**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**Form 10-QSB**
| **x**                                                                                                                                                                                                  | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                   |
| **For the quarterly period ended September 30,  2006**                                                                                                                                                 |
|                                                                                                                                                                                                   |
| **o**                                                                                                                                                                                                  | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**      |
|                                                                                                                                                                                                   |
| **For the transition period from                 to               ** |

**Commission File Number 000-24541**

**CORGENIXMEDICAL CORPORATION**

(Name of SmallBusiness Issuer in its Charter)

| **Nevada**                       |   | **93-1223466**                        |
|----------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |   |                                  |

 

**11575Main Street, Number 400, Broomfield, CO 80020**

(Address ofprincipal executive offices, including zip code)

**(303)457-4345**

(Issuer’stelephone number, including area code)

(Former name,former address and former fiscal year, if changed since last report)

Check whether theissuer:  (1) filed all reports requiredto be filed by Section 13 or 15(d) of the Exchange Act during the past 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.     Yes x   No  o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o No x

The number ofshares of  Common Stock outstanding was12,127,026 as of  November 14, 2006.

Transitional SmallBusiness Disclosure Format.     Yes o   No x

 

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**CORGENIXMEDICAL CORPORATION**

**September30, 2006**

**TABLE OFCONTENTS**
| **Part I**                |
|---------------------------|
|                      |
| **Financial Information** |
| ** **                |   |   |
| Item  1.                  |   | Consolidated  Financial Statements |   |   |
|                      |   |   |   |   |
| Item 2.                   |   | Management’s  Discussion and Analysis or Plan of Operation |   |   |
|                      |   |   |   |   |
| Item 3.                   |   | Controls and  Procedures |   |   |
|                      |
| **Part II**               |
|                      |
| **Other Information**     |
|                      |
| Item 1.                   |   | Legal Proceedings |   |   |
|                      |   |   |   |   |
| Item 2.                   |   | Changes in  Securities and Use of Proceeds |   |   |
|                      |   |   |   |   |
| Item 3.                   |   | Defaults Upon  Senior Securities |   |   |
|                      |   |   |   |   |
| Item 4.                   |   | Submission of  Matters to a Vote of Security Holders |   |   |
|                      |   |   |   |   |
| Item 5.                   |   | Other Information |   |   |
|                      |   |   |   |   |
| Item 6.                   |   | Exhibits and  Reports on Form 8-K |   |   |
|                      |   |   |   |   |
| Certifications            |   |   |

 

2

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**PART I**

#### **Item 1. ConsolidatedFinancial Statements**

# **CORGENIXMEDICAL CORPORATION**

### **ANDSUBSIDIARIES**

ConsolidatedBalance Sheets
| ** **                                                                                                                                                                                                               | ** ** | **September 30, 2006** | ** ** | **June 30, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                               | ** ** | **(Unaudited)**                  | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                                               |       |                             |       |                        |       |
| Current assets:                                                                                                                                                                                                          |       |                             |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                                               |       | $                                | 2,075,902  |                        | $          | 3,118,494 |   |
| Accounts  receivable, less allowance for doubtful accounts of $13,097                                                                                                                                                    |       | 1,454,722                        |       | 1,362,768                   |       |
| Inventories                                                                                                                                                                                                              |       | 1,991,958                        |       | 1,635,549                   |       |
| Prepaid expenses                                                                                                                                                                                                         |       | 107,712                          |       | 64,596                      |       |
| Total current  assets                                                                                                                                                                                                    |       | 5,630,294                        |       | 6,181,407                   |       |
| Equipment:                                                                                                                                                                                                               |       |                             |       |                        |       |
| Capitalized  software costs                                                                                                                                                                                              |       | 122,855                          |       | 122,855                     |       |
| Machinery and  laboratory equipment                                                                                                                                                                                      |       | 802,318                          |       | 671,495                     |       |
| Furniture,  fixtures, leaseholds & office equipment                                                                                                                                                                  |       | 1,744,933                        |       | 585,399                     |       |
|                                                                                                                                                                                                                     |       | 2,670,106                        |       | 1,379,749                   |       |
| Accumulated  depreciation and amortization                                                                                                                                                                               |       | (525,636                         | )          | (1,113,131                  | )          |
| Net equipment                                                                                                                                                                                                            |       | 2,144,470                        |       | 266,618                     |       |
| Intangible assets:                                                                                                                                                                                                       |       |                             |       |                        |       |
| License                                                                                                                                                                                                                  |       | 27,848                           |       | 27,848                      |       |
|                                                                                                                                                                                                                     |       | 27,848                           |       | 27,848                      |       |
| Other assets:                                                                                                                                                                                                            |       |                             |       |                        |       |
| Deferred  acquisition costs                                                                                                                                                                                              |       | 75,030                           |       | —                      |       |
| Deferred  financing costs net of amortization of $604,271 and $469,065                                                                                                                                                   |       | 1,012,358                        |       | 1,147,563                   |       |
| Restricted cash                                                                                                                                                                                                          |       | 249,997                          |       | 250,000                     |       |
| Due from officer                                                                                                                                                                                                         |       | 12,000                           |       | 12,000                      |       |
| Other assets                                                                                                                                                                                                             |       | 283,855                          |       | 328,180                     |       |
| Total assets                                                                                                                                                                                                             |       | $                                | 9,435,852  |                        | $          | 8,213,616 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                           | ** ** | ** **                       |       |                        |       |
| Current liabilities:                                                                                                                                                                                                     |       |                             |       |                        |       |
| Current portion  of notes payable, net of discount                                                                                                                                                                       |       | $                                | 849,156    |                        | $          | 770,151 |   |
| Current portion  of capital lease obligations                                                                                                                                                                            |       | 176,083                          |       | 15,945                      |       |
| Accounts payable                                                                                                                                                                                                         |       | 540,159                          |       | 511,397                     |       |
| Accrued payroll  and related liabilities                                                                                                                                                                                 |       | 354,216                          |       | 270,542                     |       |
| Accrued interest                                                                                                                                                                                                         |       | 40,856                           |       | 43,914                      |       |
| Accrued  liabilities                                                                                                                                                                                                     |       | 1,554,678                        |       | 364,348                     |       |
| Total current  liabilities                                                                                                                                                                                               |       | 3,515,148                        |       | 1,976,297                   |       |
| Notes payable, net of  discount, less current portion                                                                                                                                                                    |       | 1,210,845                        |       | 1,290,776                   |       |
| Capital lease  obligations, less current portion                                                                                                                                                                         |       | 393,811                          |       | 5,130                       |       |
| Total  liabilities                                                                                                                                                                                                       |       | 5,119,804                        |       | 3,272,203                   |       |
| Redeemable common  stock, $0.001 par value. 774,650 shares issued and outstanding, aggregate  redemption value of $420,000, and $450,000 net of unaccreted discount and  issue costs of $0 (note 5)                      |       | 250,000                          |       | 250,000                     |       |
|                                                                                                                                                                                                                     |       |                             |       |                        |       |
| Stockholders’ equity:                                                                                                                                                                                               |       |                             |       |                        |       |
| Convertible  Preferred stock, $0.001 par value. Liquidation preference of $700,000 and  $700,000. Authorized 5,000,000 shares, Issued and outstanding 2,000,000 and  2,000,000 on September 30 and June 30, respectively |       | 2,000,000                        |       | 2,000,000                   |       |
| Common stock,  $0.001 par value. Authorized 100,000,000 shares; Issued and outstanding  11,318,291 and 10,723,205 on September 30 and June 30, respectively                                                              |       | 10,517                           |       | 9,895                       |       |
| Additional paid-in  capital                                                                                                                                                                                              |       | 12,276,243                       |       | 12,060,729                  |       |
| Accumulated deficit                                                                                                                                                                                                      |       | (10,210,759                      | )          | (9,367,556                  | )          |
| Accumulated other comprehensive  income                                                                                                                                                                                  |       | (9,953                           | )          | (11,655                     | )          |
| Total  stockholders’ equity                                                                                                                                                                                         |       | 4,066,048                        |       | 4,691,413                   |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                          |       | $                                | 9,435,852  |                        | $          | 8,213,616 |   |

 

Seeaccompanying notes to consolidated financial statements.

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# **CORGENIXMEDICAL CORPORATION**

#### **ANDSUBSIDIARIES**

## Consolidated Statements of Operations

| ** **                                                              | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                              | ** ** | **September 30,  2006**     | ** ** | **September 30,  2005** | ** ** |
| ** **                                                              | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)** | ** ** |
|                                                                    |       |                             |       |   |   |
| Net sales                                                               |       | $                                | 1,694,112  |   | $ | 1,634,953 |   |
| Cost of sales                                                           |       | 645,109                          |       | 581,866 |   |
|                                                                    |       |                             |       |   |   |
| Gross profit                                                            |       | 1,049,003                        |       | 1,053,087 |   |
|                                                                    |       |                             |       |   |   |
| Operating expenses:                                                     |       |                             |       |   |   |
| Selling and  marketing                                                  |       | 487,986                          |       | 380,712 |   |
| Research and  development                                               |       | 232,687                          |       | 128,510 |   |
| General and  administrative                                             |       | 596,300                          |       | 330,103 |   |
|                                                                    |       |                             |       |   |   |
|                                                                    |       | 1,316,973                        |       | 839,325 |   |
|                                                                    |       |                             |       |   |   |
| Operating income  (loss)                                                |       | (267,970                         | )          | 213,762 |   |
|                                                                    |       |                             |       |   |   |
| Other income (expense):                                                 |       |                             |       |   |   |
| Other income                                                            |       | 41,370                           |       | — |   |
| Interest expense                                                        |       | (616,603                         | )          | (337,870 | ) |
|                                                                    |       |                             |       |   |   |
| Net loss before  income taxes                                           |       | (843,203                         | )          | (124,108 | ) |
| Income taxes                                                            |       | —                           |       | — |   |
| Net loss                                                                |       | (843,203                         | )          | (124,108 | ) |
|                                                                    |       |                             |       |   |   |
| Net loss                                                                |       | $                                | (843,203   | ) | $ | (124,108 | ) |
|                                                                    |       |                             |       |   |   |
| Net loss per common  share, basic and diluted                           |       | $                                | (0.08      | ) | $ | (0.01 | ) |
|                                                                    |       |                             |       |   |   |
| Weighted average shares  outstanding, basic and diluted                 |       | 11,125,859                       |       | 8,379,052 |   |
|                                                                    |       |                             |       |   |   |
| Net loss                                                                |       | $                                | (843,203   | ) | $ | (124,108 | ) |
|                                                                    |       |                             |       |   |   |
| Other comprehensive  loss–foreign currency translation gain (loss) |       | 1,702                            |       | (312 | ) |
|                                                                    |       |                             |       |   |   |
| Total comprehensive  loss                                               |       | $                                | (841,501   | ) | $ | (124,420 | ) |

 

See accompanying notes toconsolidated financial statements.

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**CORGENIXMEDICAL CORPORATION**

#### **AND SUBSIDIARIES**

# ConsolidatedStatement of Stockholders’ Equity

For the three months ended September 30, 2006

(Unaudited)
| ** **                                                         | ** ** | **Preferred  Stock,  Number  of Shares** | ** ** | **Preferred  Stock,  $0.001 par** | ** ** | **Common  Stock,  Number of  Shares** | ** ** | **Common  Stock,  $0.001  par** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | **Total  stockholders’  equity** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|--------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|------------|
|                                                               |       |                                          |       |                                   |       |                                       |       |                            |       |                             |       |                     |       |                                                      |       |                                  |       |
| Balance at June 30, 2006                                           |       | 2,000,000                                     |       | $                                      | 2,000,000  |                                       | 10,723,205 |                            | $          | 9,895                            |       | $                        | 12,060,729 |                                                      | $          | (9,367,556                            | )          | $ | (11,655 | ) | $ | 4,691,413 |   |
|                                                               |       |                                          |       |                                   |       |                                       |       |                            |       |                             |       |                     |       |                                                      |       |                                  |       |
| Issuance of common stock   for services                       |       |                                          |       |                                   |       | 100,587                                    |       | 101                             |       | 19,387                           |       |                     |       |                                                      |       | 19,488                                |       |
| Issuance of common stock  in exchange for debt                     |       |                                          |       |                                   |       | 520,907                                    |       | 521                             |       | 155,752                          |       |                     |       |                                                      |       | 156,273                               |       |
| Compensation expense  recorded as a result of stock options issued |       |                                          |       |                                   |       |                                       |       |                            |       | 40,375                           |       |                     |       |                                                      |       | 40,375                                |       |
| Cancellation of redeemable  stock upon note paydown                |       |                                          |       |                                   |       | (26,408                                    | )          |                            |       |                             |       |                     |       |                                                      |       |                                  |       |
| Foreign currency  translation                                      |       |                                          |       |                                   |       |                                       |       |                            |       |                             |       |                     |       | 1,702                                                     |       | 1,702                                 |       |
| Net loss                                                           |       |                                          |       |                                   |       |                                       |       |                            |       |                             |       | (843,203                 | )          |                                                      |       | (843,203                              | )          |
|                                                               |       |                                          |       |                                   |       |                                       |       |                            |       |                             |       |                     |       |                                                      |       |                                  |       |
| Balance at September 30, 2006                                      |       | 2,000,000                                     |       | $                                      | 2,000,000  |                                       | 11,318,291 |                            | $          | 10,517                           |       | $                        | 12,276,243 |                                                      | $          | (10,210,759                           | )          | $ | (9,953 | ) | $ | 4,066,048 |   |

 

See accompanying notes to consolidated financial statements.

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**CORGENIXMEDICAL CORPORATION**

# **AND SUBSIDIARIES**

## **Consolidated Statements of Cash Flows**

| ** **                                                                              | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                              | ** ** | **September 30,  2006**     | ** ** | **September 30,  2005** | ** ** |
| ** **                                                                              | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)** | ** ** |
| Cash flows from  operating activities:                                                  |       |                             |       |   |   |
| Net loss                                                                                |       | $                                | (843,203   | ) | $ | (124,108 | ) |
| Adjustments to  reconcile net loss to net cash provided (used) in operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                          |       | 77,406                           |       | 47,389 |   |
| Accretion of  discount on note payable                                                  |       | 336,075                          |       | 188,686 |   |
| Common stock  issued for services                                                       |       | 19,488                           |       | 11,401 |   |
| Common stock  issued for interest                                                       |       | 37,554                           |       | 80,134 |   |
| Compensation  expense recorded for stock options issued                                 |       | 40,375                           |       |   |   |
| Amortization of  deferred financing costs                                               |       | 135,206                          |       |   |   |
| Changes in  operating assets and liabilities:                                           |       |                             |       |   |   |
| Accounts  receivable, net                                                               |       | (79,334                          | )          | (88,154 | ) |
| Inventories                                                                             |       | (355,320                         | )          | (42,388 | ) |
| Prepaid expenses  and other assets, net                                                 |       | (72,434                          | )          | (14,605 | ) |
| Accounts payable                                                                        |       | 13,805                           |       | (150,378 | ) |
| Accrued payroll  and related liabilities                                                |       | 102,086                          |       | 1,182 |   |
| Accrued interest  and other liabilities                                                 |       | (5,853                           | )          | (62,048 | ) |
|                                                                                    |       |                             |       |   |   |
| Net cash  provided (used) in operating activities                                       |       | (594,149                         | )          | (152,889 | ) |
|                                                                                    |       |                             |       |   |   |
| Cash flows used in  investing activities:                                               |       |                             |       |   |   |
| Additions to  equipment                                                                 |       | (192,733                         | )          | (16,710 | ) |
|                                                                                    |       |                             |       |   |   |
| Cash flows from  financing activities:                                                  |       |                             |       |   |   |
| Proceeds upon  exercise of warrants                                                     |       | —                           |       | 6,900 |   |
| Payments on  notes payable                                                              |       | (218,282                         | )          | (5,000 | ) |
| Payments on  capital lease obligations                                                  |       | (40,297                          | )          | (8,049 | ) |
|                                                                                    |       |                             |       |   |   |
| Net cash used in  financing activities                                                  |       | (258,579                         | )          | (6,149 | ) |
|                                                                                    |       |                             |       |   |   |
| Net decrease in  cash and cash equivalents                                              |       | (1,045,461                       | )          | (175,748 | ) |
|                                                                                    |       |                             |       |   |   |
| Impact of exchange rate  changes on cash                                                |       | 2,869                            |       | (3,050 | ) |
|                                                                                    |       |                             |       |   |   |
| Cash and cash  equivalents at beginning of period                                       |       | 3,118,494                        |       | 1,281,965 |   |
| Cash and cash  equivalents at end of period                                             |       | $                                | 2,075,902  |   | $ | 1,103,167 |   |
|                                                                                    |       |                             |       |   |   |
| Supplemental cash flow  disclosures:                                                    |       | $                                | 119,479    |   | $ | 76,283 |   |
| Cash paid for  interest                                                                 |       |                             |       |   |   |
| Noncash  investing and financing activities-                                            |       |                             |       |   |   |
| Equipment acquired  under capital leases                                                |       | $                                | 589,116    |   | $ | — |   |
| Issuance of  stock for debt                                                             |       | $                                | 118,719    |   | $ | — |   |
| Conversion of  redeemable common stock to note payable                                  |       | $                                | 180,000    |   | $ | 250,000 |   |

 

See accompanyingnotes to consolidated financial statements.

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**CORGENIX MEDICAL CORPORATION AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

**1.****              DESCRIPTIONOF BUSINESS AND BASIS OF PRESENTATION**

##### *Company Overview*

Corgenix MedicalCorporation, which we refer to as Corgenix or the Company, is engaged in theresearch, development, manufacture, and marketing of in vitro (outside thebody) diagnostic products for use in disease detection and prevention. Wecurrently sell 51 diagnostic products on a worldwide basis to hospitals,clinical testing laboratories, universities, biotechnology and pharmaceuticalcompanies and research institutions.  Inthe United States and the United Kingdom, we sell directly to thesecustomers.  Elsewhere in the world, weprimarily sell to independent distributors that in turn sell to thelaboratories.

Our corporate headquarters is located in Broomfield, Colorado. We havetwo wholly owned operating subsidiaries:

·                  Corgenix, Inc. (formerly REAADS Medical Products, Inc.), established in1990 and located in Broomfield, Colorado. Corgenix, Inc. is responsible forsales and marketing activities for North America, and also executes productdevelopment, product support, clinical and regulatory affairs, and productmanufacturing.

·                  Corgenix (UK) Ltd, incorporated in the United Kingdom in 1996 (formerlyREAADS Bio-Medical Products (UK) Limited) and located in Peterborough, England.Corgenix UK manages our international sales and marketing activities except fordistribution in North America, which is the responsibility of Corgenix, Inc. Wecontinue to use the REAADS trademark and trade name in the sale of productsthat we manufacture.

***Recent Developments***

The December 28, 2005Convertible Preferred financing agreements with Barron Partners, L.P., orBarron, stated that if the Company’s EBITDA for the audited fiscal year endedJune 30, 2006, as calculated based upon the audited financial statementsfiled with the Company’s Form 10-KSB filed with the Securities and ExchangeCommission, was less than $1,150,000, then the Company must issue to Barronsuch number of additional shares of preferred stock equal to 2,000,000multiplied by the percentage by which EBITDA is less than $1,150,000, expressedas a positive number; provided that in no event will the number of additionalshares of preferred stock issued due to this EBITDA adjustment exceed 14% ofthe number of shares of Preferred Stock originally issued to Barron, or 280,000shares. For example if EBITDA was $920,000 (20% decline) then the Company wouldissue to the Investor an additional 14% (i.e., 280,000) shares of preferredstock; provided that at the time Barron continues to hold all 2,000,000 sharesof preferred stock originally issue on the Closing.  EBITDA is defined in the Preferred StockPurchase Agreement as net income of the Company, before interest, taxes,depreciation, amortization and one time charges, including, but not limited to,loss on the extinguishment of debt. EBITDA for the fiscal year ended June 30, 2006 was $443,591,therefore, on October 4, 2006, the Company issued 280,000 additionalshares of preferred stock to Barron .

***Our Business***

**Introduction**

Our business includes theresearch, development, manufacture, and marketing of in vitro diagnosticproducts for use in disease detection and prevention. We sell 51 diagnosticproducts on a worldwide basis to hospitals, clinical testing laboratories,universities, biotechnology and pharmaceutical companies and researchinstitutions. We have developed and we manufacture most of our products at ourColorado facility, and we purchase what we refer to as OM Products from otherhealthcare manufacturers for resale by us. All of these products are used in clinical laboratories for thediagnosis and/or monitoring of three important areas of health care:

·                  Autoimmunedisease (diseases in which an individual creates antibodies to one’s self, forexample systemic lupus erythematosus (“SLE”) and rheumatoid arthritis (“RA”));

7

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·                  Vasculardisease (diseases associated with certain types of thrombosis or clot formation,for example antiphospholipid syndrome, deep vein thrombosis, stroke andcoronary occlusion); and

·                  Liver diseases(fibrosis, and cirrhosis).

In addition to ourcurrent products, we are actively developing new laboratory tests in otherimportant diagnostic testing areas. We manufacture and market to clinicallaboratories and other testing sites worldwide. Our customers include large and emerging health care companies such asInstrumentation Laboratories, Helena Laboratories and Diagnostic Grifols, S.A.

Most of ourproducts are based on our patented and proprietary application of Enzyme LinkedImmunoSorbent Assay, or ELISA, technology, a clinical testing methodologycommonly used worldwide. Most of our current products are based on thisplatform technology in a delivery format convenient for clinical testinglaboratories. The delivery format, which is referred to as “Microplate,” allowsthe testing of up to 96 samples per plate, and is one of the most commonly usedformats, employing conventional testing equipment found in virtually allclinical laboratories. The availability and broad acceptance of ELISAMicroplate products reduces entry barriers worldwide for our new products thatemploy this technology and delivery format. Our products are sold as “test kits”that include all of the materials required to perform the test, except forroutine laboratory chemicals and instrumentation. A test using ELISA technologyinvolves a series of reagent additions into the Microplate, triggering acomplex immunological reaction in which a resulting color occurs. The amount ofcolor developed in the final step of the test is directly proportional to theamount of the specific marker being tested for in the patient or unknownsample. The amount of color is measured and the results calculated usingroutine laboratory instrumentation.  Ourtechnology specifies a process by which biological materials are attached tothe fixed surface of a diagnostic test platform. Products developed using thisunique attachment method typically demonstrate a more uniform and stablemolecular configuration, providing a longer average shelf life, increasedaccuracy and  superior specificity thanthe products of our competitors.

Some of the OMproducts which we obtain from other manufacturers and sell through ourdistribution  network utilizetechnologies other than our patented and proprietary ELISA technology.

Our diagnostictests are intended to aid in the identification of the causes of illness anddisease, enabling a physician to select appropriate patient therapy.

Internally andthrough collaborative arrangements, we are developing additional products thatare intended to broaden the range of applications for our existing products andto result in the introduction of new products.

Since 1990, oursales force and distribution partners have sold over 12 million tests worldwideunder the REAADS and Corgenix labels, as well as products sold under othermanufacturers’ labels, referred to as OEM products. An integral part of ourstrategy is to work with corporate partners to develop market opportunities andaccess important resources. We believe that our relationships with current andpotential partners will enable us to enhance our menu of diagnostic productsand accelerate our ability to penetrate the worldwide markets for new products.

We currently usethe REAADS and Corgenix trademarks and trade names in the sale of the productswhich we manufacture. These products constitute the majority of our productsales.

Certaininformation and note disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America (GAAP) have been omitted from these unauditedconsolidated financial statements. These unaudited consolidated financialstatements should be read in conjunction with the financial statements andnotes thereto included in the Company’s Annual Report on Form 10-KSB for thefiscal year ended June 30, 2005.  Theresults of operations for the nine months ended March 31, 2006 and 2005 are notnecessarily indicative of the operating results for the full year.

In the opinion ofmanagement, all adjustments, consisting only of normal recurring accruals, havebeen made to present fairly the Company’s financial position at March 31, 2006and the results of operations and its cash flows for the nine months endedMarch 31, 2006 and 2005.

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**2.            ****EARNINGS (LOSS)PER SHARE**

Basic earnings (loss) per share is computed by dividing netloss attributable to common stockholders by the weighted average number ofcommon shares outstanding.  Dilutedearnings (loss) per share is computed by dividing net loss attributable tocommon stockholders by the weighted average number of common shares outstandingincreased for potentially dilutive common shares outstanding during theperiod.  The dilutive effect of stockoptions and their equivalents is calculated using the treasury stockmethod.  Stock options to purchase 220,000shares were granted in fiscal 2006. Stock options to purchase 860,000 shareswere granted during the quarter ended September 30, 2006. Options and warrantsto purchase common stock totaling 33,998,526 and 12,481,386 shares as ofSeptember 30, 2006 and 2005, respectively, are not included in the calculationof weighted average common shares-diluted below as their effect isanti-dilutive. Redeemable common stock is included in the common sharesoutstanding for purposes of calculating net income (loss) per share.
|                                                               | ** ** | **3 Months ended  September 30,  2006** | ** ** | **3 Months ended  September 30,  2005** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
|                                                          |       |                                                   |       |                                                   |       |
| Net loss  attributable to common stockholders                 |       | $                                                      | (843,203   | )                                                      | $          | (124,108 | ) |
|                                                          |       |                                                   |       |                                                   |       |
| Common and common equivalent shares outstanding:              |       |                                                   |       |                                                   |       |
| Historical common shares outstanding at beginning of  year    |       | 10,723,205                                             |       | 8,172,435                                              |       |
| Weighted average common equivalent shares issued  during year |       | 402,654                                                |       | 206,617                                                |       |
|                                                          |       |                                                   |       |                                                   |       |
| Weighted average common shares – basic and diluted       |       | 11,125,859                                             |       | 8,379,052                                              |       |
|                                                          |       |                                                   |       |                                                   |       |
| Net loss per share –  basic and diluted                  |       | $                                                      | (0.08      | )                                                      | $          | (0.01 | ) |

 

**3.             INCOME TAXES**

A valuation allowance was provided for deferred tax assets, as theCompany is unable to conclude under relevant accounting standards that it ismore likely than not that deferred tax assets will be realizable.

**4.             SEGMENT INFORMATION**

The Company hastwo segments of business: North American and Interational operations.  North American operations transacts all salesin North America (US, Canada and Mexico). International operations transactsall other sales.  The following tablesets forth selected financial data for these segments for the three-monthperiods ended September 30, 2006 and 2005.
|                              | ** ** | ** ** | ** ** | **Three Months Ended September 30** | ** ** |
|------------------------------|------------|------------|------------|---------------------------------------------------------|------------|
| ** **                   | ** ** | ** ** | ** ** | **North America**                                  | ** ** | **International** | ** ** | **Total** | ** ** |
| Net sales                    |       | 2006       |       | $                                                       | 1,245,518  |   | $ | 389,435 |   | $ | 1,694,112 |   |
|                              |       | 2005       |       | $                                                       | 1,233,867  |   | $ | 401,086 |   | $ | 1,634,953 |   |
|                         |       |       |       |                                                    |       |   |   |   |   |
| Net income (loss)            |       | 2006       |       | $                                                       | (968,639   | ) | $ | 125,436 |   | $ | (843,203 | ) |
|                              |       | 2005       |       | $                                                       | (287,983   | ) | $ | 163,875 |   | $ | (124,108 | ) |
|                         |       |       |       |                                                    |       |   |   |   |   |
| Depreciation and             |       | 2006       |       | $                                                       | 76,302     |   | $ | 1,104 |   | $ | 77,406 |   |
| amortization                 |       | 2005       |       | $                                                       | 46,954     |   | $ | 435 |   | $ | 47,389 |   |
|                         |       |       |       |                                                    |       |   |   |   |   |
| Interest expense, net        |       | 2006       |       | $                                                       | 616,078    |   | $ | 525 |   | $ | 616,603 |   |
|                              |       | 2005       |       | $                                                       | 335,990    |   | $ | 1,880 |   | $ | 337,870 |   |
|                         |       |       |       |                                                    |       |   |   |   |   |
| Segment assets September 30, |       | 2006       |       | $                                                       | 8,928,236  |   | $ | 507,616 |   | $ | 9,435,852 |   |
| June 30,                     |       | 2006       |       | $                                                       | 7,625,303  |   | $ | 588,313 |   | $ | 8,213,616 |   |

 

9

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**5.****                                      REDEEMABLECOMMON STOCK**

On July 1, 2002,as part of the Medical & Biological Laboratories Co., Ltd. (MBL) Agreement,MBL purchased shares of the Company’s common stock for $500,000, which MBL canrequire the Company to repurchase at the same price in the event that apreviously existing distribution agreement with RhiGene, Inc. is terminated.For no additional consideration, MBL was also issued warrants to purchase anadditional 880,282 shares of Common Stock at a price of $.568 per share, whichis equal to an aggregate amount of $500,000. These warrants expire on July 3,2007 and may be exercised in whole or in part at any time prior to theirexpiration.  The estimated fair value ofthe warrant upon issuance was calculated as $401,809 using the Black-Scholesoption-pricing model with the following assumptions:  no expected dividend yield, 143% volatility,risk free interest rate of 4.2% and an expected life of five years**. **The gross proceedsof $500,000 were allocated $277,221 to redeemable common stock and $222,779 tothe related warrants based on the relative fair values of the respectiveinstruments to the fair value of the aggregate transaction. Issuance costs andthe discount attributed to the redeemable common stock upon issuance wereaccreted over the 33-month period to the first date whereupon the put optionmay be exercised, which was the expiration date of the distribution agreementbetween the Company and RhiGene, Inc. (March 31, 2005). Furthermore, pursuantto the agreement with MBL, as long as MBL holds at least 50% of the commonstock purchased under the MBL agreement, MBL must give its written consent withrespect to the payment of any dividend, the repurchase of any of the Company’sequity securities, the liquidation or dissolution of the Company or theamendment of any provision of the Company’s Articles of Incorporation or Bylawswhich would adversely affect the rights of MBL under the stock purchasetransaction documents.  MBL was grantedstandard anti-dilution rights with respect to stock issuances not registeredunder the Securities Act.  MBL alsoreceived standard piggyback registration rights along with certain demandregistration rights.

OnMarch 31, 2005 our distribution agreement with RhiGene expired, and the Companysigned a new distribution and OEM Supply Agreement with MBL International, Inc.(“MBLI”), a wholly owned subsidiary of MBL, which grants the Companynon-exclusive rights to distribute MBL’s complete diagnostic line of autoimmunetesting products in the United States and exclusive distribution rights to theOEM Label products worldwide excluding the United States, Japan, Korea andTaiwan.  In addition, on August 1, 2005the Company and MBL executed an Amendment to the Common Stock PurchaseAgreement and Common Stock Purchase Warrant wherein one-half or 440,141of theoriginal redeemable shares are exchanged for a three-year promissory notepayable with interest at prime (6% as of June 30, 2005) plus two percent withpayments commencing before September 1, 2005. The shares being exchanged for the promissory note will be returned tothe Company quarterly on a pro rata basis as payments are made on thepromissory note. As of September 30, 2006, 79,224 redeemable shares have beenreturned to the Company under this agreement. The remaining 413,733 shares willbe redeemable by the Company at $0.568 per share as of August 1, 2008 for anyshares still owned at that time by MBL and only to the extent that MBL has notrealized at least $250,000 in gross proceeds upon the sales of its redeemableshares in the open market for the time period August 1, 2005 through August 30,2008.  Finally, the warrants originallyissued to MBL to purchase 880,282 shares have been extended to August 31, 2008and re-priced from $0.568 per share to $0.40 per share.

**6.****              STOCK-BASED COMPENSATION**

*Adoptionof SFAS 123(R)*

EffectiveJuly 1, 2006, the Company adopted the provisions of Statement of FinancialAccounting Standard No. 123 (revised 2004), “*Share-BasedPayment”,*(SFAS 123(R)”) using the modified prospective transitionmethod. In addition, the Securities and Exchange Commission issued StaffAccounting Bulletin No. 107 “*Share-Based Payment”*(“SAB107”) in March 2005, which provides supplemental SFAS 123(R) applicationguidance based on the views of the SEC. Under the modified prospectivetransition method, compensation cost recognized in the

10

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quarterly period endedSeptember 30, 2006 includes: (a) compensation cost for all share-based paymentsgranted prior to, but not yet vested as of July 1, 2006, based on the grantdate fair value estimated in accordance with the original provisions of SFASNo. 123, and (b) compensation cost for all share-based payments grantedbeginning July 1, 2006, based on the grant date fair value estimated inaccordance with the provision so SFAS 123(R). In accordance with the modifiedprospective transition method, results for prior periods have not beenrestated.

Theadoption of SFAS 123(R) resulted in stock compensation expense for thequarterly period ended September 30, 2006 of $40,375 charged to general andadministrative expenses. This expense increased basic and diluted loss pershare by less than $0.01 for the quarter, compared to reported basic anddiluted loss per share of $0.08. The Company did not recognize a tax benefitfrom the stock compensation expense because the Company consideres more thanlikely than not that the related deferred tax assets, which have been reducedby a full valuation allowance, will not be realized.

TheBlack-Scholes option-pricing model was used to estimate the option fair values.The option-pricing model requires a number of assumptions, of which the mostsignificant  are expected stock pricevolatility, the expected pre-vesting forfeiture rate and the expected optionterm (the amount of time from the grant date until the options are exercised orexpire). Expected volatility was calculated based upon actual historical stockprice movements over recent periods equal to the expected option term. Expectedpre-vesting forfeitures were estimated based on actual historical pre-vestingforfeitures over recent periods for the expected option term. The expectedoption term was calculated using the “simplified”method permitted by SAB 107.

*Pro-Forma StockCompensation Expense for the Quarterly Period Ended September 30, 2005*

For the quarterly periodended September 30, 2005, the Company applied the intrinsic value method ofaccounting for stock options as prescribed by APB 25. Since all options grantedto employees during the quarterly period ended September 30, 2005 had anexercise price equal to the closing market price of the underlying common stockon the grant date, no compensation expense was recognized. If compensationexpense had been recognized based on the estimated fair value of each optiongranted in accordance with the provisions of SFAS 123 as amended by Statementof Financial Accounting Standard 148, our net loss and net loss per share wouldhave been reduced to the following pro-forma amounts :

|                                                                                                                        | ** ** | **Three Months**  | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                             | ** ** | **Ended**              | ** ** |
| ** **                                                                                                             | ** ** | **September 30,** | ** ** |
| ** **                                                                                                             | ** ** | **2005**               | ** ** |
|                                                                                                                   |       |                   |       |
| Net loss  attributable to common shareholders as reported                                                              |       | $                      | (124,108   | ) |
| Deduct total  stock-based employee compensation expense determined under fair-value method  for all awards, net of tax |       | $                      | (16,977    | ) |
| Pro forma net  loss                                                                                                    |       | $                      | (141,085   | ) |
| Net loss per share,  basic and diluted as reported                                                                     |       | $                      | (0.01      | ) |
| Net loss per share,  basic and diluted pro forma                                                                       |       | $                      | (0.02      | ) |

 

Pro-forma compensationexpense under SFAS 123, among other computational differences, does notconsider potential pre-vesting forfeitures. Because of these differences, thepro-forma stock compensation expense presented above for the prior quarterlyperiod ended September 30, 2005 under SFAS 123(R) are not directly comparable.In accordance with the modified prospective transition method of  SFAS 123(R), the prior comparative quarterlyresults have not been restated.

11

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*Stock Options asof the Quarterly Period Ended September 30, 2006*

The Company’s Amendedand Restated 1999 Incentive Stock Plan and the 2006 Incentive Compensation Plan(the “Plan”) provides for two separate components. The Stock Option GrantProgram, administered by the Compensation Committee (the “Committee”) appointedby the Company’s Board of Directors, provides for the grant of incentive andnon-statutory stock options to purchase common stock to employees, directors orother independent advisors designated by the Committee. The Restricted StockProgram administered by the Committee, provides for the issuance of  Restricted Stock Awards to employees,directors or other independent advisors designated by the Committee.

The following tablesummarizes stock options outstanding and changes during the quarterly periodended September 30, 2006:
| ** **                                 | ** ** | **Outstanding Options** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  months)** | ** ** | **Aggregate  Intrinstic  Value** | ** ** |
| Options  outstanding at June 30, 2006      |       | 1,262,300                    |       | 0.404 |   | 59.74 |   |   |   |
| Granted                                    |       | 860,000                      |       | 0.38 |   | 83.0 |   |   |   |
| Exercised                                  |       | —                       |       | — |   | — |   |   |   |
| Cancelled or forfeited                     |       | —                       |       | — |   | — |   |   |   |
| Options  outstanding at September 30, 2006 |       | 2,122,300                    |       | 0.394 |   | 67.38 |   | $ | 792,592 |   |
| Options exercisable at  September 30, 2006 |       | 806,633                      |       | 0.445 |   | 49.62 |   | $ | 336,339 |   |

 

The total intrinsic value, or the difference between the exercise priceand the market price on the date of exercise, of all options exercised duringthe quarterly period ended September 30, 2006, was zero as no options wereexercised. Consequently, no cash was received, nor did the Company realize anytax deductions related to exercise of stock options during the quarter.

Stock options outstanding and currently exercisable at September 30, 2006are as follows:
| **Outstanding options**       | ** ** | **Exercisable options** | ** ** |
|------------------------------------|------------|------------------------------|------------|
| **Range of  exercise  price** | ** ** | **Number**                   | ** ** | **Weighted  average  remaining  contractual  life (months)** | ** ** | **Weighted  average  exercise  price** | ** ** | **Number** | ** ** | **Weighted  average  exercise  price** | ** ** |
|                               |       |                         |       |   |   |   |   |   |   |   |   |
| $0.001                             |       | 15,000                       |       | 39.9 |   | 0.001 |   | 15,000 |   | $ | 0.001 |   |
|                               |       |                         |       |   |   |   |   |   |   |   |   |
| 0.625 – 1.375                 |       | 94,100                       |       | 24.2 |   | 0.84 |   | 94,100 |   | 0.84 |   |
| 0.30-0.46                          |       | 2,009,600                    |       | 71.9 |   | 0.37 |   | 693,933 |   | 0.38 |   |
| 3.28                               |       | 3,600                        |       | 8.0 |   | 3.28 |   | 3,600 |   | 3.28 |   |
|                               |       |                         |       |   |   |   |   |   |   |   |   |
|                               |       | 2,122,300                    |       | 67.4 |   | $ | 0.39 |   | 806,633 |   | $ | 0.44 |   |
|                                    |            |                              |            |  |  |  |  |  |  |  |  |  |  |

 

Total estimated unrecognized compensation cost from unvested stockoptions as of September 30, 2006 was approximately $437,787 which is expectedto be recognized over a weighted average period of approximately 28.6 months.

The weighted average per share fair value of stock options granted duringthe quarterly periods ending September 30, 2006 and 2005 was $0.38 and $0.30,respectively. The fair value was estimated as of the grant date using theBlack-Scholes option pricing model with the following assumptions:

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|                          | ** ** | **Three Months Ended September 30,** | ** ** |
|--------------------------|------------|----------------------------------------------------------|------------|
| ** **               | ** ** | **2006**                                                 | ** ** | **2005** | ** ** |
| Volatility               |       | 111.5                                                    | %          | 159.9 | % |
| Expected option  term    |       | 7 years                                                  |       | 7 years |   |
| Risk-free  interest rate |       | 4.39                                                     | %          | 3.30 | % |
| Expected dividend yield  |       | 0                                                        | %          | 0 | % |

 

In addition to the stock options discussed above, the Company recognizedshare-basis compensation expense related to Restricted Stock awards, of $3,333for the three months ended September 30, 2006. No such share-based compensationexpense was recognized for the quarter ended September 30, 2005. The followingtable summarizes Non-vested Restricted Stock and the related activity as of andfor the quarter ended September 30,2 006:
|                                   | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|-----------------------------------|------------|------------|------------|---------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                        | ** ** | ** ** | ** ** | **Grant-Date**      | ** ** |
| ** **                        | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Non-vested at  July 1, 2006       |       | 100,000    |       | $                   | 0.40       |   |
| Granted                           |       | 0          |       | —              |       |
| Non-vested at September  30, 2006 |       | 100,000    |       | $                   | 0.40       |   |

 

**7.****             ****RECENTLY ISSUED ACCOUNTINGPRONOUNCEMENTS**

*FAS 155 Disclosure. *In February 2006, the FASB issued SFAS No. 155 “Accountingfor Certain Hybrid Financial Instruments”. This Statement amends FASBStatements No. 133, Accounting for Derivative Instruments and HedgingActivities, and No. 140, Accounting for Transfers and Servicing FinancialAssets and Extinguishments of Liabilities. This Statement resolves issuesaddressed in Statement 133 Implementation Issue No. D1, “Application ofStatement 133 to Beneficial Interests in Securitized Financial Assets.” SFASNo. 155 permits fair value remeasurement for any hybrid financial instrumentthat contains an embedded derivative that otherwise would require bifurcation,clarifies which interest-only strips and principal-only strips are not subjectto the requirements of Statement 133, and establishes a requirement to evaluateinterests in securitized financial assets to identify interests that arefreestanding derivatives or that are hybrid financial instruments that containan embedded derivative requiring bifurcation. It also clarifies thatconcentrations of credit risk in the form of subordinatin are not embeddedderivatives and amends Statement 140 to elimininate the prohibition on aqualifying special-purpose entity from holding a derivative financialinstruments that pertains to a beneficial interest other than another derivativefinancial instrument. This Statement is effective for all financial instrumentsacquired or issued after the beginning of an entity’s first fiscal year thatbegins after September 15, 2006. The Company has not yet determined the impactof the adoption of FAS 155 on its financial statements, if any.

*SFAS No. 156 Disclosure*,“Accounting for Servicing of Financial Assets-An Amendment to FASB StatementNo. 140” In March 2006, the FASB issued SFAS No. 156, “Accountingfor Servicing of Financial Assets-an amendment to FASB Statement No. 140 (“SFAS156”). SFAS 156 requires that all separately recognized servicing rightsbe initially measured at fair value, if practicable. In addition, thisstatement permits an entity to choose between two measurement methods (amortizationmethod or fair value measurement method) for each class of separatelyrecognized servicing assets and liabilities. SFAS 156 is effective for theCompany January 1, 2007. The Company does not believe that the adoption ofSFAS 156 will have a material impact on its consolidated financialstatements.

*FASB Interpretation No. 48Disclosure*, “Accounting for Uncertainty in IncomeTaxes-an interpretation of FASB Statement No. 109. In July 2006,the FASB issued Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”). Thisinterpretation clarifies the application of SFAS 109 by defining a criterionthat an individual tax position must meet for any part of the benefit of thatposition to be recognized in an enterprise’s financial statements and alsoprovides guidance on measurement, de-recognition, classification, interest andpenalties, accounting in interim periods and disclosure. FIN 48 is effectivefor the Company July 1, 2007. At this time, we have not completed ourreview and assessment of the impact of adoption of FIN 48.

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*FAS 157 “Fair Value Measurements”.*In September, 2006, the FASB issued Statement No. 157 “FairValue Measurements”.  SFAS 157 definesfair value, establishes a framework and gives guidance regarding the methodsused for measuring fair value, and expands disclosures about fair valuemeasurements. SFAS 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007, and interim periods within thosefiscal years. We are currently assessing the impact that SFAS 157 will have onour results of operations and financial position.

**8.****             ****NOTES PAYABLE**

Notes payable consist ofthe following at September 30, 2006 and June 30, 2005:
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **September 30, 2006** | ** ** | **June 30, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| Secured, amortizing convertible term note payable to  institutional investors, net of discount of $395,278, with interest at the  greater of 12%, as adjusted by a stock trading formula, or prime plus 3%  (11.75% as of September 30, 2006), interest only from June 1, 2005 through  October 1, 2005 and then due in monthly installments of $55,667 plus interest  through May 19, 2008, collateralized by commercial security agreements and a  partial guaranty by an officer of the company |       | $                                | 660,886    |                        | $          | 695,740 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                             |       |                        |       |
| Secured, amortizing convertible term note payable to  institutional investors, net of discount of $830,885, with interest at the  greater of 12%, as adjusted by a stock trading formula, or prime plus 3%  (11.75% as of September 30, 2006), interest only from December 28, 2005  through June1, 2006 and then due in monthly installments of $50,000 plus  interest through December 28, 2008, collateralized by commercial security  agreements                                               |       | 469,115                          |       | 415,187                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                             |       |                        |       |
| Secured, non-amortizing convertible term note  payable to institutional investors, with interest at the greater of 12%, as  adjusted by a stock trading formula, or prime plus 3% (11.75% as of September  30, 2006), interest only payments commencing June 1, 2005 until May 19, 2008,  collaterialized by commercial security agreements                                                                                                                                                        |       | 500,000                          |       | 500,000                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                             |       |                        |       |
| Secured, restricted, non-amortizing convertible term  note payable to institutional investors, with interest at prime (8.25% at  September 30, 2006), interest only payments commencing June 1, 2005 until the  earlier of May 19, 2008 or the date the proceeds to the company are no longer  restricted, collateralized by commercial security agreements                                                                                                                                        |       | 250,000                          |       | 250,000                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                             |       |                        |       |
| Note payable, unsecured, to redeemable common  stockholders, with interest at prime plus 2.0% (10.25% at June 30, 2006) due  in monthly installments with principal payments ranging from $5,000 to  $10,000 plus interest through August 2008                                                                                                                                                                                                                                                     |       | 180,000                          |       | 200,000                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                             |       |                        |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | 2,060,001                        |       | 2,060,927                   |       |
| Current portion,  net of current portion of discount                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | (849,156                         | )          | (770,151                    | )          |
| Notes payable,  excluding current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | $                                | 1,210,845  |                        | $          | 1,290,776 |   |

 

The convertible notespayable restrict the payment of dividends on the Company’s common stock.

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**Item 2.**

**CORGENIXMEDICAL CORPORATION**

**Management’sDiscussion and Analysis Of**

**Financial Condition and Results of Operations**

Thefollowing discussion should be read in conjunction with the consolidatedfinancial statements and accompanying notes included elsewhere herein.

**General**

Since the Company’s inception, we have been primarilyinvolved in the research, development, manufacturing and marketing/distributionof diagnostic tests for sale to clinical laboratories. We currently market 51products covering autoimmune disorders, vascular diseases, infectious diseasesand liver disease. Our products are sold in the United States, the UK and othercountries through our marketing and sales organization that includes directsales representatives, contract sales representatives, internationally throughan extensive distributor network, and to several significant OEM partners.

We manufacture products for inventory based uponexpected sales demand, shipping products to customers, usually within 24 hoursof receipt of orders if in stock. Accordingly, we do not operate with a significant customer orderbacklog.

Except for the fiscal year ending June 30, 1997, wehave experienced revenue growth since our inception, primarily from sales ofproducts and contract revenues from strategic partners. Contract revenuesconsist of service fees from research and development agreements with strategicpartners.

Beginning in fiscal year 1996, we began adding third-party OM licensedproducts to our diagnostic product line. Currently we sell 128 productslicensed from or manufactured by third party manufacturers. We expect to expandour relationships with other companies in the future to gain access toadditional products.

Althoughwe have experienced growth in revenues every year since 1990, except for 1997,there can be no assurance that, in the future, we will sustain revenue growth,current revenue levels, or achieve or maintain profitability. Our results ofoperations may fluctuate significantly from period-to-period as the result of severalfactors, including: (i) whether and when new products are successfullydeveloped and introduced, (ii) market acceptance of current or new products,(iii) seasonal customer demand, (iv) whether and when we receive research anddevelopment payments from strategic partners, (v) changes in reimbursementpolicies for the products that we sell, (vi) competitive pressures on averageselling prices for the products that we sell, and (vii) changes in the mix ofproducts that we sell.

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**Recently Issued Accounting Pronouncements**

*FAS 155Disclosure. *In February 2006, the FASB issued SFAS No. 155 “Accountingfor Certain Hybrid Financial Instruments”. This Statement amends FASBStatements No. 133, Accounting for Derivative Instruments and HedgingActivities, and No. 140, Accounting for Transfers and Servicing FinancialAssets and Extinguishments of Liabilities. This Statement resolves issuesaddressed in Statement 133 Implementation Issue No. D1, “Application ofStatement 133 to Beneficial Interests in Securitized Financial Assets.” SFASNo. 155 permits fair value remeasurement for any hybrid financial instrumentthat contains an embedded derivative that otherwise would require bifurcation,clarifies which interest-only strips and principal-only strips are not subjectto the requirements of Statement 133, and establishes a requirement to evaluateinterests in securitized financial assets to identify interests that arefreestanding derivatives or that are hybrid financial instruments that containan embedded derivative requiring bifurcation. It also clarifies thatconcentrations of credit risk in the form of subordinatin are not embeddedderivatives and amends Statement 140 to elimininate the prohibition on aqualifying special-purpose entity from holding a derivative financialinstruments that pertains to a beneficial interest other than anotherderivative financial instrument. This Statement is effective for all financialinstruments acquired or issued after the beginning of an entity’s first fiscalyear that begins after September 15, 2006. The Company has not yet determinedthe impact of the adoption of FAS 155 on its financial statements, if any.

*SFAS No. 156 Disclosure*,“Accounting for Servicing of Financial Assets-An Amendment to FASB StatementNo. 140”. In March 2006, the FASB issued SFAS No. 156, “Accountingfor Servicing of Financial Assets-an amendment to FASB Statement No. 140 (“SFAS156”). SFAS 156 requires that all separately recognized servicing rightsbe initially measured at fair value, if practicable. In addition, thisstatement permits an entity to choose between two measurement methods(amortization method or fair value measurement method) for each class ofseparately recognized servicing assets and liabilities. SFAS 156 is effectivefor the Company January 1, 2007. The Company does not believe that theadoption of SFAS 156 will have a material impact on its consolidatedfinancial statements.

*FASB Interpretation No. 48Disclosure*, “Accounting for Uncertainty in IncomeTaxes-an interpretation of FASB Statement No. 109. In July 2006,the FASB issued Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”). Thisinterpretation clarifies the application of SFAS 109 by defining a criterionthat an individual tax position must meet for any part of the benefit of thatposition to be recognized in an enterprise’s financial statements and alsoprovides guidance on measurement, de-recognition, classification, interest andpenalties, accounting in interim periods and disclosure. FIN 48 is effectivefor the Company January 1, 2007. At this time, we have not completed ourreview and assessment of the impact of adoption of FIN 48.

*FAS 157 “Fair Value Measurements”.*In September, 2006, the FASB issued Statement No. 157 “FairValue Measurements”.  SFAS 157 definesfair value, establishes a framework and gives guidance regarding the methodsused for measuring fair value, and expands disclosures about fair valuemeasurements. SFAS 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007, and interim periods within thosefiscal years. We are currently assessing the impact that SFAS 157 will have onour results of operations and financial position.

**CriticalAccounting Policies**

The Company’s consolidated financial statements are prepared inaccordance with accounting principles generally accepted in the United States (“GAAP”)and our significant accounting policies are summarized in Note 1 to theaccompanying consolidated financial statements. The preparation of financial statements in conformity with GAAP requiresmanagement to make estimates and assumptions that affect reported amounts ofassets, liabilities, disclosure of contingent assets and liabilities at thedate of the financial statements and reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ significantly from those estimates.

The Company disclosed in Note 1 to its consolidated financialstatements included in the Form 10-KSB those accounting policies that itconsiders to be significant in determining its results of operations andfinancial position. Other than the Company’s compliance with the new accountingrequirements of SFAS No. 123(R), as described below, there have been nomaterial changes to or application of the accounting policies previouslyidentified and described in the Form 10-KSB.

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Prior to July 1, 2006, the Company accounted for stock option awardsgranted under the Company’s Incentive Compensation Plan in accordance with therecognition and measurement provisions of Accounting Principles Board OpinionNo. 25, *Accounting for Stock Issued to to Employees”,*(“APB25”) and related Interpretations, as permitted by Statement of FinancialAccounting Standards No. 123, “*Accounting for Stock-BasedCompensation”,*(“SFAS 123). Share-based employee compensationexpense was not recognized in the Company’s consolidated statements ofoperations prior to July 1, 2006 as all stock option awards granted toemployees had an exercise price equal to or greater than the market value ofthe common stock on the date of the grant. As permitted by SFAS 123, theCompany reported pro-forma disclosures presenting results and earnings (loss)per share as if the Company had used the fair value recognition provisions ofSFAS 123 in the Notes to Consolidated Financial Statements. Stock-basedcompensation related to non-employees were accounted for based on the fairvalue of the related stock or options in accordance with SFAS 123 and its interpretations.

Effective July 1, 2006, the Company adopted the provisions of Statementof Financial Accounting Standard No. 123 (revised 2004), “*Share-BasedPayment”,*(SFAS 123(R)”) using the modified prospective transitionmethod. See Note 2 for further detail on the impact of  SFAS 123(R) to the Company’s consolidatedfinancial statements.

The Company maintains an allowance for doubtful accounts based on itshistorical experience and provides for any specific collection issues that areidentified.  Such allowances havehistorically been adequate to provide for our doubtful accounts but involve asignificant degree of management judgment and estimation.  Worse than expected future economicconditions, unknown customer credit problems and other factors may requireadditional allowances for doubtful accounts to be provided for in futureperiods.

Equipment and software are recorded at cost.  Equipment under capital leases is recordedinitially at the present value of the minimum lease payments.  Depreciation and amortization is calculatedprimarily using the straight-line method over the estimated useful lives of therespective assets that range from 3 to 7 years.

The internal and external costs of developing and enhancing softwarecosts related to website development, other than initial design and other costsincurred during the preliminary project stage, are capitalized until thesoftware has been completed.  Suchcapitalized amounts began to be amortized commencing when the website wasplaced in service on a straight-line basis over a three-year period.

When assets are sold, retired or otherwise disposed of, the cost andrelated accumulated depreciation are eliminated from the accounts and a gain orloss is recognized.

Repair and maintenance costs are expensed as incurred.

We evaluate the realizability of our long-lived assets, includingproperty and equipment, whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable.

Revenue from sale of products is recognized upon shipment of products.

Revenue from research and development contracts represents amountsearned pursuant to agreements to perform research and development activitiesfor third parties and is recognized as earned under the respectiveagreement.  Because research anddevelopment services are provided evenly over the contract period, revenue isrecognized ratably over the contract period. Research and development agreements in effect in 2006 and 2005 providedfor fees to the Company based on time and materials in exchange for performingspecified research and development functions.  Research and development and advertising costs are expensed whenincurred. Inventories are recorded at the lower of cost or market, using thefirst-in, first-out method.

# **Resultsof Operations**

*Three Months Ended September 30**,**2006****comparedto 2005*

*Net sales.*Netsales for the quarter ended September 30, 2006 were $1,694,112, a 3.6% increasefrom  $1,634,953 in the first quarter offiscal 2005. North American sales increased 0.9% while sales to internationaldistributors decreased 2.9% from year to year. A significant reason for the small size of the increase in sales for thequarter was related to the relocation into new facilities both in the UnitedStates and the UK with the resultant

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manufacturing,shipping and receiving shut-down during the first half of July 2006. Withrespect to the Company’s major product lines, Phospholipids kit sales increased17.2% for the quarter, Coagulation kit sales decreased  6.8%, HA kit sales decreased 23.8%, whereasAutoimmune kit sales increased 20.0%. Additionally, OEM/contract manufacturingrevenues decreased 5.3%.   Sales ofproducts manufactured for us by other companies while still relatively small,are expected to continue to increase during fiscal 2007.

*Cost of sales*.  Cost of sales, as a percentage of sales,increased to 38.1% for the quarter ended September 30, 2006 from 35.6% in 2005primarily due to product mix reduction from higher gross margin products inaddition to higher direct labor  andmaterial costs.

*Selling and marketing. *For the quarter endedSeptember 30, 2006, selling and marketing expenses increased 28.2% to $487,986from $380,712 in 2005. The increase was due to increases in consulting fees,labor-related expenses, travel-related expenses, rent and office supplies.

*Research and development.*Research and development expenses increased 81.1% to $232,687 for the quarterended September 30, 2006 from $128,510 in 2005. This increase involved increases in labor-related costs, consulting,clinical studies, conventions and seminars, rent, product testing andtravel-related expenses. The Company’s accelerated efforts in the developmentof their HA, Aspirin Effectiveness and AtherOx products in addition to theirsubmission of their applications to the FDA were the primary reasons for thesignificantly increased expenses in this area.

*General and administrative.*For the quarter ended September 30, 2006, general and administrative expensesincreased $266,197 or 80.6% to $596,300 from $330,103 in 2005. This increasewas attributable to increases in labor-related expenses, bank charges, outsideservices, sales and use taxes, kitchen and office supplies.

*Interest expense.*Interest expense increased 82.5% to $616,603 for the quarter ended September30, 2006 from $337,870 in 2005 due primarily to the amortization of deferredfinancing costs and discount on the notes payable as a result of the recentlycompleted private debt placement.

**Liquidity and Capital Resources**

Cash used in operating activities was $594,149 for thecurrent fiscal quarter compared to cash used in operating activities of$152,889 during the prior year’s first fiscal quarter.  The increase in cash used in operationsresulted primarily from the larger net loss for the current quarter in additionto increases in inventories and accounts receivable, prepaid expenses and otherassets. The substantial increase in inventories from year to year was primarilydue to increases in overhead as a result of the move to a considerably largerfacility, plus increases in direct labor costs, purchases of raw materials andfreight charges. The Company believes that uncollectible accounts receivablewill not have a significant effect on future liquidity, as a significantportion of its accounts receivable are due from financially sound enterprises.

Net cash used by investing activities, the purchase ofequipment, was $192,733 in the quarter compared to $16,710 for the prior year’ssame quarter. The increase was mainly attributable to increased spending onlaboratory, refrigeration and manufacturing equipment in addition to dataprocessing equipment.

Net cash used by financing activities amounted to$258,579 during the recent quarter compared to $6,149 in the prior fiscal year.This increase in cash used versus the comparable prior year was primarily dueto increased cash payments on notes payable and capital lease obligations.

Historically, we have financed our operationsprimarily through long-term debt and the sales of common, redeemable common andpreferred stock.  We have also financedoperations through sales of diagnostic products and agreements with strategicpartners.  Accounts receivable increased6.7% to $1,454,722 from $969,458 in 2005 primarily as a result of salesincreases in addition to a slight slowdown in collections during the period.

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Ourfuture capital requirements will depend on a number of factors, including theability to complete new equity or debt financing, the possible redemption ofcommon stock, our profitability or lack thereof, the rate at which we grow ourbusiness and our investment in proprietary research activities, the ability ofour current and future strategic partners to fund outside research anddevelopment activities, our success in increasing sales of both existing andnew products and collaborations, expenses associated with unforeseenlitigation, regulatory changes, competition, technological developments,general economic conditions and potential future merger and acquisitionactivity.  Our principal sources ofliquidity have been cash raised from the private sale of secured convertibleterm notes and the sale of redeemable common, common and preferred stock, thebridge note from Genesis, and long-term bank debt financing.  We believe that our current availability ofcash, working capital, proceeds from the issuance of preferred or common stockand debt financing and expected cash flows from operations, taking intoconsideration the increased sales volume the Company  experienced in fiscal 2006, will be adequate to meet our ongoing needs for at leastthe next twelve months.

**Off -Balance Sheet Arrangements**

We do not have any off-balance sheet arrangements.

**Contractual Obligations and Commitments**

OnFebruary 8, 2006, Corgenix Medical Corporation (the “Company”) entered into aLease Agreement (the “Lease”) with York County, LLC, a California limitedliability company (“Landlord”) pursuant to which the Company will leaseapproximately 32,000 rentable square feet (the “Property”) of Landlord’sapproximately 102,400 square foot building, commonly known as Broomfield Oneand located at 11575 Main Street, Broomfield, Colorado 80020.  The Property is part of Landlord’smulti-tenant real property development known as the Broomfield CorporateCenter.  The Company will use theProperty for its headquarters, laboratory research and development facilitiesand production facilities.

The term of the Lease(the “Term”) is seven years and five months commencing on the Commencement Date[July 15, 2006] with tenant options to extend the Term for up to two periods offive years each.  We have a one timeright of first refusal to lease contiguous premises.

The initial base leaserate payable on the 25,600 square foot portion of the premises is $0.00 persquare foot, plus estimated operating expenses of $1.61 per square foot.

The base lease ratepayable on the 25,600 square foot portion of the premises increases to $4.00per square foot on September 1, 2006, plus amortization of tenant improvementsof $5.24 per square foot, plus estimated operating expenses of $1.61 per squarefoot.  The base lease rate on the 25,600square foot portion of the premises increases to $5.64 per square foot onSeptember 1, 2007, with fixed annual increases each September 1 thereafterduring the initial Term, plus the amortization of tenant improvements of $5.24per square foot, and estimated operating expenses of $1.61 per square foot.

The initial base leaserate payable on the 6,400 square foot portion of the premises is $0.00 persquare foot, plus estimated operating expenses of $1.61 per square foot.  The base lease rate on the 6,400 square footportion of the premises increases to $3.00 per square foot commencing on April1, 2007, and increases to $3.07 on September 1, 2007, with fixed annual increaseseach September 1 thereafter during the initial Term, plus estimated operatingexpenses of $1.61 per square foot.

Thus, the estimated totalbase rent on the whole (32,000 sf) of the premises is initially $1.61 persquare foot, then increases to an estimate of $9.00 per square foot onSeptember 1, 2006, then increases to an estimate of $9.60 per square foot onApril 1, 2007, then increases to an estimate of $10.93 per square foot onSeptember 1, 2007, with annual increases in the base lease rate each September1 thereafter during the initial Term, up to an estimated total base rent of$12.84 per square foot during the final year of the initial Term.

Additionally, the baserent on the premises is abated one day for each one day that the commencementdate occurred after May 15, 2006.

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The base lease rate foran extension period is 100% of the then prevailing market rental rate (but inno event less than the rent for the last month of the then current Term) andshall thereafter increase annually by 3% for the remainder of the applicableextension period.

**Item 3.**

**Controls and Procedures**

Evaluation of disclosure controls and procedures.  The Company, under the supervision and withthe participation of the Company’s management, including its Chief ExecutiveOfficer and Chief Financial Officer, carried out an evaluation of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Rules 240.13a-14(c) and 15d-14(c) under theSecurities Exchange Act of 1934  (the “ExchangeAct”) as of the end of the period covered by this quarterly report (the “EvaluationDate”).  Based upon this evaluation, theChief Executive Officer and Chief Financial Officer concluded that, as of theEvaluation Date, the Company’s disclosure controls and procedures wereeffective for the purposes of recording, processing, summarizing and timelyreporting information required to be disclosed by the Company in the reportsthat it files under the Securities Exchange Act of 1934 and that such informationis accumulated and communicated to the Company’s management in order to allowtimely decisions regarding required disclosure.

Changes in internal controls.  There have been no significant changes in theCompany’s internal controls or in other factors that could significantly affectthe Company’s disclosure controls and procedures subsequent to the EvaluationDate, nor were there any significant deficiencies or material weaknesses in theCompany’s internal controls.

**Forward-Looking Statements and Risk Factors**

This 10-QSB includes statements that are not purelyhistorical and are “forward-looking statements” within the meaning of Section21E of the Securities Act of 1934, as amended, including statements regardingour expectations, beliefs, intentions or strategies regarding the future.  All statements other than historical factcontained in this 10-QSB, including, without limitation, statements regardingfuture capital requirements, acquisition strategies, strategic partnershipexpectations, technological developments, the development, the availability ofnecessary components, research and development programs and distribution plans,are forward-looking statements.  Allforward-looking statements included in this 10-QSB are based on informationavailable to us on the date hereof, and we assume no obligation to update suchforward-looking statements.  Although webelieve that the assumptions and expectations reflected in such forward-lookingstatements are reasonable, we can give no assurance that such expectations willprove to have been correct or that we will take any actions that may presentlybe planned.

An investment in Corgenix entails certain risks thatshould be carefully considered. In addition, these risk  factors could cause actual results to differmaterially from those expected include the following:

**We continue to incur losses and arelikely to require additional financing.**

We have incurredoperating losses and negative cash flow from operations for most of ourhistory.  Losses incurred since ourinception have aggregated $10,222,759 and there can be no assurance that wewill be able to generate positive cash flows to fund our operations in thefuture or to pursue our strategic objectives. Assuming no significant changes from our budget, we believe that we willhave sufficient cash to satisfy our needs for at least the next twelvemonths.  If we are not able to operateprofitably and generate positive cash flows, we will undoubtedly need to raiseadditional capital, most likely via the sale of equity securities, to fund ouroperations.  If we do in fact needadditional financing to meet our requirements, there can be no assurance thatwe will be able to obtain such financing on terms satisfactory to us, if atall.  Alternatively, any additional equityfinancing may be dilutive to existing stockholders, and debt financing, ifavailable, may include restrictive covenants. If adequate funds are notavailable, we might be required to limit our research and developmentactivities or our selling, marketing and administrative activities any of whichcould have a material adverse effect on the future of the business.

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**Wedepend upon collaborative relationships and third parties for productdevelopment and commercialization.**

We have historically entered into research anddevelopment agreements with collaborative partners, from which we derivedrevenues in past years.  Pursuant tothese agreements, our collaborative partners have specific responsibilities forthe costs of development, promotion, regulatory approval and/or sale of ourproducts.  We will continue to rely onfuture collaborative partners for the development of products andtechnologies.  There can be no assurancethat we will be able to negotiate such collaborative arrangements on acceptableterms, if at all, or that current or future collaborative arrangements will besuccessful.  To the extent that we arenot able to establish such arrangements, we could  be forced to undertake such activitiesentirely at our own expense.  The amountand timing of resources that any of these partners devotes to these activitiesmay be based on progress by us in our product development efforts.  Collaborative arrangements may be terminatedby the partner upon prior notice without cause and there can be no assurancethat any of these partners will perform its contractual obligations or that itwill not terminate its agreement.  Withrespect to any products manufactured by third parties, there can be noassurance that any third-party manufacturer will perform acceptably  or that failures by third parties will notdelay clinical trials or the submission of products for regulatory approval orimpair our ability to deliver products on a timely basis.

**There can be no assurance ofsuccessful or timely development of additional products.**

Our business strategy includes the development ofadditional diagnostic products for the diagnostic business.  Our success in developing new products willdepend on our ability to achieve scientific and technological advances and totranslate these advances into commercially competitive products on a timelybasis.  Development of new productsrequires significant research, development and testing efforts.  We have limited resources to devote to thedevelopment of products and, consequently, a delay in the development of oneproduct or the use of resources for product development efforts that proveunsuccessful may delay or jeopardize the development of other products.  Any delay in the development, introductionand marketing of future products could result in such products being marketedat a time when their cost and performance characteristics would not enable themto compete effectively in their respective markets.  If we are unable, for technological or otherreasons, to complete the development and introduction of any new product or ifany new product is not approved or cleared for marketing or does not achieve asignificant level of market acceptance, our ability to remain competitive inour product niches would be impaired.

**Competitionin the human medical diagnostics industry is, and is expected to remain,significant.**

Our competitors range from development stagediagnostics companies to major domestic and international pharmaceutical andbiotechnology companies. Many of these companies have financial, technical,marketing, sales, manufacturing, distribution and other resources significantlygreater than ours.  In addition, many ofthese companies have name recognition, established positions in the market andlong standing relationships with customers and distributors also greater thanours. Moreover, the diagnostics industry continues to demonstrate a degreeconsolidation, whereby some of the large domestic and internationalpharmaceutical companies have been acquiring mid-sized diagnosticscompanies, further increasing the concentration of resources.  There can be no assurance that technologieswill not be introduced that could be directly competitive with or superior toour technologies.

**Ourproducts and activities are subject to regulation by various governments andgovernment agencies.**

The testing, manufacture and sale of our products is subject toregulation by numerous governmental authorities, principally the United StatesFood and Drug Administration and certain foreign regulatory agencies.  Pursuant to the Federal Food, Drug, andCosmetic Act, and the regulations promulgated there under, the FDA regulatesthe preclinical and clinical testing, manufacture, labeling, distribution andpromotion of medical devices.  We arelimited in our ability to commence marketing or commercial sales in the UnitedStates of new products under development until we receive clearance or approvalfrom the FDA. The testing for, preparation of and subsequent FDA regulatoryreview of required filings can be a lengthy, expensive and uncertainprocess.  Noncompliance with applicablerequirements can result in, among other consequences, fines, injunctions, civilpenalties, recall or seizure of products, repair, replacement or refund of thecost of products, total or partial suspension of production, failure of thegovernment to grant pre-market clearance or pre-market approval for devices,withdrawal of marketing clearances or approvals, and criminal prosecution.

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There can be no assurance that we will be able to obtainnecessary regulatory approvals or clearances for our products on a timelybasis, if at all, and delays in receipt of or failure to receive such approvalsor clearances, the loss of previously received approvals or clearances,limitations on intended use imposed as a condition of such approvals orclearances or failure to comply with existing or future regulatory requirementscould negatively impact our sales and thus have a material adverse effect onour business.

As a manufacturer of medical devices for marketing inthe United States, we are required to adhere to applicable regulations settingforth detailed good manufacturing practice requirements, which include testing,control and documentation requirements. We must also comply with Medical Device Report (MDR) requirements, whichrequire that a manufacturer reports to the FDA any incident in which itsproduct may have caused or contributed to a death or serious injury, or inwhich its product malfunctioned and, if the malfunction were to recur, it wouldbe likely to cause or contribute to a death or serious injury.  We are also subject to routine inspection bythe FDA for compliance with QSR requirements, MDR requirements and otherapplicable regulations. Labeling and promotional activities are subject toscrutiny by the FDA and, in certain circumstances, by the Federal TradeCommission.  We may incur significantcosts to comply with laws and regulations in the future, which would decreaseour net income or increase our net loss and thus have a potentially materialadverse effect upon our business, financial conditions and results ofoperations.

Distribution of diagnostic products outside the UnitedStates is subject to extensive foreign government regulation. Theseregulations, including the requirements for approvals or clearance to market,the time required for regulatory review and the sanctions imposed forviolations, vary from country to country. We may be required to incur significant costs in obtaining ormaintaining foreign regulatory approvals. In addition, the export of certain of our products that  have not yet been cleared for United Statescommercial distribution may be subject to FDA export restrictions. Failure toobtain necessary regulatory approval or the failure to comply with regulatoryrequirements could reduce our product sales and thus have a potentiallymaterial adverse effect on our business, financial condition and results ofoperations.

**We depend upon distribution partnersfor sales of diagnostic products in international markets.**

We have entered into distribution agreements withcollaborative partners in which we have granted distribution rights for certainof our products to these partners within specific international geographicareas. Pursuant to these agreements, our collaborative partners have certainresponsibilities for market development, promotion, and sales of the products.If any of these partners fails to perform its contractual obligations orterminates its agreement, this could have a reduce our sales and cash flow andthus have a potentially material adverse effect on our business, financialcondition and results of operations.

**Thirdparty reimbursement for purchases of our diagnostic products is uncertain.**

In the United States, health care providers thatpurchase diagnostic products, such as hospitals and physicians, generally relyon third party payers, principally private health insurance plans, federalMedicare and state Medicaid, to reimburse all or part of the cost of thepurchase.  Third party payers are increasinglyscrutinizing and challenging the prices charged for medical products andservices and they can affect the pricing or the relative attractiveness of theproduct. Decreases in reimbursement amounts for tests performed using ourdiagnostic products, failure by physicians and other users to obtainreimbursement from third party payers, or changes in government and privatethird party payers’ policies regarding reimbursement of tests utilizingdiagnostic products, may affect our ability to sell our diagnostic productsprofitably. Market acceptance of our products in international markets is alsodependent, in part, upon the availability of reimbursement within prevailinghealth care payment systems.

**Oursuccess depends, in part, on our ability to obtain patents and license patentrights, to maintain trade secret protection and to operate without infringingon the proprietary rights of others.**

There can be no assurance that our issued patent willafford meaningful protection against a competitor, or that patents issued orlicensed to us will not be infringed upon or designed around by others, or thatothers will not obtain patents that we would need to license or design around.We could incur substantial costs in defending the Company or our licensees in litigationbrought by others. The potential for reduced sales and increased legal expenseswould have a negative impact on our cash flow and thus our overall businesscould be adversely affected.

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**We maynot be able to successfully implement our plans to acquire other companies ortechnologies.**

Our growth strategy includes the acquisition ofcomplementary companies, products or technologies. There is no assurance thatwe will be able to identify appropriate companies or technologies to beacquired, to negotiate satisfactory terms for such an acquisition, or to obtainsufficient capital to make such acquisitions. Moreover, because of limited cashresources, we will be unable to acquire any significant companies ortechnologies for cash and our ability to effect acquisitions in exchange forour capital stock may depend upon the market prices for our common stock, whichcould result in significant dilution to its existing stockholders.  If we do complete one or more acquisitions, anumber of risks arise, such as disruption of our existing business, short-termnegative effects on our reported operating results, diversion of management’sattention, unanticipated problems or legal liabilities, and difficulties in theintegration of potentially dissimilar operations. Any of these factors couldmaterially harm Corgenix’s business or its operating results.

**Wedepend on suppliers for our products’ components.**

The components of our products include chemical,biological and packaging supplies that are generally available from severalsuppliers, except certain antibodies and other critical components, which wepurchase from single suppliers.  Wemitigate the risk of a loss of supply by maintaining a sufficient supply ofsuch antibodies to ensure an uninterrupted supply for at least three months. Wehave also qualified second vendors for all critical raw materials and believethat we can substitute a new supplier with respect to any of these componentsin a timely manner. If, for some reason, we lose our main supplier for a givenmaterial, there can be no assurances that we will be able to substitute a newsupplier in a timely manner and failure to do so could impair the manufacturingof certain of our products and thus have a material adverse effect on ourbusiness, financial condition and results of operations.

**We haveonly limited manufacturing experience with certain products.**

Although we have manufactured over twelve milliondiagnostic tests based on our proprietary applications of ELISA (enzyme linkedimmuno-absorbent assay) technology, certain of our diagnostic products inconsideration for future development, incorporate technologies with which wehave limited manufacturing experience. Assuming successful development and receipt of required regulatoryapprovals, significant work may be required to scale up production for each newproduct prior to such product’s commercialization.  There can be no assurance that such work canbe completed in a timely manner and that such new products can be manufacturedcost-effectively, to regulatory standards or in sufficient volume.

**Due tothe specialized nature of our business, our success will be highly dependentupon our ability to attract and retain qualified scientific and executivepersonnel.**

We believe our success will depend to a significantextent on the efforts and abilities of Dr. Luis R. Lopez and Douglass T.Simpson, who would be difficult to replace. There can be no assurance that we will be successful in attracting andretaining such skilled personnel, who are generally in high demand by othercompanies.  The loss of, inability toattract, or poor performance by key scientific and executive personnel may havea material adverse effect on our business, financial condition and results ofoperations.

**Thetesting, manufacturing and marketing of medical diagnostic devices entails aninherent risk of product liability claims.**

To date, we have experienced no product liabilityclaims, but any such claims arising in the future could have a material adverseeffect on our business, financial condition and results of operations.Potential product liability claims may exceed the amount of our insurancecoverage or may be excluded from coverage under the terms of our policy orlimited by other claims under our umbrella insurance policy.  Additionally, there can be no assurance thatour existing insurance can be renewed by us at a cost and level of coveragecomparable to that presently in effect, if at all.  In the event that we are held liable for a claimagainst which we are not insured or for damages exceeding the limits of ourinsurance coverage, such claim could have a material adverse effect on our cashflow and thus potentially a materially adverse effect on our business,financial condition and results of operations.

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**Therehas, to date, been no active public market for our Common Stock, and there canbe no assurance that an active public market will develop or be sustained.**

Although our Common Stock has been traded on the OTCBulletin Board® since February 1998, the trading has been sporadic withinsignificant volume.

Moreover, the over-the-counter markets for securitiesof very small companies historically have experienced extreme price and volumefluctuations.  These broad marketfluctuations and other factors, such as new product developments, trends in ourindustry, the investment markets, economic conditions generally, and quarterlyvariation in our results of operations, may adversely affect the market priceof our common stock.  In addition, ourcommon stock is subject to rules adopted by the Securities and ExchangeCommission regulating broker-dealer practices in connection with transactionsin “penny stocks.”  Such rules requirethe delivery prior to any penny stock transaction of a disclosure scheduleexplaining the penny stock market and all associated risks and impose varioussales practice requirements on broker-dealers who sell penny stocks to personsother than established customers and accredited investors, which are generallydefined as institutions or an investor with a net worth in excess of $1,000,000or annual income exceeding $200,000 or $300,000 together with the spouse.  For these types of transactions thebroker-dealer must make a special suitability determination for the purchaserand have received the purchaser’s written consent to the transaction prior tosale.  The additional burdens imposedupon broker-dealers by such requirements may discourage broker-dealers fromeffecting transactions in securities subject to the penny stock rules.

**There are risks associated withfluctuating exchange rates.**

Our financial statements are presented in US dollars. At the end ofeach fiscal quarter and the fiscal year, we convert the financial statements ofCorgenix UK, which operates in pounds sterling, into US dollars, and consolidatethem with results from Corgenix, Inc.  Wemay, from time to time, also need to exchange currency from income generated byCorgenix UK. Foreign exchange rates are volatile and can change in an unknownand unpredictable fashion. Should the foreign exchange rates change to levelsdifferent than anticipated by us, our business, financial condition and  results of operations may be adverselyaffected.

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**CORGENIXMEDICAL CORPORATION**

**PART II**

**OtherInformation**

**Item 1.    Legal Proceedings**

None

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds**

None

**Item 3.    Defaults Upon Senior Securities**

None

**Item 4.    Submission of Matters to a Vote of Security Holders**

None

**Item 5.    Other Information**

None

I**tem 6.  Exhibitsand Reports on Form 8-K.**

**a.****               Index to andDescription of Exhibits***.*
| Exhibit  Number | ** ** | **Description of Exhibit**                                                                                                                                                                 |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **      | ** ** | ** **                                                                                                                                                                                 |
| 31.1*           |       | Certification of Chief Executive Officer pursuant to  section 302 of the Sarbanes-Oxley Act of 2002.                                                                                  |
|            |       |                                                                                                                                                                                       |
| 31.2*           |       | Certification of Chief Financial Officers pursuant  to section 302 of the Sarbanes-Oxley Act of 2002.                                                                                 |
|            |       |                                                                                                                                                                                       |
| 32.1*           |       | Certification by Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, or adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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*                 Filed herewith.

**(b)           Reports on Form 8-K.**

1.               Form8-K filed October 3, 2006 *Results ofOperation and Financial Condition*.

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**SIGNATURES**

In accordance withthe requirements of the Securities Exchange Act of 1934, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.
|                   | CORGENIX MEDICAL CORPORATION |
|-------------------|------------------------------|
|              |                         |
|              |                         |
| November 14, 2006 |                         | By: | /s/ Douglass T. Simpson |   |
|              |                         | Douglass T. Simpson |
|              |                         | President and  Chief Executive Officer |
| ** **        |                         | **(Principal  Executive Officer)** |
|              |                         |   |
|              |                         |   |
|              |                         | By: | /s/ William H. Critchfield |   |
|              |                         |   | Chief Financial  Officer |   |
|              |                         | **(Principal Financial and Accounting Officer)** |

 

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