Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 

**x****      QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the quarterly period ended September 30, 2010**

 

**o****         TRANSITIONREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition period from          to          **

 

**Commission File Number 000-24541**

 

**CORGENIX MEDICAL CORPORATION**

(Name of Small Business Issuer in its Charter)

 

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

 

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

(Address of principal executive offices, including zip code)

 

**(303) 457-4345**

(Issuer’s telephone number, including area code)

 

 

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

 

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing guidance for the past 90 days.  Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).  Yes o  No o

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act)  Yes o  No x

 

Thenumber of shares of Common Stock outstanding was 40,918,853 as of November 2,2010.

 

 

 

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Table of Contents

 

**CORGENIX MEDICAL CORPORATION**

**September 30, 2010**

 

**TABLE OF CONTENTS**

 
| **Part I**           | ** **                                                                                  |   |
|---------------------------|---------------------------------------------------------------------------------------------|--------|
|                      |                                                                                        |   |
| **Financial Information** | 3                                                                                           |
|                      |                                                                                        |   |
| Item 1.                   | Consolidated  Financial Statements                                                          | 3      |
|                      |                                                                                        |   |
| Item 2.                   | Management’s Discussion and Analysis Of Financial  Condition and Results of Operations | 21     |
|                      |                                                                                        |   |
| Item 3.                   | Quantitative and Qualitative Disclosures About Market  Risk                                 | 25     |
|                      |                                                                                        |   |
| Item 4.                   | Controls  and Procedures                                                                    | 25     |
|                      |                                                                                        |   |
| **Part II**          |                                                                                        |   |
|                      |                                                                                        |   |
| **Other  Information**    | 26                                                                                          |
|                      |                                                                                        |   |
| Item 1.                   | Legal Proceedings                                                                           | 26     |
|                      |                                                                                        |   |
| Item 2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 26     |
|                      |                                                                                        |   |
| Item 3.                   | Defaults  Upon Senior Securities                                                            | 26     |
|                      |                                                                                        |   |
| Item 4.                   | Removed and Reserved                                                                        | 26     |
|                      |                                                                                        |   |
| Item 5.                   | Other Information                                                                           | 26     |
|                      |                                                                                        |   |
| Item 6.                   | Exhibits                                                                                    | 26     |
|                      |                                                                                        |   |
| Certifications            |                                                                                        |   |

 

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**PART I**

**Item 1.Consolidated Financial Statements**

**CORGENIXMEDICAL CORPORATION**

**ANDSUBSIDIARIES**

Consolidated Balance Sheets

(Unaudited)

 
| ** **                                                                                                                                                                                                                        | ** ** | **September 30,  2010** | ** ** | **June 30, 2010** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                                                                                                                        | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                                                                                   |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                         |       | $                            | 1,389,274  |                        | $          | 494,096 |   |
| Accounts receivable, less allowance for doubtful  accounts of $30,000 as of September 30, 2010 and  June 30, 2010                                                                                        |       | 1,097,054                    |       | 1,269,795                   |       |
| Other receivables                                                                                                                                                                                                                 |       | 163,599                      |       | 139,174                     |       |
| Inventories                                                                                                                                                                                                                       |       | 2,523,598                    |       | 2,499,557                   |       |
| Prepaid expenses                                                                                                                                                                                                                  |       | 58,855                       |       | 77,425                      |       |
| Total current assets                                                                                                                                                                                                              |       | 5,232,380                    |       | 4,480,047                   |       |
| Equipment                                                                                                                                                                                                                         |       |                         |       |                        |       |
| Capitalized software costs                                                                                                                                                                                                        |       | 264,418                      |       | 258,947                     |       |
| Machinery and laboratory equipment                                                                                                                                                                                                |       | 1,069,635                    |       | 1,061,357                   |       |
| Furniture, fixtures, leaseholds & office  equipment                                                                                                                                                                      |       | 1,857,559                    |       | 1,862,179                   |       |
|                                                                                                                                                                                                                              |       | 3,191,612                    |       | 3,182,483                   |       |
| Accumulated depreciation and amortization                                                                                                                                                                                         |       | (2,119,439                   | )          | (2,014,327                  | )          |
| Net equipment                                                                                                                                                                                                                     |       | 1,072,173                    |       | 1,168,156                   |       |
| Intangible assets:                                                                                                                                                                                                                |       |                         |       |                        |       |
| Licenses                                                                                                                                                                                                                          |       | 339,076                      |       | 340,934                     |       |
| Other assets:                                                                                                                                                                                                                     |       |                         |       |                        |       |
| Deferred financing costs net of amortization of  $2,003,730 and $1,966,739                                                                                                                                                        |       | 753                          |       | 55,879                      |       |
| Other assets                                                                                                                                                                                                                      |       | 98,586                       |       | 109,749                     |       |
| Total assets                                                                                                                                                                                                                      |       | $                            | 6,742,968  |                        | $          | 6,154,765 |   |
| **Liabilities and Stockholders’  Equity**                                                                                                                                                                                    | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                                                                                                                                              |       |                         |       |                        |       |
| Current portion of notes payable, net of discount  (Note 7)                                                                                                                                                                       |       | $                            | 63,437     |                        | $          | 43,953 |   |
| Current portion of capital lease obligations                                                                                                                                                                                      |       | 59,437                       |       | 70,758                      |       |
| Inventory loan payable                                                                                                                                                                                                            |       | 202,534                      |       | 306,556                     |       |
| Due to factor (Note 6)                                                                                                                                                                                                            |       | 581,153                      |       | 826,955                     |       |
| Accounts payable                                                                                                                                                                                                                  |       | 476,513                      |       | 487,576                     |       |
| Accrued payroll and related liabilities                                                                                                                                                                                           |       | 251,213                      |       | 291,831                     |       |
| Accrued liabilities-other                                                                                                                                                                                                         |       | 602,193                      |       | 306,488                     |       |
| Total current liabilities                                                                                                                                                                                                         |       | 2,236,480                    |       | 2,334,117                   |       |
| Notes payable, net of discount, less current  portion (Note 7)                                                                                                                                                                    |       | 59,629                       |       | 23,742                      |       |
| Capital lease obligations, less current portion                                                                                                                                                                                   |       | 24                           |       | 8,612                       |       |
| Deferred facility lease payable, excluding current  portion (Note 2)                                                                                                                                                              |       | 397,628                      |       | 452,266                     |       |
| Total liabilities                                                                                                                                                                                                                 |       | 2,693,761                    |       | 2,818,737                   |       |
| Redeemable common stock, $0.001 par value. 220,070  and 302,600 shares issued and outstanding, aggregate redemption  value of $125,000,and $171,877 (Note 4)                                                            |       | —                       |       | 122,306                     |       |
|                                                                                                                                                                                                                              |       |                         |       |                        |       |
| Redeemable preferred stock, $0.001par value.  36,680 and 236,680 shares issued and  outstanding, aggregate redemption value of $9,170 and 59,170, net  of unaccreted dividends of $2,649 and $18,672 (Note 4) |       | 9,089                        |       | 57,066                      |       |
|                                                                                                                                                                                                                              |       |                         |       |                        |       |
| Stockholders’ equity (Note 5):                                                                                                                                                                                               |       |                         |       |                        |       |
| Common stock, $0.001 par value. Authorized  200,000,000 shares; Issued and outstanding 39,250,343 and 30,982,803 at  September 30 and June 30, respectively                                                        |       | 39,029                       |       | 30,680                      |       |
| Additional paid-in capital                                                                                                                                                                                                        |       | 19,923,894                   |       | 18,724,906                  |       |
| Accumulated deficit                                                                                                                                                                                                               |       | (15,921,079                  | )          | (15,566,597                 | )          |
| Accumulated other comprehensive income                                                                                                                                                                                            |       | (1,726                       | )          | (32,333                     | )          |
| Total stockholders’ equity                                                                                                                                                                                                   |       | 4,040,118                    |       | 3,156,656                   |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                   |       | $                            | 6,742,968  |                        | $          | 6,154,765 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**CORGENIX MEDICAL CORPORATION**

**AND SUBSIDIARIES**

Consolidated Statements of Operations andComprehensive Loss

 
| ** **                                                              | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                              | ** ** | **September 30,  2010**     | ** ** | **September 30,  2009** | ** ** |
| ** **                                                              | ** ** | **(Unaudited)**                  | ** ** |
| Net sales                                                               |       | $                                | 1,978,224  |   | $ | 2,044,967 |   |
| Cost of sales                                                           |       | 873,348                          |       | 929,349 |   |
|                                                                    |       |                             |       |   |   |
| Gross profit                                                            |       | 1,104,876                        |       | 1,115,618 |   |
|                                                                    |       |                             |       |   |   |
| Operating expenses:                                                     |       |                             |       |   |   |
| Selling and marketing                                                   |       | 369,363                          |       | 409,517 |   |
| Research and development                                                |       | 105,381                          |       | 150,359 |   |
| General and administrative                                              |       | 503,284                          |       | 471,939 |   |
| Costs associated with exit or disposal activities  (note 8)             |       | 366,639                          |       | — |   |
| Total expenses                                                          |       | 1,344,667                        |       | 1,031,815 |   |
|                                                                    |       |                             |       |   |   |
| Operating income (loss)                                                 |       | (239,791                         | )          | 83,803 |   |
|                                                                    |       |                             |       |   |   |
| Other income (expense)                                                  |       |                             |       |   |   |
| Interest income                                                         |       | 223                              |       | 141 |   |
| Loss on early extinguishment of debt                                    |       | —                           |       | (22,000 | ) |
| Interest expense                                                        |       | (108,662                         | )          | (68,696 | ) |
| Net loss                                                                |       | (348,230                         | )          | (6,752 | ) |
| Accreted dividends on redeemable preferred and  redeemable common stock |       | (6,252                           | )          | (10,885 | ) |
|                                                                    |       |                             |       |   |   |
| Net loss attributable to common stockholders                            |       | $                                | (354,482   | ) | $ | (17,637 | ) |
|                                                                    |       |                             |       |   |   |
| Net loss per share, basic and diluted                                   |       | $                                | (0.01      | ) | $ | (0.00 | )* |
|                                                                    |       |                             |       |   |   |
| Weighted average shares outstanding, basic and  diluted                 |       | 37,921,408                       |       | 30,305,855 |   |
|                                                                    |       |                             |       |   |   |
| Net loss                                                                |       | $                                | (348,230   | ) | $ | (6,752 | ) |
|                                                                    |       |                             |       |   |   |
| Other comprehensive income (loss)-foreign currency  translation         |       | 30,607                           |       | (31,514 | ) |
|                                                                    |       |                             |       |   |   |
| Total comprehensive loss                                                |       | $                                | (317,623   | ) | $ | (38,266 | ) |

 

Seeaccompanying notes to consolidated financial statements.

 

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*Lessthan ($0.01) per share

 

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**CORGENIX MEDICAL CORPORATION**

**AND SUBSIDIARIES**

ConsolidatedStatement of Stockholders’ Equity

For the three months ended September 30, 2010

(Unaudited)

 
| ** **                                                              | ** ** | **Common  Stock,  Number  of Shares** | ** ** | **Common  Stock,  $0.001  par** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** **  | **Total  Stockholders’  Equity** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|--------------------------|------------|-----------------------------------------------|-------------|---------------------------------------|------------|
| **Balances at June 30, 2010**                                      |       | 30,982,803                                 |       | $                               | 30,680     |                             | $          | 18,724,906               |       | $                                             | (15,566,597 | )                                     | $          | (32,333 | ) | $ | 3,156,656 |   |
| Issuance of common stock for services                              |       | 1,440                                      |       | 1                               |       | 157                              |       | —                   |       | —                                        |        | 158                                   |       |
| Issuance of common stock for cash                                       |       | 8,333,334                                  |       | 8,333                           |       | 1,241,667                        |       | —                   |       | —                                        |        | 1,250,000                             |       |
| Issuance cost for common stock offering                                 |       | —                                     |       | —                          |       | (89,975                          | )          | —                   |       | —                                        |        | (89,975                               | )          |
| Compensation expense recorded as a result of  stock options issued |       | —                                     |       | —                          |       | 5,479                            |       | —                   |       | —                                        |        | 5,479                                 |       |
| Issuance of common stock for license                                    |       | 15,296                                     |       | 15                              |       | 1,362                            |       | —                   |       | —                                        |        | 1,377                                 |       |
| Issuance of warrants for license                                        |       | —                                     |       | —                          |       | 3,412                            |       | —                   |       | —                                        |        | 3,412                                 |       |
| Accreted dividend on redeemable common and  redeemable preferred stock  |       | —                                     |       | —                          |       | —                           |       | (6,252                   | )          | —                                        |        | (6,252                                | )          |
| Warrant extension as a result of MBL Agreement  amendment               |       | —                                     |       | —                          |       | 36,886                           |       | —                   |       | —                                        |        | 36,886                                |       |
| Cancellation of redeemable common stock upon note  pay down             |       | (82,530                                    | )          | —                          |       | —                           |       | —                   |       | —                                        |        | —                                |       |
| Foreign currency translation                                            |       | —                                     |       | —                          |       | —                           |       | —                   |       | 30,607                                        |        | 30,607                                |       |
| Net loss                                                                |       | —                                     |       | —                          |       | —                           |       | (348,230                 | )          | —                                        |        | (348,230                              | )          |
| **Balances at September 30,  2010**                                |       | 39,250,343                                 |       | $                               | 39,029     |                             | $          | 19,923,894               |       | $                                             | (15,921,079 | )                                     | $          | (1,726 | ) | $ | 4,040,118 |   |

 

See accompanying notes to consolidated financial statements.

 

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**CORGENIX MEDICAL CORPORATION**

**AND SUBSIDIARIES**

Consolidated Statements of Cash Flows

(Unaudited)

 
| ** **                                                                                 | ** ** | **Three months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                 | ** ** | **September 30,  2010**     | ** ** | **September 30,  2009** | ** ** |
| Cash flows from operating activities:                                                      |       |                             |       |   |   |
| Net loss                                                                                   |       | $                                | (348,230   | ) | $ | (6,752 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                              |       | 108,567                          |       | 107,459 |   |
| Accretion of discount on note payable                                                      |       | —                           |       | 1,795 |   |
| Common stock issued for services                                                           |       | 158                              |       | 1,622 |   |
| Compensation expense recorded for stock options  issued                                    |       | 5,479                            |       | 10,492 |   |
| Amortization of deferred financing costs                                                   |       | 36,991                           |       | 11,449 |   |
| Changes in operating assets and liabilities:                                               |       |                             |       |   |   |
| Trade and other receivables, net                                                           |       | 168,057                          |       | 137,130 |   |
| Inventories                                                                                |       | (19,937                          | )          | 71,141 |   |
| Prepaid expenses and other assets, net                                                     |       | 49,906                           |       | (27,415 | ) |
| Accounts payable                                                                           |       | (15,309                          | )          | (12,258 | ) |
| Accrued payroll and related liabilities                                                    |       | (49,888                          | )          | 21,618 |   |
| Accrued interest and other liabilities                                                     |       | 199,327                          |       | (118,414 | ) |
|                                                                                       |       |                             |       |   |   |
| Net cash provided by operating activities                                                  |       | 135,121                          |       | 197,867 |   |
|                                                                                       |       |                             |       |   |   |
| Cash flows used in investing activities:                                                   |       |                             |       |   |   |
| Proceeds from sale of equipment                                                            |       | 15,673                           |       | — |   |
| Additions to equipment                                                                     |       | (15,580                          | )          | (5,951 | ) |
| Net cash provided by (used in) investing  activities                                       |       | 93                               |       | (5,951 | ) |
|                                                                                       |       |                             |       |   |   |
| Cash flows from financing activities:                                                      |       |                             |       |   |   |
| Increase (decrease) in amount due to factor                                                |       | (245,802                         | )          | (409,391 | ) |
| Increase (decrease) in inventory loan                                                      |       | (104,022                         | )          | 351,454 |   |
| Proceeds from issuance of common stock, net of  financing costs                            |       | 1,160,025                        |       | — |   |
| Proceeds from issuance of notes payable                                                    |       | —                           |       | 125,000 |   |
| Payments on notes payable                                                                  |       | (34,278                          | )          | (20,142 | ) |
| Payments on capital lease obligations                                                      |       | (20,825                          | )          | (41,133 | ) |
| Net cash provided by financing activities                                                  |       | 755,098                          |       | 5,788 |   |
|                                                                                       |       |                             |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                      |       | 890,312                          |       | 197,704 |   |
| Impact of exchange rate changes on cash                                                    |       | 4,866                            |       | (774 | ) |
| Cash and cash equivalents at beginning of period                                           |       | 494,096                          |       | 785,466 |   |
| Cash and cash equivalents at end of period                                                 |       | $                                | 1,389,274  |   | $ | 982,396 |   |
| Supplemental cash flow disclosures:                                                        |       |                             |       |   |   |
| Cash paid for interest                                                                     |       | $                                | 85,112     |   | $ | 56,338 |   |
| Noncash investing and financing activities                                                 |       |                             |       |   |   |
| Issuance of warrants for license                                                           |       | $                                | 3,412      |   | $ | 3,903 |   |
| Issuance of stock for license                                                              |       | $                                | 1,377      |   | $ | 2,548 |   |
| Accrued redemption of redeemable convertible  preferred stock                              |       | $                                | 50,000     |   | $ | — |   |
| Conversion of redeemable common stock to note  payable                                     |       | $                                | 125,000    |   | $ | — |   |
| Common stock issued for accrued stock-based  compensation                                  |       | $                                | —     |   | $ | 70,025 |   |
| Warrant extensions as a result of note  modification                                       |       | $                                | 36,887     |   | $ | — |   |
| Accreted dividends on redeemable common and  redeemable preferred stock                    |       | $                                | 6,252      |   | $ | 10,884 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**CORGENIX MEDICAL CORPORATION AND SUBSIDIARIES**

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

***(a)******                                ******Outlook***

 

Infiscal 2011, we will be focused on expanding our relationship with the ELITechgroup (“Elitech”) including completion of the Joint Product Developmentagreement between our two companies, accelerating the market launch of ourAspirinWorks assay, beginning the market launch of our Anti-AtherOx Test Kit,submission of a 510(k) Premarket Notification to the FDA for our AtherOxTest Kit, completing further clinical studies for our Hyaluronic Test Kit, anda Fibromyalgia test kit, and continuing the development and strategiccollaboration towards the development of a group of products to detectpotential bio-terrorism agents.

 

***(b)******                                ******RecentDevelopments***

 

On October 8, 2010, we closed the SecondTranche of the Common Stock Purchase Agreement (the “Common Stock PurchaseAgreement”) with Elitech, a société par actions simplifiée organized under thelaws of France, and Wescor, Inc., a Utah corporation and subsidiary ofElitech (“Wescor”), effective as of October 1, 2010.  As a condition to closing the Second Tranche,we transferred our product distribution activity outside of North America fromour subsidiary, Corgenix U.K. Ltd., (“Corgenix UK”) to Elitech UK Limited,(“Elitech UK”), pursuant to the Assignment and Assumption Agreement, effectiveas of October 1, 2010 by and among us, Corgenix U.K.and Elitech UK.  As an additional condition to closing theSecond Tranche, Wescor purchased 1,666,667 shares of our common stock (the “SecondTranche Shares”) for $250,000, or $0.15 per share.  For no additionalconsideration, we issued a warrant to Wescor to purchase 833,333 shares of ourcommon stock at $0.15 per share (the “Second Tranche Warrant”).

 

Theforegoing descriptions of the Common Stock Purchase Agreement, the Assignmentand Assumption Agreement and the Second Tranche Warrant are not completedescriptions of all the terms of those agreements.  For a complete description of all the terms,we refer you to the full text of the Common Stock Purchase Agreement, theAssignment and Assumption Agreement and the Second Tranche Warrant, copies ofwhich were filed as Exhibits 10.1, 10.2 and 10.3, respectively, to the Form 8-Kfiled on October 12, 2010.

 

OnOctober 8, 2010, we also completed a repurchase of 200,000 shares of ourSeries B Convertible Preferred Stock (the “Repurchased Shares”) held byCAMOFI Master LDC, a Cayman Islands company (“CAMOFI”), for a purchase price of$50,000.  Pursuant to the SecondModification of Secured Convertible Term Notes dated January 29, 2009 byand between us and CAMOFI, the Repurchased Shares bore a $50,000 liquidationpreference and were convertible into 800,000 shares of our common stock at theoption of CAMOFI.  The repurchase wasfunded in part by cash on hand and in part by proceeds from the sale of theSecond Tranche Shares.

 

On October 4, 2010, Corgenix UKentered into a letter agreement with Faunus Group International, Inc. (“FGI”),pursuant to which, among other things, Corgenix UK and FGI agreed to terminatethat certain Receivables Finance Agreement dated March 29, 2010 by andbetween Corgenix UK and FGI (as amended, the “Agreement”), effective as of September 30,2010.

 

Under the Agreement, Corgenix UK agreed to sell to FGI all of CorgenixUK’s right, title and interest in and to specified accounts receivable and allmerchandise represented by those accounts.  In exchange, FGI advancedfunds to the Company.

 

Contemporaneously with the termination of the Agreement, each offollowing agreements were terminated effective as of September 30, 2010: (a) Guarantydated March 29, 2010 by and between the Company and FGI, (b) Guarantydated March 29, 2010 by and between Corgenix Inc. and FGI, and (c) DebentureAgreement dated March 29, 2010 by and between Corgenix UK and FGI.  Corgenix UK paid FGI a termination fee of$25,000.

 

On July 12, 2010 we entered into the Common Stock PurchaseAgreement with Elitech and Wescor.  Inaccordance with the Common Stock Purchase Agreement, Wescor will purchase up to$2,000,000 of the Company’s common stock in three installments (subject tovarious conditions) and will receive warrants to purchase additional shares.Also, in connection with the Common Stock Purchase Agreement, we entered into(i) a distribution agreement (“Master Distribution Agreement”) withElitech UK and (ii) a joint product development agreement (“Joint ProductDevelopment Agreement”) with Elitech. The details of the Common Stock PurchaseAgreement, Master Distribution Agreement, and Joint Product DevelopmentAgreement are outlined below.

 

The investment by Wescor will take place over a maximum of threetranches:

 

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First Tranche under the Common Stock Purchase Agreement—Pursuant to theFirst Tranche of the Common Stock Purchase Agreement, on July 16, 2010,Wescor invested $1,250,000 to purchase 8,333,334 shares of the Company’s commonstock valued at $0.15 per share. For no additional consideration the Companyissued a warrant to Wescor to purchase 4,166,667 shares at $0.15 per share. TheCompany entered into the Master Distribution Agreement with Elitech UK Limitedand the Joint Product Development Agreement with Elitech, contemporaneouslywith the issuance of the First Tranche Shares.

 

Second Tranche under the Common Stock Purchase Agreement—Pursuant tothe Second Tranche of the Common Stock Purchase Agreement, Wescor invested$250,000 to purchase 1,666,667 shares of our common stock valued at $0.15 pershare. For no additional consideration we issued a warrant to Wescor topurchase 833,333 shares at $0.15 per share. As a condition to the closing ofthe Second Tranche, the Company will have effectively transferred its productdistribution activity outside of North America from our subsidiary, Corgenix U.K. Ltd.,to Elitech UK Limited.

 

Third Tranche under the Common Stock Purchase Agreement—Pursuant to theThird Tranche of the Common Stock Purchase Agreement, Wescor will invest$500,000 to purchase 3,333,333 shares of our common stock valued at $0.15 pershare. For no additional consideration we will issue a warrant to Wescor topurchase 1,666,667 shares at $0.15 per share. As a condition to the closing ofthe Third Tranche, the Executive Committee established under the Joint ProductDevelopment Agreement will have determined the feasibility of creating not lessthan two (2) new Corgenix assays as further described in the Joint ProductDevelopment Agreement.

 

In connection with the Common Stock Purchase Agreement, at the initialclosing, which occurred on July 16, 2010, we entered into the MasterDistribution Agreement with Elitech UK, and we entered into the Joint ProductDevelopment Agreement with Elitech. Under the terms and conditions of theMaster Distribution Agreement, and as a condition precedent to the closing ofthe Second Tranche, Elitech UK became the exclusive distributor of the Company’sProducts (as that term is defined therein) outside of North America.Accordingly, we along with Corgenix U.K. assigned and/or transferred theeconomic benefit to Elitech UK, and Elitech UK assumed all of the obligationsof the Company or Corgenix U.K. under all distribution agreements executed byus or Corgenix U.K., as the case may be, related to any distributor whoseterritory is outside of North America.

 

Under the terms and conditions of the Joint Product DevelopmentAgreement, the Company and Elitech will work towards developing efficienttechnology for the commercialization of biochemical testing of substancesrelated to human health. The goal of the co-development effort is themodification of certain of our assays for use in Elitech chemistry analyzers,serology instruments or other instruments, and the commercialization of thosemodified assays by Elitech and its affiliates. Phase I of the co-developmentis focused on the sharing and licensing of our assay technology to facilitatethis purpose. The intent is that, in order to achieve joint development of ourassays modified to be used with certain Elitech technology, all of our relevantassay technology will be available to Elitech and its affiliates to establishthe broadest common immunoassay technology base to pursue co-development of newCorgenix assay technology. Such technology would include, for example,manufacturing know-how, testing and reliability information, visits toproduction facilities, and technical consultation, for which the burden ofdisclosure is reasonable.

 

Wescor has the right to designate one individual for election orappointment to our Board of Directors, for so long as Wescor owns at least fivepercent of our outstanding common stock.

 

After the First Tranche closed, through to the third (3rd) anniversaryof the First Tranche’s closing date, the rights and responsibilities of Wescorwith respect to a potential change of control transaction by us will begoverned by the Common Stock Purchase Agreement.

 

Pursuant to the Common Stock Purchase Agreement, if our boarddetermines to initiate the solicitation of offers or indications of interest inpursuing a Change of Control transaction, as defined therein, (without havingfirst received an unsolicited offer from a third party) then the board will,consistent with its fiduciary duty to maximize shareholder value, design aprocess in consultation with legal counsel and any financial advisor the boardelects. Wescor may participate in the process, on terms established by theCompany’s board to govern the solicitation of offers process. The terms of theprocess are further outlined in the Common Stock Purchase Agreement.

 

Pursuant to the Common Stock Purchase Agreement, if our board receivesan unsolicited third-party offer (or indication of interest in making an offer)with respect to a Change of Control transaction, we will provide written noticeto Wescor. If our board elects to begin a process that could lead to a Changeof Control then we will commence negotiations with the unsolicited bidder andwith Wescor to seek the highest value available from those parties. The termsof the process are further outlined in the Common Stock Purchase Agreement.

 

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***(c)******                                 ******CompanyOverview***

 

Our business includes the research, development, manufacture, andmarketing of in vitro diagnostic products for use in disease detection andprevention. We currently sell diagnostic products on a worldwide basis tohospitals, clinical testing laboratories, universities, biotechnology andpharmaceutical companies and research institutions. We have developed and wemanufacture most of our products at our Colorado facility, and we purchase whatwe refer to as OM (Other Manufacturers’) products from other healthcaremanufacturers for resale by us. All of these products are used in clinical laboratoriesfor the diagnosis and/or monitoring of three important areas of health care:

 

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

 

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

 

·                  Liver diseases(fibrosis, and cirrhosis).

 

In addition to our current products, we are actively developing newlaboratory tests in other important diagnostic testing areas. See “—OtherStrategic Relationships.” We manufacture and market to clinical laboratoriesand other testing sites worldwide. Our customers include large and emerginghealth care companies such as Bio Rad Laboratories, Inc., InstrumentationLaboratories, Helena Laboratories and Diagnostic Grifols, S.A.

 

Most of our products are based on our patented and proprietaryapplication of Enzyme Linked ImmunoSorbent Assay, or ELISA, technology, aclinical testing methodology commonly used worldwide. Most of our currentproducts are based on this platform technology in a delivery format convenientfor clinical testing laboratories. The delivery format, which is referred to as“Microplate,” allows the testing of up to 96 samples per plate, and is one ofthe most commonly used formats, employing conventional testing equipment foundin virtually all clinical laboratories. The availability and broad acceptance ofELISA Microplate products reduces entry barriers worldwide for our new productsthat employ this technology and delivery format. Our products are sold as “testkits” that include all of the materials required to perform the test, exceptfor routine laboratory chemicals and instrumentation. A test using ELISAtechnology involves a series of reagent additions into the Microplate,triggering a complex immunological reaction in which a resulting color occurs.The amount of color developed in the final step of the test is directlyproportional to the amount of the specific marker being tested for in thepatient or unknown sample. The amount of color is measured and the resultscalculated using routine laboratory instrumentation. Our technology specifies aprocess by which biological materials are attached to the fixed surface of adiagnostic test platform. Products developed using this unique attachmentmethod typically demonstrate a more uniform and stable molecular configuration,providing a longer average shelf life, increased accuracy and superiorspecificity than the products of our competitors.

 

Some of the OM products which we obtain from other manufacturers andsell through our distribution network utilize technologies other than ourpatented and proprietary ELISA technology.

 

Our diagnostic tests are intended to aid in the identification of thecauses of illness and disease, enabling a physician to select appropriatepatient therapy.

 

Internally and through collaborative arrangements, we are developing additionalproducts that are intended to broaden the range of applications for ourexisting products and to result in the introduction of new products, such asAtherOx.

 

Since 1990, our sales force and distribution partners have sold over12 million tests worldwide under the REAADS and Corgenix labels, as wellas products sold under other manufacturers’ labels, referred to as OEMproducts. An integral part of our strategy is to work with corporate partnersto develop market opportunities and access important resources. We believe thatour relationships with current and potential partners will enable us to enhanceour menu of diagnostic products and accelerate our ability to penetrate theworldwide markets for new products.

 

We currently use the REAADS and Corgenix trademarks and trade names inthe sale of the products which we manufacture. These products constitute themajority of our product sales.

 

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**(2)****                                ****Summary of Significant Accounting Policies**

 

***(a)******                                ******Application of New Accounting Standards***

 

In April 2010, the FASB (Financial Accounting Standards Board)issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition-MilestoneMethod (Topic 605): Milestone Method of Revenue Recognition. The amendments inthis Update are effective on a prospective basis for milestones achieved infiscal years, and interim periods within those years, beginning on or after June 15,2010. Early adoption is permitted. If a vendor elects early adoption and theperiod of adoption is not the beginning of the entity’s fiscal year, the entityshould apply the amendments retrospectively from the beginning of the year ofadoption. The Company does not expect the provisions of ASU 2010-17 to have amaterial effect on the financial position, results of operations or cash flowsof the Company.

 

***(b)******                                ******Principles of Consolidation***

 

The consolidated financial statements include the accounts of CorgenixMedical Corporation and its wholly-owned subsidiaries, Corgenix, Inc. andCorgenix (UK) Limited (“Corgenix UK”). Corgenix UK was established as a UnitedKingdom company during 1996 to market our products in Europe. Transactions aregenerally denominated in U.S. dollars, but also invoices in Euros and BritishPound Sterling. All amounts are converted into U.S. dollars upon consolidationof our financial statements. Inter-company balances and transactions have beeneliminated in consolidation.

 

***(c)******                                 ******Use of Estimates***

 

The preparation of our financial statements in conformity withaccounting principles generally accepted in the U.S. requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenue and expensesduring the reporting period. Actual results could differ significantly fromthose estimates. Certain information and note disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America (GAAP) have been omittedfrom these unaudited consolidated financial statements. These unauditedconsolidated financial statements should be read in conjunction with thefinancial statements and notes thereto included in our Annual Report onForm 10-K for the fiscal year ended June 30, 2010.  The results of operations for the threemonths ended September 30, 2010 and September 30, 2009 are notnecessarily indicative of the operating results for the full year. In theopinion of management, all adjustments, consisting only of normal recurringaccruals, have been made to present fairly our financial position at September 30,2010 and the results of operations and our cash flows for the three monthsended September 30, 2010 and 2009.

 

***(d)******                                ******Cash and Cash Equivalents***

 

We consider all highly liquid debt instruments purchased with originalmaturities of three months or less at purchase to be cash equivalents.

 

***(e)******                                 ******Trade Accounts Receivable***

 

Trade accounts receivable are recorded at the invoiced amount and donot bear interest. The allowance for doubtful accounts is our best estimate ofthe amount of probable credit losses in our existing accounts receivable. Wedetermine the allowance based on historical write-off experience. We review ourallowance for doubtful accounts monthly. Past due balances over 90 daysand over a specified amount are reviewed individually for collectability.Account balances are charged off against the allowance after all means ofcollection have been exhausted and the potential for recovery is consideredremote. We do not have any off-balance sheet credit exposure related tocustomers.

 

We have adhered to the guidance set forth in the *Sale ofAccounts Receivable* Topic of the Financial Accounting StandardsBoard Accounting Standards Codification (“FASB ASC”), which provides standardsfor distinguishing transfers of financial assets that are sales from transfersthat are secured borrowings.

 

Pursuant to the provisions of this Topic, we have reflected the salesof accounts receivable to the factors as secured borrowings. We have alsoestablished an accounts receivable from the factors for the retained amounts,less the costs of the transactions, less any anticipated future loss in thevalue of the retained asset. The retained amounts are equal to 15% of the totalaccounts receivable invoice sold to the factors. The periodic interest expenseand administrative fees assessed by the factors on the amounts owing, arecharged to interest expense, and are credited against the accounts receivabledue from them.

 

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***(f)******                                   ******Inventories***

 

Inventories consist of raw materials, work in process and finishedgoods and are recorded at the lower of average cost or market, using thefirst-in, first-out method. A provision is recorded to reduce excess andobsolete inventories to their estimated net realizable value, when necessary.No such provision was recorded as of September 30, 2010 or September 30,2009. Components of inventories as of September 30 and June 30 are asfollows:

 
| ** **      | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|-----------------|------------|------------------------|------------|-------------------|------------|
| ** **      | ** ** | **2010**               | ** ** | **2010**          | ** ** |
| Raw materials   |       | $                      | 437,328    |              | $          | 431,235 |   |
| Work-in-process |       | 782,784                |       | 883,272           |       |
| Finished goods  |       | 1,303,486              |       | 1,185,050         |       |
|            |       | $                      | 2,523,598  |              | $          | 2,499,557 |   |

 

***(g)******                                ******Equipment and Software***

 

Equipment and software are recorded at cost. Equipment under capitalleases is recorded initially at the present value of the minimum leasepayments. Equipment acquired under capital leases amounted to $15,580 and $0for the quarters ended September 30, 2010 and 2009, respectively.Depreciation and amortization expense, which totaled $108,567 and $107,458 forthe quarters ended September 30, 2010 and September 30, 2009,respectively, is calculated primarily using the straight-line method over theestimated useful lives of the respective assets which range from 3 to7 years. Capitalized software costs are related to our web sitedevelopment, our R & D statistical software, which were and are bothamortized over three years, and our accounting software, which is beingamortized over five years, beginning in March 2008.

 

***(h)******                                ******Intangible Assets***

 

Intangible assets consist of purchased licenses. Purchased licenses areamortized using the straight-line method over the shorter of 15 years orthe remaining life of the license. We have adopted the provisions of the *Goodwill and Other Intangible Assets* Topic of the FASB ASC.Pursuant to these provisions, goodwill and intangible assets acquired in apurchase business combination and determined to have indefinite lives andlicenses acquired with no definite term are not amortized, but instead aretested for impairment at least annually in accordance with the provisions ofthis statement. Identifiable intangibles with estimated useful lives continueto be amortized over their respective estimated useful lives and reviewed forimpairment in accordance with the Accounting for Impairment or *Disposal of Long Lived Assets* Topic as set forth in the FASBASC.

 

On March 1, 2007, we executed an exclusive license agreement (the “LicenseAgreement”) with Creative Clinical Concepts, Inc. (“CCC”). The LicenseAgreement provides that CCC license to us certain products and assets relatedto determining the effectiveness of aspirin and / or anti-platelet therapy(collectively, “Aspirin Effectiveness Technology,” or the “Licensed Products”).The Aspirin Effectiveness Technology includes US trademark registrationnumber 2,688,842, which includes the term “AspirinWorks”® and related designs.

 

The License Agreement imposes caps on the total amount of cash, commonstock, and warrant payments from us to CCC from the date of execution throughto and including the third anniversary payment. Under that cap limitation, thetotal of all anniversary payments will not exceed $200,000 in cash, with eachanniversary cash payment determined by multiplying $50,000 by an anniversaryratio which is the ratio of cumulative revenue at the respective anniversarydate divided by the cumulative sales target for the same period of time.Likewise, the total of all anniversary common stock payments will not exceed$300,000 in value of shares of common stock (as valued on the date of issue),with the number of shares for each anniversary stock issuance determined bydividing 75,000 by the closing stock price as of the respective anniversarydate and multiplying that result by the anniversary ratio noted above. Finally,the total of all anniversary warrant payments will not exceed 300,000 warrants,with the value of each anniversary warrant issuance determined by multiplying75,000 (the number of warrants to be issued) by a newly calculated BlackScholes value per warrant as of the fiscal year end. As of September 30,2010, we had accrued $2,646 with respect to the cumulative amount due to CCC,and had a negative accrual of less than $1,000 as of September 30, 2009.For the quarter ended September 30, 2010, we issued to CCC 23,164 sharesof our common stock and 75,000 warrants with an exercise price of $0.35 versus15,296 shares and 75,000 warrants issued in the prior year’s quarter ended September 30,2009, pursuant to this license agreement.

 

The License Agreement also requires that, for all sales of the LicensedProducts subsequent to the execution of the agreement, we pay CCC a quarterlyroyalty fee equal to seven percent of net sales of the Licensed Products duringthe immediately preceding quarter. The License Agreement’s caps on paymentsfrom us to CCC do not apply to royalty payments.

 

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***(i)******                                   ******Advertising Costs***

 

Advertising costs are expensed when incurred, and are included inSelling and Marketing expensesand totaled $13,321 and $10,071 for the quartersended September 30, 2010 and September 30, 2009, respectively.

 

***(j)******                                   ******Income Taxes***

 

Income taxes are accounted for under the asset and liability method.Deferred tax assets and liabilities are recognized for net operating loss andother credit carry forwards and the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which the tax effect of transactions are expected to berealized. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in the consolidated statements of operations in the periodthat includes the enactment date.

 

Deferred tax assets are reduced by a valuation allowance for theportion of such assets for which it is more likely than not that the amountwill not be realized. Deferred tax assets and liabilities are classified ascurrent or noncurrent based on the classification of the underlying asset orliability giving rise to the temporary difference or the expected date ofutilization of the carry forwards.

 

***(k)******                                ******Revenue Recognition***

 

Revenue is recognized upon shipment of products. Sales discounts andallowances are recorded at the time product sales are recognized and are offsetagainst sales revenue. When revenue is received by a customer in advance ofshipment of products, in exchange for a discount, it is credited to deferredrevenue and taken into revenue upon eventual shipment of the products. We alsohave arrangements in which we manufacture products for other companies. Revenueunder these arrangements is recognized when the manufacturing process iscomplete and risk of ownership has passed.

 

***(l)******                                   ******Research and Development***

 

Research and development costs and any costs associated with internallydeveloped patents, formulas or other proprietary technology are expensed asincurred. Research and development expense totaled $105,381 and $150,359 forthe quarters ended September 30, 2010 and September 30, 2009,respectively. Revenue from research and development contracts representsamounts earned pursuant to agreements to perform research and developmentactivities for third parties and is recognized as earned under the respectiveagreement. Because research and development services are provided evenly overthe contract period, revenue is recognized ratably over the contract period.Research and development agreements in effect in 2010 and 2009 provided forfees to us based on time and materials in exchange for performing specifiedresearch and development functions. Contract research and development revenuestotaled $202,525 and $64,473 for the quarters ended September 30, 2010 andSeptember 30, 2009, respectively. Research and development contracts aregenerally short term with options to extend, and can be cancelled underspecific circumstances.

 

***(m)******                             ******Long-Lived Assets***

 

We review long-lived assets, including intangibles, for impairmentwhenever events or changes in circumstances indicate that the carrying amountof such assets may not be recoverable. Events relating to recoverability mayinclude significant unfavorable changes in business conditions, recurringlosses, or a forecasted inability to achieve break-even operating results overan extended period. We evaluate the recoverability of long-lived assets basedupon forecasted undiscounted cash flows. Should an impairment in value beindicated, the carrying value of intangible assets will be adjusted based onestimates of future discounted cash flows resulting from the use and ultimatedisposition of the asset.

 

***(n)******                                ******Deferred Facility Lease Payable***

 

Priorto occupying our headquarters facility in Broomfield, Colorado, the landlordexpended a total of $1,052,140 for the tenant improvements. This amount wasrecorded as a charge to leasehold improvements and a credit to deferredfacility lease payable, which is being amortized against rent expense over the84 month period of the lease.

 

***(o)******                                ******Stock-Based Compensation***

 

In accordance with the guidance of the *Share-Based Payment*Topic of the FASB ASC, we account for share-based payments by measuring andrecognizing the amount of compensation expense for all share-based paymentawards made to employees, officers, directors, and consultants, includingemployee stock options based on estimated fair values. Pursuant to thisguidance, we estimate the 

 

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fairvalue of share-based payment awards on the date of grant using anoption-pricing model. The value of the portion of the award that is ultimatelyexpected to vest is recognized as expense over the required service period inour Statements of Operations. Stock-based compensation is based on awardsultimately expected to vest and is reduced for estimated forfeitures. Infurther adherence to this guidance, we estimate any future forfeiture at thetime of grant and revise these estimates, as necessary, in subsequent periodsif actual forfeitures differ from those estimates.

 

For purposes of determining the estimated fair value of share-basedpayment awards on the date of grant, and as allowed by the guidance of the *Share-Based Payment* Topic in the FASB ASC, we use theBlack-Scholes option-pricing model (Black Scholes Model). The Black ScholesModel requires the input of highly subjective assumptions. Because our employeestock options may have characteristics significantly different from those oftraded options, and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management’s opinion, theexisting models may not provide a reliable single measure of the fair value ofour employee stock options. Management will continue to assess the assumptionsand methodologies used to calculate estimated fair value of share-basedcompensation. Circumstances may change and additional data may become availableover time, which result in changes to these assumptions and methodologies,which could materially impact our fair value determination.

 

The application of the accounting principles set forth in the guidanceof the *Share-Based Payment* Topic of the FASBASC may be subject to further interpretation and refinement over time. Thereare significant differences among option valuation models, and this may resultin a lack of comparability with other companies that use different models,methods and assumptions. If factors change and we employ different assumptionsin the application of these accounting principles in future periods, or if wedecide to use a different valuation model, the compensation expense that werecord in the future under these principles may differ significantly from whatwe have recorded in the current period and could materially affect our lossfrom operations, net loss and net loss per share.

 

***(p)******                                ******Earnings (loss) per Share***

 

Basic loss per share is computed by dividing net loss attributable tocommon stockholders by the weighted average number of common sharesoutstanding. Diluted earnings (loss) per share is computed by dividing net lossattributable to common stockholders by the weighted average number of commonshares outstanding increased for potentially dilutive common shares outstandingduring the period. The dilutive effect of stock options and their equivalentsis calculated using the treasury stock method. Options and warrants to purchasecommon stock, totaling 37,969,844 and 36,334,637 shares as of September 30,2010 and September 30, 2009, respectively, are not included in thecalculation of weighted average common shares-diluted below, as their effectwould be to lower the net loss per share and thus be anti-dilutive. Redeemablecommon stock is included in the common shares outstanding for purposes ofcalculating net loss per share.

 
| ** **                                                                    | ** ** | **3 Months ended  September 30,  2010** | ** ** | **3 Months ended  September 30,  2009** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Net loss attributable to common stockholders                                  |       | $                                                      | (354,482   | )                                                      | $          | (17,637 | ) |
|                                                                          |       |                                                   |       |                                                   |       |
| Common and common equivalent shares outstanding:                              |       |                                                   |       |                                                   |       |
| Historical common shares outstanding at beginning  of period                  |       | 30,982,803                                             |       | 30,294,505                                             |       |
| Weighted average common equivalent shares issued  during the period |       | 6,938,605                                              |       | 11,350                                                 |       |
| Weighted average common shares — basic  and diluted                 |       | 37,921,408                                             |       | 30,305,855                                             |       |
|                                                                          |       |                                                   |       |                                                   |       |
| Net loss per share — basic and diluted                                   |       | $                                                      | (0.01      | )                                                      | $          | (0.00 | )* |

 

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*Lessthan ($0.01) per share

 

***(q)******                                ******Foreign Currency Transactions and Comprehensive Income(Loss)***

 

The accounts of our foreign subsidiary are generally measured using thelocal currency as the functional currency. For those operations, assets andliabilities are translated into U.S. dollars at period-end exchange rates.Income and expense accounts are translated at average monthly exchange rates.Adjustments resulting from such translation are accumulated in othercomprehensive income as a separate component of stockholders’ equity.

 

We adhere to the guidance set forth in the *ReportingComprehensive Income* Topic of the FASB ASC, which establishesstandards for reporting and displaying comprehensive income (loss) and itscomponents. Comprehensive income (loss) includes all changes in equity during aperiod from non-owner sources.

 

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***(r)******                                  ******Costof Sales and Operating Expenses***

 

*Cost of sales* includes costs associated withmanufacturing, including labor, raw materials, freight-in, manufacturingadministration, quality assurance and quality control, repairs and maintenance,scrap and other indirect costs.

 

*Selling and marketing expenses* consist primarily ofshipping and handling costs, wages and benefits for sales and marketing supportpersonnel, travel, sales commissions, business insurance, promotional costs, aswell as other indirect cots.

 

*Research and development expenses* consist primarily of thelabor-related costs, the cost of clinical studies and travel expenses,laboratory supplies and product-testing expenses related to the research anddevelopment of new and existing diagnostic products.

 

*General and administrative expenses* consist primarily of wagesand benefits associated with management and administrative support departments,business insurance costs, professional fees, outside services, office facilityrelated expense, and other general support costs.

 

***(s)******                                  ******Liquidity***

 

At September 30, 2010, our working capital increased by $849,970to $2,995,900 from $2,145,930 at June 30, 2010, and concomitantly, ourcurrent ratio (current assets divided by current liabilities) increased from1.92 to 1 at June 30, 2010 to 2.34 to 1 at September 30, 2010. Thisincrease in working capital is primarily attributable to the $1,250,000strategic investment by ELITech.

 

At September 30, 2010, trade and other receivables were $1,260,653versus $1,408,969 at June 30, 2010. Accounts payable, accrued payroll andother accrued expenses increased by a combined $244,024 from June 30,2010. At September 30, 2010, inventories were $2,523,598, a slightincrease versus $2,499,557 at June 30, 2010.

 

For the quarter ended September 30, 2010, cash provided byoperating activities amounted to $135,121, versus cash provided by operatingactivities of $197,867 for the quarter ended September 30, 2009. Thereduction in the cash provided by operations for the current quarter resulted primarilyfrom the increase in the net loss for the period, a slight increase ininventories plus a decrease in accounts payable and accrued payroll and relatedliabilities.

 

Net cash provided by investing activities, the proceeds from the saleof fixed assets, offset by the purchase of laboratory equipment, leaseholdimprovements and computer equipment, was $93 for the quarter ended September 30,2010, compared to $5,951 net cash used for investing activities for the quarterended September 30, 2009.

 

Net cash provided by financing activities amounted to $755,098 for thequarter ended September 30, 2010 compared to $5,788 net cash provided byinvesting activities for the quarter ended September 30, 2009. Thisincrease versus the comparable prior year was primarily due to the proceedsfrom the $1,250,000 strategic investment by ELITech.

 

We have incurred operating losses and negative cash flow fromoperations for most of our history. Losses incurred since our inception, net ofdividends on redeemable common and redeemable preferred stock, have aggregated$13,519,815 and there can be no assurance that we will be able to generatepositive cash flows to fund our operations in the future or to pursue ourstrategic objectives. Historically, we have financed our operations primarilythrough long-term debt, factoring of accounts receivables, and the sales ofcommon stock, redeemable common stock, and preferred stock. We have alsofinanced operations through sales of diagnostic products and agreements withstrategic partners. We have developed and are continuing to modify an operatingplan intended to eventually achieve sustainable profitability, positive cashflow from operations, and an adequate level of financial liquidity. Keycomponents of this plan include consistent revenue growth and the cash to bederived from such growth, as well as the expansion of our strategic allianceswith other biotechnology and diagnostic companies, securing diagnostic-relatedgovernment contracts and grants, improving operating efficiencies to reduce ourcost of sales as a percentage of sales, thereby improving gross margins, andlowering our overall operating expenses. If our sales were to decline, areflat, or achieve very slow growth, we would undoubtedly incur operating lossesand a decreasing level of liquidity for that period of time. In view of this,and in order to further improve our liquidity and operating results, we enteredinto the ELITech collaboration and investment, described above.

 

The $1,250,000 ELITech common stock investment in addition to theSummit $1,750,000 September 30, 2009 credit facility, in conjunctionwith our current revised forecasts, should provide adequate resources tocontinue operations for longer than 12 months.

 

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***(t)******                               ******Recently Issued Accounting Pronouncements***

 

In April 2010, the FASB (Financial Accounting Standards Board)issued Accounting Standards Update 2010-17 (ASU 2010-17), RevenueRecognition-Milestone Method (Topic 605): Milestone Method of RevenueRecognition. The amendments in this Update are effective on a prospective basisfor milestones achieved in fiscal years, and interim periods within those years,beginning on or after June 15, 2010. Early adoption is permitted. If avendor elects early adoption and the period of adoption is not the beginning ofthe entity’s fiscal year, the entity should apply the amendmentsretrospectively from the beginning of the year of adoption. The Company doesnot expect the provisions of ASU 2010-17 to have a material effect on thefinancial position, results of operations or cash flows of the Company.

 

As of July 1, 2008, we adopted the guidance set forth in the *Fair Value Measurements* Topic of the FASB ASC. This guidanceestablished a framework for measuring fair value in GAAP and clarified thedefinition of fair value within that framework. The guidance does not requireany new fair value measurements in GAAP. The guidance further introduced, orreiterated a number of key concepts which form the foundation of the fair valuemeasurement approach to be utilized for financial reporting purposes. The fairvalue of our financial instruments reflect the amounts that would be receivedupon sale of an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date (exit price). The guidancealso established a fair value hierarchy that prioritizes the use of inputs usedin valuation techniques into the following three levels:

 

Level 1—quoted prices in active markets for identical assets andliabilities.

 

Level 2—observable inputs other than quoted prices in activemarkets for identical assets and liabilities.

 

Level 3—unobservable inputs.

 

The adoption of these provisions did not have a material effect on ourfinancial condition and results of operations, but introduced new disclosuresabout how we value certain assets and liabilities. Much of the disclosurerequirement is focused on the inputs used to measure fair value, particularlyin instances where the measurement uses significant unobservable (Level 3)inputs. Our financial instruments are valued using quoted prices in activemarkets or based upon other observable inputs. The following table sets forththe fair value of our financial assets that were measured on a recurring basisas of September 30, 2010:

 
| ** **         | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Money market funds |       | $                | 1,100,951  |             |       |             |       |      | $          | 1,100,951 |   |
| Total              |       | $                | 1,100,951  |             |       |             |       |      | $          | 1,100,951 |   |

 

We have adopted the guidance set forth in the *Fair ValueOption for Financial Assets and Financial Liabilities* Topic of theFASB ASC. Pursuant to the guidance of this Topic, we are allowed theirrevocable option to elect fair value for the initial and subsequentmeasurements for specified financial assets and liabilities on acontract-by-contract basis. We did not elect to adopt the fair value optionincluded in this Topic. The provisions of the *Non-controllingInterests in Consolidated Financial Statements* Topic of the FASB ASCchange how business acquisitions are accounted for and will impact financialstatements both on the acquisition date and in subsequent periods. Theseprovisions will change the accounting and reporting for minority interests,which will be recharacterized as non-controlling interests and classified as acomponent of equity. These provisions are effective for both public and privatecompanies for fiscal years beginning on or after December 15, 2008 (thefiscal year ended June 30, 2010 for our company). The provisions will beapplied prospectively. The provisions also require retroactive adoption of thepresentation and disclosure guidance for existing minority interests. All otherguidance under this Topic will be applied prospectively. Early adoption isprohibited for both standards. Management has evaluated the guidance under thisTopic and has determined that there is no impact on our financial statements.

 

The provisions of the *Interim Disclosures aboutFair Value of Financial Instruments* Topic of the FASB ASC, which iseffective for interim periods ending after June 15, 2009, require thedisclosures of fair value of financial instruments in interim financialstatements as well as in annual financial statements. We have adopted theseprovisions and believe that they do not have a significant impact on ourfinancial position, cash flows, or disclosures.

 

The *Subsequent Events* Topic of the FASB ASCestablished general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. Recognized subsequent events should berecognized in the financial statements since the condition existed at the dateof the balance sheet. Non recognized subsequent events are not recognized inthe financial statements since the conditions arose after the balance sheetdate but before the financial statements are issued or are available to beissued. The guidance in this Topic, is effective for interim or annual periodsending after June 15, 2009. In connection with the preparation of ourconsolidated financial statements, we have evaluated subsequent events afterthe balance sheet date of September 30, 2010, through the filing of thisreport.

 

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**3.****                                     ****SEGMENT INFORMATION**

 

Our diagnostic medical products are sold in North America (the U.S.,Canada and Mexico) directly and through independent sales representatives, tohospital laboratories, laboratory chains, independent laboratories, universitylaboratories and reference laboratories. Internationally, our diagnosticmedical products are sold wholesale through distributors, except in the UK,where they are sold direct.  Managementhas chosen to organize our business around the two geographic segments ofbusiness: North American and International operations. The following table setsforth selected financial data for these segments for the three and nine monthperiods ended September 30, 2010 and 2009.

 
| ** **            | ** ** | ** ** | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------------|------------|------------|------------|----------------------------------------------------------|------------|
| ** **            | ** ** | ** ** | ** ** | **North  America**                                       | ** ** | **International** | ** ** | **Total** | ** ** |
| Net sales             |       | 2010       |       | $                                                        | 1,464,730  |   | $ | 513,494 |   | $ | 1,978,224 |   |
|                  |       | 2009       |       | $                                                        | 1,520,641  |   | $ | 524,326 |   | $ | 2,044,967 |   |
|                  |       |       |       |                                                     |       |   |   |   |   |
| Net loss              |       | 2010       |       | $                                                        | (96,596    | ) | $ | (251,634 | ) | $ | (348,230 | ) |
|                  |       | 2009       |       | $                                                        | (129,099   | ) | $ | 122,347 |   | $ | (6,752 | ) |
|                  |       |       |       |                                                     |       |   |   |   |   |
| Depreciation and      |       | 2010       |       | $                                                        | 101,958    |   | $ | 6,609 |   | $ | 108,567 |   |
| Amortization          |       | 2009       |       | $                                                        | 101,805    |   | $ | 5,654 |   | $ | 107,459 |   |
|                  |       |       |       |                                                     |       |   |   |   |   |
| Interest expense, net |       | 2010       |       | $                                                        | (105,783   | ) | $ | (2,879 | ) | $ | (108,662 | ) |
|                  |       | 2009       |       | $                                                        | (67,063    | ) | $ | (1,633 | ) | $ | (68,696 | ) |
|                  |       |       |       |                                                     |       |   |   |   |   |
| Segment assets:       |       |       |       |                                                     |       |   |   |   |   |
| September 30,    |       | 2010       |       | $                                                        | 6,037,534  |   | $ | 705,434 |   | $ | 6,742,968 |   |
| June 30,         |       | 2010       |       | $                                                        | 5,385,912  |   | $ | 768,853 |   | $ | 6,154,765 |   |

 

**4.****                                     ****REDEEMABLECOMMON STOCK AND REDEEMABLE CONVERTIBLE PREFERRED STOCK**

 

***(a)******                                ******Redeemable Common Stock and Warrants***

 

On July 1, 2002, as part of the Medical & BiologicalLaboratories Co., Ltd. (MBL) Stock Purchase Agreement, MBL purchasedshares of the Company’s common stock for $500,000, which MBL can require theCompany to repurchase at the same price in the event that a previously existingdistribution agreement with RhiGene, Inc. is terminated. For no additionalconsideration, MBL was also issued warrants to purchase an additional 880,282shares of Common Stock (“the Purchased Shares”) at a price of $.568 per share,which is equal to an aggregate amount of $500,000. These warrants were due toexpire on July 3, 2009 and may be exercised in whole or in part at anytime prior to their expiration. The estimated fair value of the warrant uponissuance was calculated as $401,809 using the Black-Scholes option-pricingmodel with the following assumptions: no expected dividend yield, 143%volatility, risk free interest rate of 4.2% and an expected life of five years.The gross proceeds of $500,000 were allocated $277,221 to redeemable commonstock and $222,779 to the related warrants based on the relative fair values ofthe respective instruments to the fair value of the aggregate transaction.Issuance costs and the discount attributed to the redeemable common stock uponissuance were accreted over the 33-month period to the first date whereupon theput option may be exercised, which was the expiration date of the distributionagreement between the Company and RhiGene, Inc. (March 31, 2008).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. MBL also received standard piggyback registration rights along withcertain demand registration rights.

 

Aspreviously reported, on August 1, 2005 the Company and MBL entered into anAmendment to the Common Stock Purchase Agreement and Warrant (the “Amendment”)wherein one-half, or 440,141, of the Purchased Shares were exchanged for athree-year promissory note in the principal amount of $250,000 payable withinterest at the prime rate plus two percent (the “First Note”) with paymentshaving commenced in September 1, 2005. The Amendment also extended the Warrants to August 31, 2008 oruntil the principal balance of the First Note was paid in full and re-pricedthe Warrants from $0.568 per share to $0.40 per share.  The First Note has been paid in full and allof the 440,041 Purchased Shares exchanged for the First Note have been returnedto the

 

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Company.  Pursuant to the Amendment, the remaining440,141 Purchased Shares not exchanged for the First Note were originally dueto be redeemed by the Company at $0.568 per share on August 1, 2008 unlessMBL was able to sell the remaining Purchased Shares on the open market.

 

Aspreviously reported, on August 1, 2008, the Company and MBL entered into aSecond Amendment to the Common Stock Purchase Agreement and Warrant (the “SecondAmendment”) wherein one-half, or 220,070, of the remaining Purchased Shareswere exchanged for a two-year promissory note in the principal amount of$125,000 payable with interest at the prime rate plus two percent (the “SecondNote”) with payments having commenced in September 1, 2008.  The Second Amendment also extended theWarrants to August 1, 2010 or until the principal balance of the SecondNote was paid in full.  As of the date ofthis report, no unpaid principal balance remained on the Second Note, and the220,070 Purchased Shares exchanged for the Second Note have been returned tothe Company.  Pursuant to the SecondAmendment, the remaining 220,071 Purchased Shares not exchanged for the SecondNote were originally due to be redeemed by the Company at $0.568 per share onAugust 1, 2010 unless MBL was able to sell the remaining Purchased Shareson the open market.

 

OnAugust 27, 2010, the Company entered into a Third Amendment to the CommonStock Purchase Agreement and Warrant dated August 1, 2010 (the “ThirdAmendment”) among the Company and MBL, wherein the remaining 220,070 PurchasedShares were exchanged for a two-year promissory note in the principal amount of$125,000, payable with interest at the prime rate plus two percent (the “ThirdNote”) with payments having commenced on September 1, 2010. The ThirdAmendment also extended the Warrants to August 1, 2012.

 

Asof September 30, 2010, a total of 660,212 shares have been returned to uspursuant to the two notes payable.

 

***(b)******                                ******Redeemable Convertible Preferred Stock***

 

On February 3, 2009, we entered into two agreements (the “RestructuringAgreements”) to restructure the debt evidenced by convertible term notes thatTruk Opportunity Fund, LLC, a Delaware company; Truk International Fund, LP,a Cayman Islands company (collectively, “Truk”); and CAMOFI Master LDC, aCayman Islands company, formerly named DCOFI Master LDC, (“CAMOFI”) purchasedon May 19, 2005 and December 28, 2005. The Restructuring Agreementssuspended all amortizing principal amount payments otherwise due under eachnote, beginning November 1, 2008 and ending on the earlier of (i) thefirst day of the month next succeeding the closing of any new financingtransaction or (ii) May 1, 2009 (the “Repayment Date”), at which timepayments would again have become due and payable on the first day of eachsubsequent month until September 30, 2010 (the “Maturity Date”). Paymentswould be equal to the amount of principal outstanding divided by the number ofmonths from the Repayment Date until the Maturity Date. On the Maturity Date,the amortizing principal amount for each of the term notes and all otheramounts due and owing must be repaid in full, whether by payment of cash, or atTruk’s or CAMOFI’s option, by the conversion into common stock.

 

Under the Restructuring Agreements, Truk and CAMOFI agreed that theirsecurity interest in our accounts receivable and inventory would only besubordinated to that of the lenders in any new financing, but that theirsecurity interest in all of our other assets will remain a perfected firstsecurity interest.

 

Simultaneously with the execution of the Restructuring Agreements:

 

(1)                                  We paid $22,466to Truk and CAMOFI for accrued and unpaid interest from November 1, 2008to February 3, 2009 with respect to term notes held by each;

 

(2)                                  We extended theexpiry dates of common stock purchase warrants held by the note-holders(warrants dated May 19, 2005 were extended to expire May 19, 2017,rather than May 19, 2012, and common stock purchase warrants datedDecember 28, 2005 were extended to expire December 28, 2015, ratherthan December 28, 2010);

 

(3)                                  We issued toCAMOFI 200,000 shares of our Series B Convertible Preferred Stock (“Series B”),with a liquidation preference of $50,000, which is convertible into 800,000shares of our common stock at the rate of $0.25 per share; and

 

(4)                                  We issued toTruk 36,680 shares of Series B, with a liquidation preference of $9,170,which is convertible into 146,720 shares of our common stock at the rate of$0.25 per share. The calculated cost of items (2) through(4) above, were charged to deferred finance costs and is being amortizedover nine months through December 2009.

 

OnOctober 8, 2010, we completed a repurchase of 200,000 shares of ourSeries B Convertible Preferred Stock (the “Repurchased Shares”) held byCAMOFI Master LDC, a Cayman Islands company (“CAMOFI”), for a purchase price of$50,000.  Pursuant to the SecondModification of Secured Convertible Term Notes dated January 29, 2009 byand between us and CAMOFI, the Repurchased Shares bore a $50,000 liquidationpreference and were convertible into 800,000 shares of our common stock at theoption of CAMOFI.  The repurchase wasfunded in part by cash on hand and in part by proceeds from the sale of theSecond Tranche Shares.

 

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**5.****                                    ****STOCKHOLDERS’ EQUITY**

 

***(a)******                                ******Employee Stock Purchase Plan***

 

Effective January 1, 1999, we adopted an Employee Stock PurchasePlan to provide eligible employees an opportunity to purchase shares of ourcommon stock through payroll deductions, up to 10% of eligible compensation. OnApril 26, 2007, Shareholders approved our Second Amended and RestatedEmployee Stock Purchase Plan. These plans fully comply with Section 423 ofthe Internal Revenue Code of 1986. Each quarter, participant account balancesare used to purchase shares of stock at the lesser of 85% of the fair value ofshares on the first business day (grant date) and last business day (exercisedate) of each quarter. No right to purchase shares shall be granted if,immediately after the grant, the employee would own stock aggregating 5% ormore of the total combined voting power or value of all classes of stock. Atotal of 600,000 common shares have been registered with the Securitiesand Exchange Commission (SEC) for purchase under the two plans. In the quarterended September 30, 2010, 1,440 shares were issued under the plans. In thequarter ended September 30, 2009, 27,673shares were issued under theplans.

 

***(b)******                                ******Incentive Stock Option Plan***

 

*Stock Options as of September 30, 2010*

 

Our Amended and Restated 1999 Incentive Stock Plan and the 2007Incentive Compensation Plan (the “Plan”) provides for two separate components.The Stock Option Grant Program, administered by the Compensation Committee (the“Committee”) appointed by our Board of Directors, provides for the grant ofincentive and non-statutory stock options to purchase common stock toemployees, directors or other independent advisors designated by the Committee.The Restricted Stock Program administered by the Committee, provides for theissuance of Restricted Stock Awards to employees, directors or otherindependent advisors designated by the Committee. The following tablesummarizes stock options outstanding as of September 30, 2010, and changesduring the three months then ended:

 
| ** **                                     | ** ** | **Outstanding Options** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  months)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Options outstanding at June 30, 2010      |       | 2,440,000                    |       | $ | 0.32 |   | 41.3 |   | $ | — |   |
| Granted                                        |       | (440,000                     | )          | $ | 0.10 |   | 83.5 |   |   |   |
| Exercised                                      |       | —                       |       | $ | — |   | — |   |   |   |
| Cancelled, expired or forfeited                |       | (40,000                      | )          | $ | 0.39 |   | 38.5 |   |   |   |
| Options outstanding at September 30, 2010 |       | 2,840,000                    |       | $ | 0.29 |   | 44.3 |   | $ | — |   |
| Options exercisable at September 30, 2010 |       | 2,840,000                    |       | $ | 0.29 |   | 44.3 |   | $ | — |   |

 

The total intrinsic value as of September 30, 2010 measures thedifference between the market price as of September 30, 2010 and theexercise price. No options were exercised during the three months ended September 30,2010. Consequently, no cash was received, nor did we realize any tax deductionsrelated to exercise of stock options during the period.

 

There was no estimated unrecognized compensation cost from unvestedstock options as of September 30, 2010.

 

The weighted average per share fair value of stock options grantedduring the quarter ending September 30, 2010 was $0.102. The weightedaverage per share fair value of stock options granted during the quarter endingSeptember 30, 2009 was $0.095. The fair value was estimated as of thegrant date using the Black-Scholes option pricing model with the followingassumptions:

 
| ** **                     | ** ** | **Quarters Months Ended** | ** ** |
|--------------------------------|------------|-------------------------------------|------------|
| ** **                     | ** ** | **September 30,**              | ** ** |
| **Valuation Assumptions** | ** ** | **2010**                            | ** ** | **2009** | ** ** |
|                           |       |                                |       |   |   |
| **Expected life**              | ** ** | **7years**                          | ** ** | **7 years** | ** ** |
| **Risk-free interest rate**    | ** ** | **2.69**                            | **%**      | **2.69** | **%** |
| **Expected volatility**        | ** ** | **135.8**                           | **%**      | **84.7** | **%** |
| **Expected dividend yield**    | ** ** | **0**                               | **%**      | **0** | **%** |

 

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Effective September 8, 2008, we adopted a One Year Short-termIncentive Compensation Plan to provide the executive officers an opportunity toearn shares of our common stock as a bonus and in lieu of cash compensationupon the achievement by us of certain stipulated and targeted EBITDA amounts.The shares of common stock to be issued under this plan were based upon theclosing stock price of our common stock as of June 30, 2009, which was$0.095. Based upon the reported EBITDA figures for the fiscal year endedJune 30, 2009, 737,099 shares of our common stock were earned by theExecutive Officers and were issued to the corporate officers at the end of September 2009.Under both issuances, the shares immediately vested upon issuance.

 

**6.****                                    ****DUE TO FACTOR**

 

On October 4, 2010, Corgenix UKentered into a letter agreement with Faunus Group International, Inc. (“FGI”),pursuant to which, among other things, Corgenix UK and FGI agreed to terminatethat certain Receivables Finance Agreement dated March 29, 2010 by andbetween Corgenix UK and FGI (as amended, the “Agreement”), effective as of September 30,2010.

 

Under the Agreement, Corgenix UK agreed to sell to FGI all of CorgenixUK’s right, title and interest in and to specified accounts receivable and allmerchandise represented by those accounts.  In exchange, FGI advancedfunds to the Company.

 

Contemporaneously with the termination of the Agreement, each offollowing agreements were terminated effective as of September 30, 2010: (a) Guarantydated March 29, 2010 by and between the Company and FGI, (b) Guarantydated March 29, 2010 by and between Corgenix Inc. and FGI, and (c) DebentureAgreement dated March 29, 2010 by and between Corgenix UK and FGI.  Corgenix UK paid FGI a termination fee of$25,000.

 

The accounts receivable sold to FGI were treated as a securedborrowing. During the quarter ended September 30, 2010, we sold $207,584of our accounts receivable invoices to FGI for approximately $176,027. Feespaid to FGI for interest and other services for the same period totaled$36,263.

 

On September 30, 2009, we, along with our wholly owned subsidiary,Corgenix, Inc., entered into a Financing Agreement, an Addendum to FinancingAgreement, a Loan and Security Agreement and a Promissory Note (collectively,the “Summit Agreements”) with Summit. We are jointly and severally liable forall obligations pursuant to the Summit Agreements. The Agreements with Summitprovide us and our subsidiary with a maximum credit line of $1,750,000 pursuantto an account factoring relationship, coupled with a secured line of credit.

 

Under the Financing Agreement, we agreed to sell all of our right,title and interest in and to accounts identified for purchase by Summit fromtime to time. The purchase price for each sold account equals the face amountof each account multiplied by the applicable advance rate, minus all interestand fees and charges as described in the Financing Agreement. In addition,interest will accrue on advances made by way of purchased accounts at the rateof prime plus 1.5% per annum until Summit receives payment in full on eachaccount. If Summit does not receive full payment on a purchased account by thedue date specified in the Financing Agreement, then we or our subsidiary (asapplicable) must repurchase that account, and pay Summit the default interestrate until it is repaid.

 

Currently, the advance rate on eligible accounts receivable is 85%, andwill remain the same unless Summit elects in its discretion to apply adifferent percentage.

 

The accounts receivable sold to Summit are also treated as a securedborrowing. During the quarter ended September 30, 2010 we sold $1,140,794of our accounts receivable invoices to Summit for approximately $969,675. Feespaid to Summit for interest and other services for the same period totaled$43,180.

 

Other Receivables at September 30, 2010 and September 30,2009 represent the retained percentages of the factored accounts receivable.

 

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**7.****                                    ****NOTES PAYABLE**

 

Notespayable consist of the following at September 30, 2010 and June 30,2010:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **September 30,  2010** | ** ** | **June 30, 2010** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                         |       |                        |       |       |       |
| Note payable, unsecured, to redeemable common  stockholders, with interest at prime plus 2.0% (5.25% as of  September 30, 2010 and June 30, 2010) due in monthly installments  with principal payments of $5,200 plus interest through August 2010                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | $                            | —     |                        | $          | 26,200     |       |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                         |       |                        |       |       |       |
| Note payable, net of discount of $35,349,  unsecured, to redeemable common stockholders, with interest  at prime plus 2.0% (5.25% as of September 30, 2010 due in  monthly installments with principal payments of $5,200 plus interest  through August 2012                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | 84,449                       |       | —                      |       |       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                         |       |                        |       |       |       |
| Note payable, payable to Summit Financial  Resources, with interest at prime rate plus 2.75% (6% as of  September 30, 2010 and June 30, 2010) due in monthly installments  with principal payments of $3,804 plus interest through  November 2009 plus interest, and via a note modification dated  November 30, 2009, weekly principal payments of $12,500 plus interest,  on December 7, 2009 and December 14, 2009, and $21,835 plus  interest on December 28, 2009, and then in monthly installments with  principal and interest of $1,647, commencing January 31, 2010 through  September 30, 2012, collateralized by all assets  of Corgenix |       | 38,617                       |       | 41,494                      |       |       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | 123,066                      |       | 67,694                      |       |       |       |
| Current portion, net of current portion of  discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | (63,437                      | )          | (43,953                     | )          |       |       |
| Notes payable, excluding current portion and net  of long-term portion of discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | $                            | 59,629     |                        | $          | 23,741     |       |   |   |

 

**8.****                                    ****COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES**

 

On July 12, 2010, we announced that under the terms and conditionsof the Master Distribution Agreement, and as a condition precedent to theclosing of the Second Tranche, Elitech UK became the exclusive distributor ofthe Company’s Products (as that term is defined therein) outside of NorthAmerica. Accordingly, we along with Corgenix U.K. assigned and/or transferredthe economic benefit to Elitech UK, and Elitech UK assumed all of theobligations of the Company or Corgenix U.K. under all distribution agreementsexecuted by us or Corgenix U.K., as the case may be, related to any distributorwhose territory is outside of North America. Thus, as a condition to theclosing of the Second Tranche investment with the ELITech group, we will haveeffectively transferred our product distribution activity outside of NorthAmerica from our subsidiary, Corgenix U.K., to Elitech UK. Pursuant to thisplan, beginning October 1, 2010, we anticipate winding down the businessactivities heretofore carried out by Corgenix UK and permanently closing thebusiness on or about December 31, 2010. In order to accomplish this winddown and closing of Corgenix UK, it is our intent to transfer one of CorgenixUK’s seven employees to Elitech UK, terminate the employment of all but two ofthe remaining Corgenix UK employees at September 30, 2010, retain one oftheir employees and one consultant until November 30, 2010, and retain thelast remaining employee until December 31, 2010. In connection with thisreduction in workforce, we expect to incur cash charges of approximately$91,543 for one-time costs associated with the severance of these employees,which will be accounted for on a straight-line basis over the period fromnotification through each employee’s termination date. In order to continue toretain key employees as it winds down its UK business, we may commit toadditional cash charges when and if such plans are necessary. We expect thatany such additional cash charges would not be material. In addition to theabove one-time charges amounting to $91,543, our intent is to sell, wherepossible, the fixed assets, and transfer the facility lease of Corgenix UK. Inthat regard, we estimate that we will incur an additional $76,678 in costsrelated to the loss on sale or abandonment of fixed assets, and $198,418 ofcharges relating to facility leases and other fixed obligations. All of thesecharges, with the exception of the loss on fixed assets, will result in futurecash expenditures. Although we believe that our estimates are appropriate andreasonable based on available information, actual results could differ fromthese estimates.  All of the aboveestimated costs were accrued as of Septemb er 30, 2010.

 

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**Item 2.**

 

**Management’s Discussion andAnalysis of**

**Financial Condition and Results of Operations**

 

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

 

**(a)****                                 ****Forward-LookingStatements**

 

This10-Q 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 than historical fact contained in this 10-Q,including, without limitation, statements regarding future capital guidance,acquisition strategies, strategic partnership expectations, technologicaldevelopments, the development, the availability of necessary components,research and development programs and distribution plans, are forward-lookingstatements.  All forward-lookingstatements included in this 10-Q are based on information available to us onthe date hereof, and we assume no obligation to update such forward-lookingstatements.  Although we believe that theassumptions and expectations reflected in such forward-looking statements arereasonable, we can give no assurance that such expectations will prove to havebeen correct or that we will take any actions that may presently be planned.

 

**(b)****                                 ****General**

 

Sinceour inception, we have been primarily involved in the research, development,manufacturing and marketing/distribution of diagnostic tests for sale toclinical laboratories. We currently market 52 products covering autoimmunedisorders, vascular diseases, infectious diseases and liver disease. Ourproducts are sold in the United States, the UK and other countries through ourmarketing and sales organization that includes direct sales representatives,contract sales representatives, internationally through an extensivedistributor network, and to several significant OEM partners.

 

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

 

Exceptfor the fiscal years ending June 30, 1997 and 2009, we have experiencedrevenue 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.

 

Beginningin fiscal year 1996, we began adding third-party OM licensed products to ourdiagnostic product line. Currently we sell 128 products licensed from ormanufactured by third party manufacturers. We expect to expand ourrelationships with other companies in the future to gain access to additionalproducts.

 

Although,as previously stated, we have experienced growth in revenues every year since1990, except for 2009 and 1997, there can be no assurance that, in the future,we will sustain revenue growth, current revenue levels, or achieve or maintainprofitability. Our results of operations may fluctuate significantly fromperiod-to-period as the result of several factors, including: (i) whetherand when new products are successfully developed and introduced, (ii) marketacceptance of current or new products, (iii) seasonal customer demand,(iv) whether and when we receive research and development payments fromstrategic partners, (v) changes in reimbursement policies for the productsthat we sell, (vi) competitive pressures on average selling prices for theproducts that we sell, and (vii) changes in the mix of products that wesell.

 

**(c)****                                 ****Resultsof Operations**

 

***Three months ended September 30, 2010************compared tothree months ended September 30, 2009***

 

*Net sales.*Net sales for the quarterended September 30, 2010 decreased $66,743 or 3.3% to $1,978,224 versus$2,044,967 in the same quarter of the prior fiscal year. Total North Americansales decreased $55,911 or 3.7% to $1,464,730 versus $1,520,641 in the prioryear’s first quarter, while total sales to international distributors decreased$10,832 or 2.1% to $513,494 versus $524,326 in the prior year’s first quarter.With respect to our major revenue categories and product lines, total worldwideCorgenix labeled product sales increased $82,914 or 6.3% to $1,409,842 versus$1,326,929 in the prior year’s first quarter. North American Corgenix labeledproduct sales increased $38,845 or 4.1% to $996,229 versus $957,385 in theprior year’s first quarter, whereas international Corgenix labeled productsales increased $44,069 or 11.9% to $413,613 versus $369,544 in the prior year’sfirst quarter. Worldwide category results were as follows: Phospholipids kitsales (including OEM) increased $9,187 or 1.0% to $927,565 versus $918,378 inthe prior year’s first quarter. Coagulation kit sales decreased $21,239 or 5.4%to $372,219 versus $393,459 in the prior year’s first quarter. HA kit salesincreased $37,071 or 19.0% to $231,970 versus $194,899 in the prior year’sfirst quarter, while autoimmune kit sales increased $11,541 or 39.4% to $40,831versus $29,290 in the prior year’s first quarter. Additionally, worldwide OEMrevenues decreased $5,351 or 2.1% to $247,188 versus $252,539 in the prior year’sfirst quarter, and contract manufacturing revenue decreased $170,893 or 87.7%to $24,000 versus $194,893 in the prior year’s first quarter. R & Dcontract revenue increased $138,052 or 

 

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214.12%to $202,525 versus $64,473 in the prior year’s first quarter. Finally, AspirinWorks sales increased $29,705 or 70.5% to $71,951 versus $42,116 in the prioryear’s first quarter.

 

*Cost of sales*.  Cost of sales, as a percentage of sales,decreased to 44.1% for the quarter ended September 30, 2010 from 45.4% inthe prior year’s comparable quarter. The decrease was primarily attributable toa differentiation in the product sales mix, and to a reduction of scrap andrework for the quarter.

 

*Selling and marketing expenses. *For the quarter ended September 30,2010, selling and marketing expenses decreased $40,154 or 9.8% to $369,363 from$409,517 for the quarter ended September 30, 2009. The $40,154 decreaseversus the prior year resulted primarily from decreases of $12,081 in CorgenixUK sales and marketing expenses, $17,899 in consulting expenses, and $10,640 intravel related expenses, partially offset by a net increase of $466 in otherselling and marketing expenses.

 

*Research and developmentExpenses.* Research anddevelopment expenses decreased $44,978 or 29.9% to $105,381 for the quarterended September 30, 2010, from $150,359 for the quarter ended September 30,2009. The $44,978 decrease versus the prior year resulted primarily fromdecreases of $36,619 in labor-related expenses, $7,196 in clinical studiesexpenses, and $5,274 in laboratory supplies, partially offset by a net increaseof $4,111 in other research and development expenses.

 

*General and administrative expenses.* For thequarter ended September 30, 2010, general and administrative expensesincreased 6.6% or $31,345 to $503,284 from $471,939 for the quarter ended September 30,2009. The $31,345 increase versus the prior year resulted primarily from increasesof $14,064 in consulting and outside services expenses, $7,266 in equipmentlease expense, $3,451 in bank charges, $3,875 in license fees and miscellaneous taxes, plus $2,689 in othergeneral and administrative expenses.

 

*Interest expense.* Interest expense increased$39,966, or 58.2% to $108,662 for the quarter ended September 30, 2010,from $68,696 for the quarter ended September 30, 2009. The $39,966increase in interest expense was due primarily to the additional interestexpense brought about by the FGI borrowings.

 

**(d)****                                 ****ADJUSTEDEBITDA**

 

Ouradjusted earnings before interest, taxes, depreciation, amortization, non cashexpense associated with stock-based compensation and the one-time costsassociated with exit or disposal activities (“Adjusted EBITDA”) increased$59,675 or 32.9% to $241,051 for the three months ended September 30, 2010compared with $181,376 for the corresponding three month period in fiscal 2010.Although adjusted EBITDA is not a GAAP measure of performance or liquidity, webelieve that it may be useful to an investor in evaluating our ability to meetfuture debt service, capital expenditures and working capital guidance.However, investors should not consider these measures in isolation or as asubstitute for operating income, cash flows from operating activities or anyother measure for determining our operating performance or liquidity that iscalculated in accordance with GAAP. In addition, because adjusted EBITDA is notcalculated in accordance with GAAP, it may not necessarily be comparable tosimilarly titled measures employed by other companies. A reconciliation ofAdjusted EBITDA to net earnings (loss) can be made by adding depreciation andamortization expense, corporate stock-based compensation expense, interestexpense, and income tax expense to net income (loss) as in the following table:

 
| ** **                                        | ** ** | **3 months ended  September 30,  2010** | ** ** | **3 months ended  September 30,  2009** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **RECONCILIATION OF ADJUSTED  EBITDA:**           |       |                                                   |       |                                                   |       |
| Net income (loss)                                 |       | $                                                      | (348,230   | )                                                      | $          | (6,752 | ) |
|                                              |       |                                                   |       |                                                   |       |
| Add back:                                         |       |                                                   |       |                                                   |       |
| Depreciation and amortization                     |       | 108,567                                                |       | 107,459                                                |       |
| Stock-based compensation expense                  |       | 5,636                                                  |       | 12,114                                                 |       |
| Interest expense, net of interest income          |       | 108,439                                                |       | 68,555                                                 |       |
| Costs associated with exit or disposal activities |       | 366,639                                                |       | —                                                 |       |
| Adjusted EBITDA                                   |       | $                                                      | 241,051    |                                                   | 181,376    |   |
|                                                   |            |                                                        |            |                                                        |            |  |  |

 

**(e)****                                 ****Financing Agreements**

 

On October 8, 2010, we closed the SecondTranche of the Common Stock Purchase Agreement (the “Common Stock PurchaseAgreement”) with Financière Elitech SAS, a société par actions simplifiéeorganized under the laws of France (“Elitech”), and Wescor, Inc., a Utahcorporation and subsidiary of Elitech (“Wescor”), effective as of October 1,2010.  As a condition to closing theSecond Tranche, we transferred our product distribution activity outside ofNorth America from our subsidiary, Corgenix 

 

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U.K. Ltd.,(“Corgenix UK”) to Elitech UK Limited, (“Elitech UK”), pursuant to theAssignment and Assumption Agreement, effective as of October 1, 2010 byand among us, Corgenix U.K.and Elitech UK. As an additional condition to closing the Second Tranche, Wescorpurchased 1,666,667 shares of our common stock (the “Second Tranche Shares”)for $250,000, or $0.15 per share.  For no additional consideration, weissued a warrant to Wescor to purchase 833,333 shares of our common stock at$0.15 per share (the “Second Tranche Warrant”).

 

Theforegoing descriptions of the Common Stock Purchase Agreement, the Assignmentand Assumption Agreement and the Second Tranche Warrant are not completedescriptions of all the terms of those agreements.  For a complete description of all the terms,we refer you to the full text of the Common Stock Purchase Agreement, theAssignment and Assumption Agreement and the Second Tranche Warrant, copies ofwhich were filed as Exhibits 10.1, 10.2 and 10.3, respectively, to the Form 8-K.

 

OnOctober 8, 2010, we also completed a repurchase of 200,000 shares of ourSeries B Convertible Preferred Stock (the “Repurchased Shares”) held byCAMOFI Master LDC, a Cayman Islands company (“CAMOFI”), for a purchase price of$50,000.  Pursuant to the SecondModification of Secured Convertible Term Notes dated January 29, 2009 byand between us and CAMOFI, the Repurchased Shares bore a $50,000 liquidationpreference and were convertible into 800,000 shares of our common stock at theoption of CAMOFI.  The repurchase wasfunded in part by cash on hand and in part by proceeds from the sale of the SecondTranche Shares.

 

On October 4, 2010, Corgenix UKentered into a letter agreement with Faunus Group International, Inc. (“FGI”),pursuant to which, among other things, Corgenix UK and FGI agreed to terminatethat certain Receivables Finance Agreement dated March 29, 2010 by andbetween Corgenix UK and FGI (as amended, the “Agreement”), effective as of September 30,2010.

 

Under the Agreement, Corgenix UK agreed to sell to FGI all of CorgenixUK’s right, title and interest in and to specified accounts receivable and allmerchandise represented by those accounts.  In exchange, FGI advancedfunds to the Company.

 

Contemporaneously with the termination of the Agreement, each offollowing agreements were terminated effective as of September 30, 2010: (a) Guarantydated March 29, 2010 by and between the Company and FGI, (b) Guarantydated March 29, 2010 by and between Corgenix Inc. and FGI, and (c) DebentureAgreement dated March 29, 2010 by and between Corgenix UK and FGI.  Corgenix UK paid FGI a termination fee of$25,000.

 

On July 12, 2010 we entered into the Common Stock PurchaseAgreement with Elitech and Wescor.  Inaccordance with the Common Stock Purchase Agreement, Wescor will purchase up to$2,000,000 of the Company’s common stock in three installments (subject tovarious conditions) and will receive warrants to purchase additional shares.Also, in connection with the Common Stock Purchase Agreement, we entered into(i) a distribution agreement (“Master Distribution Agreement”) withElitech UK and (ii) a joint product development agreement (“Joint ProductDevelopment Agreement”) with Elitech. The details of the Common Stock PurchaseAgreement, Master Distribution Agreement, and Joint Product DevelopmentAgreement are outlined below.

 

The investment by Wescor will take place over a maximum of threetranches:

 

First Tranche under the Common Stock Purchase Agreement—Pursuant to theFirst Tranche of the Common Stock Purchase Agreement, on July 16, 2010,Wescor invested $1,250,000 to purchase 8,333,334 shares of the Company’s commonstock valued at $0.15 per share. For no additional consideration the Companyissued a warrant to Wescor to purchase 4,166,667 shares at $0.15 per share. TheCompany entered into the Master Distribution Agreement with Elitech UK Limitedand the Joint Product Development Agreement with Elitech, contemporaneouslywith the issuance of the First Tranche Shares.

 

Second Tranche under the Common Stock Purchase Agreement—Pursuant tothe Second Tranche of the Common Stock Purchase Agreement, Wescor will invest$250,000 to purchase 1,666,667 shares of our common stock valued at $0.15 pershare. For no additional consideration we will issue a warrant to Wescor topurchase 833,333 shares at $0.15 per share. As a condition to the closing ofthe Second Tranche, the Company will have effectively transferred its productdistribution activity outside of North America from our subsidiary, CorgenixU.K. Ltd., to Elitech UK Limited.

 

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Third Tranche under the Common Stock Purchase Agreement—Pursuant to theThird Tranche of the Common Stock Purchase Agreement, Wescor will invest$500,000 to purchase 3,333,333 shares of our common stock valued at $0.15 pershare. For no additional consideration we will issue a warrant to Wescor topurchase 1,666,667 shares at $0.15 per share. As a condition to the closing ofthe Third Tranche, the Executive Committee established under the Joint ProductDevelopment Agreement will have determined the feasibility of creating not lessthan two (2) new Corgenix assays as further described in the Joint ProductDevelopment Agreement.

 

In connection with the Common Stock Purchase Agreement, at the initialclosing, which occurred on July 16, 2010, we entered into the MasterDistribution Agreement with Elitech UK, and we entered into the Joint ProductDevelopment Agreement with Elitech. Under the terms and conditions of theMaster Distribution Agreement, and as a condition precedent to the closing ofthe Second Tranche, Elitech UK became the exclusive distributor of the Company’sProducts (as that term is defined therein) outside of North America.Accordingly, we along with Corgenix U.K. assigned and/or transferred theeconomic benefit to Elitech UK, and Elitech UK assumed all of the obligationsof the Company or Corgenix U.K. under all distribution agreements executed byus or Corgenix U.K., as the case may be, related to any distributor whose territoryis outside of North America.

 

**(f)****                               ****Liquidity and Capital Resources**

 

At September 30, 2010, our working capital increased by $849,970to $2,995,900 from $2,145,930 at June 30, 2010, and concomitantly, ourcurrent ratio (current assets divided by current liabilities) increased from1.92 to 1 at June 30, 2010 to 2.34 to 1 at September 30, 2010. Thisincrease in working capital is primarily attributable to the $1,250,000strategic investment by ELITech.

 

At September 30, 2010, trade and other receivables were $1,260,653versus $1,408,969 at June 30, 2010. Accounts payable, accrued payroll andother accrued expenses increased by a combined $244,024 from June 30,2010. At September 30, 2010, inventories were $2,523,598, a slightincrease versus $2,499,557 at June 30, 2010.

 

For the quarter ended September 30, 2010, cash provided byoperating activities amounted to $135,121, versus cash provided by operatingactivities of $197,867 for the quarter ended September 30, 2009. Thereduction in the cash provided by operations for the current quarter resultedprimarily from the increase in the net loss for the period, a slight increasein inventories plus a decrease in accounts payable and accrued payroll andrelated liabilities.

 

Net cash provided by investing activities, the proceeds from the saleof fixed assets, offset by the purchase of laboratory equipment, leaseholdimprovements and computer equipment, was $93 for the quarter ended September 30,2010, compared to $5,951 net cash used for investing activities for the quarterended September 30, 2009.

 

Net cash provided by financing activities amounted to $755,098 for thequarter ended September 30, 2010 compared to $5,788 net cash provided byinvesting activities for the quarter ended September 30, 2009. This increaseversus the comparable prior year was primarily due to the proceeds from the$1,250,000 strategic investment by ELITech.

 

We have incurred operating losses and negative cash flow fromoperations for most of our history. Losses incurred since our inception, net ofdividends on redeemable common and redeemable preferred stock, have aggregated$13,519,815 and there can be no assurance that we will be able to generatepositive cash flows to fund our operations in the future or to pursue ourstrategic objectives. Historically, we have financed our operations primarilythrough long-term debt, factoring of accounts receivables, and the sales ofcommon stock, redeemable common stock, and preferred stock. We have alsofinanced operations through sales of diagnostic products and agreements withstrategic partners. We have developed and are continuing to modify an operatingplan intended to eventually achieve sustainable profitability, positive cashflow from operations, and an adequate level of financial liquidity. Keycomponents of this plan include consistent revenue growth and the cash to bederived from such growth, as well as the expansion of our strategic allianceswith other biotechnology and diagnostic companies, securing diagnostic-relatedgovernment contracts and grants, improving operating efficiencies to reduce ourcost of sales as a percentage of sales, thereby improving gross margins, andlowering our overall operating expenses. If our sales were to decline, areflat, or achieve very slow growth, we would undoubtedly incur operating lossesand a decreasing level of liquidity for that period of time. In view of this,and in order to further improve our liquidity and operating results, we enteredinto the ELITech collaboration and investment, described above.

 

The $1,250,000 ELITech common stock investment in addition to theSummit $1,750,000 September 30, 2009 credit facility, in conjunctionwith our current revised forecasts, should provide adequate resources tocontinue operations for longer than 12 months.

 

**(g)****                                ****Off-Balance Sheet Arrangements**

 

None.

 

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**(h)****                                ****Contractual Obligations and Commitments**

 

OnFebruary 8, 2006, we entered into a Lease Agreement (the “Lease”) withYork County, LLC, a California limited liability company (“Landlord”) pursuantto which we leased approximately 32,000 rentable square feet (the “Property”)of Landlord’s approximately 102,400 square foot building, commonly known asBroomfield One and located at 11575 Main Street, Broomfield, Colorado80020.  In 2008, the Property was sold toThe Krausz Companies, Inc. a California corporation, and is part ofLandlord’s multi-tenant real property development known as the BroomfieldCorporate Center.  We use the Propertyfor our headquarters, laboratory research and development facilities andproduction facilities.

 

Onthe following dates, we executed the following amendments to the Lease:

 

·                 December 1,2006- The Second Amendment to the Lease Agreement (the “Second Amendment”)established July 6, 2006 as the date of the commencement of the Lease

 

·                 June 19,2007- The Second Amendment to the Lease Agreement (the “Second Amendment”)redefined the amount of available rental space from 32,480 to 32,000 squarefeet and recalculated the lease rates per square foot, and

 

·                 July 19,2007- The Third Amendment to the Lease Agreement (the “Third Amendment”)established the base rent matrix for the period 11/28/2013 to 12/05/2013 whichwas inadvertently omitted in the Second Amendment.

 

Theterm of the Lease (the “Term”) is seven years and five months and commenced onJuly 6, 2006 with tenant options to extend the Term for up to twofive-year periods.  We have a one timeright of second refusal to lease contiguous premises.

 

Initiallythere was no base lease rate payable on 25,600 square feet of the Property,plus estimated operating expenses of $1.61 per square foot.

 

Thebase lease rate payable on 25,600 square feet of the Property increased to$4.00 per square foot on January 28, 2007, plus amortization of tenantimprovements of $5.24 per square foot, plus estimated operating expenses of$1.61 per square foot.  The base leaserate on 25,600 square feet of the Property increases to $5.64 per square footon January 28, 2008, with fixed annual increases each January 28thereafter during the initial Term, plus the amortization of tenantimprovements of $5.24 per square foot, and estimated operating expenses of$1.61 per square foot.

 

Initially,there was no base lease rate payable on 6,400 square feet of the Property, plusestimated operating expenses of $1.61 per square foot.  The base lease rate on 6,400 square feet ofthe Property increases to $3.00 per square foot commencing on August 28,2007, and increases to $3.09 on January 28, 2008, with fixed annualincreases each January 28 thereafter during the initial Term, plusestimated operating expenses of $1.61 per square foot.

 

Thus,the estimated total rent (this is dependent upon the actual operating expenses)on the entire 32,000 square feet of the Property is initially $1.61 per squarefoot, then increased to approximately $9.00 per square foot on January 28,2007, then increased to approximately $9.60 per square foot on August 282007, then increases to approximately $10.93 per square foot onJanuary 28, 2008, with annual increases in the base lease rate eachJanuary 28 thereafter during the initial Term, up to an estimated totalrent of $13.18 per square foot during the final year of the initial Term.

 

Thebase lease rate for an extension period is 100% of the then prevailing marketrental rate (but in no event less than the rent for the last month of the thencurrent Term) and shall thereafter increase annually by 3% for the remainder ofthe applicable extension period.

 

Wehave not invested in any real estate or real estate mortgages.

 

**Item 3.**

 

**Quantitative and QualitativeDisclosures about Market Risk**

 

Notrequired for smaller reporting companies.

 

**Item 4.**

 

**Controlsand Procedures**

 

Underthe supervision and with the participation of our President and Chief FinancialOfficer, our management has evaluated the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by this report asdefined in Rule 13a-

 

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15(b) orRule 15(d)-15(e) under the Securities Exchange Act of 1934 (the “ExchangeAct”). Based on that evaluation, the President and Chief Financial Officer haveconcluded that, as of the end of the period covered by this report, ourdisclosure controls and procedures are effective and ensure that informationrequired to be disclosed in our Exchange Act reports is (1) recorded,processed, summarized and reported in a timely manner, and (2) accumulatedand communicated to management, including the President and our Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

There were no changes in our internal control overfinancial reporting as of the end of the period covered by this report thatmaterially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

**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.****                                ****Removedand Reserved**

 

None

** **

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

 

None

 

I**tem 6.****                                ****Exhibits**

** **

**a. Index to and Description of Exhibits***.*

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                        |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                        |
| 3.1*                |       | Amended  and Restated Articles of Incorporation, dated June 9, 2008                                                                                                                    |
|                |       |                                                                                                                                                                                        |
| 3.2*                |       | Amended  and Restated Bylaws, dated September 30, 2010                                                                                                                                 |
|                |       |                                                                                                                                                                                        |
| 31.1*               |       | Certification  of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                  |
|                |       |                                                                                                                                                                                        |
| 31.2*               |       | Certification  of Chief Financial Officers pursuant to section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                 |
|                |       |                                                                                                                                                                                        |
| 32.1*               |       | Certification  by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, or adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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*                 Filed herewith.

 

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**SIGNATURES**

 

In accordance with the guidance of the Securities Exchange Act of 1934,the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                    | CORGENIX  MEDICAL CORPORATION |
|-------------------------|-------------------------------|
|                    |                          |
|                    |                          |
| November 10,  2010 | By:                           | /s/  Douglass T. Simpson |
|                    |                          | Douglass  T. Simpson |
|                    |                          | President  and Chief Executive Officer |
| ** **              |                          | **(Principal  Executive Officer)** |
|                    |                          |
|                    |                          |
|                    | By:                           | /s/  William H. Critchfield |
|                    |                          | Chief  Financial Officer |
| ** **              |                          | **(Principal  Financial and Accounting Officer)** |

 

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