Table ofContents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 
| **x**                                                       | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
|                                                        |                                                                                                   |
| **For the quarterly period ended September 30,  2009** |
|                                                        |                                                                                                   |
| **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 its Charter)

 

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

 

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

(Address of principal executive offices, including zip code)

 

**(303) 457-4345**

(Issuer’s telephone number, including area code)

 

 

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

 

Check whether the issuer:  (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing guidance for the past 90 days.   Yes x   No  o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files). Yes o  No o

 

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

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

 

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

 

Thenumber of shares of Common Stock outstanding was 31,022,921 as of November 5,2009.

 

 

 

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Table of Contents

 

**CORGENIX MEDICAL CORPORATION**

**September 30, 2009**

 

**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 | 21     |
|                       |                                                                                        |   |
| Item 3.                    | Quantitative and Qualitative  Disclosures About Market Risk                                 | 27     |
|                       |                                                                                        |   |
| Item 4.                    | Controls and Procedures                                                                     | 27     |
|                       |                                                                                        |   |
| **Part II**           |                                                                                        |   |
|                       |                                                                                        |
| **Other Information**      | 28                                                                                          |
|                       |                                                                                        |
| Item 1.                    | Legal Proceedings                                                                           | 28     |
|                       |                                                                                        |   |
| Item 2.                    | Unregistered Sales of Equity  Securities and Use of Proceeds                                | 28     |
|                       |                                                                                        |   |
| Item 3.                    | Defaults Upon Senior Securities                                                             | 28     |
|                       |                                                                                        |   |
| Item 4.                    | Submission of Matters to a Vote of  Security Holders                                        | 28     |
|                       |                                                                                        |   |
| Item 5.                    | Other Information                                                                           | 28     |
|                       |                                                                                        |   |
| Item 6.                    | Exhibits and Reports on Form 8-K                                                       | 28     |
|                       |                                                                                        |
| Certifications             |                                                                                        |

 

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**PART I**

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

# **CORGENIX MEDICAL CORPORATION**

### **ANDSUBSIDIARIES**

###  

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                                                 | ** ** | **September 30,  2009** | ** ** | **June 30, 2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                 | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                                 | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                                                            |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                  |       | $                            | 982,396    |                        | $          | 785,466 |   |
| Accounts receivable, less allowance for doubtful  accounts of $30,000 and $103,689 as of September 30, 2009 and June 30,  2009                                                         |       | 1,215,069                    |       | 1,339,409                   |       |
| Other receivables                                                                                                                                                                                          |       | 70,355                       |       | —                      |       |
| Inventories                                                                                                                                                                                                |       | 2,521,091                    |       | 2,596,048                   |       |
| Prepaid expenses and other current assets                                                                                                                                                                  |       | 141,183                      |       | 205,320                     |       |
| Total current assets                                                                                                                                                                                       |       | 4,930,094                    |       | 4,926,243                   |       |
| Equipment                                                                                                                                                                                                  |       |                         |       |                        |       |
| Capitalized software costs                                                                                                                                                                                 |       | 255,617                      |       | 255,617                     |       |
| Machinery and laboratory equipment                                                                                                                                                                         |       | 1,024,848                    |       | 1,024,848                   |       |
| Furniture, fixtures, leaseholds & office  equipment                                                                                                                                               |       | 1,816,514                    |       | 1,816,462                   |       |
|                                                                                                                                                                                                       |       | 3,096,979                    |       | 3,096,927                   |       |
| Accumulated depreciation and amortization                                                                                                                                                                  |       | (1,707,745                   | )          | (1,609,361                  | )          |
| Net equipment                                                                                                                                                                                              |       | 1,389,234                    |       | 1,487,566                   |       |
| Intangible assets:                                                                                                                                                                                         |       |                         |       |                        |       |
| Licenses                                                                                                                                                                                                   |       | 358,219                      |       | 369,671                     |       |
| Other assets:                                                                                                                                                                                              |       |                         |       |                        |       |
| Deferred financing costs net of amortization of  $1,940,457 and $1,929,008                                                                                                                                 |       | 14,146                       |       | 24,595                      |       |
| Other assets                                                                                                                                                                                               |       | 95,021                       |       | 97,706                      |       |
| Total assets                                                                                                                                                                                               |       | $                            | 6,786,714  |                        | $          | 6,905,781 |   |
| **Liabilities and Stockholders’  Equity**                                                                                                                                                             | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                                                                                                                       |       |                         |       |                        |       |
| Current portion of notes payable, net of discount  (Note 7)                                                                                                                                                |       | $                            | 134,359    |                        | $          | 100,439 |   |
| Current portion of capital lease obligations                                                                                                                                                               |       | 180,225                      |       | 203,506                     |       |
| Inventory loan payable                                                                                                                                                                                     |       | 351,454                      |       | —                      |       |
| Due to factor (Note 6)                                                                                                                                                                                     |       | 702,908                      |       | 1,112,299                   |       |
| Accounts payable                                                                                                                                                                                           |       | 851,340                      |       | 858,887                     |       |
| Accrued payroll and related liabilities                                                                                                                                                                    |       | 312,623                      |       | 369,824                     |       |
| Accrued liabilities-other                                                                                                                                                                                  |       | 201,983                      |       | 268,054                     |       |
| Total current liabilities                                                                                                                                                                                  |       | 2,734,892                    |       | 2,913,009                   |       |
| Notes payable, net of discount, less current  portion (Note 7)                                                                                                                                             |       | 83,333                       |       | 10,600                      |       |
| Capital lease obligations, less current portion                                                                                                                                                            |       | 40,643                       |       | 60,008                      |       |
| Deferred facility lease payable, excluding current  portion (Note 2)                                                                                                                                       |       | 628,675                      |       | 673,315                     |       |
| Total liabilities                                                                                                                                                                                          |       | 3,487,543                    |       | 3,656,932                   |       |
| Redeemable common stock, $0.001 par value. 385,125  and 412,633 shares issued and outstanding, aggregate redemption  value of $218,751,and $234,376 (Note 4)                                     |       | 98,056                       |       | 89,973                      |       |
|                                                                                                                                                                                                       |       |                         |       |                        |       |
| Redeemable preferred stock, $0.001 par value.  236,680 and 236,680 shares issued and outstanding, aggregate redemption  value of $59,170, net of unaccreted dividends of $27,074 and $30,809 (Note 4) |       | 48,663                       |       | 45,863                      |       |
|                                                                                                                                                                                                       |       |                         |       |                        |       |
| Stockholders’ equity (Note 5):                                                                                                                                                                        |       |                         |       |                        |       |
| Common stock, $0.001 par value. Authorized  200,000,000 shares; Issued and outstanding 31,050,429 and 30,294,505 September 30  and June 30, respectively                                    |       | 30,665                       |       | 29,881                      |       |
| Additional paid-in capital                                                                                                                                                                                 |       | 18,682,872                   |       | 18,595,066                  |       |
| Accumulated deficit                                                                                                                                                                                        |       | (15,543,088                  | )          | (15,525,451                 | )          |
| Accumulated other comprehensive income                                                                                                                                                                     |       | (17,997                      | )          | 13,517                      |       |
| Total stockholders’ equity                                                                                                                                                                            |       | 3,152,452                    |       | 3,113,013                   |       |
| Total liabilities and stockholders’ equity                                                                                                                                                            |       | $                            | 6,786,714  |                        | $          | 6,905,781 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**CORGENIX MEDICALCORPORATIONAND SUBSIDIARIES**

## Consolidated Statements ofOperations and Comprehensive Loss

 
| ** **                                                              | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                              | ** ** | **September 30,  2009**     | ** ** | **September 30,  2008** | ** ** |
| ** **                                                              | ** ** | **(Unaudited)**                  | ** ** |
| Net sales                                                               |       | $                                | 2,044,967  |   | $ | 2,001,896 |   |
| Cost of sales                                                           |       | 929,349                          |       | 895,306 |   |
|                                                                    |       |                             |       |   |   |
| Gross profit                                                            |       | 1,115,618                        |       | 1,106,590 |   |
|                                                                    |       |                             |       |   |   |
| Operating expenses:                                                     |       |                             |       |   |   |
| Selling and marketing                                                   |       | 409,517                          |       | 459,809 |   |
| Research and development                                                |       | 150,359                          |       | 207,479 |   |
| General and administrative                                              |       | 471,939                          |       | 533,435 |   |
| Total expenses                                                          |       | 1,031,815                        |       | 1,200,723 |   |
|                                                                    |       |                             |       |   |   |
| Operating income (loss)                                                 |       | 83,803                           |       | (94,133 | ) |
|                                                                    |       |                             |       |   |   |
| Other income (expense)                                                  |       |                             |       |   |   |
| Interest income                                                         |       | 141                              |       | 6,085 |   |
| Loss on early extinguishment of debt                                    |       | (22,000                          | )          | — |   |
| Interest expense                                                        |       | (68,696                          | )          | (252,611 | ) |
| Net loss                                                                |       | (6,752                           | )          | (340,659 | ) |
| Accreted dividends on redeemable preferred and  redeemable common stock |       | 10,885                           |       | — |   |
|                                                                    |       |                             |       |   |   |
| Net loss attributable to common stockholders                            |       | $                                | (17,637    | ) | $ | (340,659 | ) |
|                                                                    |       |                             |       |   |   |
| Net loss per share, basic and diluted                                   |       | $                                | (0.00      | ) | $ | (0.01 | ) |
|                                                                    |       |                             |       |   |   |
| Weighted average shares outstanding, basic and  diluted                 |       | 30,305,855                       |       | 30,092,093 |   |
|                                                                    |       |                             |       |   |   |
| Net loss                                                                |       | $                                | (6,752     | ) | $ | (340,659 | ) |
|                                                                    |       |                             |       |   |   |
| Other comprehensive income (loss)-foreign currency  translation         |       | (31,514                          | )          | (32,879 | ) |
|                                                                    |       |                             |       |   |   |
| Total comprehensive loss                                                |       | $                                | (38,266    | ) | $ | (373,538 | ) |

 

Seeaccompanying notes to consolidated financial statements.

 

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**CORGENIX MEDICAL CORPORATION****AND SUBSIDIARIES**

# Consolidated Statement ofStockholders’ Equity

For the three months ended September 30,2009

(Unaudited)

 
| ** **                                                                       | ** ** | **Common  Stock,  Number  of Shares** | ** ** | **Common  Stock,  $0.001  par** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** **  | **Total  Stockholders’  Equity** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|--------------------------|------------|-----------------------------------------------|-------------|---------------------------------------|------------|
| **Balances at June 30, 2009**                                               |       | 30,294,505                            |       | $                               | 29,881     |                             | $          | 18,595,066               |       | $                                             | (15,525,451 | )                                     | $          | 13,517 |   | $ | 3,113,013 |   |
| Issuance of common stock for services                                       |       | 760,268                               |       | 761                             |       | 70,886                           |       | —                   |       | —                                        |        | 71,647                                |       |
| Compensation expense recorded as a result of  stock options Issued          |       | —                                |       | —                          |       | 10,492                           |       | —                   |       | —                                        |        | 10,492                                |       |
| Issuance of common stock for license                                        |       | 23,164                                |       | 23                              |       | 2,525                            |       | —                   |       | —                                        |        | 2,548                                 |       |
| Issuance of warrants for license                                                 |       | —                                |       | —                          |       | 3,903                            |       | —                   |       | —                                        |        | 3,903                                 |       |
| Cancellation of redeemable stock upon note pay down                              |       | (27,508                               | )          | —                          |       | —                           |       | —                   |       | —                                        |        | —                                |       |
| Accreted dividend on redeemable common  and redeemable preferred stock |       | —                                |       | —                          |       | —                           |       | (10,885                  | )          | —                                        |        | (10,885                               | )          |
| Foreign currency translation                                                     |       | —                                |       | —                          |       | —                           |       | —                   |       | (31,514                                       | )           | (31,514                               | )          |
| Net loss                                                                         |       | —                                |       | —                          |       | —                           |       | (6,752                   | )          | —                                        |        | (6,752                                | )          |
| **Balances at September 30,  2009**                                         |       | 31,050,429                            |       | $                               | 30,665     |                             | $          | 18,682,872               |       | $                                             | (15,543,088 | )                                     | $          | (17,997 | ) | $ | 3,152,452 |   |

 

See accompanying notes toconsolidated financial statements.

 

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**CORGENIXMEDICAL CORPORATIONAND SUBSIDIARIES**

 

## **Consolidated Statements of Cash Flows**

 
| ** **                                                                                 | ** ** | **Three months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                 | ** ** | **September 30,  2009**     | ** ** | **September 30,  2008** | ** ** |
| ** **                                                                                 | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)** | ** ** |
| Cash flows from operating activities:                                                      |       |                             |       |   |   |
| Net loss                                                                                   |       | $                                | (6,752     | ) | $ | (340,659 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                              |       | 107,459                          |       | 110,014 |   |
| Accretion of discount on note payable                                                      |       | 1,795                            |       | 109,012 |   |
| Common stock issued for services                                                           |       | 1,622                            |       | 46,679 |   |
| Compensation expense recorded for stock options  issued                                    |       | 10,492                           |       | 27,127 |   |
| Amortization of deferred financing costs                                                   |       | 11,449                           |       | 76,851 |   |
| Changes in operating assets and liabilities:                                               |       |                             |       |   |   |
| Trade and other receivables, net                                                           |       | 137,130                          |       | (93,411 | ) |
| Inventories                                                                                |       | 71,141                           |       | (81,634 | ) |
| Prepaid expenses and other assets, net                                                     |       | (27,415                          | )          | 68,594 |   |
| Accounts payable                                                                           |       | (12,258                          | )          | (8,648 | ) |
| Accrued payroll and related liabilities                                                    |       | 21,618                           |       | 13,951 |   |
| Accrued interest and other liabilities                                                     |       | (118,414                         | )          | (139,951 | ) |
|                                                                                       |       |                             |       |   |   |
| Net cash provided by (used in) operating  activities                                       |       | 197,867                          |       | (212,075 | ) |
|                                                                                       |       |                             |       |   |   |
| Cash flows used in investing activities:                                                   |       |                             |       |   |   |
| Additions to equipment                                                                     |       | (5,951                           | )          | (20,146 | ) |
|                                                                                       |       |                             |       |   |   |
| Cash flows from financing activities:                                                      |       |                             |       |   |   |
| Increase (decrease) in amount due to factor                                                |       | (409,391                         | )          | — |   |
| Proceeds from inventory loan                                                               |       | 351,454                          |       | — |   |
| Proceeds from issuance of notes payable                                                    |       | 125,000                          |       | — |   |
| Payments on notes payable                                                                  |       | (20,142                          | )          | (200,891 | ) |
| Payments on capital lease obligations                                                      |       | (41,133                          | )          | (59,175 | ) |
| Net cash used in financing activities                                                      |       | 5,788                            |       | (260,066 | ) |
|                                                                                       |       |                             |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                      |       | 197,704                          |       | (492,287 | ) |
| Impact of exchange rate changes on cash                                                    |       | (774                             | )          | (5,140 | ) |
| Cash and cash equivalents at beginning of period                                           |       | 785,466                          |       | 1,520,099 |   |
| Cash and cash equivalents at end of period                                                 |       | $                                | 982,396    |   | $ | 1,022,672 |   |
| Supplemental cash flow disclosures:                                                        |       |                             |       |   |   |
| Cash paid for interest                                                                     |       | $                                | 56,338     |   | $ | 64,864 |   |
| Noncash investing and financing activities                                                 |       |                             |       |   |   |
| Issuance of warrants for license                                                           |       | $                                | 3,903      |   | $ | 12,957 |   |
| Issuance of stock for license                                                              |       | $                                | 2,548      |   | $ | 20,336 |   |
| Equipment acquired under capital leases                                                    |       | $                                | —     |   | $ | 29,279 |   |
| Issuance of stock for debt                                                                 |       | $                                | —     |   | $ | 906,899 |   |
| Conversion of preferred stock into common stock                                            |       | $                                | —     |   | $ | 1,327,800 |   |
| Addition of discount on convertible notes due to  contingent conversion feature            |       | $                                | —     |   | $ | 536,874 |   |
| Conversion of redeemable common stock to note  payable                                     |       | $                                | —     |   | $ | 125,000 |   |
| Common stock issued for accrued stock-based  compensation                                  |       | $                                | 70,025     |   | $ | — |   |
| Accreted dividends on redeemable common and  redeemable preferred stock                    |       | $                                | 10,884     |   | $ | — |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**CORGENIX MEDICAL CORPORATION ANDSUBSIDIARIES**

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

**1.****                                    ****DESCRIPTION OFBUSINESS AND BASIS OF PRESENTATION**

 

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

#####  

Infiscal 2010, we continue to be 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 our AtheroxTest Kit, completing further clinical studies for our Hyaluronic Test Kit andour Fibromyalgia Test Kit and we are continuing the development and strategiccollaboration towards the development of a group of products to detectpotential bio-terrorism agents.

 

***(b)******                                ******Recent Developments***

 

On September 30, 2009, we, along with our whollyowned subsidiary, Corgenix, Inc., entered into a Financing Agreement, anAddendum to Financing Agreement, a Loan and Security Agreement and a PromissoryNote (collectively, the “Summit Agreements”) with Summit Financial Resources,L.P., a Hawaii limited partnership (“Summit”). We are jointly and severally liable for all obligations pursuant to theSummit Agreements. The Summit Agreements provide us and our subsidiary with amaximum credit line of $1,750,000 pursuant to an account factoringrelationship, coupled with a secured line of credit.

 

Under the Financing Agreement, we agree to sell all ofour right, title and interest in and to accounts identified for purchase bySummit from time to time. The purchase price for each sold account equals theface amount of each account multiplied by the applicable advance rate, minusall interest and fees and charges as described in the Financing Agreement. Inaddition, interest will accrue on advances made by way of purchased accounts atthe rate of prime plus 1.5% per annum until Summit receives payment in full oneach account. If Summit does not receive full payment on a purchased account bythe due date specified in the Financing Agreement, then we or our subsidiary(as applicable) must repurchase that account, and pay Summit the defaultinterest rate until it is repaid.

 

During the initial fund period (which is the earlierof 120 days after the date of the Summit Agreements, or the date of the secondterm loan advance), the advance rate on eligible accounts receivable will be90%, and 85% thereafter, unless Summit elects in its discretion to apply adifferent percentage. On September 30, 2009, the initial advance to usfrom Summit on eligible accounts receivable amounted to $632,553, whichrepresented 90% of eligible accounts receivable at the time of $702,907.69.

 

The Financing Agreement is for a term of three years,renewable for additional one year terms unless we or Summit provide writtennotice of non-renewal at least 60 days prior to the end of the currentfinancing period.  Except as otherwiseprovided in the Financing Agreement, we may also elect to terminate a financingperiod earlier and pay Summit a supplemental fee of 1% of the maximum creditline of $1,750,000. Among other fees and charges, we will also pay Summit amonthly administration fee equal to 1.45% of the average monthly balance ofoutstanding advances for each calendar month.

 

Pursuant to the Addendum to Financing Agreement,Summit may, in its sole discretion and without any duty to do so, elect fromtime to time to make advances based upon Acceptable Inventory, which is definedin the addendum to mean inventory approved for intended use by the Food andDrug Administration, among other criteria.

 

Advances based upon Acceptable Inventory may be madeupon request so long as the aggregate amount of all advances based uponAcceptable Inventory outstanding and unpaid does not exceed the lesser of (a) FiftyPercent (50%) of  book value, asdetermined in accordance with generally accepted accounting principles, of theAcceptable Inventory, (b) Four Hundred Fifty Thousand Dollars ($450,000), (c) FiftyPercent (50%) of Client’s outstanding Acceptable Accounts, and (d) togetherwith the aggregate amount of all other outstanding Advances, the Maximum CreditLine. On September 30, 2009, the initial advance to us from Summit onAcceptable Inventory amounted to $351,454.

 

Advances based upon Acceptable Inventory are subjectto the interest, fees and charges, and all terms and conditions applicable toan Advance under the Financing Agreement, including the administrative fee,except that the prime plus 1.5% advance interest rate on outstanding advancesbased upon Acceptable Inventory means the prime rate plus 2.75% per annum, asadjusted from time to time as of the date of any change in the prime rate.  All interest accrued on outstanding advancesbased upon Acceptable Inventory is due and payable monthly in arrears.

 

Summit may decline to make advances based upon AcceptableInventory for any reason or for no reason, without notice, regardless of anycourse of conduct or past advances based upon Acceptable Inventory by Summit.

 

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The Promissory Note provides us with up to $250,000 inthe form of a term loan, due on September 30, 2012, payable ininstallments. We received Summit’s first advance of $125,000 at the closing ofthe Summit Agreements on September 30, 2009. When an equipment appraisalis completed, we will be eligible for a second advance equal to the lesser ofone hundred twenty five thousand dollars ($125,000), or sixty percent (60%) ofthe net orderly liquidation value of Eligible Equipment, less the $125,000already advanced. If the liquidation value of the equipment does not exceed$208,333, then we will not be eligible for a second advance.

 

The Promissory Note bears interest at an initial rateof prime plus 2.75% per annum, and adjusts with and as of the date of anychange in the prime rate as reported in the Wall Street Journal. In addition,under the Loan and Security Agreement, we will pay Summit a monthlyadministration fee equal to 1.45% of the average outstanding monthly principalbalance on the Promissory Note each month. The penalty default rate on thePromissory Note is prime plus 10% per annum.

 

Under the Loan and Security Agreement, we will paySummit a fee equal to $2,250 for each month, or portion thereof, until anequipment appraisal has been completed.

 

We have used a portion of the initial advance toretire the debt evidenced by thefinancing arrangements with Benefactor FundingCorp, a Colorado corporation. The payoff to Benefactor amounted $580,785.54,which included a $22,000 penalty for the early termination of the financingarrangement with Benefactor. The $22,000 penalty was accounted for as a loss onthe early extinguishment of debt.

 

Under the Summit Agreements, we made certaincovenants, representations and warranties typical of a secured financingarrangement, and have agreed to report certain information to Summit.  Pursuant to the Summit Agreements, certainrecourse events and events of default will trigger early payment obligationsfor us, and Summit has certain rights as a secured party in case of any defaultor recourse event.

 

Under the Summit Agreements, we have granted to Summita security interest in, among other things, all inventory, accounts, equipment,goods and motor vehicles, all general intangibles, all chattel paper, any andall financial obligations payable to, owing to or in favor of us or held by usand all balances, deposits, debts or any other amounts or obligations of Summitowing to us, whether or not due.  Inaddition, our obligations under the Summit Agreements is also secured by the “Reserve,”which is cash collateral that Summit may fund by withholding amounts owing tous, or deducting amounts from collected payments on purchased accounts. Theamount of the Reserve is set in Summit’s discretion.

 

We are required at all times to maintain eligibleequipment so that the total, outstanding balance owing under the PromissoryNote equals or is less than 60% of the net orderly liquidation value of theeligible equipment as set forth in the equipment appraisal.

 

The Loan and SecurityAgreement will continue in full force and effect for three years; however wemay terminate early at any time by giving Summit not less than sixty days priornotice.

 

OnFebruary 3, 2009, we entered into two agreements (the “RestructuringAgreements”) to restructure the debt evidenced by convertible term notes thatTruk Opportunity Fund, LLC, a Delaware company; Truk International Fund, LP, aCayman Islands company (collectively, “Truk”); and CAMOFI Master LDC, a CaymanIslands company, formerly named DCOFI Master LDC, (“CAMOFI”) purchased on May 19,2005 and December 28, 2005. The Restructuring Agreements suspended allamortizing principal amount payments otherwise due under each note, beginning November 1,2008 and ending on the earlier of (i) the first day of the month nextsucceeding the closing of any new financing transaction or (ii) May 1,2009 (the “Repayment Date”), at which time payments would again have become dueand payable on the first day of each subsequent month until December 31,2009 (the “Maturity Date”).  Paymentswould be equal to the amount of principal outstanding divided by the number ofmonths from the Repayment Date until the Maturity Date.  On the Maturity Date, the amortizingprincipal amount for each of the term notes and all other amounts due andowing  must be repaid in full, whether bypayment of cash, or at Truk’s or CAMOFI’s option, by the conversion into commonstock.

 

Underthe Restructuring Agreements, Truk and CAMOFI agreed that their securityinterest in our accounts receivable and inventory would only be subordinated tothat of the lenders in any new financing, but that their security interest inall other assets of ours will remain a perfected first security interest. Thisprovision was effective upon completion of the Financing Agreement withBenefactor, summarized below. In addition, upon the closing of the FinancingAgreement with Benefactor, the remaining principal balance of each outstandingterm note held by Truk was increased by five percent (5%), and is beingaccounted for as additional interest expense.

 

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Simultaneouslywith the execution of the Restructuring Agreements:

 

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

 

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

 

(3) Weissued to CAMOFI 200,000 shares of our Series B Convertible PreferredStock (“Series B”), with a liquidation preference of $50,000, which willbe convertible into 800,000 shares of our common stock at the rate of $0.25;and

 

(4) Weissued to Truk 36,680 shares of our Series B Convertible Preferred Stock,with a liquidation preference of $9,170, which will be convertible into 146,720shares of our common stock at the rate of $0.25. The calculated cost of items (2) through(4) above, were charged to deferred finance costs and are being amortizedover nine months through December 2009.

 

***(c)******                                 ******Company Overview***

 

Our business includes theresearch, development, manufacture, and marketing of in vitro (i.e., outsidethe human body) diagnostic products for use in disease detection andprevention.  We currently sell 52diagnostic products on a worldwide basis to hospitals, clinical testinglaboratories, universities, biotechnology and pharmaceutical companies andresearch institutions.  We have developedand we manufacture most of our products at our Colorado facility, and wepurchase what we refer to as OM Products (other manufacturers’ products) fromother healthcare manufacturers for resale by us.  All of these products are used in clinical laboratoriesfor the diagnosis and/or monitoring of three important areas of health care:

 

·                 Autoimmune disease (diseases in which anindividual creates antibodies to one’s self, for example systemic lupuserythematosus (“SLE”) and rheumatoid arthritis (“RA”);

 

·                 Vascular disease (diseases associatedwith certain types of thrombosis or clot formation, for exampleantiphospholipid syndrome, deep vein thrombosis, stroke and coronaryocclusion); and

 

·                 Liver diseases (fibrosis and cirrhosis).

 

Inaddition to our current products, we are actively developing new laboratorytests 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.

 

Mostof our products are based on our patented and proprietary application of EnzymeLinked ImmunoSorbent Assay, or ELISA, technology, a clinical testingmethodology commonly used worldwide. Most of our current products are based on this platform technology in adelivery format convenient for clinical testing laboratories.  The delivery format, which is referred to as “Microplate,”allows the testing of up to 96 samples per plate, and is one of the mostcommonly used formats, employing conventional testing equipment found invirtually all clinical laboratories.  Theavailability and broad acceptance of ELISA Microplate products reduces entrybarriers worldwide for our new products that employ this technology anddelivery format.  Our products are soldas “test kits” that include all of the materials required to perform the test,except for routine laboratory chemicals and instrumentation.  A test using ELISA technology involves aseries of reagent additions into the Microplate, triggering a compleximmunological reaction in which a resulting color occurs.  The amount of color developed in the finalstep of the test is directly proportional to the amount of the specific markerbeing tested for in the patient or unknown sample.  The amount of color is measured and theresults 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.

 

Someof the OM products which we obtain from other manufacturers and sell throughour distribution network utilize technologies other than our patented andproprietary ELISA technology.

 

Ourdiagnostic tests are intended to aid in the identification of the causes ofillness and disease, enabling a physician to select appropriate patienttherapy.

 

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Internallyand through collaborative arrangements, we are developing additional productsthat are intended to broaden the range of applications for our existingproducts and to result in the introduction of new products.

 

Since1990, our sales force and distribution partners have sold over 12 million testsworldwide under the REAADS and Corgenix labels, as well as products sold underother manufacturers’ labels, referred to as OEM products.  An integral part of our strategy is to workwith corporate partners to develop market opportunities and access importantresources.  We believe that ourrelationships with current and potential partners will enable us to enhance ourmenu of diagnostic products and accelerate our ability to penetrate theworldwide markets for new products.

 

Wecurrently use the REAADS and Corgenix trademarks and trade names in the sale ofthe products which we manufacture.  Theseproducts constitute the majority of our product sales.

 

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

 

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

 

In June 2009, the Financial AccountingStandards Board (“FASB”) issued FASB ASC 105, *GenerallyAccepted Accounting Principles (“GAAP”),* which establishes the FASBAccounting Standards Codification as the sole source of authoritative generallyaccepted accounting principles. Pursuant to the provisions of FASB ASC 105, wehave updated references to GAAP in our financial statements issued for theperiod ending September 30, 2009. The adoption of FASB ASC 105 did notimpact our financial position or our results of operations.

 

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

 

The consolidated financial statements include the accounts of CorgenixMedical Corporation and its wholly-owned subsidiaries, Corgenix, Inc. andCorgenix (UK) Limited (“Corgenix UK”). Corgenix UK was established as a UnitedKingdom company during 1996 to market our products in Europe. Transactions aregenerally denominated in U.S. dollars.

 

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

 

The preparation of our financial statements in conformity withaccounting principles generally accepted in the U.S. requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenue and expensesduring the reporting period. Actual results could differ significantly fromthose estimates. Certain information and note disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America (GAAP) have been omittedfrom these unaudited consolidated financial statements. These unauditedconsolidated financial statements should be read in conjunction with thefinancial statements and notes thereto included in our Quarterly Report on Form 10-Qfor the quarter ended September 30, 2009. The results of operations for the three months ended September 30,2009 and 2008 are not necessarily indicative of the operating results for thefull year. In theopinion of management, all adjustments, consisting only of normal recurringaccruals, have been made to present fairly our financial position at September 30,2009 and the results of operations and its cash flows for the three monthsended September 30, 2009 and 2008.

 

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

 

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

 

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

 

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

 

We have adhered to the guidance set forth in the *Sale ofAccounts Receivable* Topic of the Financial Accounting StandardsBoard Accounting Standards Codification (“FASB ASC”), which provides standardsfor distinguishing transfers of financial assets that are sales from transfersthat are secured borrowings. On September 30, 2009, we established a$1,750,000 credit facility, which 

 

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includesan accounts receivable factoring line, with an asset-based lender (“Lender”)and secured by our accounts receivable, inventory, and all of our other assets.This credit facility enables us to sell selected accounts receivable invoicesto the Lender with full recourse against us. Due to the full recourseprovisions in the Summit Financing Agreement, and pursuant to the guidance asset forth in this Topic, these transactions do not qualify as a true sale ofassets, and thus are treated as a secured borrowing. During the first quarterof fiscal 2010, we sold $702,908 of our accounts receivable invoices to theLender for approximately $632,617. As previously mentioned, pursuant to theprovisions of this Topic, we reflected the transaction as a secured borrowing,as we had previously done with the sales of accounts receivable to BenefactorFunding Corporation. We have also established an accounts receivable from theLender for the retained amount less the costs of the transaction and less anyanticipated future loss in the value of the retained asset. The retained amountis initially equal to 10% of the total accounts receivable invoice sold to theLender. The periodic interest expense and administrative fee assessed by theLender on the amount owing, will be charged to interest expense and fees andwill be credited against the accounts receivable due from the Lender. As of September 30,2009, we have an outstanding retained receivable of $70,355, representingapproximately 10% of the $702,908 of unsettled receivable invoices sold to theLender.

 

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

 

Inventories consist of raw materials, work in process and finishedgoods and are recorded at the lower of average cost or market, using thefirst-in, first-out method. A provision is recorded to reduce excess andobsolete inventories to their estimated net realizable value, when necessary.No such provision was recorded as of September 30, 2009 or September 30,2008. Components of inventories as of September 30 and June 30 are asfollows:

 
| ** **      | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|-----------------|------------|------------------------|------------|-------------------|------------|
| ** **      | ** ** | **2009**               | ** ** | **2009**          | ** ** |
| Raw materials   |       | $                      | 582,903    |              | $          | 589,025 |   |
| Work-in-process |       | 942,506                |       | 700,658           |       |
| Finished goods  |       | 995,682                |       | 1,306,365         |       |
|            |       | $                      | 2,521,091  |              | $          | 2,596,048 |   |

 

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

 

Equipment and software are recorded at cost. Equipment under capitalleases is recorded initially at the present value of the minimum leasepayments. There was no equipment acquired under capital leases for the quarterended September 30, 2009 and amounted to $29,279 for the quarter ended September 30,2008. Depreciation and amortization expense, which totaled $107,459 and$110,014 for the quarters ended September 30, 2009 and 2008, respectively,is calculated primarily using the straight-line method over the estimateduseful lives of the respective assets which range from 3 to 7 years.Capitalized software costs are related to our web site development, our R &D statistical software, which were and are both amortized over three years, andour accounting software, which is being amortized over five years, beginning inMarch 2008.

 

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

 

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

 

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

 

The License Agreement imposes caps on the total amount of cash, commonstock, and warrant payments from us to CCC from the date of execution throughto and including the third anniversary payment. Under that cap limitation, thetotal of all anniversary payments will not exceed $200,000 in cash, with eachanniversary cash payment determined by multiplying $50,000 by an anniversaryratio which is the ratio of cumulative revenue at the respective anniversarydate divided by the cumulative sales target for the same period of time.Likewise, the total of all anniversary common stock payments will not exceed$300,000 in value of shares 

 

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ofcommon stock (as valued on the date of issue), with the number of shares foreach anniversary stock issuance determined by dividing 75,000 by the closingstock price as of the respective anniversary date and multiplying that resultby the anniversary ratio noted above. Finally, the total of all anniversary warrantpayments will not exceed 300,000 warrants, with the value of each anniversarywarrant issuance determined by multiplying 75,000 (the number of warrants to beissued) by a newly calculated Black Scholes value per warrant as of the fiscalyear end. As of September 30, 2009, we had a negative accrued of less than$1,000 with respect to the cumulative amount due to CCC. For the quarter ended September 30,2009, we issued to CCC 23,164 shares of our common stock and 75,000 warrantswith an exercise price of $0.35, pursuant to this license agreement.

 

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

 

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

 

Advertising costs are expensed when incurred. Advertising costsincluded in selling and marketing expenses totaled $10,071 and $31,718 for thequarters ended September 30, 2009 and 2008, respectively.

 

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

 

Income taxes are accounted for under the asset and liability method.Deferred tax assets and liabilities are recognized for net operating loss andother credit carry forwards and the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred tax assets and liabilitiesare measured using enacted tax rates expected to apply to taxable income in theyears in which the tax effect of transactions are expected to be realized. Theeffect on deferred tax assets and liabilities of a change in tax rates isrecognized in the consolidated statements of operations in the period thatincludes the enactment date.

 

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

 

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

 

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

 

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

 

Research and development costs and any costs associated with internallydeveloped patents, formulas or other proprietary technology are expensed asincurred. Research and development expense for the quarters ended September 30,2009 and 2008 totaled $150,359 and $207,479, respectively. Revenue fromresearch and development contracts represents amounts earned pursuant toagreements to perform research and development activities for third parties andis recognized as earned under the respective agreement. Because research anddevelopment services are provided evenly over the contract period, revenue isrecognized ratably over the contract period. Research and developmentagreements in effect in 2009 and 2008 provided for fees to us based on time andmaterials in exchange for performing specified research and developmentfunctions. Contract research and development revenues were $64,473 and $74,830for the quarters ended September 30, 2009 and 2008, respectively. Researchand development contracts are generally short term with options to extend, andcan be cancelled under specific circumstances.

 

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

 

We review long-lived assets, including intangibles, for impairmentwhenever events or changes in circumstances indicate that the carrying amountof such assets may not be recoverable. Events relating to recoverability mayinclude significant unfavorable changes in business conditions, recurring losses,or a forecasted inability to achieve break-even operating results over anextended period. We evaluate the recoverability of long-lived assets based uponforecasted undiscounted cash flows. Should an impairment in value be indicated,the carrying value of intangible assets will be adjusted based on estimates offuture discounted cash flows resulting from the use and ultimate disposition ofthe asset.

 

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

 

Prior to occupying ourheadquarters facility in Broomfield, Colorado, the landlord expended a total of$1,052,140 for the build-out, i.e. tenant improvements, of the building. Thisamount was initially recorded as a charge to leasehold improvements and acredit to deferred facility lease payable, which is being amortized againstrent expense over the 84 month period of the lease.

 

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

 

In accordance with the guidance of the *Share-BasedPayment* Topic of the FASB ASC, we account for share-based paymentsby measuring and recognizing the amount of compensation expense for allshare-based payment awards made to employees, officers, directors, andconsultants, including employee stock options based on estimated fair values.Pursuant to this guidance, we estimate the fair value of share-based paymentawards on the date of grant using an option-pricing model. The value of theportion of the award that is ultimately expected to vest is recognized asexpense over the required service period in our Statements of Operations.Stock-based compensation is based on awards ultimately expected to vest and isreduced for estimated forfeitures. In further adherence to this guidance, weestimate any future forfeitures at the time of grant and revise theseestimates, as necessary, in subsequent periods if actual forfeitures differfrom those estimates.

 

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

 

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

 

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

 

Basic earnings (loss) per share is computed by dividing net lossattributable to common stockholders by the weighted average number of commonshares outstanding. Diluted earnings (loss) per share is computed by dividingnet loss attributable to common stockholders by the weighted average number ofcommon shares outstanding increased for potentially dilutive common sharesoutstanding during the period. The dilutive effect of stock options and theirequivalents is calculated using the treasury stock method. Options and warrantsto purchase common stock totaling 36,334,637 and 37,703,968 shares for fiscalyears 2009 and 2008, respectively, are not included in the calculation ofweighted average common shares-diluted below as their effect would be to lowerthe net loss per share and thus be anti-dilutive. Redeemable common stock isincluded in the common shares outstanding for purposes of calculating netincome (loss) per share.

 
| ** **                                                                    | ** ** | **3 Months ended  September 30,  2009** | ** ** | **3 Months ended  September 30,  2008** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Net loss attributable to common stockholders                                  |       | $                                                      | (17,636    | )                                                      | $          | (340,659 | ) |
|                                                                          |       |                                                   |       |                                                   |       |
| Common and common equivalent shares outstanding:                              |       |                                                   |       |                                                   |       |
| Historical common shares outstanding at  beginning of period             |       | 30,294,505                                             |       | 30,021,935                                             |       |
| Weighted average common equivalent  shares issued during the period |       | 11,350                                                 |       | 70,158                                                 |       |
| Weighted average common shares — basic  and diluted                 |       | 30,305,855                                             |       | 30,092,093                                             |       |
|                                                                          |       |                                                   |       |                                                   |       |
| Net loss per share — basic and diluted                                   |       | $                                                      | (0.00      | )                                                      | $          | (0.01 | ) |

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

We have incurred operating losses and negative cashflow from operations for most of our history. Losses incurred since our inception,net of dividends on convertible preferred stock, have aggregated $13,228,472,and there can be no assurance that we will be able to generate positive cashflows to fund our operations in the future or to pursue our strategicobjectives.  Historically, we havefinanced our operations primarily through long-term debt and the sales ofcommon stock, redeemable common stock, and preferred stock.  We have also financed operations throughsales of diagnostic products and agreements with strategic partners.  At September 30, 2009, trade and otherreceivables were $1,285,424 versus $1,339,409 at June 30, 2009, largely becauseof a concerted collection effort initiated over the prior months.

 

Wehave developed and are continuing to strive to implement an operating planintended to eventually achieve sustainable profitability and positive cash flowfrom operations.  Key components of thisplan include accelerating revenue growth and the cash to be derived fromexisting product lines as well as new diagnostic products, expansion of ourstrategic alliances with other biotechnology and diagnostic companies, securingdiagnostic-related government contracts, improving operating efficiencies to reduce cost of sales, thereby improvinggross margins, and lowering overall operating expenses.  Management is forecasting continued revenuegrowth subsequent to this fiscal quarter, primarily generated from thecontinued evolution of the market for AspirinWorks along with the anticipated futureFDA approval of AtherOx. Management has not yet achieved the necessary level ofsales, cost of sales and operating efficiencies to achieve consistentprofitability and positive cash flow from operations.  Given the severe recessionary environment in whichwe find ourselves, there are significant short- term and potentiallyintermediate-term risks associated with the operating plan, and we might beforced to further modify the plan, in order to achieve the goals of sustainedprofitability and positive cash flow from operations.

 

Althoughthe operating plan is intended to eventually achieve sustainable profitabilityand positive cash flow from operations, it is possible that we may not besuccessful in our efforts.  Even with ouroperating plan, we may continue to incur operating losses for the next severalquarters, as, given the current and foreseeable state of our economy, it willstill take time for our strategic and operating initiatives to have a positiveeffect on our business operations and cash flow. In view of this, and in orderto improve our liquidity and our operating results, we will also continue tostrive to increase our revenues and reduce, where possible, our operatingexpenses.

 

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Given the potential for a reduction in our future sales caused by thesevere recession, management sought and has been successful in obtaining debtrelief in addition to securing a modification of the existing convertible notesfrom our two institutional convertible debt holders. This note modification wasaccomplished in conjunction with and addition to securing additional debtfinancing. On March 17, 2009, we reached agreement with the institutionalconvertible debt holders to waive previous defaults and to amend the originaldebt agreements which further enabled us to secure new debt financing fromother sources. In addition,  on September 30,2009 we were able to secure a $1,750,000 credit facility from Summit FinancialResources LLP, which we believe will serve us well in terms of serving as  long-term permanent financing. As a result ofthese recent debt financings, in addition to a stabilization and slight upturnof sales in the fourth fiscal quarter of last year plus the first quarter ofthe current fiscal year, and taking into consideration the forecasted resultsof operations and the resultant cash flow for the fiscal year ended June 30,2010, management believes that we will have adequate resources to continueoperations for longer than 12 months.

 

Our dependence on operating cash flow means that risks involved in ourbusiness can significantly affect our liquidity. Any loss of a significantcustomer, any new competitive products or pricing pressures affecting saleslevels of our core products, or any significant expenses not anticipated norincluded in our internal operating budget, could result in the need to raiseadditional cash. We have no arrangement for any additional external financingof debt or equity, other than the credit facility provided by Summit . In orderto improve our operating cash flow, we continue the need to achieveprofitability.

 

The Summit line of credit is expected to provide working capital whichmay be necessary to meet our needs over the next 12 months. In general, we havehigh quality trade accounts receivable which may be sold pursuant to the lineof credit. The agreement for the line of credit has a term of three yearsexpiring September 30, 2012; it is automatically renewed after that for 12months unless either party elects to cancel in writing at least 60 days priorto the anniversary date. We have no intention to exercise this cancellationright, and the lender (Summit) has not given us any indication that they haveany such intention.

 

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

 

With respect to the guidance set forth in the *Disclosures  of Derivative Instruments and HedgingActivities*Topic of the FASB ASC, which enhances requireddisclosures regarding derivatives and hedging activities, including enhanceddisclosures regarding how: a) an entity uses derivative instruments;b) derivative instruments and related hedged items are accounted for*;* and c) derivative instruments andrelated hedged items affect an entity’s financial position, financialperformance and cash flows, we do not expect that the application of theprinciples set forth under this Topic will be applicable to our financialstatements.

 

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

 

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

 

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

 

Level 3—unobservable inputs.

 

The adoption of these provisions did not have a material effect on ourfinancial condition and results of operations, but  introduced new disclosures about how we valuecertain assets and liabilities. Much of the disclosure requirement is focusedon the inputs used to measure fair value, particularly in instances where themeasurement uses significant unobservable (Level 3) inputs. Our financialinstruments are valued using quoted prices in active markets or based uponother observable inputs. The following table sets forth the fair value of ourfinancial assets that were measured on a recurring basis as of September 30,2009:

 
| ** **         | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Money market funds |       | $                | 250,637    |             |       |             |       |      | $          | 250,637 |   |
| Total              |       | $                | 250,637    |             |       |             |       |      | $          | 250,637 |   |

 

We have adopted the guidance set forth in the *Fair ValueOption for Financial Assets and Financial Liabilities* Topic of theFASB ASC. Pursuant to the guidance of this Topic, we are allowed theirrevocable option to elect fair value for the initial and subsequentmeasurements for specified financial assets and liabilities on acontract-by-contract basis. We did not elect to adopt the fair 

 

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valueoption included in this Topic. The provisions of the *Non-controllingInterests in Consolidated Financial Statements* Topic of the FASB ASCchange how business acquisitions are accounted for and will impact financialstatements both on the acquisition date and in subsequent periods. Theseprovisions will change the accounting and reporting for minority interests,which will be recharacterized as non-controlling interests and classified as acomponent of equity. These provisions are effective for both public and privatecompanies for fiscal years beginning on or after December 15, 2008 (thefiscal year ended June 30, 2010 for our company). The provisions will beapplied prospectively. The provisions also require retroactive adoption of thepresentation and disclosure guidance for existing minority interests. All otherguidance under this Topic will be applied prospectively. Early adoption isprohibited for both standards. Management has evaluated the guidance under thisTopic and has determined that there is no impact on our financial statements.

 

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

 

The *Subsequent Events* Topic of the FASB ASCestablished general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. Recognized subsequent events should berecognized in the financial statements since the condition existed at the dateof the balance sheet. Non recognized subsequent events are not recognized inthe financial statements since the conditions arose after the balance sheetdate but before the financial statements are issued or are available to beissued. The guidance in this Topic, which includes a required disclosure of thedate through which an entity has evaluated subsequent events, is effective forinterim or annual periods ending after June 15, 2009. We have evaluatedevents through November 12, 2009, which is the date the financialstatements were issued.

 

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

 

Our diagnostic medical products are sold in North America (the U.S.,Canada and Mexico) directly and through independent sales representatives, tohospital laboratories, laboratory chains, independent laboratories, universitylaboratories and reference laboratories. Internationally, our diagnosticmedical products are sold wholesale through distributors.  Management has chosen to organize ourbusiness around the two geographic segments of business: North American andInternational operations. The following table sets forth selected financialdata for these segments for the three month periods ended September 30,2009 and 2008.

 
| ** **            | ** ** | ** ** | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------------|------------|------------|------------|----------------------------------------------------------|------------|
| ** **            | ** ** | ** ** | ** ** | **North  America**                                       | ** ** | **International** | ** ** | **Total** | ** ** |
| Net sales             |       | 2009       |       | $                                                        | 1,520,641  |   | $ | 524,326 |   | $ | 2,044,967 |   |
|                  |       | 2008       |       | $                                                        | 1,402,916  |   | $ | 598,980 |   | $ | 2,001,896 |   |
|                  |       |       |       |                                                     |       |   |   |   |   |
| Net income (loss)     |       | 2009       |       | $                                                        | (129,099   | ) | $ | 122,347 |   | $ | (6,752 | ) |
|                  |       | 2008       |       | $                                                        | (515,431   | ) | $ | 174,772 |   | $ | (340,659 | ) |
|                  |       |       |       |                                                     |       |   |   |   |   |
| Depreciation and      |       | 2009       |       | $                                                        | 101,805    |   | $ | 5,654 |   | $ | 107,459 |   |
| Amortization          |       | 2008       |       | $                                                        | 106,572    |   | $ | 3,442 |   | $ | 110,014 |   |
|                  |       |       |       |                                                     |       |   |   |   |   |
| Interest expense, net |       | 2009       |       | $                                                        | (67,063    | ) | $ | (1,633 | ) | $ | (68,696 | ) |
|                  |       | 2008       |       | $                                                        | (251,720   | ) | $ | (891 | ) | $ | (252,611 | ) |
|                  |       |       |       |                                                     |       |   |   |   |   |
| Segment assets:       |       |       |       |                                                     |       |   |   |   |   |
| September 30,    |       | 2009       |       | $                                                        | 5,998,605  |   | $ | 788,109 |   | $ | 6,786,714 |   |
| June 30,         |       | 2009       |       | $                                                        | 6,121,049  |   | $ | 784,732 |   | $ | 6,905,781 |   |

 

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

 

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

 

On July 1,2002, as part of the Medical & BiologicalLaboratories Co., Ltd. (MBL) Agreement, MBL purchased shares of ourcommon stock for $500,000. Under the MBL agreement, MBL could require us torepurchase at the same price in the event that a previously existingdistribution agreement with RhiGene, Inc. was terminated. For noadditional consideration, MBL was also issued warrants to purchase anadditional 880,282 shares of Common Stock at a price of $.568 per share, whichwas equal to an aggregate amount of $500,000. These warrants were originallydue to expire on July 3, 2008. The estimated fair value of the warrantsupon issuance was calculated at $401,809 using the Black-Scholes option-pricingmodel with the following assumptions: no expected dividend yield, 143%volatility, risk free interest rate of 4.2% and an expected life of five years.The gross proceeds of $500,000 wre allocated $277,221 to redeemable commonstock and $222,779 to the related warrants based on the relative fair value ofthe respective instruments to the fair value of the aggregate transaction.  Issuance costs and the discount attributed tothe redeemable common stock upon issuance were accreted over the 33-monthperiod to the first date whereupon  theput option could have been exercised, which was the expiration date of thedistribution agreement between us and RhiGene (March 31, 2008).Furthermore, pursuant to the agreement with MBL, as long as MBL held at least50% of the common stock purchased under the MBL agreement, MBL must give itswritten consent with respect to the payment of any dividend, the repurchase ofany of our equity securities, the liquidation or dissolution of the Company orthe amendment of any provision of our Articles of Incorporation or Bylaws whichwould adversely affect the rights of MBL under the stock purchase transactiondocuments. MBL was granted standard anti-dilution rights with respect to stockissuances not registered under the Securities Act. MBL also received standardpiggyback registration rights along with certain demand registration rights.

 

On March 31,2005, our distribution agreement with RhiGene expired, and we signed a newdistribution and OEM Supply Agreement with MBL International, Inc. (“MBLI”),a wholly owned subsidiary of MBL, which granted us non-exclusive rights todistribute MBL’s complete diagnostic line of autoimmune testing products in theU.S. and exclusive distribution rights to the OEM label products worldwideexcluding the U.S., Japan, Korea and Taiwan. In addition, on August 1,2005 we executed an Amendment to the 2002 Common Stock Purchase Agreement andCommon Stock Purchase Warrant wherein one-half, or 440,141, of the originalredeemable shares were exchanged for a three-year promissory note payable withinterest at prime (3.25% as of September 30, 2009) plus two percent,with payments having commenced in September, 2005. The sharesexchanged for the promissory note were returned to us quarterly on a pro ratabasis as payments were made on the promissory note. As of September 30, 2009,a total of 440,161 shares have been returned to us. The remaining440,121 shares not covered by the promissory note were originally due tobe redeemed by us at $0.568 per share on August 1, 2008 forany shares still owned at that time by MBL but only to the extent that MBLhad not realized at least $250,000 in gross proceeds upon the sales of itsredeemable shares in the open market for the time period August 1,2007 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.

 

On  July 15, 2008, wereached agreement with MBL to amend certain provisions of our February 1,2005 Exclusive Distribution Agreement, in addition to entering into aMemorandum of Understanding Regarding Aspirin Works Distribution Rights inJapan, and to execute a Second Amendment to Common Stock Purchase Agreement andWarrant. These new agreements and amendments added certain products and transferprices, called for the discussion of terms whereby MBL would be granted aworldwide OEM agreement for certain of the products in a designated territory,called for the payment by us of royalties on certain proprietary products,which included proprietary technology of MBL, and called for the negotiation ofterms of an exclusive distribution agreement for sales of AspirinWorks inJapan. In addition, pursuant to the Second Amendment to Common Stock PurchaseAgreement and Warrant, we agreed with MBL that the warrant term would beextended to August 1, 2010 and that one-half, or 220,086, of the remaining440,171 redeemable shares will be exchanged for a two-year promissory notepayable with interest at prime (3.25% as of September 30, 2009) plus twopercent with payments commencing September 1, 2009. As a result of thewarrant extension, additional unaccreted dividends on the redeemable commonstock were created, which are being accreted over the period of the warrantextension, and are deducted in calculating net loss attributable to commonstockholders on our statements of operations and comprehensive loss. The sharesexchanged for the promissory note will be returned to us quarterly on a prorata basis as payments are made on the promissory note. As of September 30,2009, a total of 495,157 shares have been returned to us pursuant to the notespayable. The companies further agreed that beginning September 1, 2009,and continuing 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 $0.62or greater. At the close of business on August 1, 2010, MBL will then havethe right to sell, and we will have the obligation to purchase, any remainingstock then held by MBL, at a price of $0.568 per share.

 

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

 

On February 3, 2009, we entered into two agreements (the “RestructuringAgreements”) to restructure the debt evidenced by convertible term notes thatTruk Opportunity Fund, LLC, a Delaware company; Truk InternationalFund, LP, a Cayman Islands company (collectively, “Truk”); and CAMOFIMaster LDC, a Cayman Islands company, formerly named DCOFI Master LDC, (“CAMOFI”)purchased on May 19, 2005 and December 28, 2005. The RestructuringAgreements suspended all amortizing principal amount payments otherwise dueunder each note, beginning November 1, 2008 and ending on the earlier of (i) thefirst day of the 

 

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monthnext succeeding the closing of any new financing transaction or (ii) May 1,2009 (the “Repayment Date”), at which time payments would again have become dueand payable on the first day of each subsequent month until December 31,2009 (the “Maturity Date”). Payments would be equal to the amount of principaloutstanding divided by the number of months from the Repayment Date until theMaturity Date. On the Maturity Date, the amortizing principal amount for eachof the term notes and all other amounts due and owing must be repaid in full,whether by payment of cash, or at Truk’s or CAMOFI’s option, by the conversioninto common stock.

 

Under the Restructuring Agreements, Truk and CAMOFI agreed that theirsecurity interest in our accounts receivable and inventory would only besubordinated to that of the lenders in any new financing, but that theirsecurity interest in all of our other assets will remain a perfected first security interest. This provisionwas effective upon completion of the Financing Agreement with Benefactor,summarized below. In addition, upon the closing of the Financing Agreement withBenefactor, the remaining principal balance of each outstanding term note heldby Truk was increased by five percent (5%), and was accounted for as additionalinterest expense.

 

Simultaneously with the execution of the Restructuring Agreements:

 

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

 

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

 

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

 

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

 

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

 

***(a)******                                ******EmployeeStock Purchase Plan***

 

Effective January 1,1999, we adopted an Employee Stock Purchase Plan to provide eligible employeesan opportunity to purchase shares of our common stock through payrolldeductions, up to 10% of eligible compensation. On April 26, 2007,Shareholders approved our Second Amended and Restated Employee Stock PurchasePlan. These plans fully comply with Section 423 of the Internal RevenueCode of 1986. Each quarter, participant account balances are used to purchaseshares of stock at the lesser of 85% of the fair value of shares on the firstbusiness day (grant date) and last business day (exercise date) of eachquarter. No right to purchase shares shall be granted if, immediately after thegrant, the employee would own stock aggregating 5% or more of the totalcombined voting power or value of all classes of stock. A total of600,000 common shares have been registered with the Securities andExchange Commission (SEC) for purchase under the two plans. In the quarter endedSeptember 30, 2009, 27,673 shares were issued under the plans. In thequarter ended September 30, 2008, 11,724 shares were issued under theplans.

 

***(b)******                                ******IncentiveStock Option Plan***

 

*StockOptions as of September 30, 2009*

 

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

 

The followingtable summarizes stock options outstanding as of September 30, 2009, andchanges during the three months then ended:

 

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| ** **                                     | ** ** | **Outstanding Options** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  months)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Options outstanding at June 30, 2009      |       | 2,507,600                    |       | $ | 0.36 |   | 43.90 |   | $ | — |   |
| Granted                                        |       | 40,000                       |       | $ | 0.095 |   | 84.0 |   |   |   |
| Exercised                                      |       | —                       |       | $ | — |   | — |   |   |   |
| Cancelled, expired or forfeited                |       | (12,500                      | )          | $ | 0.45 |   | 14.0 |   |   |   |
| Options outstanding at September 30, 2009 |       | 2,535,100                    |       | $ | 0.35 |   | 46.9 |   | $ | — |   |
| Options exercisable at September 30, 2009 |       | 2,478,433                    |       | $ | 0.36 |   | 41.1 |   | $ | — |   |

 

The totalintrinsic value as of September 30, 2009 measures the difference betweenthe market price as of September 30, 2009 and the exercise price. No optionswere exercised during the three months ended September 30, 2009 and September 30,2008. Consequently, no cash was received, nor did we realize any tax deductionsrelated to exercise of stock options during the periods.

 

Total estimatedunrecognized compensation cost from unvested stock options as of September 30,2009, was approximately $6,226, which is expected to be recognized over aweighted average period of 72.0 months.

 

The weightedaverage per share fair value range of stock options granted during the threemonth periods ending September 30, 2009 and September 30, 2008 was$0.095. There were no options granted during the three months ended September 30,2008. The fair value was estimated as of the grant date using the Black-Scholesoption pricing model with the following assumptions:

 
| ** **                     | ** ** | **Quarters Ended** | ** ** |
|--------------------------------|------------|-------------------------|------------|
| ** **                     | ** ** | **September 30,**  | ** ** |
| **Valuation Assumptions** | ** ** | **2009**                | ** ** | **2008** | ** ** |
|                           |       |                    |       |   |   |
| Expected option term           |       | 7 years                 |       | N/A |   |
| Risk-free interest rate        |       | 2.69                    | %          | N/A |   |
| Expected volatility            |       | 84.7                    | %          | N/A |   |
| Expected dividend yield        |       | 0                       | %          | N/A |   |

 

In addition to thestock options discussed above, we recognized no share-based compensationexpense related to Restricted Stock awards in the current quarter andrecognized $3,333 in related share-based compensation expense for the threemonths ended September 30, 2008.

 

As of September 30,2009, there were also 33,799,537 warrants outstanding which have beenissued to institutional investors, consultants, and employees, with exerciseprices ranging in prices from $.23 to $.50 per share with a weighted averageexercise price of $.35 per share. Of these warrants, 75,000 were newly orincrementally issued in the current quarter ended September 30, 2009, and75,000 warrants were newly or incrementally issued in the quarter ended September 30,2008.

 

On September 8,2008, the Board of Directors granted an equity award of 206,000 shares ofcommon stock to our five officers in recognition of our achievements for theprior two years, as no stock options had been granted since August, 2006.The closing price of our stock on September 8, 2008 was $0.20 and thevalue of the stock awards amounted to $41,200.

 

Effective September 8,2008, we adopted a One Year Short-term Incentive Compensation Plan to providethe executive officers an opportunity to earn shares of our common stock as abonus and in lieu of cash compensation upon the achievement by we of certainstipulated and targeted EBITDA amounts. The shares of common stock to be issuedunder this plan were based upon the closing stock price of our common stock asof June 30, 2009, which was $0.095. Based upon the reported EBITDA figuresfor the fiscal year ended June 30, 2009, 737,099 shares of our commonstock were earned by the Executive Officers and were issued to the corporateofficers at the end of September 2009. Under both issuances, the sharesimmediately vested upon issuance.

 

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

 

On March 17, 2009, we entered into an agreement with BenefactorFunding Corp. (“Benefactor”) whereby Benefactor agreed to factor our domesticaccounts receivable invoices. The term of the agreement was originally for oneyear and was terminated early as of September 30, 2009 upon the securingof the Summit credit facility. In accordance with the terms of the agreement,Benefactor 

 

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purchasedthe invoices that it approved for an initial payment of 85% (95% for the first60 days of the agreement) of the amount of the invoice with the remaining 15%paid upon collection, less any deductions from the customer. Benefactor chargeda fee of 1.4% of the gross amount of the invoice and a maintenance fee equal to..05% per day (annual rate of 18.25%) on the unpaid invoice amounts outstandingin excess of 30 days from the purchase date. We had agreed, beginning March 17,2009, to factor with Benefactor a minimum of $300,000 of invoices monthly. Wewere responsible for any invoices which remained unpaid after 91days or weresubject to other defaults by the customer and this obligation wascollateralized by us with a security interest granted to Benefactor on allassets. For the quarter ended September 30, 2009, when the agreementterminated, Benefactor advanced us $950,263 against invoices totaling$1,198,681. Fees paid to Benefactor for interest and other services for thequarter ended September 30, 2009 totaled $47,600.

 

In addition to the advances made by the Benefactor on accountsreceivable, on March 17, 2009, Benefactor advanced us $250,000,collateralized by our inventories with a face value of $294,118. Benefactorcharged a fee of 1.3% of the face value of the inventory and charged amaintenance fee equal to .043% per day (annual rate of 15.70%) on the unpaidadvance in excess of 30 days from the initial advance. The amount remaining onthis inventory advance was also paid off on September 30, 2009 as part ofthe Summit Financial financing.

 

As stated in Note 2 (e) above, the accounts receivable sold toSummit Financial are treated as a secured borrowing and  in the same manner as set forth above forBenefactor Funding Corporation. During the first quarter of fiscal 2010, wesold $702,908 of our accounts receivable invoices to Summit Financial forapproximately $632,617. Fees paid to Summit for interest and other services forthe quarter ended September 30, 2009 totaled $701.

 

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

 

Notes payable consist of thefollowing at September 30, 2009 and June 30, 2009:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **September 30,  2009** | ** ** | **June 30, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |                         |       |                        |       |
| Note payable, unsecured, to redeemable common  stockholders, with interest at prime plus 2.0% (6.25% as of  September 30 and June 30, 2009) due in monthly installments with  principal payments of $5,200 plus interest through August 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | 73,000                       |       | 73,000                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |                         |       |                        |       |
| Convertible term note payable to institutional  investors, net of discount of $449 with interest at the greater of 12%, as  adjusted by a stock trading formula, or prime plus 3% (6.25% as of September 30,  2009 and June 30, 2009), 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 plus interest from December 1, 2007 through  March 16, 2009, and via note modification dated February 3, 2009,  due in monthly installments of $6.714 plus interest, collateralized by all  assets of the company and a partial guarantee by an officer of the Company |       | 19,692                       |       | 38,039                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |                         |       |                        |       |
| Note payable, payable to Summit Financial  Resources, with interest at prime rate plus 2.75% (6% as of  September 30, 2009) due in monthly installments with principal payments  of $3,803.67 plus interest through September 2012 plus interest,  collateralized by all assets of Corgenix                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | 125,000                      |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 217,692                      |       | 111,039                     |       |
| Current portion, net of current portion of  discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | (134,359                     | )          | (100,439                    | )          |
| Notes payable, excluding current portion and net  of long-term portion of discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | $                            | 83,333     |                        | $          | 10,600 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |            |                              |            |                             |            |  |  |

 

The convertible notes payable restrict thepayment of dividends on our common stock.

 

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**Item 2.**

 

**Management’s Discussion andAnalysis ofFinancial Condition and Results of Operations**

 

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

 

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

 

This 10-Q includes statements that are not purelyhistorical and are “forward-looking statements” within the meaning of Section 21Eof the Securities Act of 1934, as amended, including statements regarding ourexpectations, beliefs, intentions or strategies regarding the future.  All statements other than historical factcontained in this 10-Q, including, without limitation, statements regardingfuture capital guidance, 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.

 

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

 

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

 

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

 

Except for the fiscal year ending June 30, 1997and 2009, we have experienced revenue growth since our inception, primarilyfrom sales 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 in revenuesevery year since 1990, except for 2009 and 1997, there can be no assurance that,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.

 

**(c)****                                 ****FASBCodification**

 

The FASB recognized the complexity of its standard-settingprocess and embarked on a revised process in 2004 that culminated in therelease on July 1, 2009, of the *FASB Accounting StandardsCodification,*sometimes referred to as the Codification or ASC. TheCodification does not change how we account for our transactions or the natureof related disclosures made in our financial statements. However, whenreferring to guidance issued by the FASB, we refer to topics in the ASC ratherthan the numbers of specific Standards, Statements, Interpretations, Positions,etc. Consequently, we have updated references to GAAP in this Quarterly Reporton Form 10-Q, to reflect the guidance in the Codification.

 

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**(d)****                                 ****Resultsof Operations**

 

*Three Months Ended September 30,2009****compared to 2008*

 

*Net sales.*Net sales forthe quarter ended September 30, 2009 were $2,044,967 a 2.2% increaseversus $2,001,896 in the same quarter of the prior fiscal year. Total NorthAmerican sales increased $117,725 or 8.4% to $1,520,641 versus $1,402,916 inthe prior year’s first quarter, while total sales to international distributorsdecreased $74,654 or 12.5% to $524,326 versus $598,980 in the prior year’sfirst quarter. With respect to our major revenue categories and product lines,total worldwide Corgenix labeled product sales decreased $236,692 or 15.1% to$1,326,929 versus $1,563,621 in the prior year’s first quarter. North AmericanCorgenix labeled product sales decreased $124,007 or 11.5% to $957,385 versus$1,081,392 in the prior year’s first quarter, whereas international Corgenixlabeled product sales decreased $112,685 or 23.4% to $369,544 versus $482,229in the prior year’s first quarter. Worldwide category results were as follows:Phospholipids kit sales (including OEM) decreased $8,690 or 1.0% to $921,090versus $929,780 in the prior year’s first quarter. Coagulation kit salesdecreased $6,419 or 1.6% to $390,748 versus $397,167 in the prior year’s firstquarter. HA kit sales decreased $113,079 or 36.7% to $194,899 versus $307,978in the prior year’s first quarter, while autoimmune kit sales decreased $15,283or 34.3% to $29,290 versus $44,573 in the prior year’s first quarter.Additionally, worldwide OEM revenues increased $101,034 or 67.7% to $252,539versus $151,505 in the prior year’s first quarter, and contract manufacturingrevenue increased $172,243 or 760.5% to $194,893 versus $22,650 in the prioryear’s first quarter. R & D contract revenue decreased $10,357 or13.8% to $64,473 versus $74,830 in the prior year’s first quarter. And finally,Aspirin Works sales increased $18,878 or 81.2% to $42,116 versus $23,238 in theprior year’s first quarter.

 

*Cost of sales*.  Cost of sales, as a percentage of sales,increased to 45.4% for the quarter ended September 30, 2009 from 44.7% inthe prior year’s comparable quarter. The increase was primarily attributable toincreases in scrap and rework costs.

 

*Selling and marketing expenses. *For the quarter ended September 30,2009, selling and marketing expenses decreased $50,292 or 10.9% to $409,517from $459,809 for the quarter ended September 30, 2008. The $50,292decrease versus the prior year resulted primarily from decreases of $20,852 inlabor-related expenses, $14,950 in consulting and outside services expenses,$54,680 in trade show and travel-related expenses, partially offset by a netincrease of $40,190 in other selling and marketing expenses.

 

*Research and developmenteExpenses.* Research anddevelopment expenses decreased $57,120 or 27.5% to $150,359 for the quarterended September 30, 2009, from $207,479 for the quarter ended September 30,2008. The $57,120 decrease versus the prior year resulted primarily fromdecreases of $21,695 in clinical trial related expenses, $27,311 inlabor-related expenses, $4,508 in travel-related expenses, and a net decreaseof $3,606 in other research and development expenses.

 

*General and administrative expenses.* For thequarter ended September 30, 2009, general and administrative expensesdecreased 11.5% or $61,496 to $471,939 from $533,435 for the quarter ended September 30,2008. The $61,496 decrease versus the prior year resulted primarily fromdecreases of $5,636 in Corgenix-UK general and administrative expenses, $37,562in labor-related expenses, $43,920 in consulting and outside services expenses,partially offset by a net increase of $25,622 in other general andadministrative expenses.

 

*Interest expense.* Interestexpense decreased $183,915, or 72.8% to $68,696 for the quarter ended September 30,2009, from $252,611 for the quarter ended September 30, 2008. Thissubstantial reduction in interest expense was due primarily to the acceleratedwrite off in March 2009 of 92.3% of the unaccreted discount and unamortizeddeferred financing costs as a result of the payoff of the convertible notes aspart of the Benefactor financing.

 

**(e)****                                 ****EBITDA**

 

Our earnings before interest, taxes, depreciation,amortization and non cash expense associated with stock-based compensation (“AdjustedEBITDA”) increased $91,689 or 102.2% to $181,376 for the three months ended September 30,2009 compared with $89,687 for the corresponding three month period in fiscal2009. Although adjusted EBITDA is not a GAAP measure of performance or liquidity,we believe that it may be useful to an investor in evaluating our ability tomeet future debt service, capital expenditures and working capital guidance.However, investors should not consider these measures in isolation or as asubstitute for operating income, cash flows from operating activities or anyother measure for determining our operating performance or liquidity that iscalculated in accordance with GAAP. In addition, because adjusted EBITDA is notcalculated in accordance with GAAP, it may not necessarily be comparable tosimilarly titled measures employed by other companies. A reconciliation ofAdjusted EBITDA to net earnings (loss) can be made by adding depreciation andamortization expense, corporate stock-based compensation expense, interestexpense, and income tax expense to net income (loss) as in the following table:

 

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| ** **                               | ** ** | **Three Months**            | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **Ended September 30** | ** ** |
| ** **                               | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| **RECONCILIATION OF ADJUSTED  EBITDA:**  |       |                             |       |   |   |
| Net loss                                 |       | $                                | (6,752     | ) | $ | (340,659 | ) |
| Add back:                                |       |                             |       |   |   |
| Depreciation and Amortization            |       | 107,459                          |       | 110,014 |   |
| Stock-based compensation expense         |       | 12,114                           |       | 73,806 |   |
| Interest expense, net of interest income |       | 68,555                           |       | 246,526 |   |
| Adjusted EBITDA                          |       | $                                | 181,376    |   | $ | 89,687 |   |

 

**(f)****                                   ****Financing Agreement**

 

On September 30, 2009, we, along with our whollyowned subsidiary, Corgenix, Inc., entered into a Financing Agreement, anAddendum to Financing Agreement, a Loan and Security Agreement and a PromissoryNote (collectively, the “Summit Agreements”) with Summit Financial Resources,L.P., a Hawaii limited partnership (“Summit”). We are jointly and severally liable for all obligations pursuant to theSummit Agreements. The Agreements with Summit provide us and our subsidiarywith a maximum credit line of $1,750,000 pursuant to an account factoringrelationship, coupled with a secured line of credit.

 

Under the Financing Agreement, we agree to sell all ofour right, title and interest in and to accounts identified for purchase bySummit from time to time. The purchase price for each sold account equals theface amount of each account multiplied by the applicable advance rate, minusall interest and fees and charges as described in the Financing Agreement. Inaddition, interest will accrue on advances made by way of purchased accounts atthe rate of prime plus 1.5% per annum until Summit receives payment in full oneach account. If Summit does not receive full payment on a purchased account bythe due date specified in the Financing Agreement, then we or our subsidiary(as applicable) must repurchase that account, and pay Summit the defaultinterest rate until it is repaid.

 

During the initial fund period (which is the earlierof 120 days after the date of the Agreements, or the date of the second termloan advance), the advance rate on eligible accounts receivable will be 90%,and 85% thereafter, unless Summit elects in its discretion to apply a differentpercentage. On September 30, 2009, the initial advance to us from Summiton eligible accounts receivable amounted to $632,553, which represented 90% ofeligible accounts receivable of $702,908.

 

The Financing Agreement is for a term of three years,renewable for additional one year terms unless we or Summit provide writtennotice of non-renewal at least 60 days prior to the end of the currentfinancing period.  Except as otherwiseprovided in the Financing Agreement, we may also elect to terminate a financingperiod earlier and pay Summit a supplemental fee of 1% of the maximum creditline of $1,750,000. Among other fees and charges, we will also pay Summit amonthly administration fee equal to 1.45% of the average monthly balance ofoutstanding advances for each calendar month.

 

Pursuant to the Addendum to Financing Agreement,Summit may, in its sole discretion and without any duty to do so, elect fromtime to time to make advances based upon Acceptable Inventory, which is definedin the addendum to mean inventory approved for intended use by the Food andDrug Administration, among other criteria.

 

Advances based upon Acceptable Inventory may be madeupon request so long as the aggregate amount of all advances based uponAcceptable Inventory outstanding and unpaid does not exceed the lesser of (a) FiftyPercent (50%) of the lower of book value, as determined in accordance withgenerally accepted accounting principles, of the Acceptable Inventory, (b) FourHundred Fifty Thousand Dollars ($450,000), (c) Fifty Percent (50%) of Client’soutstanding Acceptable Accounts, and (d) together with the aggregateamount of all other outstanding Advances, the Maximum Credit Line. On September 30,2009, the initial advance to us from Summit on Acceptable Inventory amounted to$351,454.

 

Advances based upon Acceptable Inventory are subjectto the interest, fees and charges, and all terms and conditions applicable toan Advance under the Financing Agreement, including the administrative fee,except that the prime plus 1.5% advance interest rate on outstanding advancesbased upon Acceptable Inventory means the prime rate 2.75% per annum, asadjusted from time to time as of the date of any change in the prime rate.  All interest accrued on outstanding advancesbased upon Acceptable Inventory is due and payable monthly in arrears.

 

Summit may decline to make advances based uponAcceptable Inventory for any reason or for no reason, without notice,regardless of any course of conduct or past advances based upon AcceptableInventory by Summit.

 

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The Promissory Note provides us with up to $250,000 inthe form of a term loan, due on September 30, 2012, payable ininstallments. We received Summit’s first advance of $125,000 at the closing ofthe Summit Agreements on September 30, 2009. When an equipment appraisalis completed, we will be eligible for a second advance equal to the lesser ofone hundred twenty five thousand dollars ($125,000), or sixty percent (60%) ofthe net orderly liquidation value of Eligible Equipment, less the $125,000already advanced. If the liquidation value of the equipment does not exceed$208,333, then we will not be eligible for a second advance.

 

The Promissory Note bears interest at an initial rateof prime plus 2.75% per annum, and adjusts with and as of the date of anychange in the prime rate as reported in the Wall Street Journal. In addition,under the Loan and Security Agreement, we will pay Summit a monthlyadministration fee equal to 1.45% of the average outstanding monthly principalbalance on the Promissory Note each month. The penalty default rate on thePromissory Note is prime plus 10% per annum.

 

Under the Loan and Security Agreement, we will paySummit a fee equal to $2,250 for each month, or portion thereof, until anequipment appraisal has been completed.

 

We have used a portion of the initial advance toretire the debt evidenced by the Factoring and Security Agreement to BenefactorFunding Corp, a Colorado corporation. The payoff to Benefactor amounted$580,786.

 

Under the Summit Agreements, we made certaincovenants, representations and warranties typical of a secured financingarrangement, and have agreed to report certain information to Summit.  Pursuant to the Summit Agreements, certainrecourse events and events of default will trigger early payment obligationsfor us, and Summit has certain rights as a secured party in case of any defaultor recourse event.

 

Under the Summit Agreements, we have granted to Summita security interest in, among other things, all inventory, accounts, equipment,goods and motor vehicles, all general intangibles, all chattel paper, any andall financial obligations payable to, owing to or in favor of us or held by usand all balances, deposits, debts or any other amounts or obligations of Summitowing to us, whether or not due.  Inaddition, our obligations under the Summit Agreements is also secured by the “Reserve,”which is cash collateral that Summit may fund by withholding amounts owing tous, or deducting amounts from collected payments on purchased accounts. Theamount of the Reserve is set in Summit’s discretion.

 

We are required at all times to maintain eligibleequipment so that the total, outstanding balance owing under the PromissoryNote equals or is less than 60% of the net orderly liquidation value of theeligible equipment as set forth in the equipment appraisal.

 

The Loan and SecurityAgreement will continue in full force and effect for three years; however wemay terminate early at any time by giving Summit not less than sixty days priornotice.

 

**(g)****                                ****Liquidity and Capital Resources**

 

During the first quarter of fiscal 2010 our working capital increasedby $181,968, to $2,195,202 from $2,013,234 at June 30, 2009, andconcomitantly, our current ratio (current assets divided by currentliabilities) decreased from 1.69 to 1 at June 30, 2009 to 1.80 at September 30,2009. This increase in working capital is primarily attributable to a reducednet loss in the first three months of fiscal 2010, complimented by theincremental proceeds of the Summit financing at September 30.

 

At September 30, 2009, trade and other receivables were $1,285,424versus $1,339,409 at June 30, 2009, largely because  of a concerted collection effort initiatedover the prior months. Accounts payable, accrued payroll and other accruedexpenses decreased by $130,819 from the end of fiscal 2009 corresponding withthe inventory loan payable from Summit, and the increase and timing ofpurchases of inventory and rise in receivables over that period. At September 30,2009, inventories were $2,521,091, a slight decrease versus the $2,596,048 at June 30,2009, in anticipation of planned production of finished goods inventory whichwere brought down over the same period as a result of increased sales of ourdiagnostic products.

 

For the three months ended September 30, 2009, cash provided byoperating activities amounted to $197,867, versus cash used by operatingactivities of $212,075 for the three months ended September 30, 2008. Thesignificant improvement in the cash provided by operations for the currentthree month period resulted primarily from the substantial reduction in the netloss for the period, plus the decrease in accounts receivable and inventoriesplus the increase in accrued liabilities.

 

Net cash used in investing activities, the purchase of laboratoryequipment, leasehold improvements and computer equipment was $5,951 for thethree months ended September 30, 2009, compared to $20,146 for the threemonths ended September 30, 2008. We have no significant capitalexpenditures planned for fiscal 2010.

 

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Net cash provided by financing activities amounted to $5,788 for thethree months ended September 30, 2009 compared to  $260,066 for the three months ended September 30,2008. This increase versus the comparable prior year’s quarter was primarilydue to the proceeds from the Summit Agreements offset by the payoff of theamount owed to Benefactor, in addition to the payments made on notes payableand capital lease obligations.

 

We have incurred operating losses and negative cashflow from operations for most of our history. Losses incurred since ourinception, net of dividends on convertible preferred stock, have aggregated$13,228,472, and there can be no assurance that we will be able to generatepositive cash flows to fund our operations in the future or to pursue ourstrategic objectives.  Historically, wehave financed our operations primarily through long-term debt and the sales ofcommon stock, redeemable common stock, and preferred stock.  We have also financed operations throughsales of diagnostic products and agreements with strategic partners.

 

Wehave developed and are continuing to strive to implement an operating planintended to eventually achieve sustainable profitability and positive cash flowfrom operations.  Key components of thisplan include accelerating revenue growth and the cash to be derived fromexisting product lines as well as new diagnostic products, expansion of ourstrategic alliances with other biotechnology and diagnostic companies, securingdiagnostic-related government contracts, 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 quarter, primarily generated from thecontinued evolution of the market for AspirinWorks along with the anticipatedfuture FDA approval of AtherOx. Management has not yet achieved the necessarylevel of sales, cost of sales and operating efficiencies to achieve consistentprofitability and positive cash flow from operations.  Given the severe recessionary environment inwhich we find ourselves, there are significant short- term and potentiallyintermediate-term risks associated with the operating plan, and we might beforced to further modify the plan, in order to achieve the goals of sustainedprofitability and positive cash flow from operations.

 

Althoughthe operating plan is intended to eventually achieve sustainable profitabilityand positive cash flow from operations, it is possible that we may not besuccessful in our efforts.  Even with ouroperating plan, we may continue to incur operating losses for the next severalquarters, as, given the current and foreseeable state of our economy, it willstill take time for our strategic and operating initiatives to have a positiveeffect on our business operations and cash flow. In view of this, and in orderto improve our liquidity and our operating results, we will also continue tostrive to increase our revenues and reduce, where possible, our operatingexpenses.

 

Given the potential for a reduction in our future sales caused by thesevere recession, management sought and has been successful in obtaining debtrelief along with  a modification of theexisting convertible notes from our two institutional convertible debt holders.This note modification was accomplished in conjunction with and addition tosecuring additional debt financing. On March 17, 2009, we reachedagreement with the institutional convertible debt holders to waive previousdefaults and to amend the original debt agreements which further enabled us tosecure new debt financing from other sources. In addition,  on September 30, 2009 we were able tosecure a $1,750,000 credit facility from Summit Financial Resources LLP, whichwe believe will serve us well in terms of serving as  long-term permanent financing. As a result ofthese recent debt financings, in addition to a stabilization and slight upturnof sales in the fourth fiscal quarter of last year plus the first quarter ofthe current fiscal year, and taking into consideration the forecasted resultsof operations and the resultant cash flow for the fiscal year ended June 30,2010, management believes that we will have adequate resources to continueoperations for longer than 12 months.

 

Our dependence on operating cash flow means that risks involved in ourbusiness can significantly affect our liquidity. Any loss of a significantcustomer, any new competitive products or pricing pressures affecting saleslevels of our core products, or any significant expenses not anticipated norincluded in our internal operating budget, could result in the need to raiseadditional cash. We have no arrangement for any additional external financingof debt or equity, other than the credit facility provided by Summit FinancialResources. In order to improve our operating cash flow, we continue the need toachieve profitability.

 

The Summit line of credit is expected to provide working capital whichmay be necessary to meet our needs over the next 12 months. Inn general, wehave high quality trade accounts receivable which may be sold pursuant to theline of credit. The agreement for the line of credit has a term of three yearsexpiring September 30, 2012; it is automatically renewed after that for 12months unless either party elects to cancel in writing at least 60 days priorto the anniversary date. We have no intention to exercise this cancellationright, and the lender (Summit) has not given us any indication that they haveany such intention.

 

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

 

None.

 

**(i)****                                   ****Contractual Obligations 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. In 2008, the Property was sold to The Krausz Companies, Inc. aCalifornia corporation, and is part of Landlord’s multi-tenant real propertydevelopment known as the Broomfield Corporate Center.  We use the Property for our headquarters,laboratory research and development facilities and production facilities.

 

On the following dates, we executed the following amendments to theLease:

 

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

 

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

 

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

 

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

 

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

 

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

 

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**Item 3.**

 

**Quantitative and Qualitative Disclosures aboutMarket Risk**

 

Not required forsmaller reporting companies.

 

**Item 4.**

 

**Controlsand Procedures**

 

Underthe supervision and with the participation of our President and Chief FinancialOfficer, our management has evaluated the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by this report asdefined in Rule 13a-15(b) or Rule 15(d)-15(e) under theSecurities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation,the President and Chief Financial Officer have concluded that, as of the end of the period covered by thisreport, our disclosure controls and procedures are effective and ensure that informationrequired to be disclosed in our Exchange Act reports is (1) recorded,processed, summarized and reported in a timely manner, and (2) accumulatedand communicated to management, including the President and our Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

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

 

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**PART II**

 

**Other Information**

 
| **Item 1.** | **Legal Proceedings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Item 2.** | **Unregistered Sales of Equity Securities and Use  of Proceeds**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        | Under the Agreements, we issued to CAMOFI Master LDC, a Cayman  Islands company, formerly named DCOFI Master LDC, (“CAMOFI”) 200,000 shares  of our Series B Convertible Preferred Stock (“Series B”), with a  liquidation preference of $50,000, which will be convertible into 800,000  shares of our common stock at the rate of $0.25 and issued to Truk  Opportunity Fund, LLC, a Delaware company and Truk International Fund, LP, a  Cayman Islands company (collectively “Truk”) 36,680 shares of our  Series B Convertible Preferred Stock, with a liquidation preference of  $9,170, which will be convertible into 146,720 shares of our common stock at  the rate of $0.25. These securities were issued pursuant to an exemption from  The Securities Act of 1933 registration requirements, specifically,  Section 4(2) of the Securities Act of 1933. Truk and CAMOFI are  both accredited investors, as defined in The Securities Act of 1933. |
| ** **  | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **Item 3.** | **Defaults Upon Senior Securities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** **  | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **Item 4.** | **Submission of Matters to a Vote of Security  Holders**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ** **  | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** **  | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **Item 5.** | **Other Information**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| I**tem 6.** | **Exhibits and Reports on Form 8-K.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** **  | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** **  | **a. Index to and Description of Exhibits***.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1                |       | A  Financing Agreement, an Addendum to Financing Agreement, a Loan and Security  Agreement and a Promissory Note (collectively the “Summit Agreements”), each  entered into on September 30, 2009, by and between Summit Financial  Resources, L.P., a Hawaii limited partnership and Corgenix Medical  Corporation, a Nevada corporation and its wholly owned subsidiary,  Corgenix, Inc. Each of these agreements were attached to the previous  filed Form 8-K filed with the SEC on October 6, 2009, at SEC  Accession No. 0001104659-09-057870. |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2                |       | The  Second Modification of Secured Convertible Term Notes, entered in on  January 29, 2009, by and between Corgenix Medical Corporation, a Nevada  corporation and CAMOFI Master LDC, a Cayman Islands limited duration company  (f/k/a “DCOFI Master LDC”), which was attached to the previously filed  Form 8-K filed on February 5, 2009, at SEC Accession  No. 0001104659-09-006755.                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.3                |       | The  Second Modification of Secured Convertible Term Notes, entered in on  February 3, 2009, by and between Corgenix Medical Corporation, a Nevada  corporation and Truk Opportunity Fund, LLC, a Delaware company and Truk  International Fund, LP, a Cayman Islands company, which was attached to the  previously filed Form 8-K filed on February 5, 2009, at SEC Accession  No. 0001104659-09-006755.                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

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|   |   |                                                                                                                                                                                        |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.1*  |   | Certification  by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, or adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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*                 Filed herewith.

 
| **(b)**    |       | **Reports on Form 8-K.** |
|------------|------------|-------------------------------|
| ** ** | ** ** | ** **                    |
|       |       | 1.                            | Form 8-K  filed August 4, 2009. *Change in Directors or  Principle Officers* |
|       |       |                          |   |
|       |       | 2.                            | Form 8-K filed October 6, 2009*. Entry into a Material Definitive Agreement,  Termination of a Material Definitive Agreement* |

 

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**SIGNATURES**

 

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

 
|                          | CORGENIX  MEDICAL CORPORATION |
|-------------------------------|-------------------------------|
|                          |                          |
|                          |                          |
| November  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)** |

 

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