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Thank you for the opportunity to respond to a recent "short-seller" article about our company, Accelr8 Technology (AXK), in which the author ignores facts and twists hand-picked historical events. The author, "Truth Ignition," did so without stating the outcomes of those events, misleading readers into assuming currency of a status quo ante for charges which were settled under customary terms, in order to avoid costly litigation, that bar AXK management from asserting the falsity of the charges. That is, a short-seller need only allege guilt where none has been proven. The result of the actual event was a standard settlement that bars the defendant (AXK) from asserting innocence to the public.

We will refer to Accelr8 Technology Corp. as "AXK" for brevity, even though it has had different ticker symbols in earlier periods. The truthignition.com Web site "About" page identifies "Brandon Winkler" as "Founder and Director of Research" - we will assume for brevity that "Winkler" is the report author and a short-seller, as repeated warnings suggest. We make no assertion as to whether or not such a person actually exists or holds any stock position in AXK individually. We do note that the bio on the Web site suggests no reason to believe that "Winkler" has relevant experience despite the claim that the website serves the interest of "the average investor" by "authoring thorough, truthful reports," subsequently revealed explicitly in the numerous legal disclaimers to not imply guarantees of accuracy or currency. A single individual with only 12 years of experience in finance without naming a senior position or FINRA qualifications, and specific disclaimers of not being a licensed broker/dealer, does not assure seasoned investment expertise. A phone call to Winkler's last-reported employer (Global Hunter Securities) confirmed that a person of that name is no longer employed there.

As a matter of policy and rational business practice, Accelr8 management does not spend time dealing with spurious assertions. Response only tends to legitimate fraudulent accusations ("when did you stop beating your wife?") that are commonplace especially against small public companies. Due to the wide exposure Winkler enjoyed, we are making an exception to our policy.

We will not respond point by point to truthignition.com's expansive but disconnected insinuations. We will focus on the few relevant areas that are constructed to give the appearance of asserting a factual basis. The vast majority of the document contains little more than ad hominem attacks against AXK management. We have no idea from where the hostility originated or whether it is simply a standard tool of a gun for hire. Absence of fact and logical argument precludes rational response.

We will not waste time countering Winkler's groundless speculation nor engage in speculation in kind. We will, however, draw the obvious deductions from observable facts and assertions and cite some areas of groundless speculation that particularly stand out.

1. Background

Winkler failed to perform essential due diligence, such as a meeting with AXK management, a visit to the company, or a request to speak with the independent academic investigators who have worked with AXK's BACcel(tm) prototypes.

As an example of a fundamental mis-statement of obvious fact, AXK has prominently stated in every SEC filing for many years that our business model is one of originating intellectual property, then licensing or otherwise partnering with an established industry participant. The first page of the Winkler document, fourth bullet, speculates that the AXK project with Novartis (NYSE:NVS) must represent a "last-ditch effort of a desperate company." Apparently Winkler, in his "thorough" research, missed our repeated public statements that industry collaboration is the essence of our business, as witnessed by previous licenses for our bio-coatings sold to three well-known companies listed on our Web site and described in detail in all public securities filings.

2. SEC Allegations

The SEC made charges against Accelr8 based on false allegations by a disgruntled ex-employee, Al Wallace. The accusations occurred at a time when substantial and continuing changes were being made by FASB regarding the recognition of revenues derived from software sales and maintenance contracts. Even in light of these ongoing changes, the SEC charged Accelr8 management with fraudulent revenue recognition practices.

Winkler also spends a lot of "ink" on false allegations by another ex-employee about AXK's software being misrepresented to customers. Major AXK software customers (Ford (NYSE:F), Intel (NASDAQ:INTC), and others) were deposed, but the resulting depositions uniformly stated that AXK's software performed as the company represented. These depositions are part of the public record.

In preparing its defense, AXK hired a then-recently-retired SEC forensic accountant as a consultant to review AXK's financial statements and specific SEC charges. As a result of his investigation, the ex-SEC official presented a report finding no evidence of fraudulent practices. This report is part of the public record.

Verifiable point #1: AXK's Board of Directors decided to agree to a standard settlement with the SEC, which includes an agreement to neither admit nor deny guilt. Therefore AXK management cannot legally assert guilt or innocence, but only point to the fact that the SEC settled rather than prosecuted. AXK's Board decided that litigation would prove too costly, uneconomic, and distracting to management.

Verifiable point #2: Accelr8 never had to restate earnings at any time within the 1997-1999 period at issue. Had AXK mis-stated revenues in any way according to FASB rules, a restatement would have been required.

As an example of an entirely false and rambling sequence of assertions constructed to appear as if based on fact, Winkler's allegation that Deloitte resigned "after discovering the previously alleged accounting violations" is utterly false, as proven by the date of resignation. In fact, Deloitte abandoned Accelr8 after the SEC filed charges in order to avoid the expense of defending its client, AXK.

AXK then retained a local auditing firm on the advice of and introduction by Accelr8's securities attorney. The same attorney still represents Accelr8 and can speak to the history.

Furthermore, during the period in question, smaller accounting firms dropped out of public company audits because of explosively escalating premiums for liability insurance. This occurred with AXK's replacement for Deloitte, when LHM exited the public company auditing business and ended its work with AXK. Winkler weakly attempts guilt by association by reference to later events concerning LHM and another of its clients that were in no way related to AXK. Again, refer to the fact that AXK never restated its earnings reports for any time during the multi-year period of alleged misbehavior.

Since that time, AXK has retained other auditing firms as regulations shifted, requiring changes in the experience needed to adequately support AXK's reporting requirements. Small public companies do this in order to assure compliance with changing regulations (e.g. Sarbanes-Oxley, FASB, etc.) and control costs.

In his speculation concerning the value of AXK's software business, Winkler also failed to observe that AXK decided to exit the software business by means of profitable divestiture. AXK sold the remaining business, which had continuing services revenues, and which Winkler also failed to report.

After the SEC filed charges, AXK's D&O insurer also notified the company that it dropped AXK's coverage. This required AXK to fund its own defense out of operating earnings. After the settlement with the SEC, the insurer agreed to settle with AXK for $800,000 in order to avoid litigation by AXK against the insurer. Since AXK's CEO/Chairman had never sold any of his stock and could thus not have profited by financial misdeeds, the insurer would not have been able to prove scienter (willful misbehavior). AXK's attorneys believed that AXK had an ironclad case for willful contract violation by the insurer, exposing the insurer to risk of treble damages.

Any attempt at truthfulness and diligent analysis would quickly have revealed these actual findings. We can only conclude that Winkler is not interested in truthfulness or diligence.

3. Status of the BACcel(tm) Rapid Diagnostic System

Winkler begins his discussion of the BACcel(tm) rapid diagnostics project by pointing to AXK's redirection via a bioscience asset acquisition and referring to the "disastrous Y2K debacle."

Some debacle.

A number of AXK investors made substantial capital gains, and the company accumulated almost $11 million in retained earnings. Would that all "debacles" prove so productive. In fact, the ability of AXK automated code scanner tools to quickly find and fix Y2K errors in existing code drove a major part of the company's success. This included a government contract to send a team to the USSR to check nuclear reactor software for Y2K vulnerability, which AXK did with success.

In describing AXK's entry into development for biosciences products, Winkler appears puzzled by the idea that management might shift direction to a new business if the original market target fails to materialize in the time and manner that industry wisdom projected. In order to preserve shareholder value, AXK management did not continue spending when the industry wisdom began to appear in error. Instead, the company acquired and created new intellectual property to pursue a different application opportunity - hospital-acquired fulminant infections in ICU patients - that our market investigation revealed to completely lack apparent competition or risk of technological obsolescence.

Winkler's discussion of the BACcel(tm) product and market is incoherent and betrays a complete lack of understanding of the product purpose, application, market, industry, and customers. For example, he adamantly argues that a company that sells a medical diagnostic product that takes several days to produce a result is a "direct competitor" for an innovation that produces equivalent or better results on the same day that a doctor sends a specimen to a lab. In Winkler's "thorough" research he apparently overlooked the thousands of journal publications that prove the life-saving potential for rapid diagnostics in a great many areas of medicine, not least of which is for infections in critically ill patients.

The remainder of Winkler's wandering and disconnected speculation about the BACcel(tm) system etc. only goes to demonstrate his inexperience and lack of knowledge about medical technology and markets.

Bottom line, as matters of public record, Accelr8 and its academic collaborators have made 18 public presentations to the scientific and medical communities, with a 19th accepted for September this year (ICAAC). The academic investigators do not own stock. The only support their institutions receive is to pay for direct staff time (not the principal investigators, but their laboratory staff) and reimbursement of costs. Career paths for these highly respected professionals depend entirely on their integrity and trust by their peers. There is no question of ulterior motives when they place their name in an author list or give a presentation to their peers. They do so only if they personally supervise the study's design, execution, and interpretation.

BACcel(tm) data presented in these venues, all easily available on the accelr8.com website, clearly establish technical success across a broad range of performance factors needed for a commercial diagnostic product. AXK has clearly stated the development stage of BACcel(tm) development. All data presented by AXK are available to qualified auditors all the way down to the raw microscopy images of millions of live bacterial clones, as we've provided to prospective industry partners.

Key opinion leaders in the relevant scientific and medical communities readily accept the inherent logic of the BACcel(tm) methods, and accept the objective data presented as valid scientific evidence of technical success. The fact that the system is not yet commercial is irrelevant. A company must develop a product before it can sell one. AXK has never intimated otherwise, and in fact speaks directly to the advancing stages of development in its press releases and public presentations.

Similarly, Winkler seems astonished by the fact that product development costs money, i.e. that cash will be consumed by a development project. The front-page bullet about "squandering $10 million ... with little to show for it" defies reason. If Winkler believe that the BACcel(tm) project and bio-coating licenses have no value, he should state specific reasons why anyone should accept such assertions. He makes no case. Paying customers (Schott, Nanostring, Nanosphere) and leading medical experts hold opposing opinions. Which source is a prospective investor to believe?

In addition to independent review and advice from individual medical, scientific, and technical experts, two very large commercial diagnostics companies have reviewed and accepted the evidence as well - first Becton, Dickinson and Company (NYSE:BDX), then Novartis. Winkler dodges the question of how AXK management could have defrauded two giant companies, their lawyers, and their own technical experts into funding development activities that, by Winkler's implication, have no basis in reality.

Rational investors might instead conclude that these companies actually do have expertise that exceeds that of pay-to-play investment "analysts."

Winkler notes that AXK fails to include NVS as a competitor in its SEC documents. He apparently remains ignorant of the possibility that a company that does not compete with AXK might decide to enter the market targeted by AXK by collaborating in some fashion with AXK. This should be a teachable moment for Mr. Winkler, but he writes instead as if AXK is attempting to mislead investors, for some inscrutable reason.

One must deduce that Winkler either lacks the business acumen he claims on his website, or wishes to deliberately mislead his readers.

Winkler seems to attempt to establish his bona fides with an exegesis of diagnostic industry participants and revenue shares. This only exposes his inability to recognize relevance. As a further display of his lack of industry knowledge, Winkler asserts that standard laboratory culturing must be a "competitor" against AXK's product (the BACcel(tm) system) because cultures eventually arrive at the same result. The obvious argument seems beyond him that speed to diagnosis has high clinical value, thus making slow methods uncompetitive. Where he cites specific products, he clearly does not bother to understand the differences as seen by potential customers.

Thank you again for the opportunity to respond to patently false insinuations.

Sincerely,
David Howson
President
Accelr8 Technology Corp. (NYSE Amex: AXK)

Source: Accelr8's President Responds to Short Sellers