

·
our ability to raise capital,
·
our ability obtain and retain customers,

·
our ability to provide our products and services at competitive rates,
·
our ability to execute our business strategy in a very competitive environment,

·
our degree of financial leverage,
·
risks associated with our acquiring and integrating companies into our own,

·
risks related to market acceptance and demand for our services,
·
the impact of competitive services,

·
other risks referenced from time to time in our SEC filings.

With respect to any forward-looking statement that includes a statement of its underlying assumptions or bases, we caution that, while we believe such assumptions or bases to be reasonable and have formed them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material depending on the circumstances. When, in any forward-looking statement, we or our management express an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the stated expectation or belief will result or be achieved or accomplished. All subsequent written and oral forward-looking statements attributable to us, or anyone acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We do not undertake any obligations to publicly release any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect unanticipated events that may occur.

 




 
 
 


 
3

 


 

 
PART I – FINANCIAL INFORMATION
ITEM 1.
ARRAYIT CORPORATION
CONSOLIDATED BALANCE SHEETS

   
March 31,
   
December 31,
 
   
2010
   
2009
 
   
(unaudited)
       
 ASSETS
           
 Current Assets
           
 Cash
  $ -     $ -  
 Accounts receivable, net of allowance for doubtful accounts of $100,000
    95,348       71,944  
 Inventory
    240,589       241,436  
 Prepaid expenses
    12,500       12,500  
    Total current assets
    348,437       325,880  
 
               
 Property and equipment, net
    63,068       68,688  
 Restricted cash
    100,305       100,293  
 Deposits
    18,924       18,924  
    Total current assets
  $ 530,734     $ 513,785  
 
               
 Liabilities and Stockholders' Deficit
               
 Current liabilities:
               
 Accounts payable and accrued liabilities
  $ 5,525,558     $ 5,320,239  
 Bank overdraft
    43,569       31,076  
 Due to related parties
    501,116       459,116  
 Customer deposits
    101,827       65,687  
 Notes payables, current portion including related parties
    831,251       852,931  
          Total current liabilities
    7,003,321       6,729,049  
  Notes payable, long term
    144,305       180,656  
    Total liabilities
    7,147,626       6,909,705  
 Commitments and contingencies
    -       -  
 Stockholders' Deficit
               
 Preferred stock, 20,000,000 authorized
               
    Preferred stock, Series 'A' 22,166 and 25,620 shares issued and outstanding
    22       25  
    Preferred stock, Series 'C' 92,829 and 103,143 shares issued and outstanding
    93       103  
 Common stock, $0.001 - par value, voting,  480,000,000 shares authorized, 23,306,545 and 19,085,859 issued and outstanding
    23,116       18,896  
 Additional paid-in capital
    14,978,248       14,478,454  
 Accumulated deficit
    (21,813,484 )     (21,097,741 )
 Total Arrayit Corp’s Stockholders’ Equity (Deficit)
    (6,812,005 )     (6,600,261 )
 Non-controlling Interest
               
 Royalty interests
    285,000       285,000  
 Less: Subscriptions receivable
    (13,750 )     (13,750 )
 Interest in subsidiaries earnings
    (76,137 )     (66,908 )
    Total Non-controlling interests
    195,113       204,342  
        Total stockholders' deficit
    (6,616,892 )     (6,395,920 )
         Total liabilities and stockholders' deficit
  $ 530,734     $ 513,785  
The accompanying notes are an integral part of these consolidated financial statements
 


 

 
 

 


 
4

 

 

 
ARRAYIT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months ended
March 31
 
 
 
2010
   
2009
 
 
           
             
 Total Revenues
  $ 664,858     $ 999,795  
 Cost of Sales
    367,842       754,382  
       Gross Margin
    297,016       245,413  
                 
Selling, General and Administrative
    848,541       347,933  
   Profit (loss)  from operations
    (551,525 )     (102,520 )
                 
Research and Development
    (76,275 ) )        
Gain (loss) on Derivative Liability
    -       (7,366,264 )
Gain (Loss) on Extinguishment of Debt
    -       (12,834,898 )
Legal Expense
    (56,063 )     (12,447 )
Interest (Expense)
    (41,109 )     (118,657 )
                 
Net loss
    (724,972 )     (20,434,786 )
                 
Less: Net loss attributable to the
               
           noncontrolling interest
    (9,229 )        
                 
Net Loss attributable to common shareholders
    (715,743 )     (20,434,786 )
                 
Profit (Loss) per share - basic
  $ (0.03 )   $ (32.77 )
                 
Basic weighted average number of common shares outstanding
    20,546,728       623,494  
                 
                 
 
 

The accompanying notes are an integral part of these consolidated financial statements


 

 


 
5

 


 

ARRAYIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

     
For the Three Months Ended
March 31,
 
               
     
2010
   
2009
 
Cash flows from operating activities:
           
Net loss
  $ (724,972 )   $ (20,434,786 )
Adjustments to reconcile net loss
               
to net cash provided by operating activities:
               
Depreciation
    7,652       -  
Loss on derivative liability
    -       7,366,264  
Provision for bad debt
    -       20,000  
Loss on extinguishment of debt
    -       12,834,898  
Stock paid for services
    504,000       -  
(Increase) decrease in assets:
               
Accounts receivable
    (23,404 )     223,876  
Inventory
    847       (141,524 )
Restricted Cash
    (12 )        
Increase (Decrease) in liabilities:
               
Accounts payable and accrued liabilities
    205,319       100,431  
Bank overdraft
    12,493       -  
Due to related parties
    42,000       25,000  
                   
Net cash provided by for operating activities
    60,063       1,965  
Cash flows from investing activities:
               
Cash paid for purchase of fixed assets
    (2,032 )     (1,965 )
        -          
Net cash used in for investing activities:
    (2,032 )     (1,965 )
Cash flows from financing activities:
               
Repayment of notes payable
    (58,031 )     -  
                   
Net cash provided used in financing activities
    (58,031 )     -  
                   
Net increase in cash
    -       -  
                   
Cash,
beginning of period
    -       -  
                   
                   
Cash,
end of period
  $ -     $ -  
                   
Supplemental disclosure of non-cash
               
financing activities:
               
Conversion of preferred stock
  $ 3,620     $ -  
                   
                   
Supplemental cash flow information:
               
                   
Cash paid for interest
  $ 21,801     $ 31,181  
                   
Cash paid for income taxes
  $ -     $ -  
                   


See accompanying notes to consolidated financial statements

 

 


 
6

 


 

 
ARRAYIT CORPORATION
NOTES TO CONSOLIDATED UNAUDITED STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010

NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

Arrayit Corporation (the “Company” or “Arrayit”) is a Nevada Corporation, formerly known as TeleChem International, Inc., that entered into the life sciences in 1996.  Arrayit is a leading edge developer, manufacturer and marketer of next-generation life science tools and integrated systems for the large scale analysis of genetic variation, biological function and diagnostics. Using Arrayit’s proprietary technologies, the Company provides a comprehensive line of products and services that currently serve the sequencing, genotyping, gene expression and protein analysis markets, and the Company expects to enter the market for molecular diagnostics.

Arrayit has earned respect as a leader in the health care and life sciences industries with its proven expertise in three key areas:  the development and support of microarray tools and components, custom printing and analysis of microarrays for research, and the identification and development of diagnostic microarrays and tools for early detection of treatable disease states.  As a result, Arrayit has provided tools and services to thousands of the leading genomic research centers, pharmaceutical companies, academic institutions, clinical research organizations, government agencies and biotechnology companies worldwide.

The Company’s patented tools and trade secrets provide researchers around the world with the performance, throughput, cost effectiveness and flexibility necessary to perform the billions of genetic tests needed to extract valuable medical information. The Company believes this information will enable researchers to correlate genetic variation and biological function, which will enhance drug discovery, drug development and clinical research, allowing diseases to be detected earlier and permitting better choices of drugs for individual patients.

Effective Thursday, March 19, 2009, the final steps of the business combination with Integrated Media Holdings, Inc. were completed and the Company’s common stock began trading on the OTC Bulletin Boards as “ARYC”. In addition, the Company changed its name to “Arrayit Corporation”, was reincorporated to Nevada from Delaware, and reverse-split its common stock and Series A Convertible Preferred stock in the ratio of one for thirty shares.  The reverse split was only applicable to the Company’s Class “A” Preferred shares and its Common Shares.  The Class “C” Preferred Shares were not affected by the reverse split.  The reverse split had no effect upon the convertible debt “Oral Agreements” which fixed the amount of shares to be issued at 12,478,357 both pre and post split.  As the March 19, 2009, Directors Resolution did not change the authorized share capital of the Company, the authorized number of Common Shares was reduced from 100,000,000 to 3,333,333.  The Directors approved the reverse split to create a more orderly market for the trading of its Common Shares on the OTC BB.

On August 31, 2009, a majority of the stockholders provided written consent in lieu of a meeting to approve an increase in the authorized common shares of the Company from 3,333,333 to 480,000,000 and an increase in the authorized preferred shares of the Company from 166,667 to 20,000,000.  A Certificate of Amendment to the Restated Certificate of Incorporation of the Company was filed on December 18, 2009.  The forgoing was published in form DEF 14-C on November 18, 2009.

 
The effects of the Reverse Stock Split have been reflected retroactively in the accompanying consolidated financial statements and notes thereto for all periods presented.

 
Arrayit has a December 31 year end.

Arrayit’s principal office is in Sunnyvale, California. Arrayit presently has ten employees.

 
Interim financial statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Arrayit’s Annual Report filed with the SEC on Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements, which would substantially duplicate the disclosure contained in the audited financial statements for fiscal year 2009 as reported in Form 10-K, have been omitted.

 


 


 
7

 


 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN


Basis of Presentation

The accompanying Consolidated Financial Statements include the following majority-owned subsidiaries for all or a portion of the periods indicated, each of which has been consolidated since the date the Company acquired majority-voting control (collectively, the “Consolidated Subsidiaries”):

Subsidiary
Date of Incorporation
Business of Entity
Ownership
Arrayit Diagnostics, Inc.
 
June 2, 2009
Develops medical tests and through its partially owned subsidiaries markets these tests to the medical community. incorporating the technology and equipment developed by Arrayit Corporation
80% owned by Arrayit Corporation
Arrayit Diagnostics (Ovarian), Inc.
 
June 16, 2009
Markets a test for Ovarian Cancer incorporating the technology and equipment developed by Arrayit Corporation
80% owned by Arrayit Diagnostics, Inc.
Arrayit Diagnostics (Parkinson), Inc.
 
October 15, 2009
Markets a test for Parkinson’s Disease incorporating the technology and equipment developed by Arrayit Corporation
80% owned by Arrayit Diagnostics, Inc.


Summary of Significant Accounting Policies

Financial Reporting:

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Revenues and expenses are reported on the accrual basis, which means that income is recognized as it is earned and expenses are recognized as they are incurred.

Management further acknowledges that it is solely responsible for adopting sound accounting practices,   establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal  accounting  control is designed to assure,  among other items, that 1) recorded  transactions  are valid; 2) valid  transactions  are recorded;  and 3) transactions  are  recorded in the proper  period in a timely  manner to produce financial  statements which present fairly the financial  condition,  results of operations  and cash  flows of the  Company  for the  respective  periods  being presented.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 
Cash and Cash Equivalents

Cash includes all cash and highly liquid investments with original maturities of three months or less.  The Company maintains cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses on these accounts.

Investments in certificates of deposit with our bankers that contain prohibition on their redemption are treated as non-current assets and included in restricted cash.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation and amortization on property and equipment are determined using the straight-line method over the three to five year estimated useful lives of the assets.

 
Impairment of Long-Lived Assets

Arrayit reviews its long-lived assets for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. Arrayit evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The Company uses an estimate of future undiscounted net cash flows of the related asset or group of assets over the estimated remaining life in measuring whether the assets are recoverable. If it is determined that an impairment loss has occurred based on expected cash flows, such loss is recognized in the statement of operations.

Inventory

Inventories are stated at the lower of cost or market, cost determined on the basis of FIFO.

 
 
8

 
 
Revenue recognition:
 

 
Overview

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product or system is required, revenue is deferred until all the acceptance criteria have been met.


 
Product Sales

Product sales include sales of microarrays, reagents and related instrumentation. Microarray, reagent and instrumentation revenues are recognized when earned, which is generally upon shipment and transfer of title to the customer and fulfilment of any significant post-delivery obligations. Accruals are provided for anticipated warranty expenses at the time the associated revenue is recognized.


 
Services

Services revenue is comprised of equipment service revenue; revenue from custom microarray design fees; and scientific services revenue, which includes associated consumables.

 
Diagnostic Revenue

Revenue from medical testing and scientific services is recognized upon shipment of the reported results.

 
Other Income

 
The Company recognizes interest income as earned.
 

Shipping and Handling Costs

Shipping and handling costs billed to customers are recorded as revenue. Shipping and handling costs paid to vendors are recorded as cost of sales.

Fair Value of Financial Instruments

The Company follows accounting guidance relating to fair value measurements. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

Level 2 – inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

Level 3 – unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the unobservable inputs.

The fair value of the Company’s notes payable and derivative liability approximated stated value. The notes payable fair value was based on Level 2 inputs and the derivative liability fair value based on Level 3 inputs. See notes 10 and 11.


 

 


 
9

 


 
Allowance for Doubtful Accounts

The Company records an allowance for estimated losses on customer accounts. The allowance is increased by a provision for bad debts, which is charged to expense, and reduced by charge-offs, net of recoveries.

Patent Costs

Costs incurred with registering and defending patent technology are charged to expense as incurred.

Derivative Instruments

Derivatives were recorded on the balance sheet at fair value. These derivatives, including embedded derivatives, were separately valued and accounted for on our balance sheet.

Accounting guidance related to Accounting for derivative financial instruments indexed to and potentially settled in, a company's own stock, requires freestanding contracts that are settled in a company's own stock, including warrants to purchase common stock, to be designated as an equity instrument, asset or a liability. Under these provisions, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in the company’s results of operations. A contract designated as an equity instrument must be included within equity, and no fair value adjustments are required.

Following this guidance, we determined the conversion feature of our “SOV Cap” notes, Senior Secured Convertible Notes (“SSCN”) and the warrants associated with the SSCN notes should be treated as separate derivative liabilities on our balance sheet under current liabilities. Unrealized changes in the value of these derivatives were recorded in the consolidated statement of operations as a gain or loss on derivative liabilities. Fair values of the derivative liability associated with the conversion features and warrants were determined using a Black-Scholes Model.

 
Income Taxes

Prior to February 21, 2008, the financial statements of TeleChem did not include a provision for Income Taxes because the taxable income of TeleChem was included in the Income Tax Returns of the Stockholders under the Internal Revenue Service "S" Corporation elections.

Upon completion of the February 21, 2008 transaction with IMHI as more fully described in Note 1, TeleChem ceased to be treated as an "S" Corporation for  Income  Tax  purposes.  Effective February 21, 2008, Arrayit Corporation became a Nevada “C” Corporation.

Deferred taxes are computed using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are not recognized unless it is more likely than not that the asset will be realized in future years.

 
Accounting for Uncertainty in Income Taxes
 
The Financial Accounting Standards Board has issued guidance on Accounting for Uncertainty in Income Taxes, FASB ASC 740, Income Taxes which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Management has concluded that the Company has taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance.
 
When applicable, the Company will include interest and penalties related to uncertain tax positions in income tax expense.

Earnings (Loss) per Common Share

The computation of basic earnings per common share is computed using the weighted average number of common shares outstanding during the period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus common stock equivalents which would arise from the exercise of options and warrants outstanding using the treasury stock method and the average market price per share during the year. Options, warrants, convertible debt and convertible preferred stock which are common stock equivalents are not included in the diluted earnings per share calculations when their effect is anti-dilutive.

 
Stock-Based Compensation

The Company accounts for stock issued to employees, officers and directors in accordance with accounting standards for share-based payments which requires all new share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.
 
 

 
10

 
 
Non-controlling Interest:

The Company accounts for the non-controlling interest in its two subsidiaries under ASC 810-10-45-16, Non-controlling Interest in a Subsidiary.  This standard defines a non-controlling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The standard requires, among other items, that a non-controlling interest be included in the consolidated statement of financial position within equity separate from the parent's equity; consolidated net income to be reported at amounts inclusive of both the parent's and non-controlling interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and non-controlling interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated,  any retained  non-controlling equity  investment  in the former subsidiary  be  measured at fair value and a gain or loss be  recognized  in net income  based  on  such  fair  value.  Additionally, the standard defines a non-controlling interest as a financial instrument issued by a subsidiary that is classified as equity in the subsidiary's financial statements.  A financial instrument issued by a subsidiary that is classified as a liability in the subsidiary's financial statements based on the guidance in other standards is not a controlling interest because it is not an ownership interest.

Royalty interests that entitle the holder to participate in future earnings and are not repayable are classified as non-controlling interests.

Deferred Offering Costs:

The Company may incur legal and accounting fees, as well as due diligence fees related to the preparation of our pending financing.  Such costs are initially deferred until the offering is completed, at which time they are recorded as a reduction of gross proceeds from the offering, or expensed to operations if the offering is unsuccessful.

Nature and Classification of the Non-Controlling Interest in the Consolidated Financial Statements:

Arrayit Corporation. is the controlling interest of the affiliated group, since it maintains an investment in each of the operating facilities.   Arrayit Diagnostics, Inc. has an 80% ownership investment in Arrayit Diagnostics, Inc., and which in turn has an 80% interest in Arrayit Diagnostics (Ovarian), Inc., and Arrayit Diagnostics (Parkinson’s), Inc. as of March 31, 2010 and December 31, 2009.

A non-controlling interest is the portion of the equity in a subsidiary not attributable, directly or indirectly, to a parent.  A non controlling interest, minority interest, is the ownership held by owners other than the consolidating parent.   The non controlling interest is reported in the consolidated statement of financial position separately from the parent's equity, within the equity section of the balance sheet.  The minority interest in the current year’s income (loss) is segregated from the earnings (loss) attributable to the controlling parent.  Minority ownership equity interest in the consolidating subsidiaries is increased by equity contributions and proportionate share of the subsidiaries earnings and is reduced by dividends, distributions and proportionate share of the subsidiaries incurred losses.

 
NOTE 3 – GOING CONCERN

The accompanying consolidated financial statements of the Company were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred significant net losses and negative cash from operations since it was a party to the Pediatrix legal dispute. At March 31, 2010, Arrayit had a working capital deficit of $6,654,884, a stockholders' deficit of $6,812,005, and recurring net losses.  The Company currently devotes a significant amount of its resources on developing clinical protein biomarker diagnostic products and services, and it does not expect to generate substantial revenue until certain diagnostic tests are cleared by the United States Food and Drug Administration and commercialized. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. The Company’s ability to continue to meet its obligations and to achieve its business objectives is dependent upon, among other things, raising additional capital or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to raise such additional funding from various possible sources, including, its parent company, the public equity market, private financings, sales of assets, collaborative arrangements and debt. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain technologies or products that it might otherwise seek to retain. There can be no assurance that the Company will be able to raise additional funds, or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could be required to delay or reduce the scope of its operations, and the Company may not be able to pay off its obligations, if and when they come due.

These factors create substantial doubt about Arrayit’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities or other adjustments that may be necessary should the Company not be able to continue as a going concern.

 
The ability of Arrayit to continue as a going concern is dependent on Arrayit generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations. Management's plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance Arrayit will be successful in these efforts.

NOTE 4 – CASH AND RESTRICTED CASH

Cash on hand and bank overdrafts represent cash that may freely be used in the conduct of our business.

At March 31, 2010 and December 31, 2009, restricted cash was comprised of a $100,000 Certificate of Deposit and accrued interest of $305 and $293, respectively, lodged with our bankers as security for a $100,000 letter of deposit we were mandated to lodge with the Pennsylvania court as part of the Pediatrix legal action more fully described in Note 14.  Upon finalization of the legal action, the letter of credit will be returned and the bankers will release the restrictions on the Certificate of Deposit.


 

 

 
11

 

 
NOTE 5 – ACCOUNTS RECEIVABLE SOLD WITH RECOURSE

Accounts receivable are shown net of an Allowance for Doubtful Accounts.   As more fully explained in Note 6 below, receivable has been reduced by Accounts Receivable loans sold with recourse.

 
 
March 31, 2010
   
December 31, 2009
 
Gross accounts receivable
 
$
298,470
 
 
$
431,420
 
Less:
 
 
 
 
 
 
 
 
  Allowance for doubtful  accounts
 
 
(100,000
)
 
 
(100,000
)
  Loan value of receivables sold with recourse (see note 6)
 
 
(103,122
)
 
 
(259,476
)
Total
 
$
95,348
 
 
$
71,944
 

NOTE 6 – ACCOUNTS RECEIVABLE SOLD WITH RECOURSE

Pursuant to an agreement dated July 5, 2007, the Company has sold some of its Accounts Receivable to a financial institution with full recourse.  The financial institution retains a 15% portion of the proceeds from the receivable sales as reserves, which are released to the Company as the Receivables are collected.  The maximum commitment under this facility is $450,000, and is limited to receivables that are less than 31 days outstanding. The facility bears interest at prime plus 7%, currently 10.25% at March 31, 2010, and is secured by an unconditional guarantee of the Company and a first charge against the Accounts Receivable.  At March 31, 2010, the balance outstanding under the recourse contracts was $103,122 net of a hold back reserve of $3,039 (December 31, 2009 - $259,476 net of a hold back reserve of $4,715).   Because of the Company’s credit policies, repossession losses and refunds in the event of default have not been significant and losses under the present recourse obligations are not expected to be significant, it is at least reasonably possible that the Company’s estimate will change within the near term.

 
NOTE 7 – FIXED ASSETS

Property and equipment consisted of the following:

 
 
March 31, 2010
 
 
December 31, 2009
 
Fixed Assets – Cost
 
$
347,139
 
 
$
345,107
 
Less:
 
 
 
 
 
 
 
 
  Accumulated Depreciation
 
 
(284,071
)
 
 
(276,419
)
Total
 
$
63,068
 
 
$
68,688
 

Depreciation expense totalled $7,652 and $nil respectively for the three months ended March 31, 2010 and 2009.

 
 

 


 
12

 


 
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities, consisted of the following:

 
 
March 31, 2010
 
 
December 31, 2009
 
ACCOUNTS PAYABLE
 
 
 
 
 
 
Normal course of business
 
$
1,412,776
 
 
$
1,328,851
 
Pertaining to law suits
 
 
2,931,451
 
 
 
2,889,677
 
      Total Accounts Payable
 
 
4,344,226
 
 
 
4,218,528
 
                 
ACCRUED LIABILITIES
 
 
 
 
 
 
 
 
Accrued salaries and wages
 
 
851,353
 
 
 
780,833
 
Judgement Interest
 
 
314,365
 
 
 
309,719
 
Other
 
 
15,613
 
 
 
11,159
 
  Total Accrued Liabilities
 
 
1,181,332
 
 
 
1,101,711
 
      TOTAL
 
$
5,525,558
 
 
$
5,320,239
 

NOTE 9 – DUE TO RELATED PARTIES

Pursuant to a consulting agreement with Dr. Mark Schena, the Company is obligated to pay a royalty of 5% of gross sales to him as a royalty for unfettered use of his patents and knowledge.   Amounts outstanding at March 31, 2010 and December 31, 2009 of $501,116 and  $459,116, respectively, are unsecured, non-interest bearing and due on demand.


NOTE 10 –DEBT MODIFICATION

In 2008, Cloud Capital entered into a formal custodial arrangement with 16 participants.  Cloud has no discretionary power and acts solely as custodian taking direction from each participant.  Each participant lodged a basket of securities with the custodian made up of common, convertible preferred and convertible debt at the time of the IMHI acquisition of TeleChem on February 21, 2008.

In January 2008, the Company entered into an oral agreement with each of the participants whereby the participant agreed to a fixed number of shares for their "basket" of securities. However, On February 20, 2009, the participants became discouraged with the efforts of the Company to complete the regulatory filings and requested that the original Oral Agreement be abrogated.  The Company then came to a new Oral Agreement with each of the participants that included the following:

(a)  All prior agreements are now null and void.  This includes both the predecessor Oral as well as the predecessor Written agreements.

(b) The quantum of shares being made available to the 16 participants will be fixed at 12,509,357.

(c) The 18,695 common shares, held by the participants, are issued and outstanding and will be not be affected by the new Oral Agreement.

(d)  The 2,926,787 pre-split, (97,634 post-split) Series A Preferred Shares will be surrendered for cancellation without compensation by each of the participants.

(e)  The debt of $1,993,450 and estimated penalty and interest of $1,555,750 for a total approximation of $3,549,200 will be converted into 12,509,357 common shares, being a fixed number of common shares regardless of the interest and penalties that continue to accrue.

(f)  Due to the lack of sufficient authorized capital only 2,712,500 common shares were available for conversion on March 13, 2009 and March 16, 2009.

(g) Interest and penalties cease to accrue on the debt and therefore no additional penalties or interest will become payable.

(h)The Oral Agreements constitute a formal waiver of any prior and future defaults on the underlying debt, thereby preventing the debt holders from asserting any rights and / or remedies they previously were entitled to under the written agreements.

It is the intention of the 16 debt holders and the Company that the debt will be converted into common shares, as soon as practical.  Currently, the Company does not have sufficient authorized share capital to satisfy this obligation, and therefore the debt may not be converted.  Management is not able to practically estimate when it will have sufficient authorized share capital as this lies outside the control of the Company.

For greater certainty and as outlined in Item (e) above, as a result of these Oral Agreements there will be no effect upon the Company of the continuing defaults or of any changes in interest rates.   The Oral Agreements fix the number of shares to be issued upon conversion regardless of any additional interest and penalties, which may have been due under the originating documents that are now superseded by the Oral Agreements.

On March 13, 2009, the date of Debt Modification, the Company recorded a derivative liability of $20,996,593 as a result of insufficient authorized shares to satisfy the debt settlement according to accounting standards for accounting for derivative instruments and hedging activities and revalued the liability by recording a loss on derivative liability of $19,021,116.

The 97,634 Preferred Series “A” shares held by the Oral Agreement debt holders were cancelled subsequent to the debt settlement.

 
13

 
 
NOTE 11 – DEBT

 
 
 
March 31, 2010
   
December 31, 2009
 
 
 
 
   
 
 
Notes payable to Wells Fargo, payable in 60 monthly installments of $8,572 including interest at bearing interest at Prime plus 2.75%, through November 2012.  Secured by Equipment, Inventory, Accounts, Instruments, Chattel Paper and General Intangibles of TeleChem International, Inc.  Unconditional Guarantees by some of the Company’s Class “C” shareholders and unconditional limited guarantees by those shareholders’ spouses.  Guarantee secured by two residential properties and cash collateral of $276,000.
    226,856       261,126  
Notes payable, interest at 8%, unsecured due on demand from Arrayit creditors
    42,250       42,711  
Notes payable, interest at 8%, unsecured due on demand from the former TeleChem shareholders and their families.
    706,450       729,750  
 
    975,556       1,033,587  
                 
Notes payable including related parties
  $ 975,556     $ 1,033,587  
 
               
Short Term Debt
  $ 831,251     $ 852,931  
Long Term Debt
    144,305       180,656  
 
               
Notes payable including related parties
  $ 975,556     $ 1,033,587  
                 
 
               
Scheduled maturities of notes payable for years succeeding March 31, 2010 are as follows:
               
                 
 
Amount
         
2010
  $ 831,251          
2011
    91,420          
2012
    52,885          
Total
  $ 975,556          

Derivative Liabilities

Convertible Debt – SovCap

The Company, upon the execution of the reverse merger with IMHI, become obligated for convertible debt of $3,549,200 (see Note 10) which on March 13, 2009 become subject to a series of 16 Oral Agreements.   The debt, as detailed in Note 10, was shown as a derivative, subsequent to the establishment of the Oral Agreements for the Company’s interim reporting periods ending March 31, June 30 and September 30, 2009.  Upon the increase in the Company’s authorized common share capital, on December 10, 2009, the balance of the debt was converted.  The continuity of the convertible loan for the year ended December 31, 2009 is as follows:

 
 
Shares Issued
 
 
Original Debt
 
 
Accrued Interest
 
 
Total Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2008
 
 
 
 
$
1,993,450
 
 
$
1,555,750
 
 
$
3,549,200
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  March 13, 2009
 
 
1,140,000
 
 
 
(134,799
)
 
 
(105,201
)
 
 
(240,000
)
  March 16, 2009
 
 
1,572,500
 
 
 
(321,551
)
 
 
(250,949
)
 
 
(572,500
)
  December 11, 2009
 
 
9,765,857
 
 
 
(1,537,100
)
 
 
(1,199,600
)
 
 
(2,736,700
)
                                 
March 31, 2010 and December  31, 2009
 
 
12,478,357
 
 
$
-
 
 
$
-
 
 
$
-
 


Warrants

In January 2008, the Company granted warrants to purchase 1,250,000 shares of common stock.   The Company determined that the warrants qualified as free standing derivatives as the Company was unable to determine with certainty they will have enough shares available to settle any and all outstanding common stock equivalent instruments.  The Company would be required to obtain shareholder approval to increase the number of authorized shares needed to share settle those contracts. Because increasing the number of shares authorized is outside of the Company’s control, this results in these instruments being classified as liabilities and derivatives.

With the increase in authorized share capital on December 10, 2009, the Company now has sufficient shares to settle any and all outstanding common stock equivalent instruments.   The previously recognized derivative was accordingly transferred to Additional Paid in Capital.

Options

On October 1, 2009, the Company granted 450,000 options to the President of Arrayit Diagnostics, Inc. at an exercise price of $0.32.  The $189,000 intrinsic value of these options was recorded as an expense on that date.

 
14

 
 
NOTE 11 – ROYALTY OBLIGATIONS

(a)  
Advisory Agreement

Under paragraph 2 (b) of an Advisory Agreement dated August 11, 2009 between Arrayit Diagnostics, Inc. and a limited liability partnership, controlled by parties that are also shareholders in Arrayit Corporation, there is a contractual obligation to pay a Royalty of twenty percent (20%) of the net sales of Arrayit Diagnostics, Inc., and its subsidiaries, which includes the Company.  “Net Sales” means the gross selling price by the Company and sub-licensees for the sale of any product or products, less trade discounts allowed, credits for claims or allowances, commissions, refunds, returns and recalls.

The term of the Advisory Agreement is five years.  The royalties and ownership provisions are in perpetuity.

The entitlement to royalties under the Advisory Agreement is decreased by obligation to pay royalties to other advisors and investors.   With respect to the revenue generated by Arrayit Diagnostics (Ovarian), Inc. as described in (b) below, the Company is obligated to pay a 0.95% royalty to purchasers of royalty interests, thereby reducing the Company’s obligation to the advisor by a similar amount, resulting in a net royalty obligation to the advisor of 19.05% on revenue generated by our Ovarian subsidiary.

During the three months ended March 31, 2010 and 2009, there were no revenues earned and hence no obligation to pay any royalties.

(b)  Royalty Interests – ARRAYIT DIAGNOSTICS (OVARIAN), INC.

Third party investors purchased royalty interests in the amount of $285,000 in Arrayit Diagnostics (Ovarian), Inc. in return for a zero decimal nine five percent (0.95%) royalty on net sales of the Ovarian test.  Amounts received with respect to these royalty interests are shown as Non-Controlling Interests on the Balance Sheet, as there are no terms of repayment of the royalty interests.

During the three months ended March 31, 2010 and 2009, there were no revenues earned and hence no obligation to pay any royalties.

( c) Wayne State University – ARRAYIT DIAGNOSTICS (OVARIAN), INC.

Under terms of a biomarker license agreement between Wayne State University and the Company, effective December 7, 2009, the Company is obligated to pay the University royalties of five percent (5%) of net sales.  In addition the license agreement provides for lump sum payments to be made as milestone events are achieved.

During the three months ended March 31, 2010 and 2009, there were no revenues generated and hence no obligation to pay any amounts to Wayne State University.

 (d) The Parkinson’s Institute – ARRAYIT DIAGNOSTICS (PARKINSON’S), INC.

Pursuant to an agreement dated February 9, 2009 between the Company, and The Parkinson's Institute, a California Corporation, Arrayit Diagnostics (Parkinson’s), Inc., is obligated to make payments, of five percent (5%) of gross earnings generated from research derived from the biological specimens from Parkinson's disease patients and control patients provided by the Parkinson's Institute.

During the three months ended March 31, 2010 and 2009, there were no revenues generated and hence no obligation to pay any amounts to the Parkinson’s Institute.


NOTE 12 -  STOCKHOLDERS' EQUITY (DEFICIT)

 
TOTAL ARRAYIT CORPORATION STOCKHOLDERS' EQUITY (DEFICIENCY)
 
NON-CONTROLLING INTERESTS
 
                 
Additional
         
Interest In
Total
 
 
Preferred Series A
 
Preferred Series C
 
Common Stock
Paid In
Retained
   
Royalty
Subscription
Subsidiaries
Non
 
Description
Number
Dollar
 
Number
Dollar
 
Number
Dollar
Capital
Earnings
Total
 
Interest
Receivable
Earnings
Controlling
Total
                                   
Balance, December 31, 2009
         25,620
        $ 25
 
  103,143
    $103
 
     19,085,859
     $18,896
   $14,478,455
 $(21,097,741)
      $(6,600,262)
 
  $285,000
     $(13,750)
     $(66,908)
      $204,342
     $(6,395,920)
                                   
Convert Preferred A to Common
         (3,454)
          (3)
       
            10,686
            10
                  (7)
 
                       -
         
                     -
                                   
Convert Preferred C to Common
     
  (10,314)
     (10)
 
       3,610,000
       3,610
           (3,600)
 
                       -
         
                     -
                                   
Issuance of shares for services
           
          600,000
          600
        503,400
 
           504,000
       
                  -
          504,000
                                   
                                   
Net loss for the 3 months ended
                                 
 Balance  March 31, 2010
                 
      (715,743)
         (715,743)
     
        (9,229)
        (9,229)
        (724,972)
 
         22,166
      $  22
 
    92,829
   $   93
 
     23,306,545
$     23,116
   $14,978,248
 $(21,813,484)
      $(6,812,005)
 
  $285,000
     $(13,750)
      $(76,137)
$      195,113
     $(6,616,892)

Unauthorized Common Stock Issuance

On or about July 13, 2009, it came to the attention of the Company that Standard Registrar & Transfer Company, Inc. of Draper, Utah, the Company’s stock transfer agent, in error and without authorization from the Company, issued 190,770 common stock of the Company.  It would appear that Standard received certificates from shareholders that existed prior to the March 22, 2009 30:1 reverse stock split, and negligently did re-issue certificates for the same number of shares as the original certificate, rather than re-issuing certificates for one-thirtieth of the face value of the surrendered certificate.  In doing so, the Transfer Agent effectively issued additional shares to a select number of shareholders.

The consequences of said error, made by Standard Registrar & Transfer Company, Inc., are as follows:

1)  
the Company has issued 153,246 shares in excess of the number of shares authorized by the Secretary of State for Nevada, which is not permitted by state law.
2)  
The Company received no consideration for the issuance of said shares.
3)  
Some shareholders have been unduly enriched.
4)  
The shares were issued without registration with the Securities Exchange Commission.

The Company has been unable to resolve this issue with its transfer agent and has engaged legal counsel to commence action to (1) force Standard Registrar to purchase, in the open market, for cancellation the 190,770 issued by them in error, and (2) to have Standard Registrar contact each shareholder who received excess shares in error and have said shareholders either return the shares for cancellation if they still hold the shares, or disengorge the profits they incorrectly received.

 
15

 
 
Convertible Preferred Stock

 
The Series A Preferred Stock has no stated dividend rate and has a liquidation preference of $.001 per share. The Series A Preferred Stock also has voting rights that entitle the preferred shareholders to vote with the common shareholders as if the preferred stock had converted to common. Both the conversion ratio of the preferred into common and the number of shares outstanding is subject to revision upon reverse stock dividends or splits that reduce the total shares outstanding.

Subsequent to the debt settlement described in Note 10 above, 97,560 shares of Preferred A have been surrendered to and cancelled by the Company.

The Series C Preferred Stock has no stated dividend rate.  The Series C Preferred Stock also has voting rights that entitle the preferred shareholders to vote with the common shareholders as if the preferred stock had converted to common. The conversion ratio of the preferred into common is not subject to revision upon reverse stock dividends or splits that reduce the total shares outstanding.

The 103,143 Series C Preferred Stock was issued on February 21, 2008 as part of the merger with TeleChem.   These Series C Preferred shares are convertible into 36,100,000 common shares at the rate of 350:1.

On August 15, 2008 the articles of designation for the Series C Preferred Stock were amended to limit the conversion to common to shares to 10% of the holders’ original holdings in any quarter.

 
Options and warrants

On January 19, 2008, the Company issued 1,250,000 warrants, expiring on January 19, 2013, exercisable at $0.01.  Warrants that were issued generally do not have a life that exceeds 10 years. On October 1, 2009, the Company issued 450,000 stock purchase warrants, expiring on October 1, 2014, exercisable at $0.32.  Information regarding warrants and options to purchase common shares is summarized below:


 
 
Number of Options and Warrants
   
Weighted Average Exercise Price Per Share
 
Outstanding at December 31, 2008
    1,250,000     $ 0.01  
Granted
    450,000       0.32  
Cancelled/forfeited
    -       -  
Expired
    -       -  
Exercised
    -       -  
Outstanding at December 31, 2009
    1,700,000     $ 0.09  
Granted
    -       -  
Cancelled/forfeited
    -       -  
Expired
    -       -  
Exercised
    -       -  
Outstanding at March 31, 2010
    1,700,000     $ 0.09  



 
 


 
16

 


NOTE 13 - COMMITMENTS AND CONTINGENCIES

 
Pediatrix Screening, Inc., et al. V. TeleChem International, Inc.

The controversy at issue arose from a failed grant collaboration between Pediatrix and TeleChem, involving TeleChem’s proprietary microarray technology and subsequent agreement by the parties to commercialize this microarray technology through the formation of a joint corporation.  Pediatrix brought a lawsuit in the United States District Court for the Western District of Pennsylvania alleging multiple claims for breach of contract in connection with both the grant collaboration and Pre-Incorporation Agreement.  TeleChem counterclaimed alleging breach of the Pre-Incorporation Agreement, as well as fraudulent misrepresentation and trade secret misappropriation,   inter alia, stemming from the failed grant collaboration and subsequent Pre-Incorporation Agreement.

Civil Action number 01-2226 between TeleChem International, Inc., Pediatrix Screening, Inc. and Pediatrix Screening LP went to jury trial in the United States District Court in the Western District of Pennsylvania in the summer of 2007.  On August 11, 2007, the jury awarded TeleChem $5,000,000 in damages for Pediatrix's breach of contract, fraudulent misrepresentation, and punitive damages.  The jury awarded Pediatrix $1,085,001 for TeleChem's breach of contract.  Pediatrix put $5,000,000 in bond, and submitted an appeal to the Third Circuit Court of Appeals to request that the damages award to TeleChem be reduced.  Oral argument in the appeal was heard on December 15, 2009 by a panel of three judges in the Third Circuit Court of Appeals in Philadelphia, PA.

On April 20, 2010, the Third Circuit Court of Appeals rendered its judgment on that appeal that the Judgment entered August 16, 2007 is reversed in part , with respect to the judgment in favor of TeleChem on its counterclaim of misrepresentation and the award of damages.   The Appeal Court ordered a new trial on TeleChem’s counterclaim for fraudulent misrepresentation and damages.  The judgments on all other claims were affirmed.

Long Term Lease Commitments

The Company leases its office facility in Sunnyvale, California under operating leases that expire November 30, 2012.

Future  minimum  lease  payments  as  of  March  31,  2010  are  as  follows:

YEAR  ENDING

2010               $ 112,518

2011                  150,024

2012                  137,522


                       $  400,064

Rent expense was approximately $44,919 for the three months ended March 31, 2010 and $37,506 for the three months ended March 31, 2009.

Other Matters

Arrayit may become or is subject to investigations, claims or lawsuits ensuing out of the conduct of its business. Arrayit is currently unable to estimate the loss (if any) related to these matters.  Other than the Pediatrix matter referred to above, Arrayit is not aware of any other matters.


NOTE 14:  SUBSEQUENT EVENTS

 
Management has evaluated the effect subsequent events would have on the consolidated financial statements through the time these financial statements were issued on May 21, 2010.

 

 


 
17

 


 
ITEM 2.                      MANAGEMENT’S DISCUSSION AND ANALYSIS

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months ended March 31, 2010, this “Management’s Discussion and Analysis” should be read in conjunction with the Consolidated Unaudited Financial Statements, including the related notes, appearing in Item 1 of this Quarterly Report, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  The preparation of this Quarterly Report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results reported in the future will not differ from those estimates or that revisions of these estimates may not become necessary in the future.

Forward-Looking Statements

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

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those to be identified in our Annual Report on Form 10-K for the year ended December 31, 2009 in the section titled “Risk Factors,” as well as other factors that we are currently unable to identify or quantify, but may exist in the future.

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

Company Overview

Arrayit began as a division of TeleChem International in 1996 with the advent of Dr. Mark Schena’s use of microarrays as genetic research tools. Arrayit was able to generate a large customer base in a relatively short time frame by capitalizing on increased Internet access and Arrayit’s online business model.  Genetic research was advancing at a dramatic pace in the 1990s as more advanced tools became commercially available.   Microarray technology, including printing, detection and scanning instrumentation, was a timely addition to the geneticist’s repertoire of advanced tools, including automated sequencing, PCR, and expanded computing capability.   The sequencing of the genomes of various simple organisms and later, sequencing of the more complex genomes of humans, have led to yet another revolution in genetic discovery: gene function and variations with regard to disease states and diagnostics.   Microarray tools, having undergone FDA-validation in the 2000s, remain an important component of the new genomic industry upon which Arrayit will capitalize.




 
 


 
18

 

 
Arrayit Products and Services

In the late 1990’s, Arrayit focused on developing microarray slides, kits and reagents using an open platform strategy in order to establish a market niche.  In other words, Arrayit decided to make products that integrate with components from other vendors, enabling research laboratories to utilize microarray products from multiple vendors, in contrast to the closed platform format of the earliest competitors.  Research customers especially enjoy the flexibility and continue to buy Arrayit’s products.  Arrayit’s patented printing technology has become an industry standard for microarray manufacturing.   Arrayit’s revenues from the printing patent and its own family of printing instrumentation illustrate the Company’s success at meeting the unmet needs of the microarray industry.   Arrayit now sells both small-scale microarray robots (SpotBot®) and high throughput versions (NanoPrint). The SpotBot® and NanoPrint product lines have been further advanced to accommodate more stringent requirements in manufacturing protein microarrays.   As the industry grows, Arrayit is expanding its product line to include integrated platforms and pre-printed microarray slides with specific content.

Arrayit is now expanding its Microarray Services capabilities as well, in connection with increased demand for microarrays of all kinds, and a trend toward outsourcing high end technical manufacturing. Arrayit intends to create a variety of microarray-based diagnostic tests using Arrayit’s patented healthcare technology, the Variation Identification Platform (VIP) technology.  As microarrays move into clinical diagnostics and genetic screening applications, the Company also expects to earn license and royalty fees in these areas.

Arrayit has been a microarray technology market driver for more than a decade. A full microarray product list with descriptions, scientific publications , protocols and pricing is available at www.Arrayit.com

 Arrayit’s principal office is in Sunnyvale, California. The Company presently has ten employees.

Corporate History

 
Integrated Media Holdings, Inc.(IMHI) is a Delaware corporation.  On February 5, 2008, IMHI entered into a Plan and Agreement of Merger (the “Merger”) by and among  TeleChem International, Inc. (“TeleChem”), the majority shareholders of TeleChem (“Shareholders”), Endavo Media and Communications, Inc., a Delaware corporation (“Endavo”) and TCI Acquisition Corp., a Nevada corporation and wholly owned subsidiary of IMHI (“Merger Sub”).  IMHI, TeleChem, Endavo, Merger Sub and Shareholders are referred to collectively herein as the “Parties”.

 
Effective February 21, 2008, IMHI completed the Plan and Agreement of Merger by and among TeleChem International, Inc., the majority shareholders of TeleChem, Endavo Media and Communications, Inc., a Delaware corporation and TCI Acquisition Corp., a Nevada corporation, and wholly owned subsidiary of IMHI.  Consummation of the merger did not require a vote of our shareholders.  IMHI issued 103,143 shares of Series C Convertible Preferred Stock to the Shareholders of TeleChem in exchange for 100% of the equity interests of TeleChem resulting in TeleChem being a wholly owned subsidiary.  The former shareholders of TeleChem now own approximately 73.5% of the outstanding interest and voting rights of IMHI.  The Preferred Stock is convertible into 36,100,000 shares of common stock after, but not before, the effective date of the reverse split of the outstanding Integrated Media common stock.  Finally, in connection with the merger, we changed the address of our principal executive offices to 524 East Weddell Drive, Sunnyvale, CA 94089.  Simultaneously with the merger we transferred our wholly-owned subsidiary, Endavo to an individual.  As a result, the transaction was accounted for as a reverse merger, where Telechem is the accounting acquirer resulting in a recapitalization of our equity.

Effective Thursday, March 19, 2009, the final steps of the business combination with Integrated Media Holdings, Inc. were completed and the Company’s common stock began trading on the OTC Bulletin Boards as “ARYC”. In addition, the Company changed its name to “Arrayit Corporation”, was reincorporated to Nevada from Delaware, and reverse-split its common stock and Series A Convertible Preferred stock in the ratio of one for thirty shares.

The reincorporation was effected by the merger of IMHI, with and into its wholly owned subsidiary, Arrayit.  Arrayit was the surviving entity.

On the Effective Time, each of IMHI’s common stockholders was entitled to receive one fully paid and non-assessable share of common stock or preferred stock of Arrayit for each share of our common stock or preferred stock, respectively, outstanding as of the Effective Time and (ii) IMHI ceased its corporate existence in the State of Delaware.  The shares of the Company ceased trading on the first trading date following the Effective Time and shares of Arrayit began trading in their place but under a new CUSIP number and trading symbol.


 

 
19

 

 
On April 7, 2009, Arrayit Corporation announced a new research collaboration with The Parkinson's Institute of Sunnyvale, California to discover biomarkers for Parkinson's disease. This study involved the prospective collection of samples from well-characterized Parkinson's patients combined with Arrayit's new H25K microarray technology. The first experiments have enabled rapid and efficient sample preparation of specimens from Parkinson's disease patients, an important step in the discovery of molecular markers for Parkinson's disease.

 
On April 30, 2009, Arrayit Corporation announced that it is developing a microarray-based diagnostic test to detect the H1N1 swine flu virus.  The Arrayit test allowed researchers and clinicians to detect the presence of the virus in infected patients and livestock and to distinguish the threatening mutated strain from less harmful variants in humans and swine. The H1N1 kits used Arrayit’s patented Variation Identification Platform (VIP) Technology. The H1N1 test kits were sent to the Centers for Disease Control (CDC) for validation, then sold for emergency use by licensed clinics, laboratories and other health care organizations worldwide.

 
Market Conditions in Our Industry

The microarray industry is comprised of four areas:  basic research into the function of genes in plants and animals, research on the human genome, development of diagnostics for personalized medicine, and diagnostic screening tools for drug development programs that identify toxicity patterns in patient populations.

The basic research segment constitutes a significant portion of the industry that has grown dramatically since first introduced in the mid-nineties by Arrayit’s Dr. Mark Schena.  Arrayit currently sells the majority of its products to this segment of the industry.   The human genetic research segment constitutes the fastest growing segment, making up the current balance of Arrayit’s sales. However, the impact of diagnostics in personalized medicine is expected to be far greater than the above, because of its impact on the very costly healthcare industry.   Better patient outcome and lower healthcare cost to medical providers will provide opportunities in a vast number of disease states as the industry grows.   Diagnostic tests will become a part of every individual patient’s care plan across the costly spectrum of disease states, including cardiovascular, oncology, neurology, and other genetic diseases that affect large numbers of the population.

Arrayit competes with large and small, public and private companies. The industry has been historically dominated by Affymetrix which achieved strong market penetration by being the first public company to commercialize and promote microarray applications.  A more recent entry to the market, Illumina, has taken significant market share from Affymetrix.  However, both competitors face mid to long term scientific and technological challenges because they are limited by what they can deposit onto a microarray –DNA.  Arrayit’s patented printing technology can deposit any kind of molecule into a microarray, including DNA, proteins, antibodies, diagnostic elements and other compounds.  These next generation microarrays represent the largest growth opportunity in the industry.  Arrayit has a long-term advantage in its unique line of personal and high throughput microarray printers, highest sensitivity microarray scanners, top quality consumables, patented diagnostic methods, collaborative corporate culture, and competitive pricing.

 
 


 
20

 

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 
Cash and Cash Equivalents

Cash includes all cash and highly liquid investments with original maturities of three months or less.  The Company maintains cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses on these accounts.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation and amortization on property and equipment are determined using the straight-line method over the three to five year estimated useful lives of the assets.

 
Impairment of Long-Lived Assets

Arrayit reviews its long-lived assets for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. Arrayit evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The Company uses an estimate of future undiscounted net cash flows of the related asset or group of assets over the estimated remaining life in measuring whether the assets are recoverable. If it is determined that an impairment loss has occurred based on expected cash flows, such loss is recognized in the statement of operations.

Inventory

Inventories are stated at the lower of cost or market, cost determined on the basis of FIFO.

Revenue Recognition

Revenue is recognized when title and risk of loss are transferred to customers upon delivery based on terms of sale and collectiblity is reasonably assured.

Shipping and Handling Costs

Shipping and handling costs billed to customers are recorded as revenue. Shipping and handling costs paid to vendors are recorded as cost of sales.

Fair Value of Financial Instruments

The carrying amounts reported in the accompanying balance sheets of all financial instruments approximates their fair values because of the immediate or short-term maturity of these financial instruments or comparable interest rates of similar instruments.

Allowance for Doubtful Accounts

The Company records an allowance for estimated losses on customer accounts. The allowance is increased by a provision for bad debts, which is charged to expense, and reduced by charge-offs, net of recoveries.

Patent Costs
Costs incurred with registering and defending patent technology are charged to expense as incurred.

 
Income Taxes

 
Prior to February 21, 2008, the financial statements of TeleChem did not include a provision for Income Taxes, because the taxable income of TeleChem was included in the Income Tax Returns of the Stockholders under the Internal Revenue Service "S" Corporation elections.

Upon completion of the February 21, 2008 transaction with IMHI as more fully described in Note 1, TeleChem ceased to be treated as an "S" Corporation for Income Tax purposes.  Effective February 21, 2008, Arrayit Corporation became a Nevada C Corporation.

Deferred taxes are computed using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are not recognized unless it is more likely than not that the asset will be realized in future years.


 
21

 

Results of Operations

Comparison of Operating Results – Three Months Ended March 31, 2010 and 2009

Gross revenues for the three months ended March 31, 2010 and 2009 were $664,858 and $999,795, respectively. The Company continues to be hampered by its lack of financing.   The Company had in excess of $500,000 of orders on hand which it was not able to ship by March 31, 2010.

The Cost of Sales for the three months ended March 31, 2010 and 2009 amounting to $367,842 and $754,382, respectively, resulting in gross profit for the three months ended March 31, 2010 and 2009  of $297,016 and $245,413, respectively. The Company’s Cost of Sales is dependent upon product mix.   During 2010, the Company sold products with a higher gross margin than in the comparable period for 2009, resulting in an increase  in the gross profit percentage to 44.7% from 25.0%.


Selling, general and administrative expenses for the three months ended March 31, 2010 and 2009 were $848,541 and $347,933, respectfully.  The increase of $500,608 is attributable to the fair value of shares issued in lieu of cash compensation and for services rendered by consultants to the Company.

Net loss from operations was $551,525 for the three months ended March 31, 2010, compared with a net loss from operations of $102,520 for the three months ended March 31, 2009.

Research and development costs of $76,275 (2009 - $nil) relate to the cost of developing our OvaDX  pre-symptomatic diagnostic test for Ovarian Cancer.  Legal expenses associated with the appeal of the Pediatrix court case accounted for most of the legal expenses of $56,063 for the three months ended March 31, 2010, whereas legal expenses of $12,447 during the three months ended March 31, 2009 were incurred in the normal course of business.  Interest expense was only $41,109 for the three months ended March 31, 2010 compared to $118,657 for the three months ended March 31, 2009.  The reduction in interest costs was the result of the reduced level of debt and to a minor extent a reduction in interest rates.

On March 13, 2009, the date of Debt Modification, the Company recorded a loss on extinguishment of debt of $12,834,898.  The loss on derivative liability of $7,366,264 for the three months ended March 31, 2009 was a result of insufficient authorized shares to satisfy the debt settlement in accordance with accounting standards for derivative instruments and hedging activities.  There were no gains or losses on either the derivative liability or on extinguishment of debt during the three months ended March 31, 2010.  Net loss attributable to the non-controlling interest in our Arrayit Diagnostics, Inc. subsidiary amounted to $9,229 (2009 - $nil).

Cash flows from operations approximated net income (loss) for the three months ended March 31, 2010  The Company has funded its operating deficits through debt financing.


Liquidity and Capital Resources

As of March 31, 2010, we had had a working capital deficiency of $6,654,884 and a stockholders’ deficit of $6,616,892.  The working capital deficiency, in addition to amounts payable in the normal course of business, is primarily attributable to (1) the $2,931,451 liabilities incurred but as yet unpaid in defending our Pediatrix lawsuit (2) $851,353 in deferred compensation, and (3) $314,365 in Judgement interest.

During the three months operations generated $60,063 of our cash resources.

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

a)
The favorable conclusion of the appeal against our successful judgement in the Pediatrix law suit.  Should the defendant in the appeal not be successful, the $4,000,000 net award would allow us to liquidate some of our outstanding accounts payable;
b)
The trickle down effects of the federal stimulus package which provides funding for our customers and which may result in increased business for our Company; and
c)
Our ability to increase our authorized share capital thereby allowing some of our debt holders to convert their debt to equity.

We estimate that we may require as much as approximately $750,000 over the next twelve (12) months to meet our expenses and to continue to prefect our proprietary microarray technology.  We may require additional funds over the next eighteen (18) months to assist in realizing our business objectives.  The amount of timing of additional funds required will be dependent on a variety of factors and cannot be determined at this time.  The Company has been successful in paying its operating costs and funding its development from operations supplemented by short term borrowings form family members and third parties.   We cannot be certain that we will be able to raise any additional capital to fund our ongoing operations.

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

Source of Liquidity

 The Company’s source of liquidity includes our current cash and cash equivalents and internally generated cash flows from operations.


Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.


 

 
22

 


 
Forward-Looking Statements

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

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed with an objective of ensuring that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls also are designed with an objective of ensuring that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, in order to allow timely consideration regarding required disclosures.

The evaluation of our disclosure controls by our chief executive officer, who is also our acting chief financial officer, included a review of the controls’ objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. Our management, including our chief executive officer, does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on his review and evaluation as of the end of the period covered by this Form 10-Q, and subject to the inherent limitations all as described above, our chief executive officer, who is also our acting chief financial officer, has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) contain material weaknesses and are not effective.

A material weakness is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

The material weaknesses we have identified are the direct result of a lack of adequate staffing in our accounting department. Currently, our chief executive officer and a controller have sole responsibility for receipts and disbursements. We do not employ any other parties to prepare the periodic financial statements and public filings. Reliance on these limited resources impairs our ability to provide for a proper segregation of duties and the ability to ensure consistently complete and accurate financial reporting, as well as disclosure controls and procedures. As we grow, and as resources permit, we project that we will hire such additional competent financial personnel to assist in the segregation of duties with respect to financial reporting, and Sarbanes-Oxley Section 404 compliance.


 

 
23

 
 
PART II – OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Civil Action number 01-2226 between TeleChem International, Inc., Pediatrix Screening, Inc. and Pediatrix Screening LP went to jury trial in the United States District Court in the Western District of Pennsylvania in the summer of 2007.  On August 11, 2007, the jury awarded TeleChem $5,000,000 in damages for Pediatrix's breach of contract, fraudulent misrepresentation, and punitive damages.  The jury awarded Pediatrix $1,085,001 for TeleChem's breach of contract.  Pediatrix put $5,000,000 in bond, and submitted an appeal to the Third Circuit Court of Appeals to request that the damages award to TeleChem be reduced.  Oral argument in the appeal was heard on December 15, 2009 by a panel of three judges in the Third Circuit Court of Appeals in Philadelphia, PA

On April 20, 2010, the Third Circuit Court of Appeals rendered its judgment on that appeal that the Judgment entered August 16, 2007 is reversed in part, with respect to the judgment in favor of TeleChem on its counterclaim of misrepresentation and the award of damages.   The Appeal Court ordered a new trial on TeleChem’s counterclaim for fraudulent misrepresentation and damages.  The judgments on all other claims were affirmed.

There are no other legal proceedings, although we may, from time to time, be party to certain legal proceedings and other various claims and lawsuits in the normal course of our business, which, in the opinion of management, are not material to our business or financial condition.

ITEM 1A – RISKS FACTORS

Not required for smaller reporting companies.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 
On January 5, 2010, we issued 10,670 unregistered common shares upon conversion of 3,406 Preferred Class A shares. The Company relied upon the exemption under Section 4(2) of the Securities Act
(2)
On February 24, 2010, we issued 3,610,000 unregistered common shares upon conversion of 10,314 Preferred Class C shares. The Company relied upon the exemption under Section 4(2) of the Securities Act
(3)
On February 25, 2010, we issued 16 unregistered common shares upon conversion of 48 Preferred Class A shares. The Company relied upon the exemption under Section 4(2) of the Securities Act
(4)
On March 30, 2010, we issued 600,000 unregistered shares for consulting services.  The Company relied upon the exemption under Section 4(2) of the Securities Act


 
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

NONE


 
ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 
NONE
 
ITEM 5 – OTHER INFORMATION

 
NONE

 
 
 
24

 
 
ITEM 6 – EXHIBITS

31.1             Certification of Chief Executive Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. (Filed herewith)
32.1             Certification of Chief Executive Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith)



SIGNATURES

 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Arrayit Corporation
 
 
Dated: May 21, 2010
By: /s/ RENE’ A. SCHENA
 
Rene A Schena
 
Chairman and Director

 

 

 

 


 
25

 

Exhibit 31.1

 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


 
I, Rene A. Schena certify that:


 
1.
I have reviewed this Quarterly Report on Form 10-Q Arrayit Corporation.;


 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


 
/s/  Rene A. Schena

Rene A. Schena
Chief Executive Officer
May 21, 2010

 

 

 
26

 
 
Exhibit 31.2

 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


 
I, William L. Sklar certify that:


 
1.
I have reviewed this Quarterly Report on Form 10-Q of Arrayit Corporation;


 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


 
/s/  William L. Sklar

William L. Sklar
Chief Financial Officer
May 21, 2010


 
 
 
27

 
 
Exhibit 32.1

 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


 
In connection with the Quarterly Report of Arrayit Corporation. (the “Company”) on Form 10-Q for the period ending March 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rene A. Schena certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:


 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


 
/s/  Rene A. Schena

 
Rene A. Schena
Chief Executive Officer
May 21, 2010


 

 
28

 
 
Exhibit 32.2

 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


 
In connection with the Quarterly Report of Arrayit Corporation. (the “Company”) on Form 10-Q for the period ending March 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rene A. Schena certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:


 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


 
/s/  William L. Sklar

 
William L. Sklar
Chief Financial Officer
May 21, 2010


 

 
29