Table of 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 December 31, 2008**                                              |
|       |       |                                                                                                    |
| **o**      | ** ** | **TRANSITION REPORT UNDER  SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**      |

 

**For thetransition period from          to           **

 

**CommissionFile Number 000-24541**

** **

**CORGENIXMEDICAL CORPORATION**

(Name of Small Business Issuer in itsCharter)

 

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

 

**11575 Main Street, Number 400, Broomfield, CO80020**

(Address of principal executive offices,including 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 30,290,919 as of February 6, 2009.

 

 

 

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**CORGENIX MEDICAL CORPORATION**

**December 31, 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 |   | 16 |
|                      |       |                                                                                        |   |   |
| Item  3.                  |       | Quantitative  and Qualitative Disclosures About Market Risk                                 |   | 21 |
|                      |       |                                                                                        |   |   |
| Item  4.                  |       | Controls  and Procedures                                                                    |   | 21 |
|                      |       |                                                                                        |   |   |
| **Part II**          | ** ** | ** **                                                                                  |
|                      |       |                                                                                        |   |   |
| **Other Information**     | ** ** | **22**                                                                                      |
|                      |       |                                                                                        |   |   |
| Item  1.                  |       | Legal  Proceedings                                                                          |   | 22 |
|                      |       |                                                                                        |   |   |
| Item  2.                  |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   | 22 |
|                      |       |                                                                                        |   |   |
| Item  3.                  |       | Defaults  Upon Senior Securities                                                            |   | 22 |
|                      |       |                                                                                        |   |   |
| Item  4.                  |       | Submission  of Matters to a Vote of Security Holders                                        |   | 22 |
|                      |       |                                                                                        |   |   |
| Item  5.                  |       | Other  Information                                                                          |   | 22 |
|                      |       |                                                                                        |   |   |
| Item  6.                  |       | Exhibits  and Reports on Form 8-K                                                      |   | 22 |
|                      |       |                                                                                        |   |   |
| Certifications            |       | 22                                                                                          |

 

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**PART I**

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

# **CORGENIX MEDICAL CORPORATION**

### **ANDSUBSIDIARIES**

###  

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                                                    | ** ** | **December 31,  2008** | ** ** | **June 30, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                    | ** ** | **(Unaudited)**             | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                                    | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                                                               |       |                        |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                     |       | $                           | 730,787    |                        | $          | 1,520,099 |   |
| Accounts receivable, less allowance for  doubtful accounts of $103,689                                                                                                                                        |       | 956,039                     |       | 1,009,313                   |       |
| Inventories                                                                                                                                                                                                   |       | 2,585,665                   |       | 2,430,205                   |       |
| Prepaid expenses                                                                                                                                                                                              |       | 81,704                      |       | 138,585                     |       |
| Total current assets                                                                                                                                                                                          |       | 4,354,195                   |       | 5,098,202                   |       |
| Equipment:                                                                                                                                                                                                    |       |                        |       |                        |       |
| Capitalized software costs                                                                                                                                                                                    |       | 255,617                     |       | 255,617                     |       |
| Machinery and laboratory equipment                                                                                                                                                                            |       | 995,248                     |       | 980,680                     |       |
| Furniture, fixtures, leaseholds &  office equipment                                                                                                                                                  |       | 1,760,268                   |       | 1,744,638                   |       |
|                                                                                                                                                                                                          |       | 3,011,133                   |       | 2,980,935                   |       |
| Accumulated depreciation and amortization                                                                                                                                                                     |       | (1,391,763                  | )          | (1,195,128                  | )          |
| Net equipment                                                                                                                                                                                                 |       | 1,619,370                   |       | 1,785,807                   |       |
| Intangible assets:                                                                                                                                                                                            |       |                        |       |                        |       |
| Licenses                                                                                                                                                                                                      |       | 375,653                     |       | 388,011                     |       |
|                                                                                                                                                                                                          |       | 375,653                     |       | 388,011                     |       |
| Other assets:                                                                                                                                                                                                 |       |                        |       |                        |       |
| Deferred financing costs net of  amortization of $1,334,839 and $1,181,136                                                                                                                                    |       | 281,790                     |       | 435,492                     |       |
| Due from officer                                                                                                                                                                                              |       | 12,000                      |       | 12,000                      |       |
| Other assets                                                                                                                                                                                                  |       | 147,324                     |       | 168,902                     |       |
| Total assets                                                                                                                                                                                                  |       | $                           | 6,790,332  |                        | $          | 7,888,414 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                                                                                                                          |       |                        |       |                        |       |
| Current portion of notes payable, net of  discount                                                                                                                                                            |       | $                           | 673,691    |                        | $          | 521,495 |   |
| Current portion of capital lease  obligations                                                                                                                                                                 |       | 251,260                     |       | 244,035                     |       |
| Accounts payable                                                                                                                                                                                              |       | 645,828                     |       | 840,474                     |       |
| Accrued payroll and related liabilities                                                                                                                                                                       |       | 276,133                     |       | 293,065                     |       |
| Accrued interest                                                                                                                                                                                              |       | 25,822                      |       | 15,246                      |       |
| Deferred revenue                                                                                                                                                                                              |       | —                      |       | 735                         |       |
| Accrued liabilities                                                                                                                                                                                           |       | 213,248                     |       | 294,643                     |       |
| Total current liabilities                                                                                                                                                                                     |       | 2,085,982                   |       | 2,209,693                   |       |
| Notes payable, net of discount, less  current portion                                                                                                                                                         |       | 41,800                      |       | 213,121                     |       |
| Capital lease obligations, less current  portion                                                                                                                                                              |       | 139,076                     |       | 226,917                     |       |
| Deferred Facility Lease Payable, excluding  current portion                                                                                                                                                   |       | 762,595                     |       | 836,099                     |       |
| Total liabilities                                                                                                                                                                                             |       | 3,029,453                   |       | 3,485,830                   |       |
| Redeemable common stock, $0.001 par value  440,141and 500,006 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 30,263,246 and 30,021,935  December 31 and June 30, respectively                                             |       | 29,823                      |       | 29,521                      |       |
| Additional paid-in capital                                                                                                                                                                                    |       | 18,189,932                  |       | 18,049,673                  |       |
| Accumulated deficit                                                                                                                                                                                           |       | (14,529,268                 | )          | (13,920,235                 | )          |
| Accumulated other comprehensive income                                                                                                                                                                        |       | (54,608                     | )          | (6,375                      | )          |
| Total stockholders’ equity                                                                                                                                                                               |       | 3,635,879                   |       | 4,152,584                   |       |
| Total liabilities and stockholders’ equity                                                                                                                                                               |       | $                           | 6,790,332  |                        | $          | 7,888,414 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**CORGENIXMEDICAL CORPORATIONAND SUBSIDIARIES**

## ConsolidatedStatements of Operations

 
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                       | ** ** | **December 31,  2008**      | ** ** | **December 31,  2007**    | ** ** | **December 31,****2008** | ** ** | **December 31,  2007** | ** ** |
| ** **                                                       | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                | ** ** |
| Net sales                                                        |       | $                                | 1,995,026  |                           | $          | 2,399,038 |   | $ | 3,996,922 |   | $ | 4,504,226 |   |
| Cost of sales                                                    |       | 840,927                          |       | 1,052,837                      |       | 1,736,233 |   | 2,016,974 |   |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Gross profit                                                     |       | 1,154,099                        |       | 1,346,201                      |       | 2,260,689 |   | 2,487,252 |   |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Operating expenses:                                              |       |                             |       |                           |       |   |   |   |   |
| Selling and marketing                                            |       | 476,495                          |       | 492,175                        |       | 936,304 |   | 1,023,780 |   |
| Research and development                                         |       | 192,218                          |       | 148,572                        |       | 399,697 |   | 312,265 |   |
| General and administrative                                       |       | 541,609                          |       | 481,230                        |       | 1,075,044 |   | 924,960 |   |
| Total expenses                                                   |       | 1,210,322                        |       | 1,121,977                      |       | 2,411,045 |   | 2,261,005 |   |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Operating income (loss)                                          |       | (56,223                          | )          | 224,224                        |       | (150,356 | ) | 226,247 |   |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Other income (expense)                                           |       |                             |       |                           |       |   |   |   |   |
| Other income, net                                                |       | 3,935                            |       | 21,516                         |       | 10,020 |   | 11,688 |   |
| Interest expense                                                 |       | (216,086                         | )          | (306,050                       | )          | (468,697 | ) | (986,374 | ) |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Net loss                                                         |       | (268,374                         | )          | (60,310                        | )          | (609,033 | ) | (748,439 | ) |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Net loss per share, basic and diluted                            |       | $                                | (0.01      | )                              | $          | (0.00 | ) | $ | (0.02 | ) | $ | (0.03 | ) |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Weighted average shares outstanding, basic  and diluted (note 2) |       | 30,280,155                       |       | 25,048,943                     |       | 30,186,124 |   | 22,179,066 |   |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Net loss                                                         |       | $                                | (268,374   | )                              | $          | (60,310 | ) | $ | (609,033 | ) | $ | (748,439 | ) |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Other comprehensive income (loss)-foreign  currency translation  |       | (15,354                          | )          | (56,880                        | )          | (48,233 | ) | (54,709 | ) |
|                                                             |       |                             |       |                           |       |   |   |   |   |
| Total comprehensive loss                                         |       | $                                | (283,728   | )                              | $          | (117,190 | ) | $ | (657,266 | ) | $ | (803,148 | ) |

 

See accompanying notes to consolidated financial statements.

 

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**CORGENIXMEDICAL CORPORATION****ANDSUBSIDIARIES**

# Consolidated Statement ofStockholders’ Equity

For the six months ended December 31,2008

(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                              |       | 231,052                                    |       | 232                             |       | 52,782                           |       | —                   |       | —                                                    |        | 53,014                                |       |
| Compensation expense recorded as a result  of stock options issued |       | —                                     |       | —                          |       | 54,254                           |       | —                   |       | —                                                    |        | 54,254                                |       |
| 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               |       | (59,865                                    | )          | —                          |       | —                           |       | —                   |       | —                                                    |        | —                                |       |
| Foreign currency translation                                       |       | —                                     |       | —                          |       | —                           |       | —                   |       | (48,233                                                   | )           | (48,233                               | )          |
| Net loss                                                           |       |                                       |       |                            |       |                             |       | (609,033                 | )          |                                                      |        | (609,033                              | )          |
|                                                               |       |                                       |       |                            |       |                             |       |                     |       |                                                      |        |                                  |       |
| Balance at December 31, 2008                                  |       | 30,263,246                                 |       | $                               | 29,823     |                             | $          | 18,189,932               |       | $                                                         | (14,529,268 | )                                     | $          | (54,608 | ) | $ | 3,635,879 |   |

 

See accompanying notes to consolidated financialstatements.

 

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**CORGENIXMEDICAL CORPORATIONAND SUBSIDIARIES**

 

## **Consolidated Statements of Cash Flows**

 
| ** **                                                                              | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                              | ** ** | **December 31,  2008**    | ** ** | **December 31,  2007** | ** ** |
| ** **                                                                              | ** ** | **(Unaudited)**                | ** ** | **(Unaudited)** | ** ** |
| Cash flows from operating activities:                                                   |       |                           |       |   |   |
| Net loss                                                                                |       | $                              | (609,033   | ) | $ | (748,439 | ) |
| Adjustments to reconcile net loss to net  cash provided (used) in operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                           |       | 222,040                        |       | 195,326 |   |
| Accretion of discount on note payable                                                   |       | 196,159                        |       | 649,440 |   |
| Common stock issued for services                                                        |       | 53,014                         |       | 7,733 |   |
| Common stock issued for interest                                                        |       | —                         |       | 86,718 |   |
| Compensation expense recorded for stock  options issued                                 |       | 54,254                         |       | 88,566 |   |
| Amortization of deferred financing costs                                                |       | 153,703                        |       | 153,703 |   |
| Changes in operating assets and  liabilities:                                           |       |                           |       |   |   |
| Accounts receivable, net                                                                |       | (46,790                        | )          | 107,479 |   |
| Inventories                                                                             |       | (184,255                       | )          | 27,121 |   |
| Prepaid expenses and other assets, net                                                  |       | 85,887                         |       | 137,586 |   |
| Accounts payable                                                                        |       | (63,324                        | )          | (280,783 | ) |
| Accrued payroll and related liabilities                                                 |       | (4,098                         | )          | 7,554 |   |
| Accrued interest and other liabilities                                                  |       | (149,972                       | )          | (537,394 | ) |
|                                                                                    |       |                           |       |   |   |
| Net cash used in operating activities                                                   |       | (292,415                       | )          | (105,390 | ) |
|                                                                                    |       |                           |       |   |   |
| Cash flows used in investing activities:                                                |       |                           |       |   |   |
| Additions to equipment                                                                  |       | (21,146                        | )          | (23,985 | ) |
|                                                                                    |       |                           |       |   |   |
| Cash flows from financing activities:                                                   |       |                           |       |   |   |
| Proceeds from issuance of common stock, net  of financing costs                         |       | —                         |       | 851,329 |   |
| Payments on notes payable                                                               |       | (340,284                       | )          | (44,000 | ) |
| Payments on capital lease obligations                                                   |       | (121,618                       | )          | (107,429 | ) |
|                                                                                    |       |                           |       |   |   |
| Net cash provided by (used in) financing  activities                                    |       | (461,902                       | )          | 699,900 |   |
|                                                                                    |       |                           |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                   |       | (775,463                       | )          | 570,525 |   |
|                                                                                    |       |                           |       |   |   |
| Impact of exchange rate changes on cash                                                 |       | (13,849                        | )          | (181 | ) |
|                                                                                    |       |                           |       |   |   |
| Cash and cash equivalents at beginning of  period                                       |       | 1,520,099                      |       | 1,324,072 |   |
| Cash and cash equivalents at end of period                                              |       | $                              | 730,787    |   | $ | 1,894,416 |   |
|                                                                                    |       |                           |       |   |   |
| Supplemental cash flow disclosures:                                                     |       |                           |       |   |   |
| Cash paid for interest                                                                  |       | $                              | 108,258    |   | $ | 103,096 |   |
| Noncash investing and financing activities-                                             |       |                           |       |   |   |
| Issuance of warrants for license                                                        |       | $                              | 12,957     |   | $ | 16,800 |   |
| Equipment acquired through capital leases                                               |       | $                              | 48,821     |   | $ | — |   |
| Issuance of stock for debt                                                              |       | $                              | —     |   | $ | 721,208 |   |
| Conversion of preferred stock into common  stock                                        |       | $                              | —     |   | $ | 1,043,558 |   |
| 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.

 

*CompanyOverview*

 

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 corporateheadquarters is located in Broomfield, Colorado. We have two wholly ownedoperating 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 sixmonths and one year ended December 31, 2008 and June 30, 2008,respectively. Components of inventories are as follows:

 
| ** **      | ** ** | **12-31-2008** | ** ** | **6-30-2008** | ** ** |
|-----------------|------------|----------------|------------|---------------|------------|
| Raw materials   |       | $              | 568,653    |          | $          | 588,288 |   |
| Work-in-process |       | 586,610        |       | 911,590       |       |
| Finished goods  |       | 1,430,402      |       | 930,327       |       |
|            |       | $              | 2,585,665  |          | $          | 2,430,205 |   |

 

***Recent Developments***

 

On February 3, 2009, Corgenix Medical Corporation (the “Company”)entered into two agreements (the “Agreements”) to restructure the debtevidenced by convertible term notes that Truk Opportunity Fund, LLC, a Delawarecompany; Truk International Fund, LP, a Cayman Islands company (collectively, “Truk”);and CAMOFI Master LDC, a Cayman Islands company, formerly named DCOFI MasterLDC, (“CAMOFI”) purchased on May 19, 2005 and December 28, 2005.

 

The Agreements suspend all amortizing principal amount paymentsotherwise due under each note, beginning November 1, 2008 and ending onthe earlier of (i) the first day of the month next succeeding the closingof any new financing transaction or (ii) May 1, 2009 (the “RepaymentDate”), at which time payments will again become due and

 

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payable on the first day of each subsequent month until December 31,2009 (the “Maturity Date”).  Paymentswill be equal to the amount of principal outstanding divided by the number ofmonths from the Repayment Date until the Maturity Date.  On the Maturity Date, the amortizingprincipal amount for each of the term notes and all other amounts due and owingmust be repaid in full, whether by payment of cash, or at Truk’s or CAMOFI’soption, by the conversion into common stock.

 

Under the Agreements, Truk and CAMOFI agree that their securityinterest in the Company’s accounts receivable and inventory only shall besubordinated to that of the lenders in any new financing, but that theirsecurity interest in all other assets of the Company will remain a perfectedfirst security interest.

 

Simultaneously with its execution, the Company paid $22,466 to Truk andCAMOFI for accrued and unpaid interest from November 1, 2008 to February 3,2009 with respect to each term note. Simultaneously with the funding of any new financing, the Company shallpay to Truk and CAMOFI one-half of the amounts then outstanding under each ofthe term notes, and after such payment of one-half of the amount outstandingunder each note, the remaining principal balance of each term note will beincreased by five percent (5%). The resultant amounts then owing to Truk andCAMOFI will be repaid in equal monthly amounts, plus interest, until thematurity date of December 31, 2009.

 

Under the Agreements, the common stock purchase warrants dated May 19,2005 were extended to expire May 19, 2017 rather than May 19, 2012and the common stock purchase warrants dated December 28, 2005 wereextended to expire December 28, 2015 rather than December 28, 2010.

 

The Company has agreed to issue to CAMOFI 200,000 shares of the Company’sSeries B Convertible Preferred Stock (“Series B”), with a liquidationpreference of $50,000, which will be convertible into 800,000 shares of theCompany’s common stock at the rate of $0.25. Likewise,  the Company agrees to issue to Truk 36,680shares of the Company’s Series B Convertible Preferred Stock, with aliquidation preference of $9,170, which will be convertible into 146,720 sharesof the Company’s common stock at the rate of $0.25.

 

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 laboratorytest now available worldwide utilizes the Company’s patented Anti-AtherOx® technology to detect antibodiesin individuals with important autoimmune diseases.

 

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 and six months ended December 31, 2008 and 2007 are not necessarilyindicative of the operating results for the full year.

 

In the opinion of management, alladjustments, consisting only of normal recurring accruals, have been made topresent fairly the Company’s financial position at December 31, 2008 andthe results of operations and its cash flows for the three months and sixmonths ended December 31, 2008 and 2007.

 

***Our Business***

 

**Introduction**

 

Our business includes theresearch, development, manufacture, and marketing of in vitro diagnosticproducts for use in disease detection and prevention.  We currently sell 52 diagnostic products on aworldwide basis to hospitals, clinical testing laboratories, universities,biotechnology and pharmaceutical companies and research institutions.  We have developed and we manufacture most ofour products at our Colorado facility, and we purchase what we refer to as OMProducts from other healthcare manufacturers for resale by us.  All of these products are used in clinicallaboratories for the diagnosis and/or monitoring of three important areas ofhealth care:

 

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

 

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

 

·                 Liver diseases(fibrosis, and cirrhosis).

 

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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 on thisplatform 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 part of ourstrategy is to work with corporate partners to develop market opportunities andaccess important resources.  We believethat our relationships with current and potential partners will enable us toenhance our menu of diagnostic products and accelerate our ability to penetratethe worldwide markets for new products.

 

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

 

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

 

Basic earnings (loss)per share is computed by dividing net loss attributable to common stockholdersby the weighted average number of common shares outstanding.  Diluted earnings (loss) per share is computedby dividing net loss attributable to common stockholders by the weightedaverage number of common shares outstanding increased for potentially dilutivecommon shares outstanding during the period. The dilutive effect of stock options and their equivalents is calculatedusing the treasury stock method.  Nostock options were granted during the six months ended December 31, 2008and stock options to purchase 150,000 shares were granted during the six monthsended December 31, 2007. Options and warrants to purchase common stocktotaling 37,703,968 and 34,366,238 shares as of December 31, 2008 and2007, respectively, are not included in the calculation of weighted averagecommon shares-diluted below as their effect is anti-dilutive. Redeemable commonstock is included in the common shares outstanding for purposes of calculatingnet income (loss) per share.

 

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| ** **                                                          | ** ** | **3 Months ended  December 31,  2008** | ** ** | **3 Months ended  December 31,  2007** | ** ** | **6 Months ended  December 31,  2008** | ** ** | **6 Months ended  December 31,  2007** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Net loss                                                            |       | $                                                     | (268,374   | )                                                     | $          | (60,310                                               | )          | (609,033                                              | )          | $ | (748,439 | ) |
|                                                                |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Common and common equivalent shares  outstanding:                   |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Historical common shares outstanding at  beginning of period        |       | 24,725,431                                            |       | 24,725,431                                            |       | 14,483,342                                            |       | 14,483,342                                            |       |
| Weighted average common equivalent shares  issued during the period |       | 323,512                                               |       | 323,512                                               |       | 7,695,724                                             |       | 7,695,724                                             |       |
|                                                                |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Weighted average common shares — basic and  diluted            |       | 30,280,155                                            |       | 25,048,943                                            |       | 30,186,124                                            |       | 22,179,066                                            |       |
|                                                                |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Net loss per share — basic and diluted                         |       | $                                                     | (0.01      | )                                                     | $          | (0.00                                                 | )          | $                                                     | (0.02      | ) | $ | (0.03 | ) |
|                                                                     |            |                                                       |            |                                                       |            |                                                       |            |                                                       |            |  |  |  |  |

 

**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 2007. 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 December 31,2008.

 

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 or six month periods ended December 31,2008 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 recognized as a deferred income tax benefit in the statement ofoperations in the period of change, except as noted herein.

 

**4.****                                      SEGMENTINFORMATION**

 

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-and six-month periods ended December 31,2008 and 2007.

 
| ** **            | ** ** | ** ** | ** ** | **Three Months Ended December 31,** | ** ** | **Six Months Ended December 31,** | ** ** |
|-----------------------|------------|------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **            | ** ** | ** ** | ** ** | **North  America**                                      | ** ** | **International**                                     | ** ** | **Total** | ** ** | **North  America** | ** ** | **International** | ** ** | **Total** | ** ** |
| Net sales             |       | 2008       |       | $                                                       | 1,456,603  |                                                  | $          | 538,423 |   | $ | 1,995,026 |   | $ | 2,859,519 |   | $ | 1,137,403 |   | $ | 3,996,922 |   |
|                  |       | 2007       |       | $                                                       | 1,736,015  |                                                  | $          | 663,023 |   | $ | 2,399,038 |   | $ | 3,366,704 |   | $ | 1,137,522 |   | $ | 4,504,226 |   |
|                  |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| Net income (loss)     |       | 2008       |       | $                                                       | (416,701   | )                                                     | $          | 148,327 |   | $ | (268,374 | ) | $ | (933,458 | ) | $ | 324,425 |   | $ | (609,033 | ) |
|                  |       | 2007       |       | $                                                       | (295,427   | )                                                     | $          | 235,117 |   | $ | (60,310 | ) | $ | 1,091,628 | ) | $ | 343,189 |   | $ | (748,439 | ) |
|                  |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| Depreciation and      |       | 2008       |       | $                                                       | 106,718    |                                                  | $          | 5,308 |   | $ | 112,026 |   | $ | 213,290 |   | $ | 8,750 |   | $ | 222,040 |   |
| Amortization          |       | 2007       |       | $                                                       | 111,738    |                                                  | $          | 1,128 |   | $ | 112,866 |   | $ | 193,094 |   | $ | 2,232 |   | $ | 195,326 |   |
|                  |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| Interest expense, net |       | 2008       |       | $                                                       | (215,676   | )                                                     | $          | (410 | ) | $ | (216,086 | ) | $ | (467,396 | ) | $ | (1,301 | ) | $ | (468,697 | ) |
|                  |       | 2007       |       | $                                                       | (305,104   | )                                                     | $          | (946 | ) | $ | (306,050 | ) | $ | (984,397 | ) | $ | (1,977 | ) | $ | (986,374 | ) |
|                  |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| Segment assets:       |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| December 31,     |       | 2008       |       | $                                                       | 6,257,625  |                                                  | $          | 532,707 |   | $ | 6,790,332 |   | $ | 6,257,625 |   | $ | 532,707 |   | $ | 6,790,332 |   |
| June 30,         |       | 2008       |       | $                                                       | 6,718,753  |                                                  | $          | 618,091 |   | $ | 7,336,844 |   | $ | 6,718,753 |   | $ | 618,091 |   | $ | 7,336,844 |   |

 

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**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 the Companyquarterly on a pro rata basis as payments are made on the promissory note. Asof December 31, 2008, a total of 440,161 shares have been returned tothe 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 had not realized at least $250,000 in gross proceeds upon the sales ofits redeemable shares in the open market for the time period August 1,2007 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 shareswere exchanged for a two-year promissory note payable with interest at prime(3.25% as of December 31, 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 SecondPromissory Note), 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 

 

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sell,and Corgenix will have the obligation to purchase, any remaining stock thenheld 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 areregistered under Section 423 of the Internal Revenue Code of 1986. Eachquarter, participant account balances are used to purchase shares of stock atthe lesser of 85% of the fair value of shares on the first business day (grantdate) and last business day (exercise date) of each quarter. No right topurchase shares shall be granted if, immediately after the grant, the employeewould own stock aggregating 5% or more of the total combined voting power orvalue of all classes of stock. A total of 600,000 common shares have beenregistered with the Securities and Exchange Commission (SEC) for purchase underthe two plans. In the quarter ended December 31, 2008, 17,665 shares wereissued under the plans. In the quarter ended December 31, 2007, no shareswere issued under the plans.

 

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

 

*Stock Options as of December 31, 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 December 31,2008, and changes during the six 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 |   | 55.27 |   | $ | — |   |
| Granted                                        |       | —                       |       | $ | — |   | — |   |   |   |
| Exercised                                      |       | —                       |       | $ | — |   | — |   |   |   |
| Cancelled, expired or forfeited                |       | (4,500                       | )          | $ | 0.45 |   | 2.00 |   |   |   |
| Options outstanding at December 31, 2008  |       | 2,492,600                    |       | $ | 0.36 |   | 49.33 |   | $ | — |   |
| Options exercisable at December 31,  2008 |       | 2,150,933                    |       | $ | 0.36 |   | 48.21 |   | $ | — |   |

 

The total intrinsic value as of December 31, 2008 measures thedifference between the market price as of December 31, 2008 and the exerciseprice. No options were exercised during the six months ended December 31,2008 and December 31, 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 December 31, 2008, was approximately $114,871, which isexpected to be recognized over a weighted average period of approximately56.7 months.

 

The weighted average per share fair value range of stock optionsgranted during the six-month periods ending December 31, 2007 was$0.022-$0.34, with no options being granted during the current six month periodended December 31, 2008. The fair value was estimated as of the grant dateusing the Black-Scholes option pricing model with the following assumptions:

 
| ** **                     | ** ** | **Quarters Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **Valuation Assumptions** | ** ** | **2008**                                   | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                           |       |                                       |       |                                              |       |   |   |   |   |
| Expected life                  |       | —                                     |       | 7.0                                               |       | — |   | 7.0 |   |
| Risk-free interest rate        |       | —                                     |       | 4.40                                              | %          | — |   | 4.40 | % |
| Expected volatility            |       | —                                     |       | 84.7                                              | %          | — |   | 84.7 | % |
| Expected dividend yield        |       | —                                     |       | 0                                                 | %          | — |   | 0 | % |

 

In addition to the stock options discussed above, the Companyrecognized share-based compensation expense related to Restricted Stock awardsof $3,333 and $6,666 for the three and six month periods ended December 31,2008 and 2007. The following table summarizes Non-vested Restricted Stock andthe related activity as of and for the three months ended December 31,2008:

 
| ** **                                             | ** ** | **Shares** | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------------------------------------------|------------|
| Non-vested Restricted Stock at July 1,  2008      |       | 33,334     |       | $                                                  | 0.40       |   |
| Granted                                                |       | —     |       | —                                             |       |
| Vested                                                 |       | —     |       | —                                             |       |
| Non-vested Restricted Stock at  December 31, 2008 |       | 33,334     |       | $                                                  | 0.40       |   |

 

As of December 31, 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 or six month period ended December 31,2008. No warrants were newly or incrementally issued in the quarter ended December 31,2007, whereas 4,466,430 warrants were newly or incrementally issued in the sixmonth period ended December 31, 2007.

 

On September 8, 2008, the Board of Directors granted an equityaward of 206,000 shares of common stock to the five officers of the company inrecognition of the company’s achievements for the prior two years, as no stockoptions had 

 

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beengranted since August, 2007. The closing price of the company’s stock on September 8was $0.20 and the value of the stock awards amounted to $41,200.

 

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

 

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 is prohibitedfor both standards. Management is currently evaluating the requirements ofFAS 141(R) and FAS 160 and has not yet determined the impact onits 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 157established a framework for measuring fair value inGAAP and clarified thedefinition of fair value within that framework. SFAS 157 does not require anynew 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 marketsfor identical 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 inactive markets or based upon other observable inputs. The following table setsforth the fair value of our financial assets that were measured on a recurringbasis as of December 31, 2008 (in thousands):

 
| ** **                   | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Money market funds |       | $                | 504,186    |             |       |             |       |      | $          | 504,186 |   |
| Total                        |       | $                | 504,186    |             |       |             |       |      | $          | 504,186 |   |

 

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

 

Intangible assets consist of purchased licenses. Purchased licenses areamortized using the straight-line method over the shorter of 15 years orthe remaining life of the license. 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 apurchase business combination and determined to have indefinite lives andlicenses acquired with no definite term are not amortized, but instead aretested for impairment at least annually in accordance with the provisions ofthis statement. Identifiable intangibles with estimated useful lives continueto be amortized over their respective estimated useful lives and reviewed forimpairment in accordance with SFAS No. 144, Accounting for Impairmentor Disposal of Long Lived Assets.

 

On March 1, 2007, we executed an exclusive license agreement (the“License Agreement”) with Creative Clinical Concepts, Inc. (“CCC”).The License Agreement provides that CCC license to us certain products andassets related to determining the effectiveness of aspirin and / oranti-platelet therapy (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”® andrelated 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 byan anniversary 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 December 31, 2008, the Company had accrued a total of $7,236 payableto 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.****                                     NOTESPAYABLE**

 

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

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **December 31, 2008** | ** ** | **June 30, 2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| Convertible term note payable to institutional investors, net of  discount of $25,445 with interest at the greater of 12%, as adjusted by a  stock trading formula, or prime plus 3% (6.25% and 11.75% as of  December 31, 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 |       | $                               | 206,758    |                        | $          | 265,676 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                            |       |                        |       |
| Convertible term note payable to institutional investors, net of  discount of $106,019 with interest at the greater of 12%, as adjusted by a  stock trading formula, or prime plus 3% (6.25% and 10.75% as of  December 31, 2008 and June 30, 2008), interest only from  December 28, 2005 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     |       | 404,533                         |       | 458,940                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                            |       |                        |       |
| Note payable, unsecured, to redeemable common stockholders, with  interest at prime plus 2.0% (6.25% as of December 31, 2008) due in monthly  installments with principal payments of $5,200 plus interest through  August 2010                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 104,200                         |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                            |       |                        |       |
| Note payable, unsecured, to redeemable common stockholders, with  interest at prime plus 2.0% (6.25% and 11.55% as of December 31, 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                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | 715,491                         |       | 734,616                     |       |
| Current portion, net of current portion of  discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | (673,691                        | )          | (521,495                    | )          |
| Notes payable, excluding current portion and net of long-term portion  of discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | $                               | 41,800     |                        | $          | 213,121 |   |

 

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

 

**Item 2.**

 

**Management’sDiscussion and Analysis ofFinancial Condition and Results of Operations**

 

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

 

**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 regardingfuture capital requirements, acquisition strategies, strategic partnershipexpectations, technological developments, the development, the availability ofnecessary components, research and development programs and distribution plans,are forward-looking statements.  Allforward-looking statements included in this 10-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 beenprimarily involved in the research, development, manufacturing andmarketing/distribution of diagnostic tests for sale to clinical laboratories.We currently market 52 products covering autoimmune disorders, vasculardiseases, infectious diseases and liver disease. Our products are sold in theUnited States, the UK and other countries through our marketing and salesorganization that includes direct sales representatives, contract salesrepresentatives, internationally through an extensive distributor network, andto several significant OEM partners.

 

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

 

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

 

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

 

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

 

**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 

 

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effectivefor both public and private companies for fiscal years beginning on orafter December 15, 2008 (fiscal 2010 for the Company). FAS 141(R) willbe applied prospectively. FAS 160 requires retroactive adoption of thepresentation and disclosure requirements for existing minority interests. Allother requirements of FAS 160 will be applied prospectively. Earlyadoption is prohibited for both standards. Management is currently evaluatingthe requirements of FAS 141(R) and FAS 160 and has not yetdetermined 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 the straight-linemethod over the estimated useful lives of the respective assets which rangefrom 3 to 7 years.

 

The internal and external costs of developing and enhancing softwarecosts related to website development, other than initial design and other costsincurred during the preliminary project stage, are capitalized until thesoftware has been completed. 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 of Operations**

 

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

 

*Net sales.*Netsales for the quarter ended December 31, 2008 were $1,995,026, a 16.8%decrease from $2,399,038 for the quarter ended December 31, 2007. As aresult of the overall global economic recession, total North American salesdecreased $279,412 or 16.1% to $1,456,603 while total sales to internationaldistributors decreased $124,600 or 18.8% to $538,423 from year to year. Withrespect to the Company’s major revenue categories and product lines, NorthAmerican direct product-only sales decreased $145,093 or 12.7% to $1,138,309,whereas international direct product-only sales decreased $116,147 or 22.5% to$400,503.  Worldwide category resultswere as follows: Phospholipids kit sales decreased $81,151 or 8.2% to $909,839for the period. Coagulation kit sales decreased $35,001 or 7.6% to $425,292. HAkit sales decreased $132,214 or 36.0% to $235,013, and Autoimmune kit salesincreased $19,096 or 96.4% to $38,901. Additionally, worldwide OEM/contractmanufacturing revenues decreased $141,657, or 26.0% to $402,895. Overall,worldwide non-product revenue decreased $1,116, or less than 1% to $198,412.Finally, AspirinWorks sales increased 20.6% to $46,530.

 

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*Cost of sales*.  Cost of sales, as a percentage of sales,decreased to 42.2% for the quarter ended December 31, 2008 from 43.9% 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 December 31, 2008, selling and marketing expensesdecreased 3.2% to $476,494 from $492,175 for the quarter ended December 31,2007.  The decrease was primarily due todecreases in Corgenix UK Ltd. marketing costs, the cost of retention kits, androyalties, partially offset by increases in advertising development expenses,trade shows, replacement product expense and promotional product expenses.

 

*Research anddevelopment.* Research and development expensesincreased 29.4% to $192,218 for the quarter ended December 31, 2008, from$148,572 for the quarter ended December 31, 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 December 31,2008, general and administrative expenses increased $60,379 or 12.5% to$541,609 from $481,230 for the quarter ended December 31, 2007.  This increase was primarily attributable toincreases in Corgenix UK-Ltd. general and administrative expenses, legalexpenses, aborted financing costs, outside services, and patent renewal fees,partially offset by decreases in entertainment and meals expenses, andinsurance expense.

 

*Interest expense.*Interest expense decreased $89,964 or 29.4% to $216,086 for the quarter ended December 31,2008, from $306,050 for the quarter ended December 31, 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.

 

*Six Months Ended December 31,2008****compared to 2007*

 

*Net sales.*Netsales for the six months ended December 31, 2008 were $3,996,922, an 11.3%decrease from $4,504,226 for the six months ended December 31, 2007. As aresult of the overall global economic recession, total North American salesdecreased $507,185 or 15.1% to $2,859,519 while total sales to internationaldistributors decreased only $119 or less than 1% to $1,137,403 from year toyear. With respect to the Company’s major revenue categories and product lines,North American direct product-only sales decreased $186,032 or 8.2% to$2,074,608 whereas international direct product-only sales decreased $10,580 or1.2% to $882,732.  Worldwide categoryresults were as follows: Phospholipids kit sales decreased $83,174 or 4.3% to$1,839,619 for the period. Coagulation kit sales decreased $118,850 or 12.3% to$844,059. HA kit sales decreased $64,535 or 10.6% to $542,990, and Autoimmunekit sales increased $29,875 or 55.7% to $83,474. Additionally, worldwideOEM/contract manufacturing revenues decreased $379,574, or 39.7% to $577,050.Overall, worldwide non-product revenue increased $68,888, or 17.5% to $462,532.Finally, AspirinWorks sales decreased 8.1% to $70,818. Sales of productsmanufactured for us by other companies while still relatively small, areexpected to continue to increase during fiscal 2009.

 

*Cost of sales*.  Cost of sales, as a percentage of sales,decreased to 43.4% for the six months ended December 31, 2008 from 44.8%in 2007. 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 six months.

 

*Selling andmarketing. *Forthe six months ended December 31, 2008, selling and marketing expensesdecreased 8.5% to $936,304 from $1,023,780 for the six months ended December 31,2007.  The decrease was primarily due todecreases in advertising placement expenses, sales commissions, labor-relatedcosts, retention kit expense and royalties, partially offset by increases inadvertising development expenses, promotional products, replacement productexpense, and trade shows.

 

*Research anddevelopment.* Research and development expensesincreased 28.0% to $399,697 for the six months ended December 31, 2008,from $312,265 for the six months ended December 31, 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 six months ended December 31,2008, general and administrative expenses increased $150,084 or 16.2% to$1,075,044 from $924,960 for the six months ended December 31, 2007.  This increase was primarily attributable toincreases in Corgenix UK-Ltd. general and administrative expenses, abortedfinancing costs, outside services, and patent renewal fees, partially offset bydecreases in legal expenses, entertainment and meals expense, and insuranceexpense.

 

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*Interest expense.*Interest expense decreased $517,677 or 52.5% to $468,697 for the six monthsended December 31, 2008, from $986,374 for the six months ended December 31,2007 due primarily to the additional discount and acceleration of the discountamortization on the convertible notes due to the contingent conversion feature,which occurred in the prior year’s first fiscal six months in addition to thecontinuing reduction of the principal balance of the convertible notes payable.

 

**Liquidity and CapitalResources**

 

For the six months ended December 31,2008, cash used by operating activities amounted to $292,415, versus cash usedby operating activities of $105,390 for the six months ended December 31,2007. The increase in the cash used by operations for the current quarterresulted primarily from the increase in accounts receivable and inventoriesplus a decrease in accounts payable, accrued interest and other liabilities.

 

Net cash used in investing activities, thepurchase of laboratory equipment, leasehold improvements and computer equipmentwas $21,146 for the six months ended December 31, 2008, compared topurchases of laboratory, computer and office equipment totaling $23,985 for thesix months ended December 31, 2007.

 

Net cash used by financing activitiesamounted to $461,902 for the six months ended December 31, 2008 comparedto cash provided by financing activities of $699,900 for the six months ended December 31,2007. This large difference versus the comparable prior year was primarily dueto the proceeds from the year-earlier common stock private placement, inaddition to the increased principal payments on notes payable and capital leaseobligations primarily as a result of the resumption of principal payments on theconvertible notes in December 2007 after a twelve month deferral.

 

Cash on the balance sheet amounted to$730,787 as of December 31, 2008 compared to $1,520,099 as of June 30,2008.

 

Working capital as of December 31, 2008amounted to $2,268,213 compared to $2,888,509 as of June 30, 2008.

 

Total liabilities were $3,029,453 as of December 31,2008 compared to $3,485,830 as of June 30, 2008.

 

Stockholders’ equity amounted to $3,635,879as of December 31, 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 $12,249,268, 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 a decreaseof 14.4% to $956,039 from $1,116,832 as of December 31, 2007.

 

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,expansion 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 subsequent to this fiscal year, but is not forecasting the same for theremainder of the fiscal year ended June 30, 2009.  As demonstrated by the first six months’results, management has not yet achieved the necessary level of sales, cost ofsales and operating efficiencies to achieve consistent profitability andpositive cash flow from operations. Given the severe recessionary environment we find ourselves in, thereare significant short- and potentially intermediate-term risks associated withthe operating plan and we might be forced to further modify the plan, in orderto achieve the goals of sustained profitability and positive cash flow fromoperations.

 

Although the operating plan is intended to eventually achievesustainable profitability and positive cash flow from operations, it ispossible that we may not be successful in our efforts.  Even with our operating plan, we may continueto incur operating losses for the next several quarters, as it will, given thecurrent and foreseeable state of our economy, still take time for our strategicand operating initiatives to have a positive effect on our business operationsand cash flow. In view of this, we have undertaken a process to consider allavailable strategic and legal alternatives.

 

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Given the disappointing sales incurred in November and December 2008,and the potential for a continuation of the negative impact on our future salescaused by the severe recession, our financial liquidity position has beennegatively impacted by our achieving greater than anticipated negative cashflow from operations.  Given thesecircumstances, management believed that we needed to and have been successfulin obtaining debt relief and a modification of the existing convertible notesfrom our two institutional convertible debt holders in conjunction withsecuring additional debt or equity financing (see Recent Developments above).As of December 31, 2008, although the Company was in technical default onits convertible notes payable, it has reached agreement with the institutionalconvertible debt holders to waive said defaults and to amend the original debtagreements in order to enable us to secure new debt financing from othersources.  After we secure said new debtfinancing, it is still possible for us to be in future defaults under the agreementswith the convertible debt holders for non payment of amounts due.  To satisfy our debt payment and workingcapital requirements we are currently seeking to raise additional funds throughthe incurrence of additional indebtedness. If we are unable to secure said thenew debt financing,  we would seek toraise additional funds via the sale of equity securities. In addition, we arealso in the process of negotiating collaborative agreements with third parties.Depending upon the success of these financing initiatives, we may evaluate thepossible divestiture of product lines. In addition, we may be required toreduce our sales and marketing activities, reduce the scope of or eliminate ourresearch and development programs, or relinquish rights to technologies orproducts that we might otherwise seek to develop or commercialize.

 

In the current and foreseeably harsh economic environment, additionaldebt or equity financing may not be available on acceptable terms, or atall.  With respect to potential equityfinancing, although our common stock has, since February of 1998, beentraded on the OTC Bulletin Board, the trading has had inconsistent and ofteninsignificant volume. This less than desirable level of liquidity would likelymake it considerably more difficult to raise additional equity capital. If wedo raise additional equity financing, our current stockholders will be furtherdiluted. If we incur additional indebtedness to fund our operations, we wouldlikely have to grant the lender(s) a primary security interest in ourassets. As part of the convertible note modification agreements noted above,the convertible debt holders have agreed to take a junior position in ouraccounts receivable and inventories in order to facilitate a new debtfinancing.

 

Alternatives with respect to our business and assets might also includeentering into strategic alliances with or seeking to merge or combine withanother medical device, diagnostic or life-sciences company with greaterresources and infrastructure. We will continue to fully explore and assess allof the strategic and legal options available to us. Due to the uncertainty ofthe cash flow from operations and the success of the operating plan, inaddition to the uncertainty of raising additional funds via either debt orequity, there can be no assurance that we will have adequate resources tocontinue operations for longer than 12 months.

 

**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.

 

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

 

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.

 

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**PART II**

 

**Other Information**

 
| **Item 1.** | ** ** | **Legal Proceedings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |       | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **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**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |       | Annual Shareholders Meeting held December 16, 2008

 

Proposal Number 1 — Election of Directors

 

Dr. Luis  Lopez: 22,331,815 votes for; 996,639 votes withheld

Douglass  T. Simpson: 22,336,702 votes for; 991,752 votes withheld

Robert  Tutag: 22,327,372 votes for; 1,001,082 votes withheld

Dennis  Walczewski: 22,327,259 votes for; 1,001,195 votes withheld

Larry  G. Rau: 22,332,597 votes for; 995,857 votes withheld

C.  David Kikumoto: 22,332,917 votes for; 995,537 votes withheld

Stephen  P Gouze: 22,332,917 votes for; 995,537 votes withheld

 

Proposal Number 2 — Ratification of Hein & Associates

 

Approval:  21,756,919 votes for; 815,573 votes against; 755,962 votes abstain; 0 not  voted. |
| ** **  | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **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.**

 

1.                                       Form 8-Kfiled December 16, 2008 *Other Events.*

 

22

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Tableof Contents

 

**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 |
|------------------------------|------------------------------|
|                         |                         |   |
|                         |                         |   |
| February  12, 2009 | 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)** |

 

23

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