**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-QSB**

 
| **x**                                                   | **QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
| ** **                                              | ** **                                                                                             |
| **For the quarterly period ended March 31,  2008** |
| ** **                                              | ** **                                                                                             |
| **o**                                                   | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**      |

 

**For thetransition period from             to             **

 

**CommissionFile Number 000-24541**

** **

**CORGENIXMEDICAL CORPORATION**

(Name of Small Business Issuer in itsCharter)

 

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

 

**11575 Main Street, Number 400, Broomfield, CO80020**(Address of principal executive offices, including zipcode)

 

**(303) 457-4345**(Issuer’s telephone number, including area code)

 

 

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

 

Check whether the issuer: (1) filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the past 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x  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 definitions of “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2of 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 Exchange Act). Yes o  No x

 

The number of shares of Common Stock outstanding was 28,658,717 as of May 15,2008.

 

Transitional Small Business Disclosure Format. Yes o  No x

 

 

----

 

**CORGENIX MEDICAL CORPORATION**

 

**March 31, 2008**

 

**TABLE OF CONTENTS**

 
| **Part I**           |
|---------------------------|
| ** **                |
| **Financial Information** |
|                      |   |   |
| Item 1.                   | Consolidated Financial Statements | 3 |
|                      |   |   |
| Item  2.                  | Management’s  Discussion and Analysis or Plan of Operation | 15 |
|                      |   |   |
| Item  3.                  | Controls  and Procedures | 21 |
|                      |   |   |
| **Part II**          |
| ** **                |
| **Other Information**     |
|                      |   |   |
| Item 1.                   | Legal Proceedings | 25 |
|                      |   |   |
| Item 2.                   | Unregistered Sales of Equity Securities and  Use of Proceeds | 25 |
|                      |   |   |
| Item 3.                   | Defaults Upon Senior Securities | 25 |
|                      |   |   |
| Item 4.                   | Submission of Matters to a Vote of Security  Holders | 25 |
|                      |   |   |
| Item 5.                   | Other Information | 25 |
|                      |   |   |
| Item 6.                   | Exhibits and Reports on Form 8-K | 26 |
|                      |   |   |
| Certifications            |   |
|                           |  |  |  |

 

2

----

 

**PART I**

**Item 1.Consolidated Financial Statements**

**CORGENIXMEDICAL CORPORATION**

**ANDSUBSIDIARIES**

 

ConsolidatedBalance Sheets

 
| ** **                                                                                                                                                                                                                               | ** ** | **March 31,  2008** | ** ** | **June 30,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                                               | ** ** | **(Unaudited)**          | ** ** | ** **              | ** ** |
| **Assets**                                                                                                                                                                                                                               | ** ** | ** **               | ** ** | ** **              | ** ** |
| Current assets:                                                                                                                                                                                                                          |       |                     |       |                    |       |
| Cash and cash equivalents                                                                                                                                                                                                                |       | $                        | 1,652,080  |                    | $          | 1,324,072 |   |
| Accounts receivable, less allowance for  doubtful accounts of $94,097                                                                                                                                                                    |       | 1,220,311                |       | 1,225,677               |       |
| Inventories                                                                                                                                                                                                                              |       | 2,747,284                |       | 2,558,456               |       |
| Prepaid expenses                                                                                                                                                                                                                         |       | 171,114                  |       | 99,767                  |       |
| Total current assets                                                                                                                                                                                                                     |       | 5,790,789                |       | 5,207,972               |       |
| Equipment:                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Capitalized software costs                                                                                                                                                                                                               |       | 255,617                  |       | 255,617                 |       |
| Machinery and laboratory equipment                                                                                                                                                                                                       |       | 953,919                  |       | 944,663                 |       |
| Furniture, fixtures, leaseholds &  office equipment                                                                                                                                                                             |       | 1,685,328                |       | 1,808,698               |       |
|                                                                                                                                                                                                                                     |       | 2,894,864                |       | 3,008,978               |       |
| Accumulated depreciation and amortization                                                                                                                                                                                                |       | (1,084,096               | )          | (798,362                | )          |
| Net equipment                                                                                                                                                                                                                            |       | 1,810,768                |       | 2,210,616               |       |
| Intangible assets:                                                                                                                                                                                                                       |       |                     |       |                    |       |
| License                                                                                                                                                                                                                                  |       | 338,650                  |       | 332,838                 |       |
|                                                                                                                                                                                                                                     |       | 338,650                  |       | 332,838                 |       |
| Other assets:                                                                                                                                                                                                                            |       |                     |       |                    |       |
| Deferred financing costs net of  amortization of $1,104,284 and $873,729                                                                                                                                                                 |       | 512,344                  |       | 743,070                 |       |
| Due from officer                                                                                                                                                                                                                         |       | 12,000                   |       | 12,000                  |       |
| Due from Biosafe                                                                                                                                                                                                                         |       | —                   |       | 125,000                 |       |
| Other assets                                                                                                                                                                                                                             |       | 192,878                  |       | 257,180                 |       |
| Total assets                                                                                                                                                                                                                             |       | $                        | 8,657,429  |                    | $          | 8,888,676 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                                           | ** ** | ** **               | ** ** | ** **              | ** ** |
| Current liabilities:                                                                                                                                                                                                                     |       |                     |       |                    |       |
| Current portion of notes payable, net of  discount                                                                                                                                                                                       |       | $                        | 976,713    |                    | $          | 1,014,437 |   |
| Current portion of capital lease  obligations                                                                                                                                                                                            |       | 239,783                  |       | 223,127                 |       |
| Accounts payable                                                                                                                                                                                                                         |       | 765,756                  |       | 844,338                 |       |
| Accrued payroll and related liabilities                                                                                                                                                                                                  |       | 282,612                  |       | 271,994                 |       |
| Accrued interest                                                                                                                                                                                                                         |       | 27,074                   |       | 26,741                  |       |
| Deferred revenue                                                                                                                                                                                                                         |       | —                   |       | 465,615                 |       |
| Accrued liabilities                                                                                                                                                                                                                      |       | 245,084                  |       | 291,491                 |       |
| Total current liabilities                                                                                                                                                                                                                |       | 2,537,022                |       | 3,137,743               |       |
| Notes payable, net of discount, less  current portion                                                                                                                                                                                    |       | 332,292                  |       | 1,000,051               |       |
| Capital lease obligations, less current  portion                                                                                                                                                                                         |       | 264,041                  |       | 442,775                 |       |
| Deferred Facility Lease Payable, excluding  current portion                                                                                                                                                                              |       | 872,851                  |       | 1,065,227               |       |
| Total liabilities                                                                                                                                                                                                                        |       | 4,006,206                |       | 5,645,796               |       |
| Redeemable common stock, $0.001 par value  531,696 (unaudited) and 669,019 shares issued and outstanding, aggregate  redemption value of $302,003 (unaudited), and $380,003 net of unaccreted  discount and issue costs of $0 (note 5)   |       | 250,000                  |       | 250,000                 |       |
|                                                                                                                                                                                                                                     |       |                     |       |                    |       |
| Stockholders’ equity:                                                                                                                                                                                                               |       |                     |       |                    |       |
| Convertible Preferred stock, $0.001 par  value. Liquidation preference of $0 (unaudited) and $464,730. Authorized  5,000,000 shares, Issued and outstanding 0 (unaudited) and 1,327,800 on  March 31 and June 30, respectively |       | —                   |       | 1,327,800               |       |
| Common stock, $0.001 par value. Authorized  100,000,000 shares; Issued and outstanding 27,336,978 (unaudited) and  14,483,342 March 31 and June 30, respectively                                                               |       | 26,805                   |       | 13,814                  |       |
| Additional paid-in capital                                                                                                                                                                                                               |       | 17,292,240               |       | 13,444,483              |       |
| Accumulated deficit                                                                                                                                                                                                                      |       | (12,908,670              | )          | (11,808,129             | )          |
| Accumulated other comprehensive income  (loss)                                                                                                                                                                                           |       | (9,152                   | )          | 14,912                  |       |
| Total stockholders’ equity                                                                                                                                                                                                          |       | 4,401,223                |       | 2,992,880               |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                          |       | $                        | 8,657,429  |                    | $          | 8,888,676 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

3

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**CORGENIXMEDICAL CORPORATION**

**ANDSUBSIDIARIES**

## ConsolidatedStatements of Operations

 
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Nine months ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **March 31,  2008**         | ** ** | **March 31,  2007**        | ** ** | **March 31,****2008** | ** ** | **March 31,  2007** | ** ** |
| ** **                                                       | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                 | ** ** |
| Net sales                                                        |       | $                                | 1,950,829  |                            | $          | 2,011,995 |   | $ | 6,455,055 |   | $ | 5,390,918 |   |
| Cost of sales                                                    |       | 811,239                          |       | 816,907                         |       | 2,828,213 |   | 2,133,815 |   |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Gross profit                                                     |       | 1,139,590                        |       | 1,195,088                       |       | 3,626,842 |   | 3,257,103 |   |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Operating expenses:                                              |       |                             |       |                            |       |   |   |   |   |
| Selling and marketing                                            |       | 500,235                          |       | 504,120                         |       | 1,524,014 |   | 1,569,858 |   |
| Research and development                                         |       | 165,932                          |       | 180,254                         |       | 478,197 |   | 586,061 |   |
| General and administrative                                       |       | 536,335                          |       | 548,137                         |       | 1,461,296 |   | 1,841,616 |   |
| Total expenses                                                   |       | 1,202,502                        |       | 1,232,511                       |       | 3,463,507 |   | 3,997,535 |   |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Operating income (loss)                                          |       | (62,912                          | )          | (37,423                         | )          | 163,335 |   | (740,432 | ) |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Other income (expense)                                           |       |                             |       |                            |       |   |   |   |   |
| Other income, net                                                |       | 12,230                           |       | 16,513                          |       | 23,918 |   | 75,785 |   |
| Interest expense                                                 |       | (301,420                         | )          | (308,460                        | )          | (1,287,794 | ) | (1,416,047 | ) |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Net loss                                                         |       | (352,102                         | )          | (329,370                        | )          | (1,100,541 | ) | (2,080,694 | ) |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Net loss per share, basic and diluted                            |       | $                                | (0.01      | )                               | $          | (0.03 | ) | $ | (0.05 | ) | $ | (0.17 | ) |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Weighted average shares outstanding, basic  and diluted (note 2) |       | 26,462,150                       |       | 13,079,649                      |       | 23,601,550 |   | 12,047,554 |   |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Net loss                                                         |       | $                                | (352,102   | )                               | $          | (329,370 | ) | $ | (1,100,541 | ) | $ | (2,080,694 | ) |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Other comprehensive income (loss)-foreign  currency translation  |       | 30,645                           |       | 842                             |       | (24,064 | ) | 5,238 |   |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Total comprehensive loss                                         |       | $                                | (321,457   | )                               | $          | (328,528 | ) | $ | (1,124,605 | ) | $ | (2,075,456 | ) |

 

See accompanying notes to consolidated financial statements.

 

4

----

 

**CORGENIX MEDICAL CORPORATION**

**AND SUBSIDIARIES**

# Consolidated Statement of Stockholders’ EquityFor the nine months ended March 31, 2008(Unaudited)

 
| ** **                                                                      | ** ** | **Preferred  Stock,  Number  of Shares** | ** ** | **Preferred  Stock,  $0.001 par** | ** ** | **Common  Stock,  Number  of Shares** | ** ** | **Common  Stock,  $0.001  par** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | **Total  stockholders’  equity** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|--------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|------------|
|                                                                            |       |                                          |       |                                   |       |                                       |       |                            |       |                             |       |                     |       |                                                      |       |                                  |       |
| Balance at  June 30, 2007                                                  |       | 1,327,800                                     |       | $                                      | 1,327,800  |                                       | 14,483,342 |                            | $          | 13,814                           |       | $                        | 13,444,483 |                                                      | $          | (11,808,129                           | )          | $ | 14,912 |   | $ | 2,992,880 |   |
|                                                                            |       |                                          |       |                                   |       |                                       |       |                            |       |                             |       |                     |       |                                                      |       |                                  |       |
| Issuance of  common stock for cash                                              |       | —                                        |       | —                                 |       | 3,956,000                                  |       | 3,956                           |       | 985,044                          |       | —                   |       | —                                                    |       | 989,000                               |       |
| Issuance cost for  common stock offering                                        |       | —                                        |       | —                                 |       | —                                     |       | —                          |       | (220,336                         | )          | —                   |       | —                                                    |       | (220,336                              | )          |
| Issuance of  common stock for services                                          |       | —                                        |       | —                                 |       | 21,724                                     |       | 22                              |       | 16,202                           |       | —                   |       | —                                                    |       | 16,224                                |       |
| Issuance of  common stock in exchange for debt and interest                     |       | —                                        |       | —                                 |       | 4,120,693                                  |       | 4,120                           |       | 1,045,237                        |       | —                   |       | —                                                    |       | 1,049,357                             |       |
| Addition of  discount on convertible notes due to contingent conversion feature |       | —                                        |       | —                                 |       | —                                     |       | —                          |       | 536,875                          |       | —                   |       | —                                                    |       | 536,875                               |       |
| Conversion of  preferred stock into common stock                                |       | (1,327,800                                    | )          | (1,327,800                             | )          | 4,160,689                                  |       | 4,161                           |       | 1,323,639                        |       | —                   |       | —                                                    |       | —                                |       |
| Compensation  expense recorded as a result of stock options issued              |       | —                                        |       | —                                 |       | —                                     |       | —                          |       | 145,028                          |       | —                   |       | —                                                    |       | 145,028                               |       |
| Exercise of  warrants                                                           |       | —                                        |       | —                                 |       | 731,851                                    |       | 732                             |       | (732                             | )          | —                   |       | —                                                    |       | —                                |       |
| Issuance of  warrants for license                                               |       | —                                        |       | —                                 |       | —                                     |       | —                          |       | 16,800                           |       | —                   |       | —                                                    |       | 16,800                                |       |
| Cancellation of  redeemable stock upon note pay down                            |       | —                                        |       | —                                 |       | (137,321                                   | )          | —                          |       | —                           |       | —                   |       | —                                                    |       | —                                |       |
| Foreign currency  translation                                                   |       | —                                        |       | —                                 |       | —                                     |       | —                          |       | —                           |       | —                   |       | (24,064                                                   | )          | (24,064                               | )          |
| Net loss                                                                        |       | —                                        |       | —                                 |       | —                                     |       | —                          |       | —                           |       | (1,100,541               | )          | —                                                    |       | (1,100,541                            | )          |
|                                                                            |       |                                          |       |                                   |       |                                       |       |                            |       |                             |       |                     |       |                                                      |       |                                  |       |
| Balance at  March 31, 2008                                                 |       | —                                        |       | $                                      | —     |                                       | 27,336,978 |                            | $          | 26,805                           |       | $                        | 17,292,240 |                                                      | $          | (12,908,670                           | )          | $ | (9,152 | ) | $ | 4,401,223 |   |

 

See accompanying notes to consolidated financialstatements.

 

5

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**CORGENIXMEDICAL CORPORATION**

**ANDSUBSIDIARIES**

## ConsolidatedStatements of Cash Flows

 
| ** **                                                                      | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                      | ** ** | **March 31,  2008**        | ** ** | **March 31,  2007** | ** ** |
| ** **                                                                      | ** ** | **(Unaudited)**                 | ** ** | **(Unaudited)** | ** ** |
| Cash flows from operating activities:                                           |       |                            |       |   |   |
| Net loss                                                                        |       | $                               | (1,100,541 | ) | $ | (2,080,694 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:    |       |                            |       |   |   |
| Depreciation and amortization                                                   |       | 303,698                         |       | 264,972 |   |
| Accretion of discount on note payable                                           |       | 800,291                         |       | 711,693 |   |
| Gain on disposal of equipment                                                   |       | —                          |       | (6,729 | ) |
| Bad debt expense                                                                |       | —                          |       | 50,000 |   |
| Common stock issued for services                                                |       | 16,224                          |       | 40,053 |   |
| Common stock issued for interest                                                |       | 142,458                         |       | 52,156 |   |
| Compensation expense recorded for stock  options issued                         |       | 145,028                         |       | 107,541 |   |
| Amortization of deferred financing costs                                        |       | 230,555                         |       | 327,812 |   |
| Changes in operating assets and  liabilities:                                   |       |                            |       |   |   |
| Accounts receivable, net                                                        |       | 3,237                           |       | 206,940 |   |
| Inventories                                                                     |       | (189,640                        | )          | (749,344 | ) |
| Prepaid expenses and other assets, net                                          |       | 110,533                         |       | (494,688 | ) |
| Accounts payable                                                                |       | (98,509                         | )          | 417,790 |   |
| Accrued payroll and related liabilities                                         |       | 15,050                          |       | 34,422 |   |
| Accrued interest and other liabilities                                          |       | (553,006                        | )          | 5,309 |   |
|                                                                            |       |                            |       |   |   |
| Net cash used in operating activities                                           |       | (174,622                        | )          | (1,112,767 | ) |
|                                                                            |       |                            |       |   |   |
| Cash flows used in investing activities:                                        |       |                            |       |   |   |
| Proceeds from disposal of equipment                                             |       | —                          |       | 43,051 |   |
| Additions to equipment                                                          |       | (41,786                         | )          | (231,210 | ) |
| Net cash used in investing activities                                           |       | (41,786                         | )          | (188,159 | ) |
|                                                                            |       |                            |       |   |   |
| Cash flows from financing activities:                                           |       |                            |       |   |   |
| Proceeds from issuance of common stock, net  of financing costs                 |       | 768,664                         |       | — |   |
| Payments on notes payable                                                       |       | (62,000                         | )          | (437,547 | ) |
| Payments on capital lease obligations                                           |       | (162,078                        | )          | (136,088 | ) |
| Net cash provided by (used in) financing  activities                            |       | 544,586                         |       | (573,635 | ) |
|                                                                            |       |                            |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                           |       | 328,178                         |       | (1,874,561 | ) |
|                                                                            |       |                            |       |   |   |
| Impact of exchange rate changes on cash                                         |       | (170                            | )          | 7,831 |   |
|                                                                            |       |                            |       |   |   |
| Cash and cash equivalents at beginning of  period                               |       | 1,324,072                       |       | 3,118,494 |   |
| Cash and cash equivalents at end of period                                      |       | $                               | 1,652,080  |   | $ | 1,251,764 |   |
|                                                                            |       |                            |       |   |   |
| Supplemental cash flow disclosures:                                             |       |                            |       |   |   |
| Cash paid for interest                                                          |       | $                               | 119,978    |   | $ | 342,360 |   |
| Noncash investing and financing activities-                                     |       |                            |       |   |   |
| Equipment acquired under capital leases                                         |       | $                               | —     |   | $ | 718,338 |   |
| Issuance of warrants for license                                                |       | $                               | 16,800     |   | $ | — |   |
| Issuance of stock for debt                                                      |       | $                               | 906,899    |   | $ | 170,788 |   |
| Issuance of stock for license                                                   |       | $                               | —     |   | $ | 22,843 |   |
| Conversion of preferred stock into common  stock                                |       | $                               | 1,327,800  |   | $ | — |   |
| Preferred Stock issued in kind for dividend                                     |       | $                               | —     |   | $ | 280,000 |   |
| Addition of discount on convertible notes  due to contingent conversion feature |       | $                               | 536,874    |   | $ | — |   |

 

See accompanying notes to consolidated financialstatements.

 

6

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**CORGENIX MEDICAL CORPORATION AND SUBSIDIARIES**

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

##### *Outlook*

#####  

In fiscal2008, we are focused on accelerating the market launch of our AspirinWorksassay, creating market awareness for our recently FDA cleared Anti-AtherOx TestKit, submission of a 510(k) Premarket Notification to the FDA for theCompany’s AtherOx Test Kit, completing further clinical studies for ourHyaluronic Acid Test Kit. and continuing the development and strategiccollaboration towards the development of a group of products to detectpotential bio-terrorism agents.

 

Our balancesheet, cash flow and liquidity positions have continued to improve andhopefully will allow us to take advantage of opportunities, as we focusprimarily on the organic growth of our business.

 

##### *Company Overview*

#####  

Corgenix Medical Corporation, which we referto as Corgenix or the Company, is engaged in the research, development,manufacture, and marketing of in vitro (outside the body) diagnostic productsfor use in disease detection and prevention. We currently sell 52 diagnosticproducts on a worldwide basis to hospitals, clinical testing laboratories,universities, biotechnology and pharmaceutical companies and research institutions.  In the United States and the United Kingdom,we sell directly to these customers. Elsewhere in the world, we primarily sell to independent distributorsthat in turn sell to the laboratories.

 

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

 
| · | Corgenix, Inc. (formerly REAADS Medical  Products, Inc.), established in 1990 and located in Broomfield,  Colorado. Corgenix, Inc. is responsible for sales and marketing  activities for North America, and also executes product development, product  support, clinical and regulatory affairs, and product manufacturing. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                         |
| · | Corgenix (UK) Ltd, incorporated in the United  Kingdom in 1996 (formerly REAADS Bio-Medical Products (UK) Limited) and  located in Peterborough, England. Corgenix UK manages our international sales  and marketing activities except for distribution in North America, which is  the responsibility of Corgenix, Inc.                |

 

We continue to usethe REAADS trademark and trade name in the sale of products that wemanufacture.

 

***Recent Developments***

 

OnApril 10, 2008, we received 510(k) clearance by the United StatesFood and Drug Administration (FDA) for the Company’s Anti-Atherox® Test Kit.This new laboratory test now available worldwide utilizes the Company’spatented Anti-Atherox® technology to detect antibodies in individuals withimportant autoimmune diseases.

 

OnJuly 25, 2007 and September 17, 2007, we entered into subscriptionand other agreements to complete a private placement with certain institutionaland other accredited investors.

 

Ouroffering consisted of common stock in the Company (the “Shares”) at the priceof $0.25 per share.  For each Sharepurchased, every investor received an equal number of common stock purchasewarrants (the “Warrants”).  One-third ofthe Warrants issued to each investor are exercisable at $0.34 per share with aone-year term, one-third are exercisable at $0.375 per share with a two-yearterm, and the remaining third are exercisable at $0.40 per share with a  five-year term.

 

TheShares and Warrants were offered and sold in reliance on exemptions fromregistration pursuant to Section 4(2) of the Securities Act of 1933,and Rule 506 of Regulation D there under. Each investor is an “accredited investor” as defined in Rule 501 ofthe same.

 

7

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Thesale of the Shares and Warrants also included a Registration Rights Agreementwhereby we provided the purchasers with “piggy back” registration rights if wepropose to register securities under the 1933 Act.

 

As of September 17, 2007, we had sold the maximum amount plus overallotment amounting to $989,000 in Shares and Warrants.

 

Terra Nova Financial, LLC, an Illinois limited liability company (“TerraNova”), acted as a placement agent for the Company. Iliad Advisors, LLC, anIllinois limited liability company (“Iliad Advisors”), provided advisoryservices to Terra Nova on the transaction. As compensation for Terra Nova’s services, we paid Terra Nova a feeequal to 7% of the aggregate offering price, at each close of each stage of thetransaction.

 

Terra Nova’s fee also included warrants, due to Terra Nova at the closeof the transaction, to purchase shares of our common stock at the exerciseprice of $0.25 per share.  Since TerraNova succeeded in selling the maximum offering plus the over-allotment,totaling an aggregate of $989,000, it received $69,230 in cash, and warrants topurchase 276,920 shares of common stock at an exercise price of $0.25 pershare.

 

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

 

We believe that there is a present and growing need for non-invasive,simple and accurate confirmation of aspirin effectiveness and aspirin therapy,and that the License Agreement will position us to provide products to meetthis need.  Since 2005, Corgenix and CCChave been engaged in a collaborative partnership to develop, manufacture andmarket products for aspirin monitoring, including the AspirinWorks® Test Kit, asimple urine test that measures a person’s response to aspirin and allowsphysicians to determine the effect of aspirin therapy on an individualbasis.  Under terms of the originalagreement, CCC and Corgenix had agreed to equally share expenses and revenuesthat resulted from the business.  Underthe License Agreement, Corgenix acquired the remaining 50 percent of thelicense to CCC’s Aspirin Effectiveness Technology, thereby owning 100 percentof the rights to CCC’s Aspirin Effectiveness Technology.

 

The License Agreement requires CCC to provide us with a worldwide,perpetual license for the use of CCC’s Aspirin Effectiveness Technology.  Additionally, CCC provided us with the namesof contacts, customer lists, market information, competitive information andtechnology related to CCC’s already-developed market in Aspirin EffectivenessTechnology.  The License Agreementrequires CCC to assist with the manufacture of products derived from theAspirin Effectiveness Technology, and also provide us with a right of firstrefusal with regard to any new products developed by CCC for the purpose ofmeasuring aspirin effectiveness and the use of thromboxane and prostacyclinmetabolites to determine the effect of aspirin on platelets or endothelialcells.

 

We may use the Licensed Products in connection with any other asset ortrademark.  We may also enter intosublicense agreements with any other entity for the rights, privileges andlicenses granted to us under the License Agreement.  We must seek CCC’s consent before enteringany sublicense agreement, but CCC may not unreasonably withhold its consent solong as the sublicensee will use its commercially reasonable best efforts tomarket and sell the Licensed Products. We must use our commercially reasonable best efforts to market and sellthe Licensed Products.  To this end,within ninety days of the date the FDA grants clearance for the LicensedProducts, and for five years thereafter, we must develop and maintain aninteractive website dedicated to the Licensed Products.  CCC may not use or license or in any waytransfer rights to any of the Licensed Products to any third party.

 

The License Agreement provides that responsibility for manufacture,distribution, and administration of the sale of the Licensed Products is withus.  However, the Agreement requires CCCto assist and cooperate with us in this regard.

 

Our first payment to CCC became due at the execution of theAgreement.  We have provided acombination of cash, shares of the Company’s common stock, and warrants topurchase the Company’s common stock. Following FDA clearance of the first Licensed Product, we are requiredto make additional payments to CCC.  Onthe first, second and third anniversary of that clearance, we will be obligatedto make payments consisting of cash, shares of common stock, and warrants topurchase shares of common stock.  Theamount of cash and number of shares and warrants due in these anniversarypayments will be determined by application of a formula including a certain dollarvalue, the total cumulative

 

8

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revenue received by us fromsales of the Licensed Products during that year, and our common stock shareprice on the relevant anniversary.  Thedollar value applicable to that ratio increases with each anniversary.

 

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, the total anniversary payments will not exceed$200,000 in cash, $300,000 in value of shares of common stock (as valued on thedate of issue), and 300,000 warrants to purchase shares of common stock at anexercise price of $0.35 per share.

 

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.  TheLicense Agreement’s caps on payments from us to CCC do not apply to royaltypayments. Royalty payments for the quarter ended March 31, 2008 wereminimal.

 

The Company and CCC anticipate that the License Agreement will remainin effect in perpetuity; however, the License Agreement provides fortermination in the event of material breach, or if we become insolvent or filefor protection under the U.S. Bankruptcy Code. Termination would cause all of our rights under the License Agreement torevert to CCC, although any rights sublicensed to a third party would not berevoked or infringed by any such termination.

 

The License Agreement required that we forgive all unpaid fees, costsand expenses due to us under that certain Product Developing, Manufacturing,and Distribution Agreement between us and CCC dated May 13, 2005.  The License Agreement also requires that weforgive all unpaid fees, costs, expenses and charges due to us under thatcertain license agreement between the parties and McMaster University, dated October 19,2005.  The total value of such forgivenfees, costs, expenses and charges was approximately $230,000 and wascapitalized as part of the license on the accompanying balance sheet.

 

Certain information and note disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America (GAAP)have been omitted from these unaudited consolidated financial statements. Theseunaudited consolidated financial statements should be read in conjunction withthe financial statements and notes thereto included in the Company’s AnnualReport on Form 10-KSB for the fiscal year ended June 30, 2007.  The results of operations for the threemonths and nine months ended March 31, 2008 and 2007 are not necessarilyindicative of the operating results for the full year.

 

In the opinion of management, alladjustments, consisting only of normal recurring accruals, have been made topresent fairly the Company’s financial position at March 31, 2008 and theresults of operations and its cash flows for the three months and nine monthsended March 31, 2008 and 2007.

 

***Our Business***

 

**Introduction**

 

Our business includes theresearch, development, manufacture, and marketing of in vitro diagnosticproducts for use in disease detection and prevention.  We currently sell 52 diagnostic products on aworldwide basis to hospitals, clinical testing laboratories, universities,biotechnology and pharmaceutical companies and research institutions.  We have developed and we manufacture most ofour products at our Colorado facility, and we purchase what we refer to as OMProducts from other healthcare manufacturers for resale by us.  All of these products are used in clinicallaboratories for the diagnosis and/or monitoring of three important areas ofhealth 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. We manufactureand market to clinical laboratories and other testing sites worldwide.  Our customers include large and emerginghealth care companies such as diaDexus, Inc., Bio Rad Laboratories, Inc.,Instrumentation Laboratories, Helena Laboratories and Diagnostic Grifols, S.A.

 

9

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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 current products are based onthis platform technology in a delivery format convenient for clinical testinglaboratories.  The delivery format, whichis referred to as “Microplate,” allows the testing of up to 96 samples perplate, and is one of the most commonly used formats, employing conventionaltesting equipment found in 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 “test kits” thatinclude all of the materials required to perform the test, except for routinelaboratory chemicals and instrumentation. A test using ELISA technology involves a series of reagent additionsinto the Microplate, triggering a complex immunological reaction in which aresulting color occurs.  The amount ofcolor developed in the final step of the test is directly proportional to theamount of the specific marker being tested for in the patient or unknownsample.  The amount of color is measuredand the results calculated using routine laboratory instrumentation.  Our technology specifies a process by whichbiological materials are attached to the fixed surface of a diagnostic testplatform.  Products developed using thisunique attachment method typically demonstrate a more uniform and stablemolecular configuration, providing a longer average shelf life, increasedaccuracy and  superior specificity thanthe products of our competitors.

 

Some of the 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 developingadditional products that are intended to broaden the range of applications forour existing products and to result in the introduction of new products.

 

Since 1990, our sales force and distribution partners have sold over 12million tests worldwide under the REAADS and Corgenix labels, as well asproducts sold under other manufacturers’ labels, referred to as OEMproducts.  An integral part of ourstrategy is to work with corporate partners to develop market opportunities andaccess important resources.  We believethat our relationships with current and potential partners will enable us toenhance our menu of diagnostic products and accelerate our ability to penetratethe worldwide 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 the majority of our product sales.

 

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

 

Basic earnings (loss)per share is computed by dividing net loss attributable to common stockholdersby the weighted average number of common shares outstanding.  Diluted earnings (loss) per share is computedby dividing net loss attributable to common stockholders by the weightedaverage number of common shares outstanding increased for potentially dilutivecommon shares outstanding during the period. The dilutive effect of stock options and their equivalents is calculatedusing the treasury stock method.   Stockoptions to purchase 40,000 and 190,000 shares were granted during the quarterand nine months ended March 31, 2008. No options were granted during thequarter ended March 31, 2007 and stock options to purchase 1,085,000shares were granted during the nine months ended March 31, 2007.Optionsand warrants to purchase common stock totaling 36,548,710 shares as of March 31,2008, are not included in the calculation of weighted average commonshares-diluted below as their effect is anti-dilutive. Redeemable common stockis included in the common shares outstanding for purposes of calculating netincome (loss) per share.

 
| ** **                                                          | ** ** | **3 Months ended  March 31,  2008** | ** ** | **3 Months ended  March 31,  2007** | ** ** | **9 Months ended  March 31,  2008** | ** ** | **9 Months ended  March 31,  2007** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| Net loss                                                            |       | $                                                  | (352,102   | )                                                  | $          | (329,370                                           | )          | (1,100,541                                         | )          | $ | (2,080,694 | ) |
|                                                                |       |                                               |       |                                               |       |                                               |       |                                               |       |
| Common and common equivalent shares  outstanding:                   |       |                                               |       |                                               |       |                                               |       |                                               |       |
| Historical common shares outstanding at beginning  of period        |       | 25,347,825                                         |       | 10,723,205                                         |       | 14,483,342                                         |       | 10,723,205                                         |       |
| Weighted average common equivalent shares  issued during the period |       | 1,114,325                                          |       | 2,356,444                                          |       | 9,118,208                                          |       | 1,324,349                                          |       |
|                                                                |       |                                               |       |                                               |       |                                               |       |                                               |       |
| Weighted average common shares — basic and  diluted            |       | 26,462,150                                         |       | 13,079,649                                         |       | 23,601,550                                         |       | 12,047,554                                         |       |
| Net loss per share — basic and diluted                         |       | $                                                  | (0.01      | )                                                  | $          | (0.03                                              | )          | $                                                  | (0.05      | ) | $ | (0.17 | ) |
|                                                                     |            |                                                    |            |                                                    |            |                                                    |            |                                                    |            |  |  |  |  |

 

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**3.****                                      INCOMETAXES**

 

On July 1, 2007, we adoptedFASB Interpretation No. 48 (“FIN 48”), *“Accounting forUncertainty in Income Taxes — an interpretation of FASB Statement 109,”*whichwas issued in July 2007. FIN 48 prescribes a comprehensive model forrecognizing, measuring, presenting and disclosing in the financial statements,tax positions taken or expected to be taken on a tax return, including adecision whether to file or not to file in a particular jurisdiction. If thereare changes in net assets as a result of application of FIN 48, these will beaccounted for as an adjustment to retained earnings. There were no unrecognizedtax benefits as of July 1, 2007, the date that FIN 48 was adopted. Ifthere was an adjustment related to implementation of FIN 48, there would be areduction to the deferred tax assets and a corresponding reduction to thevaluation allowance, resulting in no net effect on accumulated deficit. If anyunrecognized benefit would be recognized, it would not affect our effective taxrate since it is subject to a full valuation allowance.

 

Our practice is to recognizeinterest and/or penalties related to income tax matters in income tax expense.We have accrued $0 for interest and penalties as of  March 31, 2008.

 

A valuation allowance wasprovided for deferred tax assets, as we are unable to conclude under relevantaccounting standards that it is more likely than not that deferred tax assetswill be realizable.

 

We did not record a provision forincome taxes for the three and nine month periods ended March 31, 2008 or2007 as a result of operating losses and current estimated operating resultsfor the current fiscal year. We have recorded valuation allowances to fullyreserve our deferred tax assets, as management believes it is more likely thannot that these assets will not be realized. It is possible that management’sestimates as to the likelihood of realization of its deferred tax assets couldchange as a result of changes in estimated operating results. Should managementconclude that it is more likely than not that these deferred tax assets are, atleast in part, realizable, the valuation allowance will be reduced andrecognized as a deferred income tax benefit in the statement of operations inthe period of change, except as noted herein.

 

**4.****                                      SEGMENTINFORMATION**

 

The Company has two segments of business:North American and International operations. North American operationstransacts all sales in North America (US, Canada and Mexico). Internationaloperations transacts all other sales. The following table sets forth selectedfinancial data for these segments for the three-and nine-month periods ended March 31,2008 and 2007.

 
| ** **            | ** ** | ** ** | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|-----------------------|------------|------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **            | ** ** | ** ** | ** ** | **Domestic**                                         | ** ** | **International**                                   | ** ** | **Total** | ** ** | **Domestic** | ** ** | **International** | ** ** | **Total** | ** ** |
| Net sales             |       | 2008       |       | $                                                    | 1,412,552  |                                                | $          | 538,277 |   | $ | 1,950,829 |   | $ | 4,779,256 |   | $ | 1,675,799 |   | $ | 6,455,055 |   |
|                  |       | 2007       |       | $                                                    | 1,456,522  |                                                | 555,473    |   | 2,011,995 |   | 3,937,923 |   | 1,452,995 |   | 5,390,918 |   |
|                  |       |       |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Net income (loss)     |       | 2008       |       | $                                                    | (551,046   | )                                                   | 198,944    |   | (352,102 | ) | (1,642,207 | ) | 541,666 |   | (1,100,541 | ) |
|                  |       | 2007       |       | $                                                    | (529,522   | )                                                   | 200,152    |   | (329,370 | ) | (2,547,990 | ) | 467,296 |   | (2,080,694 | ) |
|                  |       |       |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Depreciation and      |       | 2008       |       | $                                                    | 107,439    |                                                | 933        |   | 108,372 |   | 300,371 |   | 3,327 |   | 303,698 |   |
| Amortization          |       | 2007       |       | $                                                    | 93,690     |                                                | 1,150      |   | 94,840 |   | 261,590 |   | 3,382 |   | 264,972 |   |
|                  |       |       |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Interest expense, net |       | 2008       |       | $                                                    | (300,889   | )                                                   | (531       | ) | (301,420 | ) | (1,285,286 | ) | (2,508 | ) | (1,287,794 | ) |
|                  |       | 2007       |       | $                                                    | (307,775   | )                                                   | (685       | ) | (308,460 | ) | (1,413,947 | ) | (2,100 | ) | (1,416,047 | ) |
|                  |       |       |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Segment assets        |       |       |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| March 31,        |       | 2008       |       | $                                                    | 7,842,810  |                                                | 814,619    |   | 8,657,429 |   | 7,842,810 |   | 814,619 |   | 8,657,429 |   |
| June 30,         |       | 2007       |       | $                                                    | 8,156,103  |                                                | 732,573    |   | 8,888,676 |   | 8,156,103 |   | 732,573 |   | 8,888,676 |   |
|                       |            |            |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

On July 1, 2002, as part of the Medical &Biological Laboratories Co., Ltd. (MBL) Agreement, MBL purchased shares of ourcommon stock for $500,000, which MBL can require us to repurchase at the sameprice in the event that a

 

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previously existing distributionagreement with their wholly owned subsidiary RhiGene, Inc. (“Rhigene”) isterminated. For no additional consideration, MBL was also issued warrants topurchase an additional 880,282 shares of Common Stock at a price of $.568 pershare, which is equal to an aggregate amount of $500,000. These warrantsoriginally expired on July 3, 2007 and were to be exercised in whole or inpart at any time prior to their expiration. The estimated fair value of thewarrants upon issuance was calculated as $401,809 using the Black-Scholesoption-pricing model with the following assumptions: no expected dividendyield, 143% volatility, risk free interest rate of 4.2% and an expected life offive years**.**The gross proceeds of $500,000 wereallocated $277,221 to redeemable common stock and $222,779 to the relatedwarrants based on the relative fair values of the respective instruments to thefair value of the aggregate transaction. Issuance costs and the discountattributed to the redeemable common stock upon issuance were accreted over the33-month period to the first date whereupon the put option may be exercised,which was the expiration date of the distribution agreement between the Companyand RhiGene, Inc. (March 31, 2005). Furthermore, pursuant to theagreement with MBL, as long as MBL holds at least 50% of the common stockpurchased under the MBL agreement, MBL must give its written consent withrespect to the payment of any dividend, the repurchase of any of our equitysecurities, the liquidation or dissolution of the Company or the amendment ofany provision of our Articles of Incorporation or Bylaws which would adverselyaffect the rights of MBL under the stock purchase transaction documents. MBLwas granted standard anti-dilution rights with respect to stock issuances notregistered under the Securities Act. MBL also received standard piggybackregistration rights along with certain demand registration rights.

 

On March 31,2005 our distribution agreement with RhiGene expired, and we signed a newdistribution and OEM Supply Agreement with MBL International, Inc. (“MBLI”),a wholly owned subsidiary of MBL, which grants us non-exclusive rights todistribute MBL’s complete diagnostic line of autoimmune testing products in theUnited States and exclusive distribution rights to the OEM Label productsworldwide excluding the United States, Japan, Korea and Taiwan.  In addition, on August 1, 2005 theCompany and MBL executed an Amendment to the Common Stock Purchase Agreementand Common Stock Purchase Warrant wherein one-half or 440,141 of the originalredeemable shares are exchanged for a three-year promissory note payable withinterest at prime (7.25% as of March 31, 2008) plus two percent withpayments commencing before September 1, 2005.  The shares being exchanged for the promissorynote will be returned to the Company quarterly on a pro rata basis as paymentsare made on the promissory note. As of March 31, 2008, 348,586 redeemableshares have been returned to us under this agreement. The remaining 440,141shares will be redeemable by us at $0.568 per share as of August 1, 2008for any shares still owned at that time by MBL and only to the extent that MBLhas not realized at least $250,000 in gross proceeds upon the sales of itsredeemable shares in the open market for the time period August 1, 2005through August 30, 2008.  Finally,the warrants originally issued to MBL to purchase 880,282 shares have beenextended to August 31, 2008 and re-priced from $0.568 per share to $0.40per share.

 

**6.****                                      STOCK-BASEDCOMPENSATION**

 

*Adoption of SFAS123(R)*

 

Effective July 1,2006, we adopted the provisions of Statement of Financial Accounting Standard No. 123(revised 2004), “*Share-Based Payment”,*(SFAS123(R)”) which requires the measurement and recognition of compensation expensefor all share-based payment awards made to employees, officers and directorsand consultants, including stock options based on estimated fairvalues.Stock-based compensation expense recognized in the Statement of Operations for the three and nine  months ended March 31, 2008 and 2007 isbased on awards ultimately expected to vest and reduced, if necessary, forestimated forfeitures.

 

The adoption of SFAS 123(R) resultedin stock compensation expense for the quarterly and nine-month period ended March 31,2008 of $56,462 and $145,028 respectively, charged to general andadministrative expenses. This expense increased basic and diluted net loss pershare by less than $0.01 for the quarter ended March 31, 2008, andincreased basic and diluted loss per share by less than $0.01 for the ninemonths ended March 31, 2008 compared to reported basic and diluted incomeper share of $0.01 for the quarter and loss per share of $0.05 for thenine-month period. We did not recognize a tax benefit from the stockcompensation expense because we consider it more likely than not that therelated deferred tax assets, which have been reduced by a full valuationallowance, will not be realized.

 

The Black-Scholesoption-pricing model was used to estimate the option fair values. The option-pricingmodel requires a number of assumptions, of which the most significant areexpected stock price volatility, the expected pre-vesting forfeiture rate andthe expected option term (the amount of time from the grant date until theoptions are exercised or expire). Expected volatility was calculated based uponactual historical stock price movements over recent periods equal to theexpected option term. Expected pre-vesting forfeitures were estimated based onactual historical pre-vesting forfeitures over

 

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recentperiods for the expected option term. The expected option term was calculatedusing the “simplified” method permitted by SAB 107 and as further explained andexpanded by SAB 110..

 

*Stock Options asof the Nine-Month Period Ended March 31, 2008*

 

The Company’s Amended andRestated 1999 Incentive Stock Plan, the 2007 and 2007 Incentive CompensationPlans (the “Plans”) provide for two separate components. The Stock Option GrantProgram, administered by the Compensation Committee (the “Committee”) appointedby our Board of Directors, provides for the grant of incentive andnon-statutory stock options to purchase common stock to employees, directors orother independent advisors designated by the Committee. The Restricted StockProgram administered by the Committee, provides for the issuance of RestrictedStock Awards to employees, directors or other independent advisors designatedby the Committee.

 

The following table summarizesstock options outstanding and changes during the nine-month period ended March 31,2008:

 
| ** **                                 | ** ** | **Outstanding Options** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  months)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Options outstanding at June 30, 2007  |       | 2,305,600                    |       | 0.38 |   | 64.38 |   | $ | — |   |
| Granted                                    |       | 190,000                      |       | 0.44 |   | 84.0 |   |   |   |
| Exercised                                  |       | —                       |       | — |   | — |   | — |   |
| Cancelled or forfeited                     |       | 123,500                      |       | 0.65 |   | 23.64 |   | — |   |
| Options outstanding at March 31, 2008 |       | 2,372,100                    |       | 0.369 |   | 55.10 |   | $ | 167,940 |   |
| Options exercisable at March 31, 2008 |       | 1,505,433                    |       | 0.37 |   | 40.20 |   | $ | 87,211 |   |

 

The total intrinsic value, or thedifference between the exercise price and the market price on the exercisedates, of all options exercised during the nine month period ended March 31,2008, was zero as no options were exercised. Consequently, no cash wasreceived, nor did the Company realize any tax deductions related to exercise ofstock options during the quarter.

 

Stock options outstanding andcurrently exercisable at March 31, 2008 are as follows:

 
| **Outstanding options**               | ** ** | **Exercisable options** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| **Range of exercise price** | ** ** | **Number**                   | ** ** | **Weighted  average  remaining  contractual  life (months)** | ** ** | **Weighted  average  exercise  price** | ** ** | **Number** | ** ** | **Weighted  average  exercise  price** | ** ** |
| 0.30 — 0.46                           |       | 2,372,100                    |       | 55.104 |   | 0.369 |   | 1,505,433 |   | 0.37 |   |

 

Total estimated unrecognizedcompensation cost from unvested stock options as of March 31, 2008 wasapproximately $152,926 which is expected to be recognized over a weightedaverage period of approximately 65 months.

 

The weighted average per sharefair value of stock options granted during the nine month periods ending March 31,2008 and 2007 was $0.44 and $0.33, respectively. The fair value was estimatedas of the grant date using the Black-Scholes option pricing model with the followingassumptions:

 
| ** **              | ** ** | **Nine months ended March 31,** | ** ** |
|-------------------------|------------|-----------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| Volatility              |       | 84.7                                                | %          | 111.5 | % |
| Expected option term    |       | 7 years                                             |       | 7 years |   |
| Risk-free interest rate |       | 4.40                                                | %          | 4.39 | % |
| Expected dividend yield |       | 0                                                   | %          | 0 | % |

 

In addition to the stock optionsdiscussed above, the Company recognized share-based compensation expenserelated to Restricted Stock awards, of $16,224 for the nine months ended March 31,2008 and 2007. The following table

 

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summarizes Non-vested RestrictedStock and the related activity as of and for the quarter ended March 31,2008:

 
| ** **                        | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|-----------------------------------|------------|------------|------------|---------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                        | ** ** | ** ** | ** ** | **Grant-Date**      | ** ** |
| ** **                        | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Non-vested at July 1, 2007   |       | 66,667     |       | $                   | 0.40       |   |
| Granted                           |       | —     |       | —              |       |
| Vested                            |       | —     |       | —              |       |
| Non-vested at March 31, 2008 |       | 66,667     |       | $                   | 0.40       |   |

 

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

 

*FAS 157, Fair Value Measurements.  *In September, 2007, the FASB issuedStatement of Financial Accounting Standards No. 157, Fair ValueMeasurements (“SFAS 157”).  SFAS 157 definesfair value, establishes a framework and gives guidance regarding the methodsused for measuring fair value, and expands disclosures about fair valuemeasurements.  SFAS 157 is effective forfinancial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  We are currently assessing the impactthat SFAS 157 will have on our results of operations and financial position.

 

*SFAS 159, “The Fair Value Option for FinancialAssets and Financial Liabilities — Including an Amendment of FASB Statement No. 115.” *In November 2007, the FASB issuedStatement of Financial Accounting Standards No. 159, The Fair Value Optionfor Financial Assets and Financial Liabilities — Including an Amendment of FASBStatement No. 115 (“SFAS 159”).* *SFAS 159 is effective for fiscalyears beginning after November 15, 2007. SFAS 159 permits an entity tochoose to measure many financial instruments and certain other items at fairvalue at specified election dates. Subsequent unrealized gains and losses on items for which the fair valueoption has been elected will be reported in earnings.  We do not believe that the adoption of SFAS159 will have a material impact on our consolidated financial statements.

 

In November 2007, the FASB issued SFAS No. 141 (revised2007), *Business Combination*(FAS 141(R)) and SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No. 51*(FAS 160). FAS 141(R) will change how business acquisitions areaccounted for and will impact financial statements both on the acquisition dateand in subsequent periods. FAS 160 will change the accounting andreporting for minority interests, which will be recharacterized asnoncontrolling interests and classified as a component of equity. FAS 141(R) andFAS 160 are effective for both public and private companies for fiscalyears beginning on or after December 15, 2008 (fiscal 2010 for theCompany). FAS 141(R) will be applied prospectively. FAS 160requires retroactive adoption of the presentation and disclosure requirementsfor existing minority interests. All other requirements of FAS 160 will beapplied prospectively. Early adoption is prohibited for both standards.Management is currently evaluating the requirements of FAS 141(R) andFAS 160 and has not yet determined the impact on its financial statements.

 

**8.****                                      NOTESPAYABLE**

 

Notes payable consist of thefollowing at March 31, 2008 and June 30, 2007:

 

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| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **March 31, 2008** | ** ** | **June 30, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Convertible term note payable to institutional investors, net of  discount of $88,221 with interest at the greater of 12%, as adjusted by a  stock trading formula, or prime plus 3% (8.25% and 11.25% as of  March 31, 2008 and June 30, 2007), interest only from June 1,  2007 through October 1, 2007 and, via a note modification dated  November 30, 2007, December 1, 2007 through November 1, 2007  and then due in monthly installments of $19,350.71 plus interest from  December 1, 2007 through November 1, 2009, collateralized by all  assets of the company and a partial guaranty by an officer of the Company |       | $                            | 298,790    |                        | $          | 720,992 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                         |       |                        |       |
| Convertible term note payable to institutional investors, net of  discount of $368,704 with interest at the greater of 12%, as adjusted by a  stock trading formula, or prime plus 3% (8.25% and 11.25% as of  March 31, 2008 and June 30, 2007), interest only from  December 28, 2007 through June, 2007 and, via a note modification dated  November 30, 2007, December 1, 2007 through November 1, 2007  and then due in monthly installments of $42,546.04 plus interest from  December 1, 2007 through November 1, 2009, collateralized by all  assets of the company and a partial guaranty by an officer of the Company     |       | 482,215                      |       | 703,496                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                         |       |                        |       |
| Term note payable to institutional investors, with interest at the  greater of 12% or prime plus 3% (8.25% and 11.25% as of March 31, 2008  and June 30, 2007), interest only payments commencing June 1, 2007  until May 19, 2008, collateralized by all assets of the Company                                                                                                                                                                                                                                                                                                                                                                         |       | 500,000                      |       | 500,000                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                         |       |                        |       |
| Note payable, unsecured, to redeemable common stockholders, with  interest at prime plus 2.0% (7.25% and 10.25% as of March 31, 2008 and  June 30, 2007) due in monthly installments with principal payments  ranging from $5,000 to $10,000 plus interest through August 2008                                                                                                                                                                                                                                                                                                                                                                               |       | 28,000                       |       | 90,000                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 1,309,005                    |       | 2,014,488                   |       |
| Current portion, net of current portion of  discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | (976,713                     | )          | (1,014,437                  | )          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                         |       |                        |       |
| Notes payable, excluding current portion and net of long-term portion  of discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | $                            | 332,292    |                        | $          | 1,000,051 |   |

 

The convertible notes payable restrict the payment of dividends on theCompany’s common stock.

 

**Item 2.**

 

**CORGENIXMEDICAL CORPORATIONManagement’s Discussion and Analysis OfFinancial Condition and Results of Operations**

 

The following discussion should be read inconjunction with the consolidated financial statements and accompanying notesincluded elsewhere herein.

 

**General**

 

Since the Company’s inception, we have beenprimarily involved in the research, development, manufacturing andmarketing/distribution of diagnostic tests for sale to clinical laboratories.We currently market 52 products covering autoimmune disorders, vasculardiseases, infectious diseases and liver disease. Our products are sold in theUnited States, the UK and other countries through our marketing and salesorganization that includes direct sales representatives, contract salesrepresentatives, internationally through an extensive distributor network, andto several significant OEM partners.

 

We manufacture products for inventory basedupon expected sales demand, shipping products to customers, usually within 24hours of receipt of orders if in stock. Accordingly, we do not operate with asignificant customer order backlog.

 

Except for the fiscal year ending June 30,1997, we have experienced revenue growth since our inception, primarily fromsales of products and contract revenues from strategic partners. Contractrevenues consist of service fees from research

 

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and development agreements withstrategic partners.

 

Beginning in fiscal year 1996, we began addingthird-party OM licensed products to our diagnostic product line. Currently wesell 128 products licensed from or manufactured by third party manufacturers.We expect to expand our relationships with other companies in the future togain access to additional products.

 

Although we have experienced growth inrevenues every year since 1990, except for 1997, there can be no assurancethat, in the future, we will sustain revenue growth, current revenue levels, orachieve or maintain profitability. Our results of operations may fluctuatesignificantly from period-to-period as the result of several factors,including: (i) whether and when new products are successfully developedand introduced, (ii) market acceptance of current or new products, (iii) seasonalcustomer demand, (iv) whether and when we receive research and developmentpayments from strategic partners, (v) changes in reimbursement policiesfor the products that we sell, (vi) competitive pressures on averageselling prices for the products that we sell, and (vii) changes in the mixof products that we sell.

 

**RecentlyIssued Accounting Pronouncements**

 

*FAS 157, Fair Value Measurements.  *In September, 2007, the FASB issuedStatement of Financial Accounting Standards No. 157, Fair ValueMeasurements (“SFAS 157”).  SFAS 157defines fair value, establishes a framework and gives guidance regarding themethods used for measuring fair value, and expands disclosures about fair valuemeasurements.  SFAS 157 is effective forfinancial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  We are currently assessing the impactthat SFAS 157 will have on our results of operations and financial position.

 

*SFAS 159, “The Fair Value Option for FinancialAssets and Financial Liabilities — Including an Amendment of FASB Statement No. 115.” *In November 2007, the FASB issuedStatement of Financial Accounting Standards No. 159, The Fair Value Optionfor Financial Assets and Financial Liabilities — Including an Amendment of FASBStatement No. 115 (“SFAS 159”).* *SFAS 159 is effective for fiscalyears beginning after November 15, 2007. SFAS 159 permits an entity tochoose to measure many financial instruments and certain other items at fairvalue at specified election dates. Subsequent unrealized gains and losses on items for which the fair valueoption has been elected will be reported in earnings.  We do not believe that the adoption of SFAS159 will have a material impact on our consolidated financial statements.

 

In November 2007, the FASB issued SFAS No. 141 (revised2007), *Business Combination*(FAS 141(R)) and SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No. 51*(FAS 160). FAS 141(R) will change how business acquisitions areaccounted for and will impact financial statements both on the acquisition dateand in subsequent periods. FAS 160 will change the accounting andreporting for minority interests, which will be recharacterized asnoncontrolling interests and classified as a component of equity. FAS 141(R) andFAS 160 are effective for both public and private companies for fiscalyears beginning on or after December 15, 2008 (fiscal 2010 for theCompany). FAS 141(R) will be applied prospectively. FAS 160requires retroactive adoption of the presentation and disclosure requirementsfor existing minority interests. All other requirements of FAS 160 will beapplied prospectively. Early adoption is prohibited for both standards.Management is currently evaluating the requirements of FAS 141(R) andFAS 160 and has not yet determined the impact on its financial statements.

 

**Critical Accounting Policies**

 

Our consolidated financial statements are prepared inaccordance with accounting principles generally accepted in the United States (“GAAP”)and our significant accounting policies are summarized in Note 1 to theaccompanying consolidated financial statements. The preparation of financialstatements in conformity with GAAP requires management to make estimates andassumptions that affect reported amounts of assets, liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements andreported amounts of revenues and expenses during the reporting period. Actualresults could differ significantly from those estimates.

 

We disclosed in Note 1 to its consolidated financialstatements included in the Form 10-KSB those accounting policies that weconsider to be significant in determining our results of operations andfinancial position. There have been no material changes to or application ofthe accounting policies previously identified and described in the Form 10-KSB.

 

We maintain an allowance for doubtful accounts basedon our historical experience and provides for any specific collection issuesthat are identified. Such allowances have historically been adequate to providefor our doubtful accounts but

 

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involve a significant degree of management judgmentand estimation. Worse than expected future economic conditions, unknowncustomer credit problems and other factors may require additional allowancesfor doubtful accounts to be provided for in future periods.

 

Equipment and software are recorded at cost. Equipmentunder capital leases is recorded initially at the present value of the minimumlease payments. Depreciation and amortization is calculated primarily using thestraight-line method over the estimated useful lives of the respective assetsthat range from 3 to 7 years.

 

The internal and external costs of developing andenhancing software costs related to website development, other than initialdesign and other costs incurred during the preliminary project stage, arecapitalized until the software has been completed. Such capitalized amountsbegan to be amortized commencing when the website was placed in service on astraight-line basis over a three-year period.

 

When assets are sold, retired or otherwise disposedof, the cost and related accumulated depreciation are eliminated from theaccounts and a gain or loss is recognized.

 

Repair and maintenance costs are expensed as incurred.

 

We evaluate the realizability of our long-livedassets, including property and equipment, whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable.

 

Revenue from sale of products is recognized uponshipment of products.

 

Revenue from research and development contractsrepresents amounts earned pursuant to agreements to perform research anddevelopment activities for third parties and is recognized as earned under therespective agreement. Because research and development services are providedevenly over the contract period, revenue is recognized ratably over thecontract period. Research and development agreements in effect in 2008 and 2007provided for fees to the Company based on time and materials in exchange forperforming specified research and development functions. Research anddevelopment and advertising costs are expensed when incurred. Inventories arerecorded at the lower of cost or market, using the first-in, first-out method.

 

# **Resultsof Operations**

#  

***Three Months Ended March 31, 2008 compared to 2007***

 

*Net sales.*Netsales for the quarter ended March 31, 2008 were $1,950,829 a 3.0% decreasefrom $2,011,995 for the quarter ended March 31, 2007. This decreaseresulted primarily from a decrease in contract manufacturing revenues. This reductionin contract manufacturing was primarily due to a new business strategy of ourlargest contract manufacturing customer, which resulted and will continue toresult in a lower level of contract manufacturing orders from them. Total NorthAmerican sales decreased $43,970 or 3.0% to $1,412,552 while total sales tointernational distributors decreased $17,196 or 3.1% to $538,277 year to year.With respect to the Company’s major revenue categories and product lines, NorthAmerican direct product-only sales increased $93,512 or 8.7% to $1,163,414whereas international direct product-only sales decreased $76,267 or 17.5% to$360,553.  Worldwide category resultswere as follows: Phospholipids kit sales increased $89,761 or 10.5% to $946,610for the period. Coagulation kit sales increased $25,625 or 6.5% to $420,149. HAkit sales decreased $42,270 or 13.6% to $268,050, while Autoimmune kit salesincreased $9,692 or 36.4% to $36,303. Additionally, worldwide OEM/contractmanufacturing revenues decreased $178,655, or 49.6% to $181,620. Overall,worldwide non-product revenue increased $103,463, or 71.4% to $248,462. Salesof products manufactured for us by other companies while still relativelysmall, are expected to continue to increase during fiscal 2008.

 

*Cost of sales*.  Cost of sales, as a percentage of sales,increased to 41.6% for the quarter ended March 31, 2008 from 39.6% in2007. This increase was primarily attributable to increases in raw materialcosts due to price increases of certain key materials.

 

*Selling andmarketing. *Forthe quarter ended March 31, 2008, selling and marketing expenses decreased1% to $500,235 from $504,120 for the quarter ended March 31, 2007.  The decrease was primarily due to decreasesin travel-related expenses, retention kits and labor-related expenses,partially offset by increases in royalties, trade show expenses, postage andadvertising.

 

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* *

*Research and development.* Research anddevelopment expenses decreased 7.9% to $165,932 for the quarter ended March 31,2008, from $180,254 for the quarter ended March 31, 2007.  The decrease primarily resulted fromdecreases in labor-related costs and product testing expenses, partially offsetby increases in legal fees, clinical studies expense and legal expense.

 

*General and administrative.* For thequarter ended March 31, 2008, general and administrative expensesdecreased $11,802 or 2.2% to $536,335 from $548,137 for the quarter ended March 31,2007.  The decrease was primarilyattributable to decreases in aborted licensing costs, merger related costs,labor-related costs, bank charges, and patent renewal fees partially offset byincreases in consulting fees, outside services and repairs and maintenanceexpenses.

 

*Interest expense.* Interestexpense decreased $6,980 or 2.3% to $301,420 for the quarter ended March 31,2008, from $308,400 for the quarter ended March 31, 2007 due primarily toa reduction of the amortization of deferred financing costs and discount on thenotes payable as a result of the twelve month principal payment deferral on theCompany’s convertible debt which commenced in November 2006, partiallyoffset by the additional discount and amortization on the convertible notestriggered by the common stock private placement during the first fiscal quarterended September 30, 2007.

 

***Nine monthsended March 31, 2008************compared to 2007***

 

*Net sales.*Net sales forthe nine months ended  March 31,2008 were $6,455,055 a 19.7% increase from $5,390,918 for the nine months endedMarch 31, 2007. This increase resulted primarily from an increase inworldwide demand for most of our product lines. Total North American salesincreased $841,333 or 21.3% to $4,779,256 while total sales to internationaldistributors increased $222,804 or 15.3% to $1,675,799 from year to year. Withrespect to the Company’s major revenue categories and product lines, NorthAmerican direct product-only sales increased $447,968 or 15.1% to $3,424,054whereas international direct product-only sales increased $59,293 or 5.0% to$1,252,998.  Worldwide category resultswere as follows: Phospholipids kit sales increased $384,181 or 15.5% to$2,869,167 for the period. Coagulation kit sales increased $176,150 or 14.6% to$1,382,873. HA kit sales increased $129,195 or 17.3% to $875,169, whileAutoimmune kit sales increased $8,220 or 10.1% to $89,870. Additionally,worldwide OEM/contract manufacturing revenues increased $219,099, or  23.8% to $1,138,244. Overall, worldwidenon-product revenue increased $304,869, or 90.3% to $642,619. Sales of productsmanufactured for us by other companies while still relatively small, areexpected to continue to increase during fiscal 2008.

 

*Cost of sales*.  Cost of sales, as a percentage of sales,increased to 43.8% for the nine months ended March 31, 2008 from 39.0% in2007. This increase was primarily attributable to an increase in raw materialscosts as mentioned above plus unexpected scrapping of numerous production lotsof one of our larger product lines during the first fiscal quarter. This,normally difficult to produce product, encountered numerous difficulties duringthe first fiscal quarter which resulted in a much higher than normal failurerate. Management has implemented a number of changes to the manufacturingprocess and the quality control testing protocols, and this problem did notreoccur during the second or third fiscal quarter. Cost of sales also increasedas a result of increases in raw material costs due to price increases ofcertain key materials.

 

*Selling and marketing. *For the nine months ended March 31,2008, selling and marketing expenses decreased 2.9% to $1,524,014 from$1,569,858 for the nine months ended March 31, 2007.  The decrease was primarily due to decreasesin labor-related expense, entertainment and meals expenses, outside servicesand retention kits, partially offset by an increase in royalties, advertising,commissions and trade show expenses.

 

*Research and development.* Research anddevelopment expenses decreased 18.4% to $478,197 for the nine months ended March 31,2008, from $586,061 for the nine months ended March 31, 2007.  The decrease primarily resulted fromdecreases in labor-related costs, travel-related expenses, and product testingexpenses, partially offset by increases in legal fees and clinical studiesexpense.

 

*General and administrative.* For the ninemonths ended March 31, 2008, general and administrative expenses decreased$380,320 or 20.7% to $1,461,296 from $1,841,616 for the nine months ended March 31,2007.  The decrease resulted primarilydecreases in aborted licensing costs, merger related costs, outside services,bank charges and supplies, partially offset by increases in equipment leaseexpense, legal expenses, patent renewal fees and repairs and maintenance.

 

*Interest expense.* Interestexpense decreased $128,253 or 9.1% to $1,287,794 for the nine months ended March 31,2008, from $1,416,047 for the nine months ended March 31, 2007 dueprimarily to a reduction of the amortization of 

 

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deferred financing costs and discount on thenotes payable as a result of the twelve month principal payment deferral on theCompany’s convertible debt which commenced in November 2006, partiallyoffset by the additional discount and acceleration of the discount amortizationon the convertible notes triggered by the common stock private placement duringthe first fiscal quarter.

 

**Liquidity and Capital Resources**

 

For the nine months ended March 31, 2008, cash used by operatingactivities amounted to $174,622 versus $1,112,767 for the nine months ended March 31,2007. The significant decrease in cash used by operations for the current ninemonth period resulted primarily from a substantially reduced net loss for thecurrent period, partially offset by a decrease in accounts payable and accrued interest and other liabilities plus anincrease in inventories.

 

Net cash used in investing activities, the purchase of laboratory equipment,leasehold improvements and computer equipment was $41,786 for the nine monthsended March 31, 2008, compared to purchases of laboratory, computer andoffice equipment totaling $231,210 for the nine months ended March 31,2007. This substantial decrease in capital expenditures was due to the June 2007move to a new and larger facility, which necessitated increased spending on newfurniture, computers, laboratory and refrigeration equipment and flooring inthe prior fiscal year.

 

Net cash provided by financing activities amounted to $544,586 for thenine months ended March 31, 2008 compared to cash used by financingactivities of $573,635 for the nine months ended March 31, 2007. Thislarge difference in cash provided by financing activities versus the amountused by financing activities in the comparable prior year was primarily due tothe proceeds of the recently closed common stock private placement, in additionto the decreased principal payments on notes payable in the current period as aresult of the principal deferral agreement reached in November 2006.

 

Cash amounted to $1,652,080 as of March 31, 2008 compared to$1,324,072 as of June 30, 2007.

 

Working capital as of  March 31,2008 amounted to $3,253,767 compared to $2,070,229 as of June 30, 2007.

 

Total liabilities were $4,006,206 as of March 31, 2008 compared to$5,645,796 as of June 30, 2007.

 

Stockholders’ equity amounted to $4,401,223 as of March 31, 2008compared to $2,992,880 as of June 30, 2007.

 

We have incurred operating losses and negative cashflow from operations for most of our history. Losses incurred since  inception, net of dividends on convertiblepreferred stock, have aggregated $12,628,670, and there can be no assurancethat we will be able to generate positive cash flows to fund our operations inthe future or to pursue our strategic objectives.  Historically, we have financed its operationsprimarily through long-term debt and the sales of common, redeemable common,and preferred stock.  We have alsofinanced operations through sales of diagnostic products and agreements withstrategic partners.  Accounts receivabledecreased less than 1% to $1,220,311 from $1,225,677 as of June 30, 2007,primarily as a result of more efficient collection procedures.

 

We have developed and are continuing to strive toimplement an operating plan intended to eventually achieve sustainableprofitability and positive cash flow from operations.  Key components of this plan includeaccelerating revenue growth and the cash to be derived  from existing product lines as well as newdiagnostic products, expansion of our strategic alliances with otherbiotechnology and diagnostic companies, improving operating efficiencies toreduce cost of sales, thereby improving gross margins, and lowering overalloperating expenses.  Although we cannotyet conclude that the above objectives have been fully met, management has beensuccessful in increasing revenues in the current nine months ended March 31,2008 by $1,064,137 or 19.7%. In addition, during the initial nine months offiscal 2008, management has been successful in reducing operating expenses by$534,028 or 13.4%, converting an operating loss of $740,432 for the priorfiscal year’s initial nine month period into operating income of $163,335 inthe current period and substantially reducing our negative cash flow fromoperations.

 

Although the operating plan is intended to achievesustainable profitability and positive cash flow from operations, it ispossible that we may not be fully successful in our efforts, as it will takeadditional time for our strategic and operating initiatives to have a sustainedpositive effect on our business operations and cash flow.  In view of this, in July 2007, wereported that we had entered into subscription and other agreements to completea private placement with certain institutional and other accreditedinvestors.  As of September 30, 2007we had sold the maximum $989,000 in interests in this placement.

 

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Should any other significant negative events occur,our financial liquidity position would most likely be negatively impacted byour not achieving positive cash flow from operations.  Given all of these circumstances, as notedabove, we have secured additional equity financing.  It is also possible that we may alsoexperience future defaults under the agreements with our convertible debtholders, e.g., for non payment of amounts due, in which case they would beentitled to accelerate the amounts payable to them.  However, we do not believe that any defaultswill occur in fiscal 2008 or thereafter. Management believes that we will haveadequate resources to continue operations for longer than 12 months.

 

**Off -Balance Sheet Arrangements**

 

We do not have any off-balance sheet arrangements.

 

**Contractual Obligations andCommitments**

 

On February 8, 2006, we entered into aLease Agreement (the “Lease”) with York County, LLC, a California limitedliability company (“Landlord”) pursuant to which we leased approximately 32,000rentable square feet (the “Property”) of Landlord’s approximately 102,400square foot building, commonly known as Broomfield One and located at 11575Main Street, Broomfield, Colorado 80020. The Property is part of Landlord’s multi-tenant real propertydevelopment known as the Broomfield Corporate Center.  We use the Property for our headquarters,laboratory research and development facilities and production facilities.

 

On the following dates, we executed the followingamendments to the Lease:

 

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

 

·                 June 19, 2007- The Second Amendment to the LeaseAgreement (the “Second Amendment”) redefined the amount of available rentalspace from 32,480 to 32,000 square feet and recalculated the lease rates persquare foot, and

 

·                 July 19, 2007- The Third Amendment to the LeaseAgreement (the “Third Amendment”) established the base rent matrix for theperiod 11/28/2013 to 12/05/2013 which was inadvertently omitted in the SecondAmendment.

 

The term of the Lease (the “Term”) is seven yearsand five months and commenced on July 6, 2006 with tenant options toextend the Term for up to two five-year periods.  We have a one time right of first refusal tolease contiguous premises.

 

Initially therewas no base lease rate payable on 25,600 square feet of the Property, plusestimated operating expenses of $1.61 per square foot.

 

The base leaserate payable on 25,600 square feet of the Property increased to $4.00 persquare foot on January 28, 2007, plus amortization of tenant improvementsof $5.24 per square foot, plus estimated operating expenses of $1.61 per squarefoot.  The base lease rate on 25,600square feet of the Property increases to $5.64 per square foot on January 28,2008, with fixed annual increases each January 28 thereafter during theinitial Term, plus the amortization of tenant improvements of $5.26 per squarefoot, and estimated operating expenses of $2.77 per square foot.

 

Initially, therewas 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 $2.77 per square foot.

 

Thus, theestimated total rent (this is dependent upon the actual operating expenses) onthe 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 increased to approximately $12.11 per square foot on January 28,2008, with annual increases in the base lease rate each January 28thereafter during the initial Term, up to an estimated total rent of $14.358per square foot during the final year of the initial Term.

 

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The base leaserate for an extension period is 100% of the then prevailing market rental rate(but in no event less than the rent for the last month of the then currentTerm) and shall thereafter increase annually by 3% for the remainder of theapplicable extension period.

 

We have notinvested in any real estate or real estate mortgages.

 

**Item 3.**

 

**Controlsand Procedures**

 

Under the supervision and with the participation ofour President and Chief Accounting Officer, our management has evaluated theeffectiveness of our disclosure controls and procedures as of the end of theperiod covered by this report as defined in Rule 13a-15(b) or Rule 15(d)-15(e) underthe Securities Exchange Act of 1934 (the “Exchange Act”). Based on thatevaluation, the President and Chief Accounting Officer have concluded that, asof the end of the period covered by this report, our disclosure controls andprocedures are effective and ensure that information required to be disclosedin our Exchange Act reports is (1) recorded, processed, summarized andreported in a timely manner, and (2) accumulated and communicated tomanagement, including the President and our Chief Accounting Officer, asappropriate, to allow timely decisions regarding required disclosure.

 

There were no changes in ourinternal control over financial reporting as of the end of the period coveredby this report that materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**Forward-Looking Statements and Risk Factors**

 

This 10-QSB includes statements that are not purelyhistorical and are “forward-looking statements” within the meaning of Section 21Eof the Securities Act of 1934, as amended, including statements regarding ourexpectations, beliefs, intentions or strategies regarding the future. Allstatements other than historical fact contained in this 10-QSB, including,without limitation, statements regarding future capital requirements,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-looking statements included in this 10-QSB are based oninformation available to us on the date hereof, and we assume no obligation toupdate such forward-looking statements. 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.

 

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

 

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

 

We have incurredoperating losses and negative cash flow from operations for most of ourhistory. Losses incurred since our inception have aggregated $12,628,670 andthere can be no assurance that we will be able to generate positive cash flowsto fund our operations in the future or to pursue our strategic objectives.Assuming no significant changes from our budget, we believe that we will havesufficient cash to satisfy our needs for at least the next twelve months. If weare not able to operate profitably and generate positive cash flows, we willundoubtedly need to raise additional capital, most likely via the sale ofequity securities, to fund our operations. If we do in fact need additionalfinancing to meet our requirements, there can be no assurance that we will beable to obtain such financing on terms satisfactory to us, if at all.Alternatively, any additional equity financing may be dilutive to existingstockholders, and debt financing, if available, may include restrictivecovenants. If adequate funds are not available, we might be required to limitour research and development activities or our selling, marketing andadministrative activities any of which could have a material adverse effect onthe future of the business.

 

**We depend upon collaborativerelationships and third parties for product development and commercialization.**

 

We have historically entered into research anddevelopment agreements with collaborative partners, from which we 

 

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derived revenues in past years. Pursuant tothese agreements, our collaborative partners have specific responsibilities forthe costs of development, promotion, regulatory approval and/or sale of ourproducts. We will continue to rely on future collaborative partners for thedevelopment of products and technologies. There can be no assurance that wewill be able to negotiate such collaborative arrangements on acceptable terms,if at all, or that current or future collaborative arrangements will besuccessful. To the extent that we are not able to establish such arrangements,we could be forced to undertake such activities entirely at our own expense.The amount and timing of resources that any of these partners devotes to theseactivities may be based on progress by us in our product development efforts.Collaborative arrangements may be terminated by the partner upon prior noticewithout cause and there can be no assurance that any of these partners willperform its contractual obligations or that it will not terminate its agreement.With respect to any products manufactured by third parties, there can be noassurance that any third-party manufacturer will perform acceptably or thatfailures by third parties will not delay clinical trials or the submission ofproducts for regulatory approval or impair our ability to deliver products on atimely basis.

 

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

 

Our business strategy includes the development ofadditional diagnostic products for the diagnostic business. Our success indeveloping new products will depend on our ability to achieve scientific andtechnological advances and to translate these advances into commerciallycompetitive products on a timely basis. Development of new products requires significantresearch, development and testing efforts. We have limited resources to devoteto the development of products and, consequently, a delay in the development ofone product or the use of resources for product development efforts that proveunsuccessful may delay or jeopardize the development of other products. Anydelay in the development, introduction and marketing of future products couldresult in such products being marketed at a time when their cost andperformance characteristics would not enable them to compete effectively intheir respective markets. If we are unable, for technological or other reasons,to complete the development and introduction of any new product or if any newproduct is not approved or cleared for marketing or does not achieve asignificant level of market acceptance, our ability to remain competitive inour product niches would be impaired.

 

**Competition in the human medicaldiagnostics industry is, and is expected to remain, significant.**

 

Our competitors range from development stagediagnostics companies to major domestic and international pharmaceutical andbiotechnology companies. Many of these companies have financial, technical,marketing, sales, manufacturing, distribution and other resources significantlygreater than ours. In addition, many of these companies have name recognition,established positions in the market and long standing relationships withcustomers and distributors also greater than ours. Moreover, the diagnosticsindustry continues to demonstrate a degree consolidation, whereby some of thelarge domestic and international pharmaceutical companies have been acquiringmid-sized diagnostics companies, further increasing the concentration ofresources. There can be no assurance that technologies will not be introducedthat could be directly competitive with or superior to our technologies.

 

**Our products and activities aresubject to regulation by various governments and government agencies.**

 

The testing, manufacture and sale of our products issubject to regulation by numerous governmental authorities, principally theUnited States Food and Drug Administration and certain foreign regulatoryagencies. Pursuant to the Federal Food, Drug, and Cosmetic Act, and theregulations promulgated there under, the FDA regulates the preclinical andclinical testing, manufacture, labeling, distribution and promotion of medicaldevices. We are limited in our ability to commence marketing or commercialsales in the United States of new products under development until we receiveclearance or approval from the FDA. The testing for, preparation of andsubsequent FDA regulatory review of required filings can be a lengthy,expensive and uncertain process. Noncompliance with applicable requirements canresult in, among other consequences, fines, injunctions, civil penalties,recall or seizure of products, repair, replacement or refund of the cost ofproducts, total or partial suspension of production, failure of the governmentto grant pre-market clearance or pre-market approval for devices, withdrawal ofmarketing clearances or approvals, and criminal prosecution.

 

There can be no assurance that we will be able toobtain necessary regulatory approvals or clearances for our products on atimely basis, if at all, and delays in receipt of or failure to receive suchapprovals or clearances, the loss of previously received approvals orclearances, limitations on intended use imposed as a condition of suchapprovals or clearances or failure to comply with existing or future regulatoryrequirements could negatively impact our sales and thus have a material adverseeffect on our business.

 

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As a manufacturer of medical devices for marketingin the United States, we are required to adhere to applicable regulationssetting forth detailed good manufacturing practice requirements, which includetesting, control and documentation requirements. We must also comply withMedical Device Report (MDR) requirements, which require that a manufacturerreports to the FDA any incident in which its product may have caused orcontributed to a death or serious injury, or in which its product malfunctionedand, if the malfunction were to recur, it would be likely to cause orcontribute to a death or serious injury. We are also subject to routineinspection by the FDA for compliance with Quality System Regulationsrequirements, MDR requirements and other applicable regulations. Labeling andpromotional activities are subject to scrutiny by the FDA and, in certain circumstances,by the Federal Trade Commission. We may incur significant costs to comply withlaws and regulations in the future, which would decrease our net income orincrease our net loss and thus have a potentially material adverse effect uponour business, financial conditions and results of operations.

 

Distribution of diagnostic products outside theUnited States is subject to extensive foreign government regulation. Theseregulations, including the requirements for approvals or clearance to market,the time required for regulatory review and the sanctions imposed forviolations, vary from country to country. We may be required to incursignificant costs in obtaining or maintaining foreign regulatory approvals. Inaddition, the export of certain of our products that have not yet been clearedfor United States commercial distribution may be subject to FDA exportrestrictions. Failure to obtain necessary regulatory approval or the failure tocomply with regulatory requirements could reduce our product sales and thushave a potentially material adverse effect on our business, financial conditionand results of operations.

 

**We depend upon distributionpartners for sales of diagnostic products in international markets.**

 

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

 

**Third party reimbursement forpurchases of our diagnostic products is uncertain.**

 

In the United States, health care providers thatpurchase diagnostic products, such as hospitals and physicians, generally relyon third party payers, principally private health insurance plans, federalMedicare and state Medicaid, to reimburse all or part of the cost of thepurchase. Third party payers are increasingly scrutinizing and challenging theprices charged for medical products and services and they can affect thepricing or the relative attractiveness of the product. Decreases inreimbursement amounts for tests performed using our diagnostic products,failure by physicians and other users to obtain reimbursement from third partypayers, or changes in government and private third party payers’ policiesregarding reimbursement of tests utilizing diagnostic products, may affect ourability to sell our diagnostic products profitably. Market acceptance of ourproducts in international markets is also dependent, in part, upon theavailability of reimbursement within prevailing health care payment systems.

 

**Our success depends, in part, onour ability to obtain patents and license patent rights, to maintain tradesecret protection and to operate without infringing on the proprietary rightsof others.**

 

There can be no assurance that our issued patentwill afford meaningful protection against a competitor, or that patents issuedor licensed to us will not be infringed upon or designed around by others, orthat others will not obtain patents that we would need to license or designaround. We could incur substantial costs in defending the Company or ourlicensees in litigation brought by others. The potential for reduced sales andincreased legal expenses would have a negative impact on our cash flow and thusour overall business could be adversely affected.

 

**We may not be able to successfullyimplement our plans to acquire other companies or technologies.**

 

Our growth strategy includes the acquisition ofcomplementary companies, products or technologies. There is no assurance thatwe will be able to identify appropriate companies or technologies to beacquired, to negotiate satisfactory terms for such an acquisition, or to obtainsufficient capital to make such acquisitions. Moreover, because of limited cashresources, we will be unable to acquire any significant companies ortechnologies for cash and our ability to effect acquisitions in exchange forour capital stock may depend upon the market prices for our common stock, whichcould result in significant dilution to its existing stockholders. If we docomplete one or more acquisitions, a number of risks arise, such 

 

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as disruption of our existing business,short-term negative effects on our reported operating results, diversion ofmanagement’s attention, unanticipated problems or legal liabilities, anddifficulties in the integration of potentially dissimilar operations. Any ofthese factors could materially harm Corgenix’s business or its operatingresults.

 

**We depend on suppliers for ourproducts’ components.**

 

The components of our products include chemical,biological and packaging supplies that are generally available from severalsuppliers, except certain antibodies and other critical components, which wepurchase from single suppliers. We mitigate the risk of a loss of supply bymaintaining a sufficient supply of such antibodies to ensure an uninterruptedsupply for at least three months. We have also qualified second vendors formost critical raw materials and believe that we can substitute a new supplierwith respect to any of these components in a timely manner. If, for somereason, we lose our main supplier for a given material, there can be noassurances that we will be able to substitute a new supplier in a timely mannerand failure to do so could impair the manufacturing of certain of our productsand thus have a material adverse effect on our business, financial conditionand results of operations.

 

**We have only limited manufacturingexperience with certain products.**

 

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

 

**Due to the specialized nature ofour business, our success will be highly dependent upon our ability to attractand retain qualified scientific and executive personnel.**

 

We believe our success will depend to a significantextent on the efforts and abilities of key officers and scientific personnel,who would be difficult to replace. There can be no assurance that we will besuccessful in attracting and retaining such skilled personnel, who are generallyin high demand by other companies. The loss of, inability to attract, or poorperformance by these key scientific and executive personnel may have a materialadverse effect on our business, financial condition and results of operations.

 

**The testing, manufacturing andmarketing of medical diagnostic devices entails an inherent risk of productliability claims.**

 

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

 

**There has, to date, been no activepublic market for our Common Stock, and there can be no assurance that anactive public market will develop or be sustained.**

 

Although our Common Stock has been traded on the OTCBulletin Board® since February 1998, and even though the trading volumehas increased substantially over the past several months, the trading has beeninconsistent with less than continuously significant volume.

 

Moreover, the over-the-counter markets for securitiesof very small companies historically have experienced extreme price and volumefluctuations. These broad market fluctuations and other factors, such as newproduct developments, trends in our industry, the investment markets, economicconditions generally, and quarterly variation in our results of operations, mayadversely affect the market price of our common stock. In addition, our commonstock is subject to 

 

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rules adopted by theSecurities and Exchange Commission regulating broker-dealer practices inconnection with transactions in “penny stocks.” Such rules require thedelivery prior to any penny stock transaction of a disclosure scheduleexplaining the penny stock market and all associated risks and impose varioussales practice requirements on broker-dealers who sell penny stocks to personsother than established customers and accredited investors, which are generallydefined as institutions or an investor with a net worth in excess of $1,000,000or annual income exceeding $200,000 or $300,000 together with the spouse. Forthese types of transactions the broker-dealer must make a special suitabilitydetermination for the purchaser and have received the purchaser’s writtenconsent to the transaction prior to sale. The additional burdens imposed uponbroker-dealers by such requirements may discourage broker-dealers fromeffecting transactions in securities subject to the penny stock rules.

 

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

 

Our financial statements are presented in US dollars.At the end of each fiscal quarter and the fiscal year, we convert the financialstatements of Corgenix UK, which operates in pounds sterling, into US dollars,and consolidate them with results from Corgenix, Inc. We may, from time totime, also need to exchange currency from income generated by Corgenix UK.Foreign exchange rates are volatile and can change in an unknown andunpredictable fashion. Should the foreign exchange rates change to levelsdifferent than anticipated by us, our business, financial condition and resultsof operations may be adversely affected.

 

**CORGENIX MEDICAL CORPORATION**

 

**PART II**

 

**Other Information**

 

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

 

None

 

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

 

None

 

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

 

None

 

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

 

None

 

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

 

None

 

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I**tem 6.****        ****Exhibits and Reports on Form 8-K.**

 

**a.****           ****Index to and Description ofExhibits***.*

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

 

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*                    Filed herewith.

 

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

 

1. Form 8-Kfiled February 28, 2008 *Departure of Directors orPrincipal Officers; Election of Directors; Appointment of Principal Officers*

 

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**SIGNATURES**

 

In accordance with the requirements of theSecurities Exchange Act of 1934, the registrant caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|              | CORGENIX MEDICAL CORPORATION                     |
|-------------------|--------------------------------------------------|
|              |                                             |
|              |                                             |
| May 15, 2008 | By:                                              | /s/ Douglass T. Simpson |
|              | Douglass T. Simpson                              |
|              | President and Chief Executive Officer            |
| ** **        | **(Principal Executive Officer)**                |
|              |                                             |
|              |                                             |
|              | /s/ William H. Critchfield                       |
|              | William H. Critchfield                           |
|              | Chief Financial Officer                          |
| ** **        | **(Principal Financial and Accounting Officer)** |

 

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