Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**Form 10-Q**

 

| **x**                                                       | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|
|                                                        |       |                                                                                                   |
| **For the quarterly period ended  September 30, 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 zip code)

** **

**(303) 457-4345**

(Issuer’s telephone number, including areacode)

 

 

(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 registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

The number of shares of Common Stockoutstanding was 30,291,421 as of November 7, 2008.

 

 

 

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**CORGENIX MEDICAL CORPORATION**

**September 30, 2008**

 

**TABLE OF CONTENTS**

 
| **Part I**           | 3                                                                                           |
|---------------------------|---------------------------------------------------------------------------------------------|
|                      |                                                                                        |   |
| **Financial Information** | 3                                                                                           |
|                      |                                                                                        |   |
| Item 1.                   | Consolidated Financial Statements                                                           | 3 |
|                      |                                                                                        |   |
| Item 2.                   | Management’s  Discussion and Analysis Of Financial Condition and Results of Operations | 15 |
|                      |                                                                                        |   |
| Item 3.                   | Quantitative  and Qualitative Disclosures About Market Risk                                 | 19 |
|                      |                                                                                        |   |
| Item 4.                   | Controls  and Procedures                                                                    | 19 |
|                      |                                                                                        |   |
| **Part II**          | ** **                                                                                  |
|                      |                                                                                        |   |
| **Other Information**     | **19**                                                                                      |
|                      |                                                                                        |   |
| Item 1.                   | Legal Proceedings                                                                           | 19 |
|                      |                                                                                        |   |
| Item 2.                   | Unregistered Sales of Equity Securities and  Use of Proceeds                                | 20 |
|                      |                                                                                        |   |
| Item 3.                   | Defaults Upon Senior Securities                                                             | 20 |
|                      |                                                                                        |   |
| Item 4.                   | Submission of Matters to a Vote of Security  Holders                                        | 20 |
|                      |                                                                                        |   |
| Item 5.                   | Other Information                                                                           | 20 |
|                      |                                                                                        |   |
| Item 6.                   | Exhibits and Reports on Form 8-K                                                       | 20 |
|                      |                                                                                        |   |
| Certifications            | 22                                                                                          |
|                           |                                                                                             |  |  |

 

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**PART I**

#### **Item1. Consolidated Financial Statements**

# **CORGENIX MEDICAL CORPORATION**

### **ANDSUBSIDIARIES**

 

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                                             | ** ** | **September 30,  2008** | ** ** | **June 30, 2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                             | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                             | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                                                        |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                              |       | $                            | 1,022,672  |                        | $          | 1,520,099 |   |
| Accounts receivable, less allowance for  doubtful accounts of $103,689                                                                                                                                 |       | 1,071,610                    |       | 1,009,313                   |       |
| Inventories                                                                                                                                                                                            |       | 2,504,033                    |       | 2,430,205                   |       |
| Prepaid expenses                                                                                                                                                                                       |       | 110,841                      |       | 138,585                     |       |
| Total current assets                                                                                                                                                                                   |       | 4,709,156                    |       | 5,098,202                   |       |
| Equipment:                                                                                                                                                                                             |       |                         |       |                        |       |
| Capitalized software costs                                                                                                                                                                             |       | 255,617                      |       | 255,617                     |       |
| Machinery and laboratory equipment                                                                                                                                                                     |       | 995,248                      |       | 980,680                     |       |
| Furniture, fixtures, leaseholds &  office equipment                                                                                                                                           |       | 1,767,322                    |       | 1,744,638                   |       |
|                                                                                                                                                                                                   |       | 3,018,187                    |       | 2,980,935                   |       |
| Accumulated depreciation and amortization                                                                                                                                                              |       | (1,294,746                   | )          | (1,195,128                  | )          |
| Net equipment                                                                                                                                                                                          |       | 1,723,441                    |       | 1,785,807                   |       |
| Intangible assets:                                                                                                                                                                                     |       |                         |       |                        |       |
| License                                                                                                                                                                                                |       | 383,597                      |       | 388,011                     |       |
|                                                                                                                                                                                                   |       | 383,597                      |       | 388,011                     |       |
| Other assets:                                                                                                                                                                                          |       |                         |       |                        |       |
| Deferred financing costs net of  amortization of $1,257,987 and $1,181,136                                                                                                                             |       | 358,641                      |       | 435,492                     |       |
| Due from officer                                                                                                                                                                                       |       | 12,000                       |       | 12,000                      |       |
| Other assets                                                                                                                                                                                           |       | 150,009                      |       | 168,902                     |       |
| Total assets                                                                                                                                                                                           |       | $                            | 7,336,844  |                        | $          | 7,888,414 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                         | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                                                                                                                   |       |                         |       |                        |       |
| Current portion of notes payable, net of  discount                                                                                                                                                     |       | $                            | 617,777    |                        | $          | 521,495 |   |
| Current portion of capital lease  obligations                                                                                                                                                          |       | 259,192                      |       | 244,035                     |       |
| Accounts payable                                                                                                                                                                                       |       | 807,187                      |       | 840,474                     |       |
| Accrued payroll and related liabilities                                                                                                                                                                |       | 291,427                      |       | 293,065                     |       |
| Accrued interest                                                                                                                                                                                       |       | 17,128                       |       | 15,246                      |       |
| Deferred revenue                                                                                                                                                                                       |       | 226                          |       | 735                         |       |
| Accrued liabilities                                                                                                                                                                                    |       | 203,471                      |       | 294,643                     |       |
| Total current liabilities                                                                                                                                                                              |       | 2,196,408                    |       | 2,209,693                   |       |
| Notes payable, net of discount, less current  portion                                                                                                                                                  |       | 149,960                      |       | 213,121                     |       |
| Capital lease obligations, less current  portion                                                                                                                                                       |       | 179,984                      |       | 226,917                     |       |
| Deferred Facility Lease Payable, excluding  current portion                                                                                                                                            |       | 799,347                      |       | 836,099                     |       |
| Total liabilities                                                                                                                                                                                      |       | 3,325,699                    |       | 3,485,830                   |       |
| Redeemable common stock, $0.001 par value  and 468,316 shares issued and outstanding, aggregate redemption value of  $266,000, and $284,003 net of unaccreted discount and issue costs of $0 (note  5) |       | 125,000                      |       | 250,000                     |       |
|                                                                                                                                                                                                   |       |                         |       |                        |       |
| Stockholders’ equity:                                                                                                                                                                             |       |                         |       |                        |       |
| Common stock, $0.001 par value. Authorized  200,000,000 shares; Issued and outstanding 30,273,766 and 30,021,935  September 30 and June 30, respectively                                     |       | 29,805                       |       | 29,521                      |       |
| Additional paid-in capital                                                                                                                                                                             |       | 18,156,488                   |       | 18,049,673                  |       |
| Accumulated deficit                                                                                                                                                                                    |       | (14,260,894                  | )          | (13,920,235                 | )          |
| Accumulated other comprehensive income                                                                                                                                                                 |       | (39,254                      | )          | (6,375                      | )          |
| Total stockholders’ equity                                                                                                                                                                        |       | 3,886,145                    |       | 4,152,584                   |       |
| Total liabilities and stockholders’ equity                                                                                                                                                        |       | $                            | 7,336,844  |                        | $          | 7,888,414 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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# **CORGENIX MEDICAL CORPORATIONAND SUBSIDIARIES**

 

## Consolidated Statements of Operations

 
| ** **                                                                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                     | ** ** | **September 30,  2008**     | ** ** | **September 30,  2007** | ** ** |
| ** **                                                                     | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)** | ** ** |
| Net sales                                                                      |       | $                                | 2,001,896  |   | $ | 2,105,188 |   |
| Cost of sales                                                                  |       | 895,306                          |       | 964,137 |   |
|                                                                           |       |                             |       |   |   |
| Gross profit                                                                   |       | 1,106,590                        |       | 1,141,051 |   |
|                                                                           |       |                             |       |   |   |
| Operating expenses:                                                            |       |                             |       |   |   |
| Selling and marketing                                                          |       | 459,809                          |       | 531,605 |   |
| Research and development                                                       |       | 207,479                          |       | 163,693 |   |
| General and administrative                                                     |       | 533,435                          |       | 443,730 |   |
|                                                                           |       |                             |       |   |   |
|                                                                           |       | 1,200,723                        |       | 1,139,028 |   |
|                                                                           |       |                             |       |   |   |
| Operating income (loss)                                                        |       | (94,133                          | )          | 2,023 |   |
|                                                                           |       |                             |       |   |   |
| Other income (expense):                                                        |       |                             |       |   |   |
| Other income (expense)                                                         |       | 6,085                            |       | (9,828 | ) |
| Interest expense                                                               |       | (252,611                         | )          | (680,324 | ) |
|                                                                           |       |                             |       |   |   |
| Net loss                                                                       |       | $                                | (340,659   | ) | $ | (688,129 | ) |
|                                                                           |       |                             |       |   |   |
| Net loss per common share, basic and  diluted                                  |       | $                                | (0.01      | ) | $ | (0.04 | ) |
|                                                                           |       |                             |       |   |   |
| Weighted average shares outstanding, basic  and diluted                        |       | 30,092,093                       |       | 19,340,384 |   |
|                                                                           |       |                             |       |   |   |
| Net loss                                                                       |       | $                                | (340,659   | ) | $ | (688,129 | ) |
|                                                                           |       |                             |       |   |   |
| Other comprehensive gain (loss)—foreign  currency translation gain (loss) |       | (32,879                          | )          | 2,171 |   |
|                                                                           |       |                             |       |   |   |
| Total comprehensive loss                                                       |       | $                                | (373,538   | ) | $ | (685,958 | ) |

 

See accompanying notes to consolidated financial statements.

 

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**CORGENIXMEDICAL CORPORATION****ANDSUBSIDIARIES**

# Consolidated Statement ofStockholders’ Equity

For the three months ended September 30,2008

(Unaudited)

 
| ** **                                                         | ** ** | **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, 2008                                      |       | 30,021,935                                 |       | $                               | 29,521     |                             | $          | 18,049,673               |       | $                                                         | (13,920,235 | )                                     | $          | (6,375 | ) | $ | 4,152,584 |   |
|                                                               |       |                                       |       |                            |       |                             |       |                     |       |                                                      |        |                                  |       |
| Issuance of common stock for services                              |       | 213,397                                    |       | 214                             |       | 46,465                           |       | —                   |       | —                                                    |        | 46,679                                |       |
| Compensation expense recorded as a result of  stock options issued |       | —                                     |       | —                          |       | 27,127                           |       | —                   |       | —                                                    |        | 27,127                                |       |
| Issuance of common stock for license                               |       | 70,124                                     |       | 70                              |       | 20,266                           |       | —                   |       | —                                                    |        | 20,336                                |       |
| Issuance of warrants for license                                   |       | —                                     |       | —                          |       | 12,957                           |       | —                   |       | —                                                    |        | 12,957                                |       |
| Cancellation of redeemable stock upon note  pay down               |       | (31,690                                    | )          | —                          |       | —                           |       | —                   |       | —                                                    |        | —                                |       |
| Foreign currency translation                                       |       | —                                     |       | —                          |       | —                           |       | —                   |       | (32,879                                                   | )           | (32,879                               | )          |
| Net loss                                                           |       |                                       |       |                            |       |                             |       | (340,659                 | )          |                                                      |        | (340,659                              | )          |
|                                                               |       |                                       |       |                            |       |                             |       |                     |       |                                                      |        |                                  |       |
| Balance at September 30, 2008                                 |       | 30,273,766                                 |       | $                               | 29,805     |                             | $          | 18,156,488               |       | $                                                         | (14,260,894 | )                                     | $          | (39,254 | ) | $ | 3,886,145 |   |

 

See accompanying notes to consolidated financialstatements.

 

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** **

**CORGENIXMEDICAL CORPORATIONAND SUBSIDIARIES**

 

## **Consolidated Statements of Cash Flows**

 
| ** **                                                                              | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                              | ** ** | **September 30,  2008**     | ** ** | **September 30,  2007** | ** ** |
| ** **                                                                              | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)** | ** ** |
| Cash flows from operating activities:                                                   |       |                             |       |   |   |
| Net loss                                                                                |       | $                                | (340,659   | ) | $ | (688,129 | ) |
| Adjustments to reconcile net loss to net  cash provided (used) in operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                           |       | 110,014                          |       | 82,460 |   |
| Accretion of discount on note payable                                                   |       | 109,012                          |       | 499,357 |   |
| Common stock issued for services                                                        |       | 46,679                           |       | 4,400 |   |
| Common stock issued for interest                                                        |       | —                           |       | 27,314 |   |
| Compensation expense recorded for stock  options issued                                 |       | 27,127                           |       | 40,065 |   |
| Amortization of deferred financing costs                                                |       | 76,851                           |       | 76,851 |   |
| Changes in operating assets and  liabilities:                                           |       |                             |       |   |   |
| Accounts receivable, net                                                                |       | (93,411                          | )          | 173,898 |   |
| Inventories                                                                             |       | (81,634                          | )          | (97,261 | ) |
| Prepaid expenses and other assets, net                                                  |       | 68,594                           |       | 130,181 |   |
| Accounts payable                                                                        |       | (8,648                           | )          | (125,678 | ) |
| Accrued payroll and related liabilities                                                 |       | 13,951                           |       | 12,602 |   |
| Accrued interest and other liabilities                                                  |       | (139,951                         | )          | (230,126 | ) |
|                                                                                    |       |                             |       |   |   |
| Net cash provided (used) in operating  activities                                       |       | (212,075                         | )          | (94,066 | ) |
|                                                                                    |       |                             |       |   |   |
| Cash flows used in investing activities:                                                |       |                             |       |   |   |
| Additions to equipment                                                                  |       | (20,146                          | )          | (25,304 | ) |
|                                                                                    |       |                             |       |   |   |
| Cash flows from financing activities:                                                   |       |                             |       |   |   |
| Proceeds from issuance of common stock, net  of financing costs                         |       | —                           |       | 867,741 |   |
| Payments on notes payable                                                               |       | (200,891                         | )          | (26,000 | ) |
| Payments on capital lease obligations                                                   |       | (59,175                          | )          | (54,133 | ) |
|                                                                                    |       |                             |       |   |   |
| Net cash provided by (used in) financing  activities                                    |       | (260,066                         | )          | 787,608 |   |
|                                                                                    |       |                             |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                   |       | (492,287                         | )          | 668,238 |   |
|                                                                                    |       |                             |       |   |   |
| Impact of exchange rate changes on cash                                                 |       | (5,140                           | )          | 5,743 |   |
|                                                                                    |       |                             |       |   |   |
| Cash and cash equivalents at beginning of  period                                       |       | 1,520,099                        |       | 1,324,072 |   |
| Cash and cash equivalents at end of period                                              |       | $                                | 1,022,672  |   | $ | 1,998,053 |   |
|                                                                                    |       |                             |       |   |   |
| Supplemental cash flow disclosures:                                                     |       |                             |       |   |   |
| Cash paid for interest                                                                  |       | $                                | 64,864     |   | $ | 85,569 |   |
| Noncash investing and financing activities-                                             |       |                             |       |   |   |
| Issuance of warrants for license                                                        |       | $                                | 12,957     |   | $ | 16,800 |   |
| Issuance of stock for debt                                                              |       | $                                | —     |   | $ | 659,311 |   |
| Conversion of preferred stock into common  stock                                        |       | $                                | —     |   | $ | 1,017,602 |   |
| Addition of discount on convertible notes  due to contingent conversion feature         |       | $                                | —     |   | $ | 536,874 |   |
| Conversion of redeemable common stock to  note payable.                                 |       | $                                | 125,000    |   | $ | — |   |

 

See accompanying notes to consolidated financial statements.

 

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**CORGENIX MEDICAL CORPORATION AND SUBSIDIARIES**

 

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

 

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

##### * *

##### *Outlook*

 

In fiscal 2009, we are focused on accelerating the market launch of ourAspirinWorks assay, beginning the market launch of our Anti-AtherOx Test Kit,submission of a 510(k) Premarket Notification to the FDA for the Company’sAtherox Test Kit, completing further clinical studies for our Hyaluronic TestKit and our Fibromyalgia Test Kit and continuing the development and strategiccollaboration towards the development of a group of products to detectpotential bio-terrorism agents.

##### * *

##### *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 diagnostic productson 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. isresponsible for sales and marketing activities for North America, and alsoexecutes product development, product support, clinical and regulatory affairs,and product manufacturing.

 

·                  Corgenix (UK) Ltd, incorporated in the United Kingdomin 1996 (formerly REAADS Bio-Medical Products (UK) Limited) and located inPeterborough, England. Corgenix UK manages our international sales andmarketing activities except for distribution in North America, which is theresponsibility of Corgenix, Inc.

 

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

* *

*Inventory*

 

Inventories are recorded at the lower ofaverage cost or market, using the first-in, first-out method. A provision isrecorded to reduce excess and obsolete inventories to their estimated netrealizable value, when necessary. No such provision was recorded for the threemonths and one year ended September 30, 2008 and June 30, 2008,respectively. Components of inventories as of September 30 are as follows:

 
| ** **      | ** ** | **9-30-2008** | ** ** | **6-30-2008** | ** ** |
|-----------------|------------|---------------|------------|---------------|------------|
| Raw materials   |       | $             | 562,272    |          | $          | 588,288 |   |
| Work-in-process |       | 655,898       |       | 911,590       |       |
| Finished goods  |       | 1,285,863     |       | 930,327       |       |
|            |       | $             | 2,504,033  |          | $          | 2,430,205 |   |

 

***Recent Developments***

 

On April 10, 2008, we received 510(k) clearance by the UnitedStates Food 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 inindividuals with important autoimmune diseases.

 

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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, 2008.  The results of operations for the threemonths ended September 30, 2008 and 2007 are not necessarily indicative ofthe 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 September 30, 2008 andthe results of operations and its cash flows for the three months ended September 30,2008 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 clot formation,for example antiphospholipid syndrome, deep vein thrombosis, stroke andcoronary occlusion); and

 

·                 Liver diseases(fibrosis, and cirrhosis).

 

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

 

Most of our products are based on our patented and proprietaryapplication of Enzyme Linked ImmunoSorbent Assay, or ELISA, technology, aclinical testing methodology commonly used worldwide.  Most of our 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 than the products of our competitors.

 

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

 

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

 

Internally and through collaborative arrangements, we are 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 

 

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part of our strategy is to work with corporate partners to developmarket opportunities and access important resources.  We believe that our relationships withcurrent and potential partners will enable us to enhance our menu of diagnosticproducts and accelerate our ability to penetrate the worldwide markets for newproducts.

 

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.  Nostock options were granted during the quarter ended September 30, 2008 andstock options to purchase 150,000 shares were granted during the quarter ended September 30,2007. Options and warrants to purchase common stock totaling 37,703,968 and34,366,238 shares as of September 30, 2008 and 2007, respectively, are notincluded in the calculation of weighted average common shares-diluted below astheir effect is anti-dilutive. Redeemable common stock is included in thecommon shares outstanding for purposes of calculating net income (loss) pershare.

 
| ** **                                                      | ** ** | **3 Months ended  September 30,  2008** | ** ** | **3 Months ended  September 30,  2007** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
|                                                            |       |                                                   |       |                                                   |       |
| Net loss                                                        |       | $                                                      | (340,659   | )                                                      | $          | (688,129 | ) |
|                                                            |       |                                                   |       |                                                   |       |
| Common and common equivalent shares  outstanding:               |       |                                                   |       |                                                   |       |
| Historical common shares outstanding at  beginning of period    |       | 30,021,935                                             |       | 14,483,342                                             |       |
| Weighted average common equivalent shares  issued during period |       | 70,158                                                 |       | 4,857,042                                              |       |
|                                                            |       |                                                   |       |                                                   |       |
| Weighted average common shares — basic and  diluted        |       | 30,092,093                                             |       | 19,340,384                                             |       |
|                                                            |       |                                                   |       |                                                   |       |
| Net loss per share — basic and diluted                     |       | $                                                      | (0.01      | )                                                      | $          | (0.04 | ) |

 

**3.****            INCOMETAXES**

 

On July 1, 2007, the Companyadopted FASB Interpretation No. 48 (“FIN 48”), *“Accountingfor Uncertainty in Income Taxes*—*an interpretation of FASBStatement 109,”*which was issued in July 2006. FIN 48prescribes a comprehensive model for recognizing, measuring, presenting anddisclosing in the financial statements, tax positions taken or expected to betaken on a tax return, including a decision whether to file or not to file in aparticular jurisdiction. If there are changes in net assets as a result ofapplication of FIN 48, these will be accounted for as an adjustment to retainedearnings. There were no unrecognized tax benefits as of July 1, 2007, thedate that FIN 48 was adopted. If there was an adjustment related toimplementation of FIN 48, there would be a reduction to the deferred tax assetsand a corresponding reduction to the valuation allowance, resulting in no neteffect on accumulated deficit. If any unrecognized benefit would be recognized,it would not affect the Company’s effective tax rate since it is subject to afull valuation allowance.

 

The Company’s practice is torecognize interest and/or penalties related to income tax matters in income taxexpense. The Company has accrued $0 for interest and penalties as of September 30,2008.

 

A valuation allowance wasprovided for deferred tax assets, as the Company is unable to conclude underrelevant accounting standards that it is more likely than not that deferred taxassets will be realizable.

 

The Company did not record aprovision for income taxes for the three month periods ended September 30,2008 or 2007 as a result of operating losses and current estimated operatingresults for the current fiscal year. The Company has recorded valuationallowances to fully reserve its deferred tax assets, as management believes itis more likely than not that these assets will not be realized. It is possiblethat management’s estimates as to the likelihood of realization of its deferredtax assets could change as a result of changes in estimated operating results.Should management conclude that it is more likely than not that these deferredtax assets are, at least in part, realizable, the valuation allowance will bereduced and 

 

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recognized as a deferred incometax benefit in the statement of operations in the period of change, except asnoted herein.

** **

**4.****             SEGMENT INFORMATION**

 

The Company has two segments of business:North American and International operations. North American operations transact all sales in North America (US,Canada and Mexico). International operations transact all other sales.  The following table sets forth selectedfinancial data for these segments for the three-month periods ended September 30,2008 and 2007.

 
| ** **                        | ** ** | ** ** | ** ** | **Three Months Ended September 30** | ** ** |
|-----------------------------------|------------|------------|------------|---------------------------------------------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **North America**                                  | ** ** | **International** | ** ** | **Total** | ** ** |
| Net sales                         |       | 2008       |       | $                                                       | 1,402,919  |   | $ | 598,980 |   | $ | 2,001,896 |   |
|                              |       | 2007       |       | $                                                       | 1,630,689  |   | $ | 474,499 |   | $ | 2,105,188 |   |
|                              |       |       |       |                                                    |       |   |   |   |   |
| Net income (loss)                 |       | 2008       |       | $                                                       | (515,431   | ) | $ | 174,772 |   | $ | (340,659 | ) |
|                              |       | 2007       |       | $                                                       | (797,423   | ) | $ | 109,294 |   | $ | (688,129 | ) |
|                              |       |       |       |                                                    |       |   |   |   |   |
| Depreciation and                  |       | 2008       |       | $                                                       | 106,572    |   | $ | 3,442 |   | $ | 110,014 |   |
| amortization                      |       | 2007       |       | $                                                       | 81,270     |   | $ | 1,190 |   | $ | 82,460 |   |
|                              |       |       |       |                                                    |       |   |   |   |   |
| Interest expense                  |       | 2008       |       | $                                                       | 251,720    |   | $ | 891 |   | $ | 252,611 |   |
|                              |       | 2007       |       | $                                                       | 679,293    |   | $ | 1,031 |   | $ | 680,324 |   |
|                              |       |       |       |                                                    |       |   |   |   |   |
| Segment assets September 30, |       | 2008       |       | $                                                       | 6,718,753  |   | $ | 618,091 |   | $ | 7,336,844 |   |
| June 30,                     |       | 2008       |       | $                                                       | 7,201,590  |   | $ | 686,824 |   | $ | 7,888,414 |   |

 

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

 

On July 1, 2002, as part of the Medical & BiologicalLaboratories Co., Ltd. (MBL) Agreement, MBL purchased shares of theCompany’s common stock for $500,000, which MBL can require the Company torepurchase at the same price in the event that a previously existingdistribution agreement with RhiGene, Inc. is terminated. For no additionalconsideration, MBL was also issued warrants to purchase an additional 880,282shares of Common Stock at a price of $.568 per share, which is equal to anaggregate amount of $500,000. These warrants were due to expire on July 3,2008 and may be exercised in whole or in part at any time prior to theirexpiration. The estimated fair value of the warrant upon issuance wascalculated as $401,809 using the Black-Scholes option-pricing model with thefollowing assumptions: no expected dividend yield, 143% volatility, risk freeinterest rate of 4.2% and an expected life of five years. The gross proceeds of$500,000 were allocated $277,221 to redeemable common stock and $222,779 to therelated warrants based on the relative fair values of the respectiveinstruments to the fair value of the aggregate transaction. Issuance costs andthe discount attributed to the redeemable common stock upon issuance wereaccreted over the 33-month period to the first date whereupon the put optionmay be exercised, which was the expiration date of the distribution agreementbetween the Company and RhiGene, Inc. (March 31, 2007). Furthermore,pursuant to the agreement with MBL, as long as MBL holds at least 50% of thecommon stock purchased under the MBL agreement, MBL must give its writtenconsent with respect to the payment of any dividend, the repurchase of any ofthe Company’s equity securities, the liquidation or dissolution of the Companyor the amendment of any provision of the Company’s Articles of Incorporation orBylaws which would adversely affect the rights of MBL under the stock purchasetransaction documents. MBL was granted standard anti-dilution rights withrespect to stock issuances not registered under the Securities Act. MBL alsoreceived standard piggyback registration rights along with certain demandregistration rights.

 

On March 31, 2005, the Company’s distribution agreement withRhiGene expired, and the Company signed a new distribution and OEM SupplyAgreement with MBL International, Inc. (“MBLI”), a wholly owned subsidiaryof MBL, which grants the Company non-exclusive rights to distribute MBL’scomplete diagnostic line of autoimmune testing products in the U.S. andexclusive distribution rights to the OEM label products worldwideexcluding the U.S., Japan, Korea and Taiwan. In addition, on August 1,2005 the Company and MBL executed an Amendment to the Common Stock PurchaseAgreement and Common Stock Purchase Warrant wherein one-half, or 440,141, ofthe original redeemable shares were exchanged for a three-year promissory notepayable with interest at prime (5.00% as of June 30, 2008) plustwo percent with payments having commenced in September, 2005.The shares exchanged for the promissory note will be returned to theCompany quarterly on a pro rata basis as payments are made on the promissorynote. As of September 30, 2008, a total of 411,966 shares have been 

 

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returnedto the Company. The remaining 440,141 shares not covered by the promissorynote were originally due to be redeemed by the Company at $0.568 per share on August 1,2008 for any shares still owned at that time by MBL but only to the extentthat MBL has not realized at least $250,000 in gross proceeds upon the sales ofits redeemable shares in the open market for the time period August 1,2006 through August 1, 2008. Finally, the warrants originally issued toMBL to purchase 880,282 shares were initially extended to August 31,2008 and re-priced from $0.568 per share to $0.40 per share.

 

As of July 15, 2008, the Company reached agreement with MBL toamend certain provisions of our February 1, 2005 Exclusive DistributionAgreement, in addition to entering into a Memorandum of Understanding RegardingAspirin Works Distribution Rights in Japan,, and to execute a Second Amendmentto Common Stock Purchase Agreement and Warrant. These new agreements andamendments add certain products and transfer prices, call for the discussion ofterms whereby MBL would be granted a worldwide OEM agreement for certain of theproducts in a designated territory, call for the payment by Corgenix ofroyalties on certain proprietary products, which include proprietary technologyof MBL, and call for the negotiation of terms of an exclusive distributionagreement for sales of AspirinWorks in Japan. In addition, the Company and MBL,pursuant to the Second Amendment to Common Stock Purchase Agreement andWarrant, agreed that the warrant term will be extended to August 1, 2010and that one-half, or 220,070, of the remaining 440,171 redeemable shareswill be exchanged for a two-year promissory note payable with interest at prime(5.00% as of September 30, 2008) plus two percent with payments havingcommenced September 1, 2008. Based on our recalculations of the fair valueof the extended term warrants, we determined that the newly calculated value ofsaid warrants did not materially increase in value as a result of thismodification, and therefore, no adjustment was considered necessary.The shares exchanged for the promissory note will be returned to theCompany quarterly on a pro rata basis as payments are made on the promissorynote. The companies further agree that beginning September 1, 2008, andcontinuing through August 1, 2010 (the maturity date of the Second PromissoryNote), MBL will attempt to sell on the open market, the remaining220,101 shares not subject to the Second Promissory Note, at a price of$0.62 or greater. At the close of business on August 1, 2010, MBL willthen have the right to sell, and Corgenix will have the obligation to purchase,any remaining stock then held by MBL, at a price of $0.568 per share.

** **

**6.****            EQUITY**

*** ***

***(a) Employee Stock PurchasePlan***

 

Effective January 1, 1999, the Company adopted an Employee StockPurchase Plan to provide eligible employees an opportunity to purchase sharesof its common stock through payroll deductions, up to 10% of eligiblecompensation. On April 26, 2007, Shareholders approved the Company’sSecond Amended and Restated Employee Stock Purchase Plan. These plans are registeredunder Section 423 of the Internal Revenue Code of 1986. Each quarter,participant account balances are used to purchase shares of stock at the lesserof 85% of the fair value of shares on the first business day (grant date) andlast business day (exercise date) of each quarter. No right to purchase sharesshall be granted if, immediately after the grant, the employee would own stockaggregating 5% or more of the total combined voting power or value of allclasses of stock. A total of 600,000 common shares have been registeredwith the Securities and Exchange Commission (SEC) for purchase under the twoplans. In the quarter ended September 30, 2008, 7,397 shares were issuedunder the plans. In the quarter ended September 30, 2007, no shares wereissued under the plans.

*** ***

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

* *

*Stock Options as of September 30, 2008*

 

The Company’s Amended and Restated 1999 Incentive Stock Plan and the2007 Incentive Compensation Plan (the “Plan”) provides for two separatecomponents. The Stock Option Grant Program, administered by the CompensationCommittee (the “Committee”) appointed by the Company’s Board of Directors,provides for the grant of incentive and non-statutory stock options to purchasecommon stock to employees, directors or other independent advisors designatedby the Committee. The Restricted Stock Program administered by the Committee,provides for the issuance of Restricted Stock Awards to employees, directors orother independent advisors designated by the Committee.

 

The following table summarizes stock options outstanding as of September 30,2008, and changes during the three months then ended:

 

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| ** **                                      | ** ** | **Outstanding Options** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  months)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Options outstanding at June 30, 2008       |       | 2,497,100                    |       | $ | 0.36 |   | 52.27 |   | $ | — |   |
| Granted                                         |       | —                       |       | $ | — |   | — |   |   |   |
| Exercised                                       |       | —                       |       | $ | — |   | — |   |   |   |
| Cancelled, expired or forfeited                 |       | —                       |       | $ | — |   | — |   |   |   |
| Options outstanding at September 30,  2008 |       | 2,497,100                    |       | $ | 0.36 |   | 52.27 |   | $ | — |   |
| Options exercisable at September 30,  2008 |       | 2,155,433                    |       | $ | 0.36 |   | 51.14 |   | $ | — |   |

 

The total intrinsic value as of September 30, 2008 measures thedifference between the market price as of September 30, 2008 and theexercise price. No options were exercised during the three months ended September 30,2008 and September 30, 2007. Consequently, no cash was received, nor didthe Company realize any tax deductions related to exercise of stock optionsduring the periods.

 

Total estimated unrecognized compensation cost from unvested stockoptions as of September 30, 2008, was approximately $114,871, which isexpected to be recognized over a weighted average period of approximately59.6 months.

 

The weighted average per share fair value range of stock optionsgranted during the three-month periods ending September 30, 2007 was$0.022-$0.34, with no options being granted during the current three monthperiod. The fair value was estimated as of the grant date using theBlack-Scholes option pricing model with the following assumptions:

 
| ** **              | ** ** | **Three Months  Ended  September 30,** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Volatility              |       | N/A                                              |       | 84.7 | % |
| Expected option term    |       | N/A                                              |       | 7 years |   |
| Risk-free interest rate |       | N/A                                              |       | 4.40 | % |
| Expected dividend yield |       | N/A                                              |       | 0 | % |

 

In addition to the stock options discussed above, the Companyrecognized share-based compensation expense related to Restricted Stock awardsof $3,333 for the three month periods ended September 30, 2008 and 2007.The following table summarizes Non-vested Restricted Stock and the relatedactivity as of and for the three months ended September 30, 2008:

 
| ** **                            | ** ** | **Shares** | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** |
|---------------------------------------|------------|------------|------------|----------------------------------------------------|------------|
| Non-vested at July 1, 2008       |       | 33,334     |       | $                                                  | 0.40       |   |
| Granted                               |       | —     |       | —                                             |       |
| Vested                                |       | —     |       | 0.40                                               |       |
| Non-vested at September 30, 2008 |       | 33,334     |       | $                                                  | 0.40       |   |

 

As of September 30, 2008, there were also 35,206,868 warrantsissued to institutional investors, consultants, and employees outstanding andexercisable ranging in prices from $.23 to $.50 per share with a weightedaverage exercise price of $.37 per share. Of these warrants, none were newly orincrementally issued in the current quarter and 10,404,802 were newly orincrementally issued in fiscal 2008.

 

On September 8, 2008, the Board of Directors granted an equityaward of 206,000 shares of common stock to the officers of the company inrecognition of the achievements of the prior two years, as no stock options hadbeen granted since 

 

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August of2006. The closing price of the company’s stock on September 8 was $0.20and the value of the stock awards amounted to $41,200.

** **

**7.****           ****RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS**

 

In November 2007, the FASB issued *SFAS No. 141 (revised 2007), 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 forfiscal years beginning on or after December 15, 2008(fiscal 2010 for the Company). FAS 141(R) will be appliedprospectively. FAS 160 requires retroactive adoption of the presentationand disclosure requirements for existing minority interests. All otherrequirements of FAS 160 will be applied prospectively. Early adoption isprohibited for both standards. Management is currently evaluating therequirements of FAS 141(R) and FAS 160 and has not yetdetermined the impact on its financial statements.

** **

**Fair Value Measurements**

 

As of July 1, 2008, we adopted FASB Statement of Financing Accounting Standards No. 157, *“Fair ValueMeasurements”  *(“SFAS 157”).SFAS 157 established a framework for measuring fair value inGAAP and clarifiedthe definition of fair value within that framework. SFAS 157 does not requireany new fair value measurements in GAAP. SFAS 157 introduced, or reiterated anumber of key concepts which form the foundation of the fair value measurementapproach to be utilized for financial reporting purposes. The fair value of ourfinancial instruments reflect the amounts that would be received upon sale ofan asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date (exit price). SFAS 157 alsoestablished a fair value hierarchy that prioritizes the use of inputs used invaluation techniques into the following three levels:

 

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

 

Level 2-observable inputs other than quoted prices in active markets foridentical assets and liabilities.

 

Level 3-unobservable inputs.

 

The adoption of SFAS 157 did not have a material effect on ourfinancial condition and results of operations, but SFAS 157 introduced newdisclosures about how we value certain assets and liabilities. Much of thedisclosure requirement is focused on the inputs used to measure fair value,particularly in instances where the measurement uses significant unobservable(Level 3) inputs. Our financial instruments are valued using quoted prices in activemarkets or based upon other observable inputs. The following table sets forththe fair value of our financial assets that were measured on a recurring basisas of September 30, 2008 (in thousands):

 
| ** **                   | ** ** | **Level 1** | ** **    | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|------------------------------|------------|------------------|---------------|------------------|------------|------------------|------------|-----------|------------|
| Money market funds |       | $                |  890,326 |             |       |             |       |      | $          | 890,326 |   |
| Total                        |       | $                | 890,326       |             |       |             |       |      | $          | 890,326 |   |

 

**8.****           ****INTANGIBLE ASSETS**

** **

Intangible assets consist of purchased licences. Purchased licenses areamortized using the straight-line method over the shorter of 15 years orthe remaining life of the license. The Company adopted the provisions ofStatement of Financial Accounting Standards (SFAS) No. 142, Goodwill andOther Intangible Assets (SFAS No. 142) on July 1, 2002. Pursuantto SFAS No. 142, goodwill and intangible assets acquired in a purchasebusiness combination and determined to have indefinite lives and licensesacquired with no definite term are not amortized, but instead are tested forimpairment at least annually in accordance with the provisions of thisstatement. Identifiable intangibles with estimated useful lives continue to beamortized over their respective estimated useful lives and reviewed forimpairment in accordance with SFAS No. 144, Accounting for Impairmentor Disposal of Long Lived Assets.

 

On March 1, 2007, we executed an exclusive license agreement (the “LicenseAgreement”) with Creative Clinical Concepts, Inc. (“CCC”). TheLicense Agreement provides that CCC license to us certain products andassets related to determining the effectiveness of aspirin and / or anti-platelettherapy (collectively, “Aspirin Effectiveness Technology,” or 

 

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the“Licensed Products”). The Aspirin Effectiveness Technology includes UStrademark registration number 2,688,842, which includes the term “AspirinWorks”®and related designs.

 

The License Agreement imposes caps on the total amount of cash, commonstock, and warrant payments from us to CCC from the date of executionthrough to and including the third anniversary payment. Under that caplimitation, the total of all anniversary payments will not exceed $200,000 incash, with each anniversary cash payment determined by multiplying $50,000 by ananniversary ratio which is the ratio of cumulative revenue at the respectiveanniversary date divided by the cumulative sales target for the same period oftime. Likewise, the total of all anniversary common stock payments will notexceed $300,000 in value of shares of common stock (as valued on the date ofissue), with the number of shares for each anniversary stock issuancedetermined by dividing 75,000 by the closing stock price as of the respectiveanniversary date and multiplying that result by the anniversary ratio notedabove. Finally, the total of all anniversary warrant payments will not exceed300,000 warrants., with the value of each anniversary warrant issuancedetermined by multiplying 75,000 (the number of warrants to be issued) by anewly calculated Black Scholes value per warrant as of the fiscal quarter end.As of September 30, 2008, the Company had accrued a total of $8,234payable to CCC as a result of the anniversary calculations.

 

The License Agreement also requires that, for all sales of the LicensedProducts subsequent to the execution of the agreement, we pay CCC aquarterly royalty fee equal to seven percent of net sales of the LicensedProducts during the immediately preceding quarter. The License Agreement’s capson payments from us to CCC do not apply to royalty payments.

** **

**9.****            NOTES PAYABLE**

 

Notes payable consist of thefollowing at September 30, 2008 and June 30, 2008:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **September 30, 2008** | ** ** | **June 30, 2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| Convertible term note payable to institutional investors, net of  discount of $42,254 with interest at the greater of 12%, as adjusted by a  stock trading formula, or prime plus 3% (7.5% and 11.75% as of  September 30, 2008 and June 30, 2008), interest only from  June 1, 2006 through October 1, 2006 and, via a note modification  dated November 30, 2006, December 1, 2006 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 |       | $                                | 228,650    |                        | $          | 265,676 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                             |       |                        |       |
| Convertible term note payable to institutional investors, net of  discount of $176,357 with interest at the greater of 12%, as adjusted by a  stock trading formula, or prime plus 3% (7.5% and 10.75% as of September 30,  2008 and June 30, 2008), interest only from December 28, 2006  through June, 2006 and, via a note modification dated November 30, 2006,  December 1, 2006 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     |       | 419,287                          |       | 458,940                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                             |       |                        |       |
| Note payable, unsecured, to redeemable common stockholders, with  interest at prime plus 2.0% (6.5% as of September 30, 2008) due in  monthly installments with principal payments of $5,200 plus interest through  August 2010                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 119,800                          |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                             |       |                        |       |
| Note payable, unsecured, to redeemable common stockholders, with  interest at prime plus 2.0% (7.5% and 11.55% as of September 30, 2008  and June 30, 2008) due in monthly installments with principal payments  ranging from $5,000 to $10,000 plus interest through August 2008                                                                                                                                                                                                                                                                                                                                                                               |       | —                           |       | 10,000                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | 767,737                          |       | 734,616                     |       |
| Current portion, net of current portion of  discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | (617,777                         | )          | (521,495                    | )          |
| Notes payable, excluding current portion and net of long-term portion  of discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | $                                | 149,960    |                        | $          | 213,121 |   |

 

The convertible notes payablerestrict the payment of dividends on the Company’s common stock.

 

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**Item 2.**

** **

**Management’sDiscussion and Analysis Of**

**FinancialCondition and Results of Operations**

 

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

** **

**Forward-Looking Statements**

 

This 10-Q includes statements that are notpurely historical 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.  All statements other than historical factcontained in this 10-Q, including, without limitation, statements regarding futurecapital requirements, acquisition strategies, strategic partnershipexpectations, technological developments, the development, the availability ofnecessary components, research and development programs and distribution plans,are forward-looking statements.  Allforward-looking statements included in this 10-Q are based on informationavailable to us on the date hereof, and we assume no obligation to update suchforward-looking statements.  Although webelieve that the assumptions and expectations reflected in such forward-lookingstatements are reasonable, we can give no assurance that such expectations willprove to have been correct or that we will take any actions that may presentlybe planned.

 

**General**

 

Since the Company’s inception, we have been primarilyinvolved in the research, development, manufacturing and marketing/distributionof diagnostic tests for sale to clinical laboratories. We currently market 52products covering autoimmune disorders, vascular diseases, infectious diseasesand liver disease. Our products are sold in the United States, the UK and othercountries through our marketing and sales organization that includes directsales representatives, contract sales representatives, internationally throughan extensive distributor network, and to several significant OEM partners.

 

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

 

Except for the fiscal year ending June 30,1997, 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 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 policies forthe products that we sell, (vi) competitive pressures on average sellingprices for the products that we sell, and (vii) changes in the mix ofproducts that we sell.

** **

**Recently IssuedAccounting Pronouncements**

 

In November 2007, the FASB issued *SFAS No. 141 (revised 2007), 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 forfiscal years beginning on or after December 15, 2008(fiscal 2010 for the 

 

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Company).FAS 141(R) will be applied prospectively. FAS 160 requiresretroactive adoption of the presentation and disclosure requirements forexisting minority interests. All other requirements of FAS 160 will be appliedprospectively. Early adoption is prohibited for both standards. Management iscurrently evaluating the requirements of FAS 141(R) and FAS 160and has not yet determined the impact on its financial statements.

 

**Critical Accounting Policies**

 

Our consolidated financial statements are prepared in accordance withaccounting principles generally accepted in the U.S. (“GAAP”) and oursignificant 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 maintain an allowance for doubtful accounts based on its historicalexperience and provide for any specific collection issues that are identified.Such allowances have historically been adequate to provide for our doubtfulaccounts but involve a significant degree of management judgment andestimation. Worse than expected future economic conditions, unknown customercredit problems and other factors may require additional allowances fordoubtful accounts to be provided for in future periods.

 

Equipment and software are recorded at cost. Equipment under capitalleases is recorded initially at the present value of the minimum leasepayments. Depreciation and amortization is calculated primarily using thestraight-line method over the estimated useful lives of the respective assetswhich range from 3 to 7 years.

 

The internal and external costs of developing and enhancing software costsrelated to website development, other than initial design and other costsincurred during the preliminary project stage, are capitalized until thesoftware has been completed. Such capitalized amounts began to be amortizedcommencing when the website was placed in service on a straight-line basis overa three-year period.

 

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

 

We evaluate the realizability of our long-lived assets, includingproperty and equipment, whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. Revenue from saleof products is recognized upon shipment of products.

 

Revenue from research and development contracts represents amountsearned pursuant to agreements to perform research and development activitiesfor third parties and is recognized as earned under the respective agreement.Because research and development services are provided evenly over the contractperiod, revenue is recognized ratably over the contract period. Research anddevelopment and advertising costs are expensed when incurred.

 

Inventories are recorded at the lower of cost or market, using thefirst-in, first-out method.

 

**Results ofOperations**

* *

*Three Months Ended September 30,2008****compared to 2007*

* *

*Net sales.*Netsales for the quarter ended September 30, 2008 were $2,001,896, a 4.9% decreasefrom $2,105,188 for the quarter ended September 30, 2007. Total NorthAmerican sales decreased $227,773 or 14.0% to $1,402,916 while total sales tointernational distributors increased $124,481 or 26.2% to $598,980 from year toyear. With respect to the Company’s major revenue categories and product lines,North American direct product-only sales decreased $40,940 or 3.3% to$1,081,392 whereas international direct product-only sales increased $105,562or 28.0% to $482,229.  Worldwide categoryresults were as follows: Phospholipids kit sales decreased $1,303 or less than1% to $929,780 for the period. Coagulation kit sales decreased $83,850 or 16.7%to $418,767. HA kit sales increased $67,680 or 28.2% to $307,978, andAutoimmune kit sales increased $10,779 or 31.9% to $44,573. Additionally,worldwide OEM/contract manufacturing revenues decreased $237,918, or 57.7% to$174,155. Overall, worldwide non-product revenue increased $70,004, or 36.1% to$264,120. Finally, AspirinWorks sales amounted to $24,298, a 36.9% decrease vs.the prior year. Sales of products manufactured for us by other companies whilestill relatively small, are expected to continue to increase during fiscal2008.

 

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*Cost of sales*.  Cost of sales, as a percentage of sales,decreased to 44.7% for the quarter ended September 30, 2008 from 45.8% in2007. This decrease was primarily attributable to an unexpected scrapping ofnumerous production lots of one of our larger product lines which occurred inthe prior years first fiscal quarter.

* *

*Selling andmarketing. *Forthe quarter ended September 30, 2008, selling and marketing expensesdecreased 13.5% to $459,809 from $531,605 for the quarter ended September 30,2007.  The decrease was primarily due todecreases in Corgenix UK Ltd. marketing costs, sales commissions, consultingfees, and conventions and seminars, partially offset by increases in advertisingexpenses, royalties, trade shows and travel-related expenses.

* *

*Research anddevelopment.* Research and development expensesincreased 26.7% to $207,479 for the quarter ended September 30, 2008, from$163,693 for the quarter ended September 30, 2007.  This increase primarily involved increases inlabor-related costs and clinical studies expense, partially offset by decreasesin legal fees and laboratory supplies.

* *

*General andadministrative.* For the quarter ended September 30,2008, general and administrative expenses increased $89,705 or 20.2% to$533,435 from $443,730 for the quarter ended September 30, 2007.  This increase was primarily attributable toincreases in Corgenix UK-Ltd. general and administrative expenses,labor-related expenses, outside services, patent renewal fees and repairs andmaintenance, partially offset by decreases in legal expenses.

* *

*Interest expense.*Interest expense decreased $427,713 or 62.9% to $252,611for the quarter ended September 30,2008, from $680,324 for the quarter ended September 30, 2007 due primarilyto the additional discount and acceleration of the discount amortization on theconvertible notes due to the contingent conversion feature, which occurred inthe prior year’s first fiscal quarter in addition to the continuing reductionof the principal balance of the convertible notes payable.

** **

**Liquidity and CapitalResources**

 

For the quarter ended September 30,2008, cash used by operating activities amounted to $212,075, versus cash usedby operating activities of $94,066 for the quarter ended September 30,2007. The increase in the cash used by operations for the current quarterresulted primarily from the increase in accounts receivable and inventoriesplus a decrease in accrued interest and other liabilities.

 

Net cash used in investing activities, thepurchase of laboratory equipment, leasehold improvements and computer equipmentwas $20,146 for the quarter ended September 30, 2008, compared topurchases of laboratory, computer and office equipment totaling $25,304 for thequarter ended September 30, 2007.

 

Net cash used by financing activitiesamounted to $260,066 for the quarter ended September 30, 2008 compared tocash provided by financing activities of $787,608 for the quarter ended September 30,2007. This large difference versus the comparable prior year was primarily dueto the proceeds from the year-earlier common stock private placement, inaddition to the decreased principal payments on notes payable in the priorperiod as a result of the principal deferral agreement reached in November 2006and which ended in November 2007.

 

Cash on the balance sheet amounted to$1,022,672 as of September 30, 2008 compared to $1,520,099 as of June 30,2008.

 

Working capital as of September 30, 2008amounted to $2,512,748 compared to $2,888,509 as of June 30, 2008.

 

Total liabilities were $3,325,699 as of September 30,2008 compared to $3,485,830 as of June 30, 2008.

 

Stockholders’ equity amounted to $3,886,145as of September 30, 2008 compared to $4,152,584 as of June 30, 2008.

 

The Company has incurred operating losses andnegative cash flow from operations for most of its history. Losses incurredsince its inception, net of dividends on convertible preferred stock, haveaggregated $11,980,894, and there can be no assurance that the Company will beable to generate positive cash flows to fund its operations in the future or topursue its strategic objectives. Historically, the Company has financed its operations primarily throughlong-term debt and the sales of common, redeemable common, and preferredstock.  The Company has also financedoperations through sales of diagnostic products and agreements with strategicpartners.  Accounts receivable showed aslight increase of 1.2% to $1,071,610 from $1,058,672 as of September 30,2007.

 

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We have developed and are continuing to strive to implement anoperating plan intended to eventually achieve sustainable profitability andpositive cash flow from operations.  Keycomponents of this plan include accelerating revenue growth and the cash to bederived from existing product lines as well as new diagnostic products,expansi1n of our strategic alliances with other biotechnology and diagnosticcompanies, improving operating efficiencies to reduce cost of sales, therebyimproving gross margins, and lowering overall operating expenses.  Management is forecasting continued revenuegrowth for the remainder of the fiscal year ended June 30, 2009.  However, as demonstrated by the first quarterresults, management has not yet achieved the necessary level of sales, cost ofsales and operating efficiencies to achieve consistent profitability andpositive cash flow from operations. There are significant risks associated with the operating plan and wemight be forced to further modify the plan if circumstances change, in order toachieve the goals of sustained profitability and positive cash flow fromoperations.

 

Although the operating plan is intended to achieve sustainableprofitability and positive cash flow from operations, it is possible that wemay not be successful in our efforts. Even with our operating plan, we expect to continue incurring operatinglosses for the first two quarters of fiscal 2009, as it will still take timefor our strategic and operating initiatives to have a positive effect on ourbusiness operations and cash flow.

 

Should any other significant negative events occur, our financial liquidityposition would most likely be negatively impacted by our not achieving positivecash flow from operations.  Given all ofthese potential circumstances, we may have to secure additional debt or equityfinancing.  It is also possible that wemay also experience future defaults under the agreements with our convertibledebt holders and/or redeemable common shareholder, e.g., for non payment ofamounts due, in which case they would be entitled to accelerate the amountspayable to them.  We do not believe thatany defaults will occur in fiscal 2009 or thereafter. Management believes thatwe will have adequate resources to continue operations for longer than 12months.

** **

**Off -Balance Sheet Arrangements**

 

We do not have any off-balance sheetarrangements.

** **

**ContractualObligations and Commitments**

 

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 following amendments to theLease:

 

·                 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 sevenyears and 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, 

 

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2007, plusamortization of tenant improvements of $5.24 per square foot, plus estimatedoperating expenses of $1.61 per square foot. The base lease rate on 25,600 square feet of the Property increases to$5.64 per square foot on January 28, 2008, with fixed annual increaseseach January 28 thereafter during the initial Term, plus the amortizationof tenant improvements of $5.24 per square foot, and estimated operatingexpenses of $1.61 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 $1.61 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 increases to approximately $10.93 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 $13.18 persquare foot during the final year of the initial Term.

 

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.**

** **

**Quantitative and Qualitative Disclosures aboutMarket Risk**

 

Not required forsmaller reporting companies.

** **

**Item4.**

** **

**Controlsand Procedures**

** **

Underthe supervision and with the participation of the Company’s President and ChiefFinancial Officer, the Company’s management has evaluated the effectiveness ofthe Company’s disclosure controls and procedures as of the end of the periodcovered 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, the Company’s disclosurecontrols and procedures are effective and ensure that information required tobe disclosed in the Company’s Exchange Act reports is (1) recorded,processed, summarized and reported in a timely manner, and (2) accumulatedand communicated to management, including the President and our Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

There were no changes in the Company’s internalcontrol over financial reporting as of the end of the period covered by thisreport that materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.

 

**PART II**

** **

**Other Information**

 
| **Item 1.** | **Legal Proceedings** |
|-------------|-----------------------|
|        |                  |
|        | None                  |

 

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| **Item 2.** | **Unregistered Sales of Equity Securities and  Use of Proceeds**                                         |
|-------------|----------------------------------------------------------------------------------------------------------|
|        |                                                                                                     |
|        | None                                                                                                     |
| ** **  | ** **                                                                                               |
| **Item 3.** | **Defaults Upon Senior Securities**                                                                      |
|        |                                                                                                     |
|        | None                                                                                                     |
| ** **  | ** **                                                                                               |
| **Item 4.** | **Submission of Matters to a Vote of Security  Holders**                                                 |
|        |                                                                                                     |
|        | None                                                                                                     |
| ** **  | ** **                                                                                               |
| **Item 5.** | **Other Information**                                                                                    |
|        |                                                                                                     |
|        | None                                                                                                     |
|        |                                                                                                     |
| I**tem 6.** | **Exhibits and Reports on Form 8-K.**                                                               |
|        | ** **                                                                                               |
|        | **a.****          Index to and Description of Exhibits***.* |

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

 

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*                 Filed herewith.

 

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

** **

**   **None.

 

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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 |
|------------------------|------------------------------|
|                   |                         |
|                   |                         |
| November 13, 2008 | By:                          | /s/ Douglass T. Simpson |
|                   |                         | Douglass T. Simpson |
|                   |                         | President and Chief Executive Officer |
| ** **             | ** **                   | **(Principal Executive Officer)** |
|                   |                         |   |
|                   |                         |   |
|                   | By:                          | /s/ William H. Critchfield |
|                   |                         | Chief Financial Officer |
| ** **             | ** **                   | **(Principal Financial and Accounting Officer)** |

 

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