**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-QSB**

 
| **ý** | ** ** | **QUARTERLY  REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT  OF 1934** |
|------------|------------|------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31, 2006**

 
| **o** | ** ** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|-------|------------|----------------------------------------------------------------------------------------------------|

 

**For thetransition period from            to            **

 

**Commission File Number 000-24541**

 

**CORGENIXMEDICAL CORPORATION**

(Exact name ofSmall Business Issuer as specified in its Charter)

 

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

 

**12061Tejon Street, Westminster, Colorado 80234**

(Address ofprincipal executive offices)

** **

**(303)457-4345**

(Issuer’stelephone number)

 

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

 

Check whether theissuer:  (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Actduring the past 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý  No o

 

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

 

The number ofshares of Common Stock outstanding was 10,549,285****asof  May 15, 2006.

 

Transitional SmallBusiness Disclosure Format.  Yes   o   No  ý

 

 

----

 

**CORGENIXMEDICAL CORPORATION**

**March 31,2006**

 

**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            |                                                           |
|                      |                                                           |
| Signature Page            |                                                           |

 

i

----

 

**PART I**

#### **Item 1. Consolidated Financial Statements**

**CORGENIX MEDICAL CORPORATION**

### **AND SUBSIDIARIES**

## **Consolidated BalanceSheets**

 
| ** **                                                                                                                                                                                                                                 | ** ** | **March 31,  2006** | ** ** | **June 30, 2005  ***** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                                                                                                                 | ** ** | **(Unaudited)**          | ** ** | ** **                       | ** ** |
| **Assets**                                                                                                                                                                                                                                 |       |                     |       |                             |       |
|                                                                                                                                                                                                                                       |       |                     |       |                             |       |
| Current Assets:                                                                                                                                                                                                                            |       |                     |       |                             |       |
| Cash and equivalents                                                                                                                                                                                                                       |       | $                        | 3,569,356  |                             | $          | 1,281,965 |   |
| Accounts receivable, less allowance for doubtful  accounts of $30,097                                                                                                                                                                      |       | 1,097,805                |       | 887,645                          |       |
| Inventories                                                                                                                                                                                                                                |       | 1,475,205                |       | 1,215,787                        |       |
| Prepaid expenses                                                                                                                                                                                                                           |       | 90,197                   |       | 51,842                           |       |
| Total current assets                                                                                                                                                                                                                       |       | 6,232,563                |       | 3,437,239                        |       |
|                                                                                                                                                                                                                                       |       |                     |       |                             |       |
| Equipment:                                                                                                                                                                                                                                 |       |                     |       |                             |       |
| Capitalized software costs                                                                                                                                                                                                                 |       | 122,855                  |       | 122,855                          |       |
| Machinery and laboratory equipment                                                                                                                                                                                                         |       | 668,283                  |       | 639,692                          |       |
| Furniture, fixtures, leaseholds and office equipment                                                                                                                                                                                       |       | 538,745                  |       | 523,762                          |       |
|                                                                                                                                                                                                                                       |       | 1,329,883                |       | 1,286,309                        |       |
| Accumulated depreciation and amortization                                                                                                                                                                                                  |       | (1,095,216               | )          | (1,028,103                       | )          |
| Net equipment                                                                                                                                                                                                                              |       | 234,667                  |       | 258,206                          |       |
| Intangible assets:                                                                                                                                                                                                                         |       |                     |       |                             |       |
| Patents, net of accumulated amortization of  $1,117,544 and $1,093,970                                                                                                                                                                     |       | —                   |       | 23,574                           |       |
| License                                                                                                                                                                                                                                    |       | 18,275                   |       | 18,275                           |       |
| Net intangible assets                                                                                                                                                                                                                      |       | 18,275                   |       | 41,849                           |       |
| Other assets:                                                                                                                                                                                                                              |       |                     |       |                             |       |
| Deferred financing costs net of amortization of  $334,872 and $39,440                                                                                                                                                                      |       | 1,236,197                |       | 907,095                          |       |
| Due from officer                                                                                                                                                                                                                           |       | 12,000                   |       | 12,000                           |       |
| Restricted cash                                                                                                                                                                                                                            |       | 250,000                  |       | 250,000                          |       |
| Other assets                                                                                                                                                                                                                               |       | 297,588                  |       | 86,105                           |       |
| Total assets                                                                                                                                                                                                                               |       | $                        | 8,281,290  |                             | $          | 4,992,494 |   |
|                                                                                                                                                                                                                                       |       |                     |       |                             |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                              |       |                     |       |                             |       |
|                                                                                                                                                                                                                                       |       |                     |       |                             |       |
| Current liabilities:                                                                                                                                                                                                                       |       |                     |       |                             |       |
| Current portion of notes payable, net of discount                                                                                                                                                                                          |       | $                        | 632,660    |                             | $          | 221,176 |   |
| Current portion of capital lease obligations                                                                                                                                                                                               |       | 16,502                   |       | 22,370                           |       |
| Accounts payable                                                                                                                                                                                                                           |       | 321,629                  |       | 453,764                          |       |
| Accrued payroll and related liabilities                                                                                                                                                                                                    |       | 260,448                  |       | 218,411                          |       |
| Accrued interest                                                                                                                                                                                                                           |       | 39,559                   |       | 753                              |       |
| Accrued liabilities                                                                                                                                                                                                                        |       | 50,186                   |       | 113,293                          |       |
| Total current liabilities                                                                                                                                                                                                                  |       | 1,320,984                |       | 1,029,767                        |       |
|                                                                                                                                                                                                                                       |       |                     |       |                             |       |
| Notes payable, net of discount, less current portion                                                                                                                                                                                       |       | 1,284,653                |       | 980,716                          |       |
| Capital lease obligations, less current portion                                                                                                                                                                                            |       | 9,917                    |       | 22,754                           |       |
| Total liabilities                                                                                                                                                                                                                          |       | 2,615,554                |       | 2,033,237                        |       |
|                                                                                                                                                                                                                                       |       |                     |       |                             |       |
| Redeemable common stock, 880,282 shares issued and  outstanding, aggregate redemption value of $500,000, net of redeemable stock  subject to redemption via payments on related note payable, of $250,000 at March 31,  2006 (note 5) |       | 250,000                  |       | 500,000                          |       |
|                                                                                                                                                                                                                                       |       |                     |       |                             |       |
| Stockholders’ equity:                                                                                                                                                                                                                 |       |                     |       |                             |       |
| Preferred stock, 2,000,000 shares issued and  outstanding at March 31, 2006 (note 1)                                                                                                                                                  |       | 2,000,000                |       | —                           |       |
| Common stock, $0.001 par value. Authorized  100,000,000 shares; issued and outstanding 10,297,603 and 8,172,435 shares at  March 31 and June 30, respectively                                                                    |       | 9,417                    |       | 7,292                            |       |
| Additional paid-in-capital                                                                                                                                                                                                                 |       | 11,962,582               |       | 7,966,172                        |       |
| Accumulated deficit                                                                                                                                                                                                                        |       | (8,542,632               | )          | (5,501,144                       | )          |
| Accumulated other comprehensive loss                                                                                                                                                                                                       |       | (13,631                  | )          | (13,063                          | )          |
| Total stockholders’ equity                                                                                                                                                                                                            |       | 5,415,736                |       | 2,459,257                        |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                            |       | $                        | 8,281,290  |                             | $          | 4,992,494 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

----

***Amounts are derived from the auditedfinancial statements.

 

1

----

 

**CORGENIXMEDICAL CORPORATION**

#### **AND SUBSIDIARIES**

## **Consolidated Statementsof Operations and Comprehensive Income**

 
| ** **                                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                            | ** ** | **March 31,  2006**         | ** ** | **March 31,  2005**        | ** ** | **March 31,  2006** | ** ** | **March 31,  2005** | ** ** |
| ** **                                                            | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                 | ** ** |
| Net sales                                                             |       | $                                | 1,634,446  |                            | $          | 1,444,553 |   | $ | 4,850,282 |   | $ | 4,024,195 |   |
| Cost of sales                                                         |       | 622,576                          |       | 508,571                         |       | 1,782,034 |   | 1,516,844 |   |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Gross profit                                                          |       | 1,011,870                        |       | 935,982                         |       | 3,068,248 |   | 2,507,351 |   |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Operating expenses:                                                   |       |                             |       |                            |       |   |   |   |   |
| Selling and marketing                                                 |       | 431,944                          |       | 360,758                         |       | 1,178,370 |   | 1,105,234 |   |
| Research and development                                              |       | 208,624                          |       | 146,918                         |       | 490,380 |   | 442,363 |   |
| General and administrative                                            |       | 412,826                          |       | 273,804                         |       | 1,143,341 |   | 907,345 |   |
| Total expenses                                                        |       | 1,053,394                        |       | 781,480                         |       | 2,812,091 |   | 2,454,942 |   |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Operating income (loss)                                               |       | (41,524                          | )          | 154,502                         |       | 256,157 |   | 52,409 |   |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Interest expense, net                                                 |       | 615,329                          |       | 78,827                          |       | 1,297,645 |   | 268,971 |   |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Net income (loss)                                                     |       | (656,853                         | )          | 75,675                          |       | (1,041,488 | ) | (216,562 | ) |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Accretion of discount on redeemable common stock                      |       | —                           |       | (21,641                         | )          | — |   | (64,919 | ) |
| Imputed dividends on Convertible Preferred Stock                      |       | (2,000,000                       | )          | —                          |       | (2,000,000 | ) | — |   |
| Net income (loss) available to common stockholders                    |       | $                                | (2,656,853 | )                               | $          | 54,034 |   | $ | (3,041,488 | ) | $ | (281,481 | ) |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Net income (loss) per share, basic                                    |       | $                                | (0.27      | )                               | $          | 0.01 |   | $ | (0.33 | ) | $ | (0.05 | ) |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Net income (loss) per share, diluted                                  |       | (0.27                            | )          | 0.01                            |       | (0.33 | ) | (0.05 | ) |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Weighted average shares outstanding, Basic (note 2)                   |       | 9,913,950                        |       | 5,341,715                       |       | 9,099,598 |   | 5,338,421 |   |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Weighted average shares outstanding, diluted (note  2)                |       | 9,913,950                        |       | 5,367,863                       |       | 9,099,598 |   | 5,338,421 |   |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Net income (loss)                                                     |       | $                                | (656,853   | )                               | $          | 75,675 |   | $ | (1,041,488 | ) | $ | (216,562 | ) |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Other comprehensive income (loss)- foreign currency  translation loss |       | 867                              |       | 2,734                           |       | (568 | ) | (2,612 | ) |
|                                                                  |       |                             |       |                            |       |   |   |   |   |
| Total comprehensive income (loss)                                     |       | $                                | (655,986   | )                               | $          | 78,409 |   | $ | (1,042,056 | ) | $ | (219,174 | ) |

 

See accompanying notes to consolidated financial statements.

 

2

----

 

**CORGENIX MEDICAL CORPORATION**

#### **AND SUBSIDIARIES**

Consolidated Statement of Stockholders’ Equity

For the nine months ended March 31, 2006

(unaudited)

 
| ** **                                                               |  

** ** | **Preferred  Stock** | ** ** | **Common  Stock, Number of Shares** | ** ** | **Common  Stock,  $ 0.001  par** | ** ** | **Additional  paid-in  capital** | ** ** | **Accumulated  deficit** | ** ** | **Accumulated  other  comprehensive  loss** | ** ** | **Total  stockholders’  equity** | ** ** |
|--------------------------------------------------------------------------|--------------------|----------------------|------------|----------------------------------------------------|------------|---------------------------------------|------------|----------------------------------|------------|--------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
|                                                                     |               |                 |       |                                               |       |                                  |       |                             |       |                     |       |                                        |       |                                  |       |
| Balance at June 30, 2005                                            |               | $                    | —     |                                               | 8,172,435  |                                  | $          | 7,292                            |       | $                        | 7,966,172  |                                        | $          | (5,501,144                            | )          | $ | (13,063 | ) | $ | 2,459,257 |   |
|                                                                     |               |                 |       |                                               |       |                                  |       |                             |       |                     |       |                                        |       |                                  |       |
| Issuance of preferred stock for cash                                     |               | 2,000,000            |       |                                               |       |                                  |       |                             |       |                     |       |                                        |       | 2,000,000                             |       |
|                                                                     |               |                 |       |                                               |       |                                  |       |                             |       |                     |       |                                        |       |                                  |       |
| Issuance of common stock for services                                    |               |                 |       | 507,771                                            |       | 508                                   |       | 123,473                          |       |                     |       |                                        |       | 123,981                               |       |
| Issuance of warrants for financing costs                                 |               |                 |       |                                               |       |                                  |       | 360,950                          |       |                     |       |                                        |       | 360,950                               |       |
| Issuance of common stock in exchange for debt and  interest              |               |                 |       | 1,224,659                                          |       | 1,224                                 |       | 366,174                          |       |                     |       |                                        |       | 367,398                               |       |
| Beneficial conversion feature of institutional  convertible note payable |               |                 |       |                                               |       |                                  |       | 1,134,786                        |       |                     |       |                                        |       | 1,134,786                             |       |
| Exercise of warrants                                                     |               |                 |       | 382,738                                            |       | 383                                   |       | 6,537                            |       |                     |       |                                        |       | 6,920                                 |       |
| Exercise of stock options                                                |               |                 |       | 10,000                                             |       | 10                                    |       | 4,490                            |       |                     |       |                                        |       | 4,500                                 |       |
| Foreign currency translation                                             |               |                 |       |                                               |       |                                  |       |                             |       |                     |       | (568                                        | )          | (568                                  | )          |
| Net loss                                                                 |               |                 |       |                                               |       |                                  |       |                             |       | (1,041,488               | )          |                                        |       | (1,041,488                            | )          |
| Imputed Dividends on convertible preferred stock                         |               |                 |       |                                               |       |                                  |       | 2,000,000                        |       | (2,000,000               | )          |                                        |       | —                                |       |
|                                                                     |               |                 |       |                                               |       |                                  |       |                             |       |                     |       |                                        |       |                                  |       |
| Balance at March 31, 2006                                           |               | $                    | 2,000,000  |                                               | 10,297,603 |                                  | $          | 9,417                            |       | $                        | 11,962,582 |                                        | $          | (8,542,632                            | )          | $ | (13,631 | ) | $ | 5,415,736 |   |

 

See accompanying notes toconsolidated financial statements.

 

3

----

 

**CORGENIX MEDICAL CORPORATION**

**AND SUBSIDIARIES**

## **Consolidated Statementsof Cash Flows**

 
| ** **                                                                                 | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                 | ** ** | **March 31,  2006**        | ** ** | **March 31,  2005** | ** ** |
| ** **                                                                                 | ** ** | **(Unaudited)**                 | ** ** |
| Cash flows from operating activities:                                                      |       |                            |       |   |   |
| Net loss                                                                                   |       | $                               | (1,041,488 | ) | $ | (216,562 | ) |
| Adjustments to reconcile net loss to net cash provided  by (used in) operating activities: |       |                            |       |   |   |
| Depreciation and amortization                                                              |       | 91,515                          |       | 141,972 |   |
| Accretion of discount on notes payable                                                     |       | 780,256                         |       | 204,315 |   |
| Equity instruments issued for services                                                     |       | 123,981                         |       | 12,030 |   |
| Common stock issued for interest                                                           |       | 87,563                          |       | — |   |
| Amortization of deferred financing costs                                                   |       | 295,432                         |       | — |   |
| Changes in operating assets and liabilities                                                |       |                            |       |   |   |
| Accounts receivable, net                                                                   |       | (220,257                        | )          | 28,184 |   |
| Inventories                                                                                |       | (260,838                        | )          | (180,400 | ) |
| Prepaid expenses and other assets, net of warrants  issued for finance costs               |       | (514,654                        | )          | (27,845 | ) |
| Accounts payable                                                                           |       | (117,808                        | )          | 101,653 |   |
| Accrued payroll and related liabilities                                                    |       | 41,626                          |       | 10,949 |   |
| Accrued interest and other liabilities                                                     |       | (23,385                         | )          | 397 |   |
| Net cash provided by (used in) operating activities                                        |       | (758,057                        | )          | 74,693 |   |
|                                                                                       |       |                            |       |   |   |
| Cash flows used in investing activities:                                                   |       |                            |       |   |   |
| Purchases of equipment                                                                     |       | (44,836                         | )          | (14,229 | ) |
|                                                                                       |       |                            |       |   |   |
| Cash flows from financing activities:                                                      |       |                            |       |   |   |
| Proceeds from issuance of preferred stock, net of  financing costs                         |       | 1,771,151                       |       | — |   |
| Proceeds from exercise of stock options                                                    |       | 4,500                           |       | — |   |
| Proceeds from exercise of warrants                                                         |       | 6,920                           |       | — |   |
| Proceeds from issuance of notes payable, net of  original issue discount                   |       | 1,363,615                       |       | — |   |
| Payments on notes payable                                                                  |       | (35,000                         | )          | (135,562 | ) |
| Payments on capital lease obligations                                                      |       | (18,705                         | )          | (43,021 | ) |
|                                                                                       |       |                            |       |   |   |
| Net cash (used in) provided by financing activities                                        |       | 3,092,481                       |       | (178,583 | ) |
|                                                                                       |       |                            |       |   |   |
| Net increase (decrease) in cash and cash equivalents                                       |       | 2,289,588                       |       | (118,119 | ) |
|                                                                                       |       |                            |       |   |   |
| Impact of exchange rate on cash                                                            |       | (2,197                          | )          | 2,570 |   |
|                                                                                       |       |                            |       |   |   |
| Cash and cash equivalents at beginning of period                                           |       | 1,281,965                       |       | 468,954 |   |
| Cash and cash equivalents at end of period                                                 |       | $                               | 3,569,356  |   | $ | 353,405 |   |
|                                                                                       |       |                            |       |   |   |
| Supplemental cash flow disclosures: Cash paid for  interest                                |       | $                               | 145,400    |   | $ | 40,358 |   |
| Noncash investing and financing activity—                                             |       |                            |       |   |   |
| Equipment acquired under capital leases                                                    |       | $                               | —     |   | $ | 45,409 |   |
| Issuance of stock for debt                                                                 |       | $                               | 279,835    |   | $ | — |   |
| Placement warrants issued in connection with  financings                                   |       | $                               | 360,969    |   | $ | — |   |
| Conversion of redeemable common stock to note  payable                                     |       | $                               | 250,000    |   | $ | — |   |
| Imputed dividends on convertible preferred stock                                           |       | $                               | 2,000,000  |   | $ | — |   |

 

See accompanying notes to consolidated financialstatements.

 

4

----

 

**CORGENIX MEDICAL CORPORATION AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

Corgenix MedicalCorporation (“Corgenix” or the “Company”) is engaged in the research,development, manufacture, and marketing of in vitro (outside the body)diagnostic products for use in disease detection and prevention. We currentlysell 51 diagnostic products on a worldwide basis to hospitals, clinicallaboratories, commercial reference laboratories, and research institutions.

 

Our corporate headquarters is located in Westminster,Colorado. We have two wholly owned operating subsidiaries:

 

•                  Corgenix, Inc., (“Corgenix, Inc.”)(formerly REAADS), established in 1990 and located in Westminster, Colorado.Corgenix, Inc. is responsible for sales and marketing activities for NorthAmerica, and also conducts product development, product support, regulatoryaffairs and product manufacturing of the diagnostic products.

 

•                  Corgenix (UK) Ltd., (“Corgenix UK”),incorporated in the United Kingdom in 1996 (formerly REAADS Bio-MedicalProducts (UK) Limited), is located in Peterborough, England. Corgenix UKmanages the diagnostic products business’ international sales and marketingactivities except for distribution in North America, which is under theresponsibility of Corgenix, Inc.

 

We continue to use the REAADS trademark and trade namein the sale of products that we manufacture.

 

**Recent Developments**

 

The Company entered intoagreements on December 28, 2005 to complete two separate private placementfinancings with certain institutional and other accredited investors.

 

The first financing was aprivate placement to Barron Partners, L.P., or Barron, a New York based privatepartnership, consisting of two million shares of Series A ConvertiblePreferred Stock. The shares of Series A Convertible Preferred Stock weresold at $1.00 per share for gross proceeds of $2,000,000. Each share ofpreferred stock is convertible initially into 2.8571428571 shares of theCompany’s common stock. In addition, Corgenix issued warrants to Barron toacquire up to an additional 15,000,000 shares of Corgenix common stock, ofwhich 5,000,000 are exercisable at $0.40 per share, 5,000,000 are exercisableat $0.50, and 5,000,000 are exercisable at $0.60. The warrants are exercisablefor five years from the date of issuance.

 

The exercise prices ofthe warrants, and the conversion rate and price of the shares of preferredstock, are subject to adjustment upon the occurrence of certain specifiedevents, including issuance of additional shares of common stock or subdivisionor combining of shares of common stock.

 

The conversion right ascontained in the preferred stock certificate of designations and the exerciserights contained in the warrants provide that a holder will not convert anamount of preferred stock or exercise warrants to the extent that the number ofshares held by the holder, when added to the number of shares of common stockbeneficially owned by such holder or issuable if the holder exercised one or moreof its warrants immediately prior to conversion, would exceed 4.9% of theCompany’s issued and outstanding common stock.

 

The transaction withBarron also included a Registration Rights Agreement in which the Companyagreed to file a registration statement on Form SB-2 covering the sharesof common stock issuable upon the exercise of the warrants or the conversion ofthe preferred stock, which was declared effective on April 21, 2006.

 

At the closing, theCompany reimbursed Barron $15,000 for due diligence expenses. In addition,Ascendiant Securities, LLC acted as a financial advisor to the Company. Ascompensation for its services, the Company paid to Ascendiant a success feeequal to 8% of the initial gross proceeds ($160,000), which fee was paid from escrow  when those funds were released to Corgenixfrom escrow. If and when the Barron warrants are exercised, then Corgenix wouldpay Ascendiant 8% of those gross proceeds. Three warrants were issued toAscendiant, each for the purchase of up to 552,380 shares, or 8% of thesecurities issued in the transaction, at $.40, $.50, and $.60 with net

 

5

----

 

exercise rights. Theestimated fair value of the warrants upon issuance exceeded the $2,000,000investment in the convertible preferred stock. The estimated fair value of thewarrants was calculated using the Black-Scholes option-pricing model with thefollowing assumptions: no expected dividend yield, 111.5% volatility, risk freeinterest rate of 4.39% and an expected life of five years. Since theconvertible preferred stock was immediately convertible, the entire value ofthe calculated discount (value of the warrants) was deemed to be imputeddividends on the convertible preferred stock.

 

As constituted on December 28,2005, the Company had 40 million shares of common stock authorized, of whichapproximately 9.3 million shares were issued and outstanding, and approximately30.7 million were reserved for issuance to accommodate the exercise orconversion of warrants, options, and convertible debt that is currentlyoutstanding. If all of the shares of preferred stock and warrants issued toBarron in the recent financing were converted or exercised at that point, thenapproximately 20.7 million shares of common stock would be needed to satisfysuch activity.

 

A special meeting of theshareholders of the Company was held on March 24, 2006, to vote upon anamendment to the Articles increasing the number of authorized shares ofCommon Stock from 40 million to 100 million (the “Share Increase Amendment”). TheShare Increase Amendment was adopted by the Company’s shareholders at thespecial meeting. As a result, the $2,000,000 plus accrued interest was releasedto the Company, and the preferred stock certificates were issued from escrow toBarron. In addition, because the Share Increase Amendment was adopted andapproved by the Company’s shareholders, the Company has reserved and keepsavailable shares of common stock for the purpose of enabling the Company toissue the shares of common stock underlying the preferred stock and warrantsissued to Barron.

 

As previously disclosed,the Company plans to use the net proceeds, after transaction fees and expenses,for key strategic initiatives, working capital and other general corporate purposes.

 

Corgenix granted toBarron the right to participate in any subsequent financings by the Company ona pro rata basis at one hundred percent (100%) of the offering price;provided that any such right to participate shall be effective if and only ifthe right of first refusal in favor of the Company’s current convertible debtinvestors has not been exercised.

 

Now that the funds inescrow have been released to the Company due to shareholder approval of theShare Increase Amendment, the agreements with Barron state that if the Company’sEBITDA for the audited fiscal year ended June 30, 2006, as calculatedbased upon the audited financial statements filed with the Company’s Form 10-KSBfiled with the Securities and Exchange Commission, is less than $1,150,000,then the Company must issue to Barron such number of additional shares ofpreferred stock equal to 2,000,000 multiplied by the percentage by which EBITDAis less than $1,150,000, expressed as a positive number; provided that in noevent will the number of additional shares of preferred stock issued due tothis EBITDA adjustment exceed 14% of the number of shares of Preferred Stockoriginally issued to Barron, or 280,000 shares. For example if EBITDA is$920,000 (20% decline) then the Company would issue to the Investor anadditional 14% (i.e., 280,000) shares of preferred stock; provided that at thetime Barron continues to hold all 2,000,000 shares of preferred stockoriginally 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.

 

The Company agreed that amajority of the members of the board of directors, and a majority of thecompensation and audit committees, would be qualified independent directors, asdefined by the NASD, within 90 days after December 28, 2005. As of March 30,2006, these requirements have been fulfilled

 

The foregoing is asummary of the terms of the Barron Preferred Stock Purchase Agreement, theBarron Common Stock Purchase Warrants, the Barron Registration RightsAgreement, the Barron Escrow Agreement, and the Barron Lockup Agreements. Suchsummary does not purport to be complete and is qualified in its entirety byreference to the full text of each such agreement, copies of which are attachedhereto and incorporated herein by reference.

 

The second financing,also completed on December 28, 2005, was a private placement financing withcertain institutional investors that had previously invested in the Company,including Truk International Fund, LP, Truk Opportunity Fund, LLC and CAMOFIMaster LDC (f/k/a DCOFI Master LDC), representing net proceeds to the Companyof $1,363,635. This financing was made pursuant to the exercise of anadditional investment right by such

 

6

----

 

institutionalinvestors that was granted to them pursuant to a financing on substantiallysimilar terms completed on May 19, 2005.

 

This private placementincluded $1,500,000 in aggregate principal amount of Secured Convertible TermNotes due 2008. Warrants to acquire approximately 3,800,000 shares of theCompany’s common stock, at $0.23 per share, were also issued to the investors(the AIR Warrants). The estimated fair value of the warrants upon issuance wascalculated as $1,647,382 using the Black-Scholes option-pricing model with thesame assumptions as noted in the Barron financing warrants above. Since thecalculated value of the warrants exceeded the $1,500,000 convertible debt, theentire amount was attributed to discount on the notes payable and will beaccreted over the 36-month period of the debt.

 

The interest rate on theSecured Convertible Term Notes is the greater of (i) prime rate plus 3% or(ii) 12%, except for the portion of the note proceeds that is held in therestricted cash account, which amount accrues interest at the prime rate.However, (i) if the Company has registered the shares of common stockunderlying the Secured Convertible Term Notes and the AIR Warrants, and thatregistration is declared effective, and (ii) the market price of thecommon stock for the five consecutive trading days preceding the last businessday of each month exceeds the conversion price (as adjusted) by 25%, then theinterest rate for the next calendar month is reduced by 25 basis points foreach incremental 25% increase in the market price above the fixed conversionprice.

 

Amortizing payments ofthe principal amount begin on June 1, 2006 and such payments are due onthe first day of each month thereafter until the maturity date in December 2008,at which time any outstanding principal shall be due and payable. Interestpayments began January 1, 2006, and such interest payments are due on thefirst day of each subsequent month until the principal amount is paid in full.

 

The Secured ConvertibleTerm Notes may be prepaid, but any prepayment must be 125% of the portionof the principal amount to be prepaid, together with accrued but unpaidinterest thereon and any other sums due. The holders of the Secured ConvertibleTerm Notes may accelerate all sums of principal, interest and other feesthen remaining unpaid upon the occurrence of an event of default (as defined inthe Secured Convertible Term Notes) beyond any applicable grace period. In theevent of such acceleration, the amount due and owing the holder shall be 125%of the outstanding principal amount (plus accrued and unpaid interest and fees,if any). As part of the financing terms, a blanket lien filed inconnection with the May 19, 2005 financing covering all of the Company’sassets extends to this financing.

 

The number of shares ofcommon stock to be issued upon conversion of a Secured Convertible Term Note isdetermined by dividing that portion of the principal amount, interest and feesto be converted by the then applicable conversion price, which is initially setat $0.30. The conversion price may be adjusted to account for certainevents, such as stock splits, combinations, dividends and share issuances belowthe then current conversion price.

 

The conversion right ascontained in the Secured Convertible Term Notes provide that a holder will notconvert an amount of a Note that would be convertible into shares of commonstock to the extent that the number of shares held by the holder, when added tothe number of shares of common stock beneficially owned by such holder orissuable if the holder exercised one or more of its AIR Warrants immediatelyprior to conversion, would exceed 4.99% of the Company’s issued and outstandingcommon stock.

 

The Company also issuedAIR Warrants to acquire approximately 3,800,000 shares of the Company’s commonstock. The AIR Warrants are exercisable for seven years from the date ofissuance at an exercise price of $0.23 per share. The exercise price is alsosubject to adjustment upon the occurrence of certain specified events,including issuance of additional shares of common stock or subdivision orcombining of shares of common stock.

 

The transaction alsoincluded a Registration Rights Agreement in which the Company agreed to file aregistration statement on Form SB-2, covering the shares of common stockissuable upon the exercise of the AIR Warrants and the conversion of theSecured Convertible Term Notes. The Form SB-2 was declared effective on April 21,2006.

 

We evaluated the embeddedconversion features in both the Series A Preferred Stock and the SecuredConvertible Term Notes and concluded that the feature does not requireclassification as a derivative instrument because the features would beclassified in equity if they were freestanding instruments in accordance withEITF

 

7

----

 

00-19 *Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled In, a Company’s Own Stock*, and, therefore, meetthe scope exception found in SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*. We also evaluated the warrantsand concluded that the warrants also meet the scope exception found in SFAS 133and, therefore, are appropriately classified in equity. Finally, we evaluatedthe freestanding registration rights agreements and concluded that they do meetthe definition of a derivative instrument under SFAS 133. The fair value ofthese derivative liabilities are immaterial based on a probability-weighted,discounted cash flow evaluation of its terms. In Issue 05-4, *The Effect of a Liquidated Damages Clause on a Freestanding FinancialInstrument Subject to Issue No. 00-19*, the EITF has beendeliberating the appropriate accounting treatment when a registration rightsagreement exists, but has not yet reached a consensus. Once a consensus isreached by the EITF, it is possible that the transition based on that consensusmay have a material effect on our financial statements.

 

***OurBusiness***

 

**Introduction**

 

Our businessincludes the research, development, manufacture, and marketing of in vitrodiagnostic products for use in disease detection and prevention. We sell 51diagnostic products on a worldwide basis to hospitals, clinical testinglaboratories, universities, biotechnology and pharmaceutical companies andresearch institutions. We have developed and we manufacture most of ourproducts at our Colorado facility, and we purchase what we refer to as OMProducts from other healthcare manufacturers for resale by us. All of theseproducts are used in clinical laboratories for the diagnosis and/or monitoringof 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”);

 

•                  Vasculardisease (diseases associated with certain types of thrombosis or clotformation, for example antiphospholipid syndrome, deep vein thrombosis, strokeand coronary occlusion); and

 

•                  Liverdiseases (fibrosis, cirrhosis and transplanted organ rejection).

 

In addition to ourcurrent products, we are actively developing new laboratory tests in otherimportant diagnostic testing areas. See “— Other Strategic Relationships.”  We manufacture and market to clinicallaboratories and other testing sites worldwide. Our customers include large andemerging health care companies such as Instrumentation Laboratories, Helena Laboratoriesand 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 this platform technologyin a delivery format convenient for clinical testing laboratories. The deliveryformat, which is referred to as “Microplate,” allows the testing of up to 96samples per plate, and is one of the most commonly used formats, employingconventional testing equipment found in virtually all clinical laboratories.The availability and broad acceptance of ELISA Microplate products reducesentry barriers worldwide for our new products that employ this technology anddelivery format. Our products are sold as “test kits” that include all of thematerials required to perform the test, except for routine laboratorychemicals and instrumentation. A test using ELISA technology involves a series ofreagent additions into the Microplate, triggering a complex immunologicalreaction in which a resulting color occurs. The amount of color developed inthe final step of the test is directly proportional to the amount of thespecific marker being tested for in the patient or unknown sample. The amountof color is measured and the results calculated using routine laboratoryinstrumentation. Our technology specifies a process by which biologicalmaterials are attached to the fixed surface of a diagnostic test platform.Products developed using this unique attachment method typically demonstrate amore uniform and stable molecular configuration, providing a longeraverage shelf life, increased accuracy and superior specificity than the 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.

 

8

----

 

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 other manufacturers’labels, referred to as OEM products. An integral part of our strategy isto work with corporate partners to develop market opportunities and accessimportant 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 forthe fiscal year ended June 30, 2005. The results of operations for thenine months ended March 31, 2006 and 2005 are not necessarily indicativeof 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 31,2006 and the results of operations and its cash flows for the nine months endedMarch 31, 2006 and 2005.

 

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

 

Basic earnings (loss)per share is computed by dividing net loss attributable to common stockholdersby the weighted average number of common shares outstanding. Diluted earnings(loss) per share is computed by dividing net loss attributable to commonstockholders by the weighted average number of common shares outstanding,increased for potentially dilutive common shares outstanding during the period.The dilutive effect of stock options and their equivalents is calculated usingthe treasury stock method. Stock options to purchase 150,000 and 195,000shares, respectively, of common stock were granted in the most recent quarteror nine months ended March 31, 2006. No options were granted for thequarter and nine months ended March 31, 2005. Options, warrants,convertible debt and convertible preferred stock to purchase common stocktotaling 39,146,532 shares for the quarter and nine months ended March 31,2006, and totaling 1,252,820 and 2,251,202 shares for the quarter and ninemonths ended March 31, 2005, respectively, are not included in thecalculation of 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 loss per share.

 

The components of basic and diluted loss per share areas follows:

 
| ** **                                         | ** ** | **3 months  ended  March 31, 2006** | ** ** | **3 months  ended  March 31, 2005** | ** ** | **9 months  ended  March 31, 2006** | ** ** | **9 months  ended  March 31, 2005** | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
|                                               |       |                                               |       |                                               |       |                                               |       |                                               |       |
| Net income (loss) available to common shareholders |       | $                                                  | (2,656,853 | )                                                  | $          | 54,034                                             |       | $                                                  | (3,041,488 | ) | $ | (281,481 | ) |
|                                               |       |                                               |       |                                               |       |                                               |       |                                               |       |
| Common and common equivalent shares outstanding:   |       |                                               |       |                                               |       |                                               |       |                                               |       |
| Weighted avergage common shares-basic              |       | 9,913,950                                          |       | 5,341,715                                          |       | 9,099,598                                          |       | 5,338,421                                          |       |
| Dilutive effect of potentially dilutive securities |       | —                                             |       | 26,148                                             |       | —                                             |       | —                                             |       |
|                                               |       |                                               |       |                                               |       |                                               |       |                                               |       |
| Weighted average common shares-diluted             |       | 9,913,950                                          |       | 5,367,863                                          |       | 9,099,598                                          |       | 5,338,421                                          |       |
| Net income (loss) per share-basic                  |       | $                                                  | (0.27      | )                                                  | $          | 0.01                                               |       | $                                                  | (0.33      | ) | $ | (0.05 | ) |
| Net income (loss) per share-diluted                |       | $                                                  | (0.27      | )                                                  | $          | 0.01                                               |       | $                                                  | (0.33      | ) | $ | (0.05 | ) |

 

**3.****                       INCOMETAXES**

 

Avaluation allowance was provided for deferred tax assets, as the Company isunable to conclude under relevant accounting standards that it is more likelythan not that deferred tax assets will be realizable.

 

9

----

 

**4.****             ****SEGMENTINFORMATION**

 

The Company hastwo segments of business: North American and international operations. NorthAmerican operations transacts all sales in North America (US, Canada andMexico). International operations transacts all other sales. The followingtable sets forth selected financial data for these segments for the three-andnine-month periods ended March 31, 2006 and 2005.

 
| ** **            | ** ** | ** ** | ** ** | **Three Months Ended March 31,** | ** ** | ** **        | ** ** | **Nine Months Ended March 31,** | ** ** |
|-----------------------|------------|------------|------------|------------------------------------------------------|------------|-------------------|------------|-----------------------------------------------------|------------|
| ** **            | ** ** | ** ** | ** ** | **Domestic**                                         | ** ** | **International** | ** ** | **Total**                                           | ** ** | **Domestic** | ** ** | **International** | ** ** | **Total** | ** ** |
| Net sales             |       | 2006       |       | $                                                    | 1,271,122  |              | 363,324    |                                                | 1,634,446  |   | 3,667,326 |   | 1,182,956 |   | 4,850,282 |   |
|                  |       | 2005       |       | $                                                    | 1,014,058  |              | 430,495    |                                                | 1,444,553  |   | 2,893,021 |   | 1,131,174 |   | 4,024,195 |   |
|                  |       |       |       |                                                 |       |              |       |                                                |       |   |   |   |   |   |   |
| Net income (loss)     |       | 2006       |       | $                                                    | (777,154   | )                 | 120,301    |                                                | (656,853   | ) | (1,491,196 | ) | 449,708 |   | (1,041,488 | ) |
|                  |       | 2005       |       | $                                                    | (134,014   | )                 | 209,689    |                                                | 75,675     |   | (600,708 | ) | 384,146 |   | (216,562 | ) |
|                  |       |       |       |                                                 |       |              |       |                                                |       |   |   |   |   |   |   |
| Depreciation and      |       | 2006       |       | $                                                    | 18,613     |              | 1,033      |                                                | 19,646     |   | 89,010 |   | 2,505 |   | 91,515 |   |
| Amortization          |       | 2005       |       | $                                                    | 47,363     |              | 576        |                                                | 47,939     |   | 140,263 |   | 1,709 |   | 141,972 |   |
|                  |       |       |       |                                                 |       |              |       |                                                |       |   |   |   |   |   |   |
| Interest expense, net |       | 2006       |       | $                                                    | (614,559   | )                 | (770       | )                                                   | (615,329   | ) | (1,294,002 | ) | (3,643 | ) | (1,297,645 | ) |
|                  |       | 2005       |       | $                                                    | (77,775    | )                 | (1,052     | )                                                   | (78,827    | ) | (265,894 | ) | (3,077 | ) | (268,971 | ) |
|                  |       |       |       |                                                 |       |              |       |                                                |       |   |   |   |   |   |   |
| Segment assets        |       | 2006       |       | $                                                    | 7,888,727  |              | 392,563    |                                                | 8,281,290  |   | 7,888,727 |   | 392,563 |   | 8,281,290 |   |
| June 30, 2005    |       | $          | 4,553,888  |                                                 | 438,606    |              | 4,992,494  |                                                | 4,553,888  |   | 438,606 |   | 4,992,494 |   |
|                       |            |            |            |                                                      |            |                   |            |                                                     |            |  |  |  |  |  |  |  |  |

 

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

 

On July 1, 2002, as part of the Medical &Biological Laboratories Co., Ltd. (MBL) Agreement, MBL purchased shares of theCompany’s common stock for $500,000, which, at the time, MBL was permitted toput to the Company for repurchase at the same price if a previously existingdistribution agreement with RhiGene, Inc. were terminated. For noadditional 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 originally were set to expire on July 3,2007 and may be exercised in whole or in part at any time prior totheir expiration. The estimated fair value of the warrant upon issuance wascalculated as $401,809 using the Black-Scholes option-pricing model with thefollowing assumptions:  no expecteddividend yield, 143% volatility, risk free interest rate of 4.2% and anexpected life of five years**.**The grossproceeds of $500,000 were allocated $277,221 to redeemable common stock and$222,779 to the related warrants based on the relative fair values of therespective instruments to the fair value of the aggregate transaction. Issuancecosts and the discount attributed to the redeemable common stock upon issuancewere accreted over the 33-month period to the first date whereupon the putoption may be exercised, which was the expiration date of the distributionagreement between the Company and RhiGene, Inc. (March 31, 2005).Furthermore, pursuant to the agreement with MBL, as long as MBL holds at least50% of the common stock purchased under the MBL agreement, MBL must give itswritten consent with respect to the payment of any dividend, the repurchase ofany of the Company’s equity securities, the liquidation or dissolution of theCompany or the amendment of any provision of the Company’s Articles ofIncorporation or Bylaws which would adversely affect the rights of MBL underthe stock purchase transaction documents. MBL was granted standardanti-dilution rights with respect to stock issuances not registered under theSecurities Act and received standard piggyback registration rights along withcertain demand registration rights. MBL did not elect to register itsredeemable shares in either the SB—2 registration statement filed by theCompany on June 25, 2005 and declared effective on August 2, 2005 orthe SB-2 registration statement filed by the Company on April 6, 2006 anddeclared effective on April 21, 2006.

 

10

----

 

On March 31, 2005 our distribution agreement with RhiGene expired,and the Company signed a new distribution and OEM Supply Agreement with MBLInternational, Inc. (“MBLI”), a wholly owned subsidiary of MBL, whichgrants the Company non-exclusive rights to distribute MBL’s complete diagnosticline of autoimmune testing products in the United States and exclusivedistribution rights to the OEM Label products worldwide excluding the UnitedStates, Japan, Korea and Taiwan. In addition, on August 1, 2005 theCompany and MBL executed an Amendment to the Common Stock Purchase Agreementand Common Stock Purchase Warrant wherein one-half or 440,141of the originalredeemable shares were exchanged for a three-year promissory note payable withinterest at prime (7.75% as of March 31, 2006) plus two percent withpayments having commenced in September, 2005. The shares exchanged for thepromissory note will be returned to the Company quarterly on a pro rata basisas payments are made on the promissory note. As of March 31, 2006, 52,816redeemable shares are due to be returned to the Company under this agreement.The remaining 440,141 shares must be redeemed by the Company at $0.568 pershare on August 1, 2008 for any shares still owned at that time by MBL butonly to the extent that MBL has not realized at least $250,000 in grossproceeds upon the sales of its redeemable shares in the open market for thetime period August 1, 2005 through August 30, 2008. Finally, thewarrants originally issued to MBL to purchase 880,282 shares have been extendedto August 31, 2008 and re-priced from $0.568 per share to $0.40 per share.

 

**6.****                                     STOCKPLANS**

 

The Company accounts forits stock plans in accordance with the provisions of Accounting PrinciplesBoard (APB) Opinion No. 25, *Accounting for Stock Issuedto Employees*, SFAS No.148, *Accounting for Stock-BasedCompensation-Transition and Disclosure,* and related interpretations.As such, compensation expense is recorded on the date of grant only if thecurrent market price of the underlying stock exceeds the exercise price. SFAS No. 123,*Accounting for Stock-Based Compensation*,permits entities to recognize as expense over the vesting period the fair valueof all stock-based awards on the date of grant. Alternatively, SFAS No. 123also allows entities to continue to apply the provisions of APB Opinion No. 25and provide pro forma net loss disclosures for employee stock option grants asif the fair-value-based method defined in SFAS No. 123 had been applied. TheCompany has elected to continue to apply the provisions of APB Opinion No. 25and provide the pro forma disclosures required by SFAS No. 123.

 

Had the Company determinedcompensation cost based on the fair value at the date of grant for its stockoptions under SFAS No. 123, the Company’s net loss would have beenincreased to the pro forma amounts indicated as follows:

 
| ** **                                                                                                            | ** ** | **Three  Months  Ended  March 31,  2006** | ** ** | **Three  Months  Ended  March 31,  2005** | ** ** | **Nine  Months  Ended  March 31,  2006** | ** ** | **Nine  Months  Ended  March 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
|                                                                                                                  |       |                                           |       |                                           |       |                                          |       |                                          |       |
| Net income (loss) available to common stockholders  as reported                                                       |       | $                                              | (2,656,853 | )                                              | $          | 54,034                                        |       | $                                             | (3,041,488 | ) | $ | (281,481 | ) |
| Deduct total stock-based employee compensation  expense determined under fair-value method for all awards, net of tax |       | (30,041                                        | )          | (10,679                                        | )          | (90,122                                       | )          | (32,037                                       | )          |
| Pro forma net income (loss) available to common  stockholders pro forma                                               |       | $                                              | (2,686,894 | )                                              | $          | 43,355                                        |       | $                                             | (3,131,610 | ) | $ | (313,518 | ) |
| Net loss per share basic and diluted as reported                                                                      |       | $                                              | (0.27      | )                                              | $          | 0.01                                          |       | $                                             | (0.33      | ) | $ | (0.05 | ) |
| Net loss per share, basic and diluted pro forma                                                                       |       | $                                              | (0.27      | )                                              | $          | 0.01                                          |       | $                                             | (0.34      | ) | $ | (0.06 | ) |

 

As of March 31, 2006,there were also 31,836,226 outstanding warrants issued to institutionalinvestors, consultants and employees outstanding and exercisable ranging inprices from****$.23 to $1.053 per****share with a weighted average exercise price of $.38 pershare.****Fair value was determined using theBlack Scholes option –

 

11

----

 

pricing model with the followingassumptions: no expected dividends, volatility of 111.5% to 159.9%, risk-freeinterest rate of 3.30% to 4.39%, and expected lives of five to seven years.

 

**7.****                                     RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS**

 

*FAS 123R Disclosure.*In December 2004,the FASB issued SFAS No. 123(R), Share-Based Payment, which is a revisionof SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R)will be effective for the Company beginning July 1, 2006, and supersedesAPB Opinion No. 25, Accounting for Stock Issued to Employees, and amendsSFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the income statement based on their fair values. Pro-formadisclosure is no longer an alternative. The Company does not expect theadoption of FAS 123(R) will have a material impact on the Company’sfinancial statements.

 

*FAS 154 Disclosure.*In June 2005,the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, areplacement of APB Opinion No. 20 and SFAS No. 3. The statementapplies to all voluntary changes in accounting principles, and changes therequirements for accounting for and reporting of a change in accountingprinciple. The Company does not believe the adoption of SFAS No. 154 willhave a material impact on the Company’s financial statements.

 

*FAS 155Disclosure.*In February 2006,the FASB issued SFAS No. 155 “Accounting for Certain Hybrid FinancialInstruments”. This Statement amends FASB Statements No. 133, Accountingfor Derivative Instruments and Hedging Activities, and No. 140, Accountingfor Transfers and Servicing Financial Assets and Extinguishments ofLiabilities. This Statement resolves issues addressed in Statement 133Implementation Issue No. D1, “Application of  Statement 133 to Beneficial Interests inSecuritized Financial Assets.” SFAS No. 155 permits fair valueremeasurement for any hybrid financial instrument that contains an embeddedderivative that otherwise would require bifurcation, clarifies whichinterest-only strips and principal-only strips are not subject to therequirements 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 yetdetermined the impact of the adoption of FAS 155 on its financial statements,if any.

 

12

----

 

 

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

 

Notes payable consist of thefollowing at March 31, 2006 and June 30, 2005:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **March 31, 2006** | ** ** | **June 30, 2005  ***** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **(unaudited)**              | ** ** | ** **                       | ** ** |
| Secured,  amortizing convertible term note payable to institutional investors, net of  discount of  $676,732, with interest at  the greater of 12% or prime plus 3% (12% as of  March 31, 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. See  discussion of terms below. |       | $                            | 713,433    |                             | $          | 451,892 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                         |       |                             |       |
| Secured,  amortizing convertible term note payable to institutional investors, net of  discount of $1,261,120, with interest at the greater of 12% or prime plus 3%  (12% as of March 31, 2006), interest only from December 28, 2005  through June 1, 2006 and then due in monthly installments of $50,000  plus interest through December 28, 2008, collateralized by commercial  security agreements. See discussion of terms below                                                          |       | 238,880                      |       | —                           |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                         |       |                             |       |
| Secured,  non-amortizing convertible term note payable to institutional investors, with  interest at the greater of 12% or prime plus 3% (12% as of March 31,  2006), interest only payments commencing June 1, 2005 until May 19,  2008, collaterialized by commercial security agreements. See discussion of  terms below.                                                                                                                                                                         |       | 500,000                      |       | 500,000                          |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                         |       |                             |       |
| Secured,  restricted, non-amortizing convertible term note payable to institutional  investors, with interest at prime (7.75% at March 31, 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. See discussion of terms  below.                                                                                                            |       | 250,000                      |       | 250,000                          |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                         |       |                             |       |
| Note  payable, unsecured, to redeemable common stockholders, with interest at prime  plus 2.0% (8.75% at March 31, 2005) due in monthly installments with  principal payments ranging from $5,000 to $10,000 plus interest through August 2008.                                                                                                                                                                                                                                                           |       | 215,000                      |       | —                           |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                         |       |                             |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | 1,917,313                    |       | 1,201,892                        |       |
| Current portion, net of current portion of discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | (632,660                     | )          | (221,176                         | )          |
| Notes payable, excluding current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | $                            | 1,284,653  |                             | 980,716    |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |            |                              |            |                                  |            |  |  |

 

----

***Amountsare derived from the audited financial statements.

 

TheCompany completed a second convertible debt financing on December 28,2005. The financing was a private placement financing with certaininstitutional and other accredited investors that had previously invested inthe Company, including Truk International Fund, LP, Truk Opportunity Fund, LLCand CAMOFI Master LDC (f/k/a DCOFI Master LDC), representing net proceeds tothe Company of $1,363,635. This financing was made pursuant to the exercise ofan additional investment right by such institutional investors that was grantedto them pursuant to a financing on substantially similar terms completed on May 19,2005.

 

Thisprivate placement includes $1,500,000 in aggregate principal amount of SecuredConvertible Term Notes due 2008. Warrants to acquire approximately 3,800,000shares of the Company’s common stock, at $0.23 per share, were also issued tothe investors (the AIR Warrants).

 

Theinterest rate on the Secured Convertible Term Notes is the greater of (i) primerate plus 3% or (ii) 12%, except for the portion of the note proceeds thatis held in the restricted cash account, which amount accrues interest at theprime rate. However, (i) if the Company has registered the shares ofcommon stock underlying the Secured Convertible Term Notes and the AIRWarrants, and that registration is declared effective, and (ii) the marketprice of the common stock for the five consecutive trading days preceding thelast business day of each month exceeds the

 

13

----

 

conversion price (asadjusted) by 25%, then the interest rate for the next calendar month is reducedby 25 basis points for each incremental 25% increase in the market price abovethe fixed conversion price.

 

Amortizingpayments of the principal amount begin on June 1, 2006 and such paymentsare due on the first day of each month thereafter until the maturity date in December 2008,at which time any outstanding principal shall be due and payable. Interestpayments began January 1, 2006, and such interest payments are due on thefirst day of each subsequent month until the principal amount is paid in full.

 

TheSecured Convertible Term Notes may be prepaid, but any prepayment must be125% of the portion of the principal amount to be prepaid, together withaccrued but unpaid interest thereon and any other sums due. The holders of theSecured Convertible Term Notes may accelerate all sums of principal,interest and other fees then remaining unpaid upon the occurrence of an eventof default (as defined in the Secured Convertible Term Notes) beyond anyapplicable grace period. In the event of such acceleration, the amount due andowing the holder shall be 125% of the outstanding principal amount (plusaccrued and unpaid interest and fees, if any). As part of the financingterms, a blanket lien filed in connection with the May 19, 2005 financingcovering all of the Company’s assets extends to this financing.

 

Thenumber of shares of common stock to be issued upon conversion of a SecuredConvertible Term Note is determined by dividing that portion of the principalamount, interest and fees to be converted by the then applicable conversionprice, which is initially set at $0.30. The conversion price may beadjusted to account for certain events, such as stock splits, combinations,dividends and share issuances below the then current conversion price.

 

Theconversion right as contained in the Secured Convertible Term Notes providesthat a holder will not convert an amount of a Note that would be convertibleinto shares of common stock to the extent that the number of shares held by theholder, when added to the number of shares of common stock beneficially ownedby such holder or issuable if the holder exercised one or more of its AIRWarrants immediately prior to conversion, would exceed 4.99% of the Company’sissued and outstanding common stock.

 

TheCompany also issued AIR Warrants to acquire approximately 3,800,000 shares ofthe Company’s common stock. The AIR Warrants are exercisable for seven yearsfrom the date of issuance at an exercise price of $0.23 per share. The exerciseprice is also subject to adjustment upon the occurrence of certain specifiedevents, including issuance of additional shares of common stock or subdivisionor combining of shares of common stock.

 

Thetransaction also included a Registration Rights Agreement in which the Companyagreed to file a registration statement on Form SB-2 covering the sharesof common stock issuable upon the exercise of the AIR Warrants and theconversion of the Secured Convertible Term Notes. That Registration Statementon Form SB-2 was declared effective by the SEC on April 21, 2006.

 

**9.****              OPERATINGLEASES**

 

On February 8, 2006,the Company entered into a Lease Agreement with York County, LLC, a Californialimited liability 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 ofLandlord’s multi-tenant real property development known as the BroomfieldCorporate Center. The Company will use the Property for its headquarters,laboratory research and development facilities and production facilities.

 

The term of the Lease isseven years and five months and is anticipated to begin on April 1, 2006. TheCompany has the option to extend the original Term of the Lease for two periodsof five years each (each, an “Extension Period”), for a potential total of aten year lease extension. Thereafter, the Company has no further right toextend the Term of the Lease.

 

There is no base rentpayable for the first five months of the Lease, from April 1, 2006 throughAugust 31, 2006. For the following seven months, from September 1,2006 through March 31, 2007, the base rent under the Lease will be $4.00per square foot. The base rent for the five-month period from April 1,2007 through August 31, 2007 will be $4.00 per square foot, and thereafterthe base rent will increase incrementally on an annual basis from $5.64 per

 

14

----

 

square foot forthe period from September 1, 2007 through August 31, 2008 to amaximum of $7.93 per square foot for the final year of the original Term of theLease, from September 1, 2011 through August 31, 2012.

 

In the event that theCompany exercises its option to extend the original Term of the Lease, the baserent during any Extension Period will be equal to the then prevailing marketrental rate for the Property, but in no event less than the base rent for thelast month of the then current Lease Term. The base rent shall then increaseannually by three percent per year for the remainder of the applicableExtension Period.

 

15

----

 

**Item2.**

** **

**CORGENIX MEDICAL CORPORATION**

**Management’s Discussion and Analysis of**

**Financial Condition and Results of Operations**

 

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

 

##### **General**

##### ** **

Sincethe Company’s inception, we have been primarily involved in the research,development, manufacturing and marketing/distribution of diagnostic tests forsale to clinical laboratories. We currently market 51 products coveringautoimmune disorders, cardiovascular diseases, and liver disease. Our productsare sold in the United States, the UK and other countries through our marketingand sales organization that include contract sales representatives,internationally through an extensive distributor network, and to severalsignificant OEM partners.

 

Wemanufacture products for inventory based upon expected sales demand, shippingproducts to customers, usually within 24 hours of receipt of orders if in stock.Accordingly, we do not usually operate with a customer order backlog.

 

Exceptfor the fiscal year ending June 30, 1997, we have experienced annualrevenue growth since our inception, primarily from sales of products andcontract revenues from strategic partners. Contract revenues consist of servicefees from research and development agreements with strategic partners.

 

Beginning in fiscal year1996, we began adding third-party OEM licensed products to our diagnosticproduct line. Currently we sell 128 products licensed from or manufactured bythird party manufacturers. We expect to expand our relationships with othercompanies in the future to gain access to additional 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 resultof several factors, including: (i) whether and when new products aresuccessfully developed and introduced, (ii) market acceptance of currentor new products, (iii) seasonal customer demand, (iv) whether andwhen we receive research and development payments from strategic partners, (v) changesin reimbursement policies for the products that we sell, (vi) competitivepressures on average selling prices for the products that we sell, and (vii) changesin the mix of products that we sell.

 

**Recently IssuedAccounting Pronouncements**

 

*FAS 123RDisclosure.*In December 2004, the FASB issued SFAS No. 123(R),Share-Based Payment, which is a revision of SFAS No. 123, Accounting forStock-Based Compensation. SFAS No. 123(R) will be effective for theCompany beginning January 1, 2006, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and amends SFAS No. 95,Statement of Cash Flows. SFAS No. 123(R) requires all share-based paymentsto employees, including grants of employee stock options, to be recognized inthe income statement based on their fair values. Pro-forma disclosure is nolonger an alternative. The Company does not expect the adoption ofFAS 123(R) will have a material impact on the Company’s financialstatements.

 

*FAS 154Disclosure.*In June 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20and SFAS No. 3. The statement applies to all voluntary changes inaccounting principles, and changes the requirements for accounting for andreporting of a change in accounting

 

16

----

 

principle. The Companydoes not believe that the adoption of SFAS No. 154 will have a materialimpact on the Company’s financial statements.

 

*FAS 155 Disclosure.*In February 2006, the FASB issued SFAS No. 155“Accounting for Certain Hybrid Financial Instruments”. This Statement amendsFASB Statements 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, “Applicationof  Statement 133 to Beneficial Interestsin Securitized Financial Assets.” SFAS No. 155 permits fair valueremeasurement for any hybrid financial instrument that contains an embeddedderivative that otherwise would require bifurcation, clarifies whichinterest-only strips and principal-only strips are not subject to therequirements 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 yetdetermined the impact of the adoption of FAS 155 on its financial statements,if any.

 

**Critical Accounting Policies**

 

The Company’sconsolidated financial statements are prepared in accordance with accountingprinciples generally accepted in the United States (“GAAP”) and our significantaccounting policies are summarized above. The preparation of financialstatements in conformity with GAAP requires management to make estimates andassumptions that affect reported amounts of assets, liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements andreported amounts of revenues and expenses during the reporting period. Actualresults could differ significantly from those estimates.

 

The Company maintains anallowance for doubtful accounts based on its historical experience and providesfor any specific collection issues that are identified. Such allowances havehistorically been adequate to provide for our doubtful accounts but involve asignificant degree of management judgment and estimation. Worse than expectedfuture economic conditions, unknown customer credit problems and other factors may requireadditional allowances for doubtful accounts to be provided for in futureperiods.

 

Equipment and softwareare recorded at cost. Equipment under capital leases is recorded initially atthe present value of the minimum lease payments. Depreciation and amortizationis calculated primarily using the straight-line method over the estimateduseful lives of the respective assets that range from 3 to 7 years.

 

The internal and externalcosts of developing and enhancing software costs related to websitedevelopment, other than initial design and other costs incurred during thepreliminary project stage, are capitalized until the software has beencompleted. Such capitalized amounts began to be amortized commencing when thewebsite was placed in service on a straight-line basis over a three-yearperiod.

 

When assets are sold,retired or otherwise disposed of, the cost and related accumulated depreciationare eliminated from the accounts and a gain or loss is recognized.

 

Repair and maintenancecosts are expensed as incurred.

 

We evaluate therealizability of our long-lived assets, including property and equipment, wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable.

 

Revenue from sale ofproducts is recognized upon shipment of products.

 

17

----

 

Revenue from research anddevelopment contracts represents amounts earned pursuant to agreements to perform researchand development activities for third parties and is recognized as earned underthe respective agreement. Because research and development services are providedevenly over the contract period, revenue is recognized ratably over thecontract period. Research and development agreements in effect in 2005 and 2004provided for fees to the Company based on time and materials in exchange forperforming specified research and development functions. Research anddevelopment and advertising costs are expensed when incurred. Inventories arerecorded at the lower of cost or market, using the first-in, first-out method.

 

**Resultsof Operations**

 

***Three Months Ended March 31, 2006 compared to 2005***

 

*Net sales.*Net sales for the quarter ended March 31, 2006 wereapproximately $1,634,000, a 13.1% increase from approximately $1,445,000 forthe quarter ended March 31, 2005. North American sales increased 25.4%,while sales to international distributors decreased 16.0% from year to year forthe second quarter. The increase in North American sales were due to an overallincrease in demand for and increased acceptance of the Company’s diagnostickits. Management expects that this trend will continue throughout the fiscalyear. The principal reasons for the quarterly decline in international saleswas due to the timing of orders across the entirety of the product lines.Management does not expect that this decline will continue. With respect to theCompany’s major product lines, Phospholipids kit sales increased 1.0% for thefiscal quarter, Coagulation kit sales increased 47.2 %, HA kit sales decreased14.8%, primarily due to the timing of orders, and Autoimmune kit salesdecreased 41.5%. Additionally, OEM sales increased 4.4%. Sales of productsmanufactured for us by other companies while still relatively small, areexpected to continue to increase during fiscal 2006.

 

*Cost ofsales*. Cost of sales, as a percentage of sales, increased to38.1% in the quarter ended March 31, 2006 from 35.2% in the third quarterof 2005 primarily due to product mix contribution from lower gross marginproducts.

 

*Sellingand marketing.*For the quarter ended March 31, 2006,selling and marketing expenses increased 19.7% to approximately $432,000 fromapproximately $361,000 in the third quarter of 2005. The increase was due toincreases in advertising, business promotional expenses, commissions expense,labor related, trade show and royalties expense.

 

*Researchand development.* Research and development expenses increased42.2% to approximately  $209,000 in thequarter ended March 31, 2006 from approximately $147,000 for the quarterended March 31, 2005 as a result of increased activity related to certainlarger-market new product opportunities . The majority of this increaseinvolved increases in legal fees related to intellectual property, outsideservices, FDA submissions, product testing, laboratory supplies, andlabor-related expenses.

 

*Generaland administrative.*General and administrative expensesincreased approximately $139,000 or 51% to approximately $413,000 in thequarter ended March 31, 2006 from approximately $274,000 for the quarterended March 31, 2005, primarily due to increases in consulting fees, labor-relatedexpenses, outside services (primarily investor relations and proxy-related),and patent renewal fees.

 

*Interestexpense.* Interest expense increased 678.5% to approximately$615,000 for the quarter ended March 31, 2006 from approximately  $79,000 in 2005 due primarily to theamortization of deferred financing costs and discount on the notes payable tothe institutional investors in the recently completed convertible debtfinancings.

 

***Nine Months Ended March 31, 2006 and 2054***

 

*Net sales*Net sales for the nine months ended March 31, 2006 were approximately$4,850,000, a 20.5% increase from approximately $4,024,000 for the nine monthsended March 31, 2005. Domestic sales increased 26.8% while sales tointernational distributors increased 4.6% from year to year due to an overallincrease in demand for and increased acceptance of the Company’s diagnostickits. With respect to the Company’s major product lines,

 

18

----

 

Phospholipids kit salesincreased 11.6% for the current nine month period, Coagulation kit salesincreased 24.8 %, HA kit sales increased 16.7%, and Autoimmune kit salesdecreased 18.0%. Additionally, OEM sales increased 18.5%. Sales of productsmanufactured for us by other companies while still relatively small, areexpected to continue to increase during fiscal 2006.

 

*Cost ofsales*. Cost of sales, as a percentage of sales, decreasedslightly to 36.7% in the nine months ended March 31, 2006 from 37.7% in2005 primarily due to product mix contribution from higher gross marginproducts.

 

*Sellingand marketing.*Selling and marketing expenses increased  6.6% to approximately $1,178,000 in the ninemonths ended March 31, 2006 from approximately $1,105,000 in 2005. Themajority of this increase involved increases in advertising, businesspromotional expenses, commissions expense, labor related, trade show androyalties expense.

 

 *Research and development.*Research and development expenses decreased 10.9% to approximately  $490,000 in the nine months ended March 31,2006 from approximately $442,000 for the nine months ended March 31, 2005as a result of increased activity related to certain larger-market new productopportunities . The majority of this increase involved increases in legal fees,outside services, FDA submissions, product testing, laboratory supplies, andlabor-related expenses.

 

*Generaland administrative.* General and administrative expensesincreased approximately $236,000 or 26% to approximately $1,143,000 in the ninemonths ended March 31, 2006 from approximately $907,000 for the ninemonths ended March 31, 2005, primarily due to increases in consultingfees, labor-related expenses, outside services (primarily investor relationsand proxy-related), and patent renewal fees.

 

*Interestexpense.* Interest expense increased 382.5% to approximately$1,298,000 in the nine months ended March 31, 2006 from approximately$269,000 for the nine months ended March 31, 2005 due primarily to theamortization of deferred financing costs and discount on the notes payable tothe institutional investors in the recently completed convertible debtfinancings.

 

**Liquidityand Capital Resources**

 

Cashused in operating activities was $758,057 for the first nine months of thecurrent fiscal year compared to cash provided in operating activities of$74,693 during the prior year’s first nine months. The cash used in operationsresulted primarily from increases in prepaid expenses (principally deferredfinancing costs arising from the recent debt and convertible preferred financings)and other assets plus increases in inventories and accounts receivable anddecreases in accounts payable and accrued interest and other liabilities. TheCompany believes that uncollectible accounts receivable will not have asignificant effect on future liquidity, as a significant portion of itsaccounts receivable are due from financially sound enterprises.

 

Netcash used by investing activities, the purchase of equipment, was $44,836 inthe initial nine months compared to $14,229 for the prior year’s same period.The increase was mainly attributable to increased spending on computers,refrigeration equipment and manufacturing equipment.

 

Netcash provided by financing activities amounted to $3,092,481 during the recentinitial nine months compared to cash used by financing activities of $178,583in the prior fiscal year. This increase in cash provided versus the comparableprior year was primarily due to the financings discussed above.

 

Historically,we have financed our operations primarily through long-term debt and sales ofcommon, redeemable common and preferred stock. We have also financed operationsthrough sales of diagnostic products and agreements with strategic partners. Accountsreceivable increased 23.7% to $1,097,805 from $887,645 in 2005 primarily as aresult of sales increases during the period.

 

19

----

 

Our future capital requirements will depend on a number of factors,including the ability to complete new equity or debt financing, the possibleredemption of common stock, our profitability or lack thereof, the rate atwhich we grow our business and our investment in proprietary researchactivities, the ability of our current and future strategic partners to fundoutside research and development activities, our success in increasing sales ofboth existing and new products and collaborations, expenses associated withunforeseen litigation, regulatory changes, competition, technologicaldevelopments, general economic conditions and potential future merger andacquisition activity. Our principal sources of liquidity have been cash raisedfrom the private sale of secured convertible term notes and the sale ofredeemable common, common and preferred stock, the Bridge 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, especiallyconsidering the increasing sales volume the Company is experiencing in Fiscal2006, will be adequate to meet our ongoing needs for at least the next twelvemonths.

 

20

----

 

**Item 3.**

 

**Controls and Procedures**

 

Evaluationof disclosure controls and procedures. The Company, under thesupervision and with the participation of the Company’s management, includingits Chief Executive Officer and Chief Financial Officer, carried out anevaluation of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as defined in Rules 240.13a-14(c) and15d-14(c) under the Securities Exchange Act of 1934  (the “Exchange Act”) as of the end of theperiod covered by this quarterly report (the “Evaluation Date”). Based uponthis evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that, as of the Evaluation Date, the Company’s disclosure controlsand procedures were effective for the purposes of recording, processing,summarizing and timely reporting information required to be disclosed by theCompany in the reports that it files under the Securities Exchange Act of 1934and that such information is accumulated and communicated to the Company’smanagement in order to allow timely decisions regarding required disclosure.

 

Changesin internal controls. There have been no significant changesin the Company’s internal controls or in other factors that could significantlyaffect the Company’s disclosure controls and procedures subsequent to theEvaluation Date, nor were there any significant deficiencies or materialweaknesses in the Company’s internal controls.

 

**Forward-LookingStatements and Risk Factors**

 

This10-QSB includes statements that are not purely historical and are “forward-lookingstatements” within the meaning of Section 21E of the Securities Act of1934, as amended, including statements regarding our expectations, beliefs,intentions or strategies regarding the future. All statements other thanhistorical fact contained in this 10-QSB, including, without limitation,statements regarding future product developments, acquisition strategies,strategic partnership expectations, technological developments, theavailability of necessary components, research and development programs anddistribution plans, are forward-looking statements. All forward-lookingstatements included in this 10-QSB are based on information available to us onthe date hereof, and we assume no obligation to update such forward-lookingstatements. Although we believe that the assumptions and expectations reflectedin such forward-looking statements are reasonable, we can give no assurancethat such expectations will prove to have been correct or that we will take anyactions that may presently be planned.

 

Certainfactors that could cause actual results to differ materially from thoseexpected include the following:

 

**Wecontinue to incur losses and the Company requires additional financing.**

 

We have incurredoperating losses and negative cash flow from operations for most of our history.Losses incurred since our inception have aggregated $8,542,632 and there can beno assurance that we will be able to generate positive cash flows to fund ouroperations in the future or to pursue our strategic objectives. Assuming nosignificant changes from our budget, we believe that we will have sufficientcash to satisfy our needs for at least the next twelve months. If we are notable to operate profitably and generate positive cash flows, we willundoubtedly need to raise additional capital, most likely via the sale ofequity securities, to fund our operations. If we do in fact need additionalfinancing to meet our requirements, there can be no assurance that we will beable to obtain such financing on terms satisfactory to us, if at all. Alternatively,any additional equity financing may be dilutive to existing stockholders,and debt financing, if available, may include restrictive covenants. Ifadequate funds are not available, we might be required to limit our researchand development activities or our selling, marketing and administrativeactivities any of which could have a material adverse effect on the future ofthe business.

 

**We dependupon collaborative relationships and third parties for product development andcommercialization.**

 

21

----

 

Wehave historically entered into research and development agreements withcollaborative partners, from which we derived revenues in past years. Pursuantto these agreements, our collaborative partners have specific responsibilitiesfor the costs of development, promotion, regulatory approval and/or sale of ourproducts. We will continue to rely on future collaborative partners for thedevelopment of products and technologies. There can be no assurance that wewill be able to negotiate such collaborative arrangements on acceptable terms,if at all, or that current or future collaborative arrangements will besuccessful. To the extent that we are not able to establish such arrangements,we could be forced to undertake such activities at our own expense. The amountand timing of resources that any of these partners devotes to these activitieswill generally be based on progress by us in our product development efforts.Collaborative arrangements may be terminated by the partner upon priornotice without cause and there can be no assurance that any of these partnerswill perform its contractual obligations or that it will not terminate itsagreement. With respect to any products manufactured by third parties, therecan be no assurance that any third-party manufacturer will perform acceptablyor that failures by third parties will not delay clinical trials or thesubmission of products for regulatory approval or impair our ability to deliverproducts on a timely basis.

 

**There canbe no assurance of successful or timely development of additional products.**

 

Ourbusiness strategy includes the development of additional diagnostic productsfor the diagnostic business. Our success in developing new products will dependon our ability to achieve scientific and technological advances and totranslate these advances into commercially competitive products on a timelybasis. Development of new products requires significant research, developmentand testing efforts. We have limited resources to devote to the development ofproducts and, consequently, a delay in the development of one product or theuse of resources for product development efforts that prove unsuccessful may delayor jeopardize the development of other products. Any delay in the development,introduction and marketing of future products could result in such productsbeing marketed at a time when their cost and performance characteristics wouldnot enable them to compete effectively in their respective markets. If we areunable, for technological or other reasons, to complete the development andintroduction of any new product or if any new product is not approved orcleared for marketing or does not achieve a significant level of marketacceptance, our ability to remain competitive in our product niches would beimpaired.

 

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

 

Ourcompetitors range from development stage diagnostics companies to majordomestic and international pharmaceutical companies. Many of these companieshave financial, technical, marketing, sales, manufacturing, distribution andother resources significantly greater than ours. In addition, many of thesecompanies have name recognition, established positions in the market and longstanding relationships with customers and distributors. Moreover, thediagnostics industry has recently experienced a period of consolidation, duringwhich many of the large domestic and international pharmaceutical companieshave been acquiring mid-sized diagnostics companies, further increasing theconcentration of resources. There can be no assurance that technologies willnot be introduced that could be directly competitive with or superior to ourtechnologies.

 

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

 

The testing, manufactureand sale of our products is subject to regulation by numerous governmentalauthorities, principally the United States Food and Drug Administration, referredto as the FDA, and certain foreign regulatory agencies. Pursuant to the FederalFood, Drug, and Cosmetic Act, and the regulations promulgated there under, theFDA regulates the preclinical and clinical testing, manufacture, labeling,distribution and promotion of medical devices. We are limited in our ability tocommence marketing or commercial sales in the United States of new productsunder development until we receive clearance from the FDA. The testing for,preparation of and subsequent FDA regulatory review of required filings can bea lengthy, expensive and uncertain process. 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.

 

Therecan be no assurance that we will be able to obtain necessary regulatoryapprovals or clearances for our products on a timely basis, if at all, anddelays in receipt of or failure to receive such approvals or clearances, theloss of previously received approvals or clearances, limitations on intendeduse imposed as a condition of such

 

22

----

 

approvals or clearancesor failure to comply with existing or future regulatory requirements couldnegatively impact our sales and thus have a material adverse effect on ourbusiness.

 

As amanufacturer of medical devices for marketing in the United States, we arerequired to adhere to applicable regulations setting forth detailed goodmanufacturing practice requirements, which include testing, control anddocumentation requirements. We must also comply with Medical Device Report(MDR) requirements, which require that a manufacturer reports to the FDA anyincident in which its product may have caused or contributed to a death orserious injury, or in which its product malfunctioned and, if the malfunctionwere to recur, it would be likely to cause or contribute to a death or seriousinjury. We are also subject to routine inspection by the FDA for  compliance with Quality System Regulations(QSR) requirements, MDR requirements and other applicable regulations. Labelingand promotional activities are subject to scrutiny by the FDA and, in certaincircumstances, by the Federal Trade Commission. 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.

 

Distributionof diagnostic products outside the United States is subject to extensiveforeign government regulation. These regulations, including the requirementsfor approvals or clearance to market, the time required for regulatory reviewand the sanctions imposed for violations, vary from country to country. We may berequired to incur significant costs in obtaining or maintaining foreignregulatory approvals. In addition, the export of certain of our productsthat  have not yet been cleared fordomestic commercial distribution may be subject to FDA exportrestrictions. Failure to obtain necessary regulatory approval or the failure tocomply with regulatory requirements could reduce our product sales and thushave a potentially material adverse effect on our business, financial conditionand results of operations.

 

**We dependupon distribution partners for sales of diagnostic products in internationalmarkets.**

 

Wehave entered into distribution agreements with collaborative partners in whichwe have granted distribution rights for certain of our products to thesepartners within specific international geographic areas. Pursuant to theseagreements, our collaborative partners have certain responsibilities for marketdevelopment, promotion, and sales of the products. If any of these partnersfails to perform its contractual obligations or terminates its agreement,this could have a reduce our sales and cash flow and thus have a potentiallymaterial adverse effect on our business, financial condition and results ofoperations.

 

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

 

In theUnited States, health care providers that purchase diagnostic products, such ashospitals and physicians, generally rely on third party payers, principallyprivate health insurance plans, federal Medicare and state Medicaid, toreimburse all or part of the cost of the purchase. Third party payers areincreasingly scrutinizing and challenging the prices charged for medicalproducts and services and they can affect the pricing or the relative attractivenessof the product. Decreases in reimbursement amounts for tests performed usingour diagnostic 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 diagnosticproducts profitably. Market acceptance of our products in international marketsis also dependent, in part, upon the availability of reimbursement withinprevailing health 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.**

 

Therecan be no assurance that our issued patent will afford meaningful protectionagainst a competitor, or that patents issued or assigned to us will not beinfringed upon or designed around by others, or that others will not obtainpatents that we would need to license or design around. We could incursubstantial 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.

 

**We may notbe able to successfully implement our plans to acquire other companies ortechnologies.**

 

Ourgrowth strategy may include the acquisition of complementary companies,products or technologies. There is no assurance that we will be able toidentify appropriate companies or technologies to be acquired, to

 

23

----

 

negotiate satisfactoryterms for such an acquisition, or to obtain sufficient capital to make suchacquisitions. Moreover, because of limited cash resources, we will be unable toacquire any significant companies or technologies for cash and our ability toeffect acquisitions in exchange for our capital stock may depend upon themarket prices for our common stock, which could result in significant dilutionto 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.

 

**We dependon suppliers for our products’ components.**

 

The components of ourproducts include chemical and packaging supplies that are generally availablefrom several suppliers, except certain antibodies, which we purchase fromsingle suppliers. We mitigate the risk of a loss of supply by maintaining asufficient supply of such antibodies to ensure an uninterrupted supply for atleast three months. We have also qualified second vendors for all critical rawmaterials and believe that we can substitute a new supplier with respect to anyof these components in a timely manner. If, for some reason, we lose our mainsupplier for a given material, there can be no assurances that we will be ableto substitute a new supplier in a timely manner and failure to do so couldimpair the manufacturing of certain of our products and thus have a materialadverse effect on our business, financial condition and results of operations.

 

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

 

Althoughwe have manufactured over twelve million diagnostic tests based on ourproprietary applications of ELISA (enzyme linked immuno-absorbent assay)technology, certain of our diagnostic products in consideration for futuredevelopment, incorporate technologies with which we have limited manufacturingexperience. Assuming successful development and receipt of required regulatoryapprovals, significant work may be required to scale up production foreach new product prior to such product’s commercialization. There can be noassurance that such work can be completed in a timely manner and that such newproducts can be manufactured cost-effectively, to regulatory standards or insufficient volume.

 

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

 

Webelieve our success will depend to a significant extent on the efforts andabilities of Dr. Luis R. Lopez and Douglass T. Simpson, who would bedifficult to replace. There can be no assurance that we will be successful inattracting and retaining such skilled personnel, who are generally in highdemand by other companies. The loss of, inability to attract, or poorperformance by key scientific and executive personnel may have a materialadverse effect on our business, financial condition and results of operations.

 

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

 

Todate, we have experienced no product liability claims, but any such claimsarising in the future could have a material adverse effect on our business,financial condition and results of operations. Potential product liabilityclaims may exceed the amount of our insurance coverage or may beexcluded from coverage under the terms of our policy or limited by other claimsunder our umbrella insurance policy. Additionally, there can be no assurancethat our existing insurance can be renewed by us at a cost and level ofcoverage comparable to that presently in effect, if at all. In the event thatwe are held liable for a claim against which we are not insured or for damagesexceeding the limits of our insurance coverage, such claim could have amaterial adverse effect on our cash flow and thus potentially a materiallyadverse effect on our business, financial condition and results of operations.

 

**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.**

 

Althoughour common stock has been traded on the OTC Bulletin Board® since May 1998,the trading has been sporadic with insignificant volume.

 

24

----

 

Moreover, the over-the-counter markets for securitiesof very small companies historically have experienced extreme price and volumefluctuations. These broad market fluctuations and other factors, such as newproduct developments, trends in our industry, the investment markets, economicconditions generally, and quarterly variation in our results of operations, may adverselyaffect the market price of our common stock. In addition, our common stock issubject to rules adopted by the Securities and Exchange Commissionregulating broker-dealer practices in connection with transactions in “pennystocks.”  Such rules require thedelivery prior to any penny stock transaction of a disclosure schedule explainingthe penny stock market and all associated risks and impose various salespractice requirements on broker-dealers who sell penny stocks to persons otherthan 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. Forthese types of transactions the broker-dealer must make a special suitabilitydetermination for the purchaser and have received the purchaser’s writtenconsent to the transaction prior to sale. The additional burdens imposed uponbroker-dealers by such requirements may discourage broker-dealers fromeffecting transactions in securities subject to the penny stock rules.

 

**There arerisks associated with fluctuating exchange rates.**

 

Our financial statementsare presented in US dollars. At the end of each fiscal quarter and the fiscalyear, we convert the financial statements of Corgenix UK, which operates inpounds sterling, into US dollars, and consolidate them with results fromCorgenix, Inc. We may, from time to time, also need to exchange currencyfrom income generated by Corgenix UK. Foreign exchange rates are volatile andcan change in an unknown and unpredictable fashion. Should the foreign exchangerates change to levels different than anticipated by us, our business, financialcondition and results of operations may be adversely affected.

 

25

----

 

**CORGENIXMEDICAL CORPORATION**

** **

**Part II**

 

**Other Information**

 

**Item 1.****         LegalProceedings**

 

None.

 

**Item 2.****         UnregisteredSales of Equity Securities and Use of Proceeds**

 

None.

 

**Item 3.****         DefaultsUpon Senior Securities**

 

None

 

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

 

Pursuantto a proxy statement dated January 26, 2006, the board of directors of theCompany solicited proxies for use at the Special Meeting of Shareholders heldat the Company’s corporate offices on Friday, March 24, 2006.

 

At theSpecial Meeting, the shareholders considered and voted upon the following twoproposals, namely:

 

(1)          Toincrease the number of shares of common stock that we are authorized to issuefrom 40,000,000 to 100,000,000, and (2) To provide that certain optionsand warrants may only be amended with the consent of a designatedpercentage vote of the shareholders.

 

Thevoting with respect to each proposal was as follows:

 

Proposalnumber 1:

 
|   | For:        | 6,530,855 |   |
|--------|-------------|-----------|--------|
|   |        |      |   |
|   | Against:    | 516,778   |   |
|   |        |      |   |
|   | Abstentions | 56,880    |   |

 

Proposalnumber 2:

 
|   | For:         | 6,715,005 |   |
|--------|--------------|-----------|--------|
|   |         |      |   |
|   | Against:     | 332,008   |   |
|   |         |      |   |
|   | Abstentions: | 57,500    |   |

 

Totalvoted shares represented by proxy and in person:  7,104,513

Percentageof the outstanding votable shares: 73.9%

Outstandingvotable shares: 9,609,639

 

26

----

 

**Item 5.****         OtherInformation**

 

None

 

**Item 6.****         Exhibitsand Reports on Form 8-K.**

 

**a.****                                       Indexto and Description of Exhibits**

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                        |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                        |
| 10.1                |       | Lease Agreement  dated February 8, 2006 between Corgenix Medical Corporation and York  County, LLC, a California limited liability company (as landlord), filed as exhibit 10-27  to the Company’s Registration Statement on Form SB-2 filed April 7,  2006, and incorporated herein by reference. |
|                |       |                                                                                                                                                                                                                                                                                                                        |
| 31.1*               |       | Certification of  Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley  Act.                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                        |
| 31.2*               |       | Certification of  Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley  Act.                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                        |
| 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.                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                        |

----

| * Filed herewith |
|------------------|

 

**(b)****                                  Reportson Form 8-K.**

 

1.               Form 8-Kfiled January 6, 2006 *Departure of Directors orPrincipal Officers; Election of Directors; Appointment of Principal Officers*

2.               Form 8-Kfiled February 15, 2006 *Regulation FD Disclosure*

3.               Form 8-Kfiled March 14, 2006 *Entry into a MaterialDefinitive Agreement*

4.               Form 8-Kfiled March 29, 2006 *Departure of Directors orPrincipal Officers; Election of Directors; Appointment of Principal Officers;Other Events*

 

27

----

 

**SIGNATURES**

 

Inaccordance with the requirements of the Securities Exchange Act of 1934, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|               | CORGENIX MEDICAL  CORPORATION |
|--------------------|-------------------------------|
|               |                          |
|               |                          |
| May 15,  2006 | By:                           | /s/ Douglass T.  Simpson |   |
|               |                          | Douglass T.  Simpson |
|               |                          | President and Chief Executive Officer |
|               |                          | and duly  authorized signatory |

 

28

----