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 December 31,  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 31,034,299 as of February 5,2010.

 

 

 

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Tableof Contents

 

**CORGENIX MEDICAL CORPORATION**

**December 31, 2009**

 

**TABLE OF CONTENTS**

 
| **Part I**            |                                                                                        |   |
|----------------------------|---------------------------------------------------------------------------------------------|--------|
|                       |                                                                                        |   |
| **Financial  Information** | 3                                                                                           |
|                       |                                                                                        |   |
| Item 1.                    | Consolidated  Financial Statements                                                          | 3      |
|                       |                                                                                        |   |
| Item 2.                    | Management’s Discussion and Analysis Of  Financial Condition and Results of Operations | 20     |
|                       |                                                                                        |   |
| Item 3.                    | Quantitative and Qualitative  Disclosures About Market Risk                                 | 27     |
|                       |                                                                                        |   |
| Item 4.                    | Controls and Procedures                                                                     | 27     |
|                       |                                                                                        |   |
| **Part II**           |                                                                                        |   |
|                       |                                                                                        |   |
| **Other  Information**     | 27                                                                                          |
|                       |                                                                                        |   |
| Item 1.                    | Legal Proceedings                                                                           | 27     |
|                       |                                                                                        |   |
| Item 2.                    | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 27     |
|                       |                                                                                        |   |
| Item 3.                    | Defaults Upon  Senior Securities                                                            | 27     |
|                       |                                                                                        |   |
| Item 4.                    | Submission  of Matters to a Vote of Security Holders                                        | 27     |
|                       |                                                                                        |   |
| 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

 
| ** **                                                                                                                                                                                                                 | ** ** | **December 31,  2009** | ** ** | **June 30, 2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                 | ** ** | **(Unaudited)**             | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                                                 | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                                                                            |       |                        |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                  |       | $                           | 661,675    |                        | $          | 785,466 |   |
| Accounts receivable, less allowance for doubtful  accounts of $30,000 and $103,689 as of December 31,  2009 and June 30, 2009                                                                     |       | 1,206,266                   |       | 1,339,409                   |       |
| Other receivables                                                                                                                                                                                                          |       | 64,088                      |       | —                      |       |
| Inventories                                                                                                                                                                                                                |       | 2,571,653                   |       | 2,596,048                   |       |
| Prepaid expenses and other current assets                                                                                                                                                                                  |       | 90,251                      |       | 205,320                     |       |
| Total current assets                                                                                                                                                                                                       |       | 4,593,933                   |       | 4,926,243                   |       |
| Equipment                                                                                                                                                                                                                  |       |                        |       |                        |       |
| Capitalized software costs                                                                                                                                                                                                 |       | 258,947                     |       | 255,617                     |       |
| Machinery and laboratory equipment                                                                                                                                                                                         |       | 1,024,848                   |       | 1,024,848                   |       |
| Furniture, fixtures, leaseholds & office  equipment                                                                                                                                                               |       | 1,835,224                   |       | 1,816,462                   |       |
|                                                                                                                                                                                                                       |       | 3,119,019                   |       | 3,096,927                   |       |
| Accumulated depreciation and amortization                                                                                                                                                                                  |       | (1,808,323                  | )          | (1,609,361                  | )          |
| Net equipment                                                                                                                                                                                                              |       | 1,310,696                   |       | 1,487,566                   |       |
| Intangible assets:                                                                                                                                                                                                         |       |                        |       |                        |       |
| Licenses                                                                                                                                                                                                                   |       | 352,852                     |       | 369,671                     |       |
| Other assets:                                                                                                                                                                                                              |       |                        |       |                        |       |
| Deferred financing costs net of amortization of  $1,955,108 and $1,929,008                                                                                                                                                 |       | 7,526                       |       | 24,595                      |       |
| Other assets                                                                                                                                                                                                               |       | 102,337                     |       | 97,706                      |       |
| Total assets                                                                                                                                                                                                               |       | $                           | 6,367,344  |                        | $          | 6,905,781 |   |
| **Liabilities and Stockholders’  Equity**                                                                                                                                                                             | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                                                                                                                                       |       |                        |       |                        |       |
| Current portion of notes payable, net of discount  (Note 7)                                                                                                                                                                |       | $                           | 74,641     |                        | $          | 100,439 |   |
| Current portion of capital lease obligations                                                                                                                                                                               |       | 147,439                     |       | 203,506                     |       |
| Inventory loan payable                                                                                                                                                                                                     |       | 358,000                     |       | —                      |       |
| Due to factor (Note 6)                                                                                                                                                                                                     |       | 706,513                     |       | 1,112,299                   |       |
| Accounts payable                                                                                                                                                                                                           |       | 676,806                     |       | 858,887                     |       |
| Accrued payroll and related liabilities                                                                                                                                                                                    |       | 321,327                     |       | 369,824                     |       |
| Accrued liabilities-other                                                                                                                                                                                                  |       | 266,279                     |       | 268,054                     |       |
| Total current liabilities                                                                                                                                                                                                  |       | 2,551,005                   |       | 2,913,009                   |       |
| Notes payable, net of discount, less current  portion (Note 7)                                                                                                                                                             |       | 32,759                      |       | 10,600                      |       |
| Capital lease obligations, less current portion                                                                                                                                                                            |       | 27,315                      |       | 60,008                      |       |
| Deferred facility lease payable, excluding current  portion (Note 2)                                                                                                                                                       |       | 546,437                     |       | 673,315                     |       |
| Total liabilities                                                                                                                                                                                                          |       | 3,157,516                   |       | 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)                                                     |       | 106,138                     |       | 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  $24,273 and $30,809 (Note 4) |       | 51,465                      |       | 45,863                      |       |
|                                                                                                                                                                                                                       |       |                        |       |                        |       |
| Stockholders’ equity (Note 5):                                                                                                                                                                                        |       |                        |       |                        |       |
| Common stock, $0.001 par value. Authorized  200,000,000 shares; Issued and outstanding 31,034,299 and 30,294,505  December 31 and June 30, respectively                                                     |       | 30,676                      |       | 29,881                      |       |
| Additional paid-in capital                                                                                                                                                                                                 |       | 18,689,206                  |       | 18,595,066                  |       |
| Accumulated deficit                                                                                                                                                                                                        |       | (15,637,813                 | )          | (15,525,451                 | )          |
| Accumulated other comprehensive income                                                                                                                                                                                     |       | (29,844                     | )          | 13,517                      |       |
| Total stockholders’ equity                                                                                                                                                                                            |       | 3,052,225                   |       | 3,113,013                   |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                            |       | $                           | 6,367,344  |                        | $          | 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** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                              | ** ** | **December 31,  2009**      | ** ** | **December 31,  2008**    | ** ** | **December 31,****2009** | ** ** | **December 31,  2008** | ** ** |
| ** **                                                              | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                | ** ** |
| Net sales                                                               |       | $                                | 1,959,452  |                           | $          | 1,995,026 |   | $ | 4,004,419 |   | $ | 3,996,922 |   |
| Cost of sales                                                           |       | 884,509                          |       | 840,927                        |       | 1,813,858 |   | 1,736,233 |   |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Gross profit                                                            |       | 1,074,943                        |       | 1,154,099                      |       | 2,190,561 |   | 2,260,689 |   |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Operating expenses:                                                     |       |                             |       |                           |       |   |   |   |   |
| Selling and marketing                                                   |       | 419,695                          |       | 476,495                        |       | 829,212 |   | 936,304 |   |
| Research and development                                                |       | 166,060                          |       | 192,218                        |       | 316,419 |   | 399,697 |   |
| General and administrative                                              |       | 476,793                          |       | 541,609                        |       | 948,732 |   | 1,075,044 |   |
| Total expenses                                                          |       | 1,062,548                        |       | 1,210,322                      |       | 2,094,363 |   | 2,411,045 |   |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Operating income (loss)                                                 |       | 12,395                           |       | (56,223                        | )          | 96,198 |   | (150,356 | ) |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Other income (expense):                                                 |       |                             |       |                           |       |   |   |   |   |
| Interest income                                                         |       | 174                              |       | 3,935                          |       | 315 |   | 10,020 |   |
| Loss on early extinguishment of debt                                    |       | —                           |       | —                         |       | (22,000 | ) | — |   |
| Interest expense                                                        |       | (96,410                          | )          | (216,086                       | )          | (165,106 | ) | (468,697 | ) |
| Total other income (expense).                                           |       | (96,236                          | )          | (212,151                       | )          | (186,791 | ) | (458,677 | ) |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Net loss                                                                |       | (83,841                          | )          | (268,374                       | )          | (90,593 | ) | (609,033 | ) |
| Accreted dividends on redeemable preferred and  redeemable common stock |       | 10,884                           |       | —                         |       | 21,769 |   | — |   |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Net loss attributable to common shareholders                            |       | (94,725                          | )          | (268,374                       | )          | (112,362 | ) | (609,033 | ) |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Net loss per share, basic and diluted                                   |       | $                                | *(0.00     | )                              | $          | (0.01 | ) | $ | *(0.00 | ) | $ | (0.02 | ) |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Weighted average shares outstanding, basic and  diluted (note 2)        |       | 31,033,209                       |       | 30,280,155                     |       | 30,669,532 |   | 30,186,124 |   |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Net loss                                                                |       | $                                | (83,841    | )                              | $          | (268,374 | ) | $ | (90,593 | ) | $ | (609,033 | ) |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Other comprehensive income (loss)-foreign currency  translation         |       | (11,847                          | )          | (15,354                        | )          | (43,361 | ) | (48,233 | ) |
|                                                                    |       |                             |       |                           |       |   |   |   |   |
| Total comprehensive loss                                                |       | $                                | (95,688    | )                              | $          | (283,728 | ) | $ | (133,954 | ) | $ | (657,266 | ) |

 

----

*Lessthan $0.01 per share

Seeaccompanying notes to consolidated financial statements.

 

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

# Consolidated Statement ofStockholders’ Equity

For the six months ended December 31,2009

(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                                       |       | 771,646                               |       | 772                             |       | 71,898                           |       | —                   |       | —                                        |        | 72,670                                |       |
| Compensation expense recorded as a result of  stock options Issued     |       | —                                |       | —                          |       | 15,814                           |       | —                   |       | —                                        |        | 15,814                                |       |
| 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                        |       | (55,016                               | )          | —                          |       | —                           |       | —                   |       | —                                        |        | —                                |       |
| Accreted dividend on redeemable common  and redeemable preferred stock |       | —                                |       | —                          |       | —                           |       | (21,769                  | )          | —                                        |        | (21,769                               | )          |
| Foreign currency translation                                                     |       | —                                |       | —                          |       | —                           |       | —                   |       | (43,361                                       | )           | (45,361                               | )          |
| Net loss                                                                         |       | —                                |       | —                          |       | —                           |       | (90,593                  | )          | —                                        |        | (90,593                               | )          |
| **Balances at December 31, 2009**                                           |       | 31,034,299                            |       | $                               | 30,676     |                             | $          | 18,689,206               |       | $                                             | (15,637,813 | )                                     | $          | (29,844 | ) | $ | 3,052,255 |   |

 

See accompanying notes to consolidated financial statements.

 

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**CORGENIXMEDICAL CORPORATIONAND SUBSIDIARIES**

 

## Consolidated Statements ofCash Flows

 
| ** **                                                                                 | ** ** | **Six months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                 | ** ** | **December 31,  2009**    | ** ** | **December 31,  2008** | ** ** |
| ** **                                                                                 | ** ** | **(Unaudited)**                | ** ** | **(Unaudited)** | ** ** |
| Cash flows from operating activities:                                                      |       |                           |       |   |   |
| Net loss                                                                                   |       | $                              | (90,593    | ) | $ | (609,033 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                              |       | 215,200                        |       | 222,040 |   |
| Accretion of discount on note payable                                                      |       | 2,244                          |       | 196,159 |   |
| Common stock issued for services                                                           |       | 2,646                          |       | 53,014 |   |
| Compensation expense recorded for stock options  issued                                    |       | 15,814                         |       | 54,254 |   |
| Amortization of deferred financing costs                                                   |       | 26,100                         |       | 153,703 |   |
| Changes in operating assets and liabilities:                                               |       |                           |       |   |   |
| Trade and other receivables, net                                                           |       | 154,246                        |       | (46,790 | ) |
| Inventories                                                                                |       | 21,182                         |       | (184,255 | ) |
| Prepaid expenses and other assets, net                                                     |       | 8,030                          |       | 85,887 |   |
| Accounts payable                                                                           |       | (200,464                       | )          | (63,324 | ) |
| Accrued payroll and related liabilities                                                    |       | 30,545                         |       | (4,098 | ) |
| Accrued interest and other liabilities                                                     |       | (136,456                       | )          | (149,972 | ) |
|                                                                                       |       |                           |       |   |   |
| Net cash provided by (used in) operating  activities                                       |       | 48,494                         |       | (292,415 | ) |
|                                                                                       |       |                           |       |   |   |
| Cash flows used in investing activities:                                                   |       |                           |       |   |   |
| Additions to equipment                                                                     |       | (28,407                        | )          | (21,146 | ) |
|                                                                                       |       |                           |       |   |   |
| Cash flows from financing activities:                                                      |       |                           |       |   |   |
| Increase (decrease) in amount due to factor                                                |       | (405,786                       | )          | — |   |
| Proceeds from inventory loan                                                               |       | 358,000                        |       | — |   |
| Proceeds from issuance of notes payable                                                    |       | 125,000                        |       | — |   |
| Payments on notes payable                                                                  |       | (130,883                       | )          | (340,284 | ) |
| Payments on capital lease obligations                                                      |       | (87,439                        | )          | (121,618 | ) |
| Net cash used in financing activities                                                      |       | (141,108                       | )          | (461,902 | ) |
|                                                                                       |       |                           |       |   |   |
| Net decrease in cash and cash equivalents                                                  |       | (121,021                       | )          | (775,463 | ) |
| Impact of exchange rate changes on cash                                                    |       | (2,770                         | )          | (13,849 | ) |
| Cash and cash equivalents at beginning of period                                           |       | 785,466                        |       | 1,520,099 |   |
| Cash and cash equivalents at end of period                                                 |       | $                              | 661,675    |   | $ | 730,787 |   |
| Supplemental cash flow disclosures:                                                        |       |                           |       |   |   |
| Cash paid for interest                                                                     |       | $                              | 138,733    |   | $ | 108,258 |   |
| Noncash investing and financing activities                                                 |       |                           |       |   |   |
| Issuance of warrants for license                                                           |       | $                              | 3,903      |   | $ | 12,957 |   |
| Issuance of stock for license                                                              |       | $                              | 2,548      |   | $ | — |   |
| Equipment acquired under capital leases                                                    |       | $                              | —     |   | $ | 48,821 |   |
| Conversion of redeemable common stock to note  payable                                     |       | $                              | —     |   | $ | 125,000 |   |
| Common stock issued for accrued stock-based  compensation                                  |       | $                              | 70,024     |   | $ | — |   |
| Accreted dividends on redeemable common and  redeemable preferred stock                    |       | $                              | 1,768      |   | $ | — |   |

 

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, anda Fibromyalgia test kit, and continuing the development and strategiccollaboration towards the development of a group of products to detectpotential bio-terrorism agents.

 

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

 

As previously disclosed, on September 30, 2009,we, along with our wholly owned subsidiary, Corgenix, Inc., entered into aFinancing Agreement, an Addendum to Financing Agreement, a Loan and SecurityAgreement and a Promissory Note (collectively, the “Summit Agreements”) withSummit Financial Resources, L.P., a Hawaii limited partnership (“Summit”).  We are jointly and severally liable for allobligations pursuant to the Summit Agreements. The Summit Agreements provide usand our subsidiary with a maximum credit line of $1,750,000 pursuant to anaccount factoring relationship, coupled with a secured line of credit.

 

The  PromissoryNote payable to Summit, if funded in full, provided up to $250,000 in the formof a term loan, due on September 30, 2012, payable in monthlyinstallments. Pursuant to this aspect of the Summit financing, we receivedSummit’s initial advance of $125,000 at the closing of the Summit Agreements onSeptember 30, 2009. Further pursuant to the terms of this Promissory Note,when an equipment appraisal is completed, we would be eligible for a secondadvance equal to the lesser of one hundred twenty five thousand dollars($125,000), or sixty percent (60%) of the net orderly liquidation value ofEligible Equipment, less the $125,000 already advanced. If the liquidationvalue of the equipment does not exceed $208,333, then we would not be eligiblefor a second advance, and would have to repay Summit for any calculatedover-advance. Based upon the completed independent appraisal of the Eligible Equipment,the maximum amount of this term loan, based on the appraised net orderlyliquidation value of the Eligible Equipment was determined to be $50,000. Thus,effective November 30, 2009, we executed an amended and restatedpromissory note, payable to Summit, in the amount of $96,835, which required usto repay to Summit $46,835 of the $96,835 in the month of December 2009(which amount was in fact paid in December), with the remaining $50,000 to bepaid via monthly installments of principal and interest totaling $1,647,commencing January 31, 2010 through September of 2012. As theappraisal in no way was meant to ascertain the fair market value of theequipment, no impairment of the value of the property and equipment wasindicated by the appraisal.

 

***(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 clinicallaboratories for the diagnosis and/or monitoring of three important areas ofhealth 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 example antiphospholipidsyndrome, deep vein thrombosis, stroke and coronary occlusion); 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.

 

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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 complex immunologicalreaction in which a resulting color occurs. The amount of color developed in the final step of the test is directlyproportional to the amount of the specific marker being tested for in thepatient or unknown sample.  The amount ofcolor is measured and the results calculated using routine laboratoryinstrumentation.  Our technologyspecifies a process by which biological materials are attached to the fixedsurface of a diagnostic test platform. Products developed using this unique attachment method typicallydemonstrate a more uniform and stable molecular configuration, providing alonger average shelf life, increased accuracy and superior specificity than theproducts 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.

 

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 December 31, 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 with accountingprinciples generally accepted in the U.S. requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting period. Actual results could differ significantly from thoseestimates. 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 

 

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and six months ended December 31, 2009.  The results of operations for the three andsix months ended December 31, 2009 and 2008 are not necessarily indicativeof the operating results for the full year. In the opinion of management, all adjustments,consisting only of normal recurring accruals, have been made to present fairlyour financial position at December 31, 2009 and the results of operationsand our cash flows for the three and six months ended December 31, 2009and 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 tocustomers.

 

Wehave 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 includes an accounts receivable factoringline, with an asset-based lender (“Lender”) and secured by our accountsreceivable, inventory, and all of our other assets. This credit facilityenables us to sell selected accounts receivable invoices to the Lender withfull recourse against us. Due to the full recourse provisions in the SummitFinancing Agreement, and pursuant to the guidance as set forth in this Topic,these transactions do not qualify as a true sale of assets, and thus aretreated as a secured borrowing. During the second fiscal quarter and initialsix months of fiscal 2010, we sold $1,232,535 and $1,935,443 respectively, ofour accounts receivable invoices to the Lender for approximately $997,813 and$1,630,430, respectively. As previously mentioned, pursuant to the provisionsof this Topic, we reflected the transaction as a secured borrowing, as we hadpreviously done with the sales of accounts receivable to Benefactor FundingCorporation. We have also established an accounts receivable from the Lenderfor 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 the Lenderon the amount owing, will be charged to interest expense and fees and will becredited against the accounts receivable due from the Lender. As of December 31,2009, we have an outstanding retained receivable of $64,088 due from 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 December 31, 2009 or December 31,2008. Components of inventories as of December 31 and June 30 are asfollows:

 

| ** **      | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-----------------|------------|-----------------------|------------|-------------------|------------|
| ** **      | ** ** | **2009**              | ** ** | **2009**          | ** ** |
| Raw materials   |       | $                     | 574,478    |              | $          | 589,025 |   |
| Work-in-process |       | 967,352               |       | 700,658           |       |
| Finished goods  |       | 1,029,823             |       | 1,306,365         |       |
|            |       | $                     | 2,571,653  |              | $          | 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 quartersended December 31, 2009 and December 31, 2008 and for the six monthsended December 31, 2009. For the six months ended December 2008,there was $19,542 worth of equipment acquired under capital leases.Depreciation and amortization expense, which totaled $107,742 and $112,026 forthe quarters ended December 31, 2009 and December 31, 2008,respectively, and $215,200 and $222,040 for the six months ended December 31,2009 and December 2008, respectively, is calculated primarily using thestraight-line method over the estimated useful lives of the respective assetswhich range from 3 to 7 years. Capitalized software costs are related toour web site development, our 

 

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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 continue tobe amortized over their respective estimated useful lives and reviewed forimpairment in accordance with the Accounting for Impairment or *Disposal of Long Lived Assets* Topic as set forth in the FASBASC.

 

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

 

The License Agreement imposes caps on the total amount of cash, commonstock, and warrant payments from us to CCC from the date of execution throughto and including the third anniversary payment. Under that cap limitation, thetotal of all anniversary payments will not exceed $200,000 in cash, with eachanniversary cash payment determined by multiplying $50,000 by an anniversaryratio which is the ratio of cumulative revenue at the respective anniversarydate divided by the cumulative sales target for the same period of time.Likewise, the total of all anniversary common stock payments will not exceed$300,000 in value of shares of common stock (as valued on the date of issue),with the number of shares for each anniversary stock issuance determined bydividing 75,000 by the closing stock price as of the respective anniversarydate and multiplying that result by the anniversary ratio noted above. Finally,the total of all anniversary warrant payments will not exceed 300,000 warrants,with the value of each anniversary warrant issuance determined by multiplying75,000 (the number of warrants to be issued) by a newly calculated BlackScholes value per warrant as of the fiscal year end. As of December 31,2009, we had a negative accrual of less than $1,000 with respect to thecumulative amount due to CCC. For the quarter and six month periods ended December 31,2009, 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, and are included inSelling and Marketing expenses. Advertising costs , which totaled $12,777and$35,020 for the quarters ended December 31, 2009 and December 31,2008, respectively, and $22,849 and $66,738 for the six month periods ended December 31,2009 and December 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 andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which the tax effect of transactions are expected to berealized. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in the consolidated statements of operations in the periodthat includes the enactment date.

 

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

 

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havearrangements in which we manufacture products for other companies. Revenueunder these arrangements is recognized when the manufacturing process iscomplete and risk of ownership has passed.

 

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

 

Research and development costs and any costs associated with internallydeveloped patents, formulas or other proprietary technology are expensed asincurred. Research and development expense totaled $166,060 and $192,218 forthe quarters ended December 31, 2009 and December 31, 2008,respectively, and $316,419 and $399,697 for the six month periods ended December 31,2009 and December 2008, respectively. Revenue from research anddevelopment contracts represents amounts earned pursuant to agreements toperform research and development activities for third parties and is recognizedas earned under the respective agreement. Because research and developmentservices are provided evenly over the contract period, revenue is recognizedratably over the contract period. Research and development agreements in effectin 2009 and 2008 provided for fees to us based on time and materials inexchange for performing specified research and development functions. Contractresearch and development revenues totaled $113,557 and $58,816 for the quartersended December 31, 2009 and December 31, 2008, respectively, and$178,030 and $133,645 for the six month periods ended December 31, 2009and December 2008, respectively. Research and development contracts aregenerally short term with options to extend, and can be cancelled underspecific circumstances.

 

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

 

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

 

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

 

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

 

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

 

In accordance with the guidance of the *Share-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 wedecide to use a different valuation model, the compensation expense that werecord in the future under these principles may differ significantly from whatwe have recorded in the current period and could materially affect our lossfrom operations, net loss and net loss per share.

 

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***(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  36,442,537 and 37,703,968 shares as of December 31,2009 and December 31, 2008, respectively, are not included in thecalculation of weighted average common shares-diluted below, as their effectwould be to lower the net loss per share and thus be anti-dilutive. Redeemablecommon stock is included in the common shares outstanding for purposes ofcalculating net income (loss) per share.

 
| ** **                                                                    | ** ** | **3 Months ended  December 31,  2009** | ** ** | **3 Months ended  December 31,  2008** | ** ** | **6 Months ended  December 31,  2009** | ** ** | **6 Months ended  December 31,  2008** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Net loss                                                                      |       | $                                                     | (83,841    | )                                                     | $          | (268,374                                              | )          | (90,593                                               | )          | $ | (609,033 | ) |
|                                                                          |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Common and common equivalent shares outstanding:                              |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Historical common shares outstanding at beginning  of period                  |       | 31,050,429                                            |       | 30,273,766                                            |       | 30,294,505                                            |       | 30,021,935                                            |       |
| Weighted average common equivalent shares issued  (retired) during the period |       | (17,220                                               | )          | 6,389                                                 |       | 375,027                                               |       | 164,189                                               |       |
|                                                                          |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Weighted average common shares — basic and diluted                       |       | 31,033,209                                            |       | 30,280,155                                            |       | 30,669,532                                            |       | 30,186,124                                            |       |
|                                                                          |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Net loss per share — basic and diluted                                   |       | $                                                     | *(0.00     | )                                                     | $          | (0.01                                                 | )          | $                                                     | *(0.00     | ) | $ | (0.02 | ) |
|                                                                               |            |                                                       |            |                                                       |            |                                                       |            |                                                       |            |  |  |  |  |

 

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*Less than $0.01 pershare

 

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

 

Theaccounts of our foreign subsidiary are generally measured using the localcurrency 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.

 

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

 

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$13,336,045, 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, factoring ofaccounts receivables, and the sales of common stock, redeemable common stock,and preferred stock.  We have alsofinanced operations through sales of diagnostic products and agreements withstrategic partners.  At December 31,2009, trade and other receivables were $1,270,354 versus $1,339,409 at June 30,2009, largely because of a concerted collection effort initiated over the priormonths.

 

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.  Although, management, based upon abottoms-up, account by account and product line analysis,  is forecasting renewed revenue growth for thecurrent fiscal year and subsequent years, there can be absolutely no assurancethat this will actually be the case. Management has not yet achieved thenecessary level of sales, cost of sales and operating efficiencies to achieveconsistent profitability and positive cash flow from operations.  Given the continued recessionary environmentin which 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 severalmonths, 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 flattening or reduction in our future salescaused by the continued recession, management sought and has been successful inobtaining debt relief, which was preceded by a modification of the formerconvertible notes from our two previous institutional convertible debt holders.This note modification was accomplished in conjunction with and in 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 December 31,2009 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 aslong-term financing, until we are in a position to replace said financing withtraditional commercial bank financing, if that should be made available to us..As a result of these recent debt financings, in addition to a stabilization andslight upturn of sales in the fourth fiscal quarter of last year plus theinitial six month period of the current fiscal year, and taking intoconsideration the internally forecasted results of operations and the resultantcash flow for the fiscal year ended June 30, 2010, management believesthat we will have adequate resources to continue operations for longer than12 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 overall corporate profitability.

 

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 will be automatically renewed after thatfor 12 months unless either party elects to cancel in writing at least 60 daysprior to the anniversary date.

 

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***(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 disclosuresabout how we value certain assets and liabilities. Much of the disclosurerequirement is focused on the inputs used to measure fair value, particularlyin instances where the measurement uses significant unobservable (Level 3)inputs. Our financial instruments are valued using quoted prices in activemarkets or based upon other observable inputs. The following table sets forththe fair value of our financial assets that were measured on a recurring basisas of December 31, 2009:

 
| ** **         | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Money market funds |       | $                | 325,708    |             |       |             |       |      | $          | 325,708 |   |
| Total              |       | $                | 325,708    |             |       |             |       |      | $          | 325,708 |   |

 

We have adopted the guidance set forth in the *Fair ValueOption for Financial Assets and Financial Liabilities* Topic of theFASB ASC. Pursuant to the guidance of this Topic, we are allowed theirrevocable option to elect fair value for the initial and subsequentmeasurements for specified financial assets and liabilities on acontract-by-contract basis. We did not elect to adopt the fair value optionincluded in this Topic. The provisions of the *Non-controllingInterests in Consolidated Financial Statements* Topic of the FASB ASCchange how business acquisitions are accounted for and will impact financialstatements both on the acquisition date and in subsequent periods. Theseprovisions will change the accounting and reporting for minority interests,which will be recharacterized as non-controlling interests and classified as acomponent of equity. These provisions are effective for both public and privatecompanies for fiscal years beginning on or after December 15, 2008 (thefiscal year ended June 30, 2010 for our company). The provisions will beapplied prospectively. The provisions also require retroactive adoption of thepresentation and disclosure guidance for existing minority interests. All otherguidance under this Topic will be applied prospectively. Early adoption is prohibitedfor both standards. Management has evaluated the guidance under this Topic andhas 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 February 11, 2010, 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 

 

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sales representatives, to hospital laboratories, laboratory chains,independent laboratories, university laboratories and reference laboratories.Internationally, our diagnostic medical products are sold wholesale throughdistributors.  Management has chosen toorganize our business around the two geographic segments of business: NorthAmerican and International operations. The following table sets forth selectedfinancial data for these segments for the three and six month periods ended December 31,2009 and 2008.

 
| ** **            | ** ** | ** ** | ** ** | **Three Months Ended December 31,** | ** ** | **Six Months Ended December 31,** | ** ** |
|-----------------------|------------|------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **            | ** ** | ** ** | ** ** | **North America**                                       | ** ** | **International**                                     | ** ** | **Total** | ** ** | **North America** | ** ** | **International** | ** ** | **Total** | ** ** |
| Net sales             |       | 2009       |       | $                                                       | 1,393,818  |                                                  | $          | 565,634 |   | $ | 1,959,452 |   | $ | 2,914,459 |   | $ | 1,089,960 |   | $ | 4,004,419 |   |
|                  |       | 2008       |       | $                                                       | 1,456,603  |                                                  | $          | 538,423 |   | $ | 1,995,026 |   | $ | 2,859,519 |   | $ | 1,137,403 |   | $ | 3,996,922 |   |
|                  |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| Net income (loss)     |       | 2009       |       | $                                                       | (219,718   | )                                                     | $          | 135,877 |   | $ | (83,841 | ) | $ | (348,210 | ) | $ | 257,617 |   | $ | (90,593 | ) |
|                  |       | 2008       |       | $                                                       | (416,701   | )                                                     | $          | 148,327 |   | $ | (268,374 | ) | $ | (933,458 | ) | $ | 324,425 |   | $ | (609,033 | ) |
|                  |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| Depreciation and      |       | 2009       |       | $                                                       | 102,041    |                                                  | $          | 5,701 |   | $ | 107,742 |   | $ | 203,845 |   | $ | 11,355 |   | $ | 215,200 |   |
| Amortization          |       | 2008       |       | $                                                       | 106,718    |                                                  | $          | 5,308 |   | $ | 112,026 |   | $ | 213,290 |   | $ | 8,750 |   | $ | 222,040 |   |
|                  |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| Interest expense, net |       | 2009       |       | $                                                       | (94,794    | )                                                     | $          | (1,616 | ) | $ | (96,410 | ) | $ | (161,857 | ) | $ | (3,249 | ) | $ | (165,106 | ) |
|                  |       | 2008       |       | $                                                       | (215,676   | )                                                     | $          | (410 | ) | $ | (216,086 | ) | $ | (467,396 | ) | $ | (1,301 | ) | $ | (468,697 | ) |
|                  |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| Segment assets:       |       |       |       |                                                    |       |                                                  |       |   |   |   |   |   |   |   |   |
| December 31,     |       | 2009       |       | $                                                       | 5,632,503  |                                                  | $          | 734,841 |   | $ | 6,367,344 |   | $ | 5,632,503 |   | $ | 734,841 |   | $ | 6,367,344 |   |
| June 30,         |       | 2009       |       | $                                                       | 6,121,049  |                                                  | $          | 784,732 |   | $ | 6,905,781 |   | $ | 6,121,049 |   | $ | 784,732 |   | $ | 6,905,781 |   |

 

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

 

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

 

On July 1,2002, as part of the Medical & BiologicalLaboratories Co., Ltd. (MBL) 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 were 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 prior to the first date whereupon the put option could have been exercised, which was the expiration dateof the distribution 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 December 31, 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. 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 

 

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issued to MBL to purchase880,282 shares were initially extended to August 31, 2008 andre-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 andtransfer prices, called for the discussion of terms whereby MBL would begranted a worldwide OEM agreement for certain of the products in a designatedterritory, called for the payment by us of royalties on certain proprietaryproducts, which included proprietary technology of MBL, and called for thenegotiation of terms of an exclusive distribution agreement for sales ofAspirinWorks in Japan. In addition, pursuant to the Second Amendment to CommonStock Purchase Agreement and Warrant, we agreed with MBL that the warrant termwould be extended to August 1, 2010 and that one-half, or 220,086, of theremaining 440,171 redeemable shares will be exchanged for a two-year promissorynote payable with interest at prime (3.25% as of December 31, 2009) plustwo percent 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 December 31,2009, a total of 495,157 shares have been returned to us pursuant to the notespayable. The companies further agreed that beginning September 1, 2008,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 month next succeeding the closing of any new financingtransaction or (ii) May 1, 2009 (the “Repayment Date”), at which timepayments would again have become due and payable on the first day of eachsubsequent month until 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 amortizing principal amount for each of the term notes and all otheramounts due and owing must be repaid in full, whether by payment of cash, or atTruk’s or CAMOFI’s option, by the conversion into common stock.

 

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 of our other assets 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 was accountedfor as additional interest 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.

 

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**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 each quarter.No right to purchase shares shall be granted if, immediately after the grant,the employee would own stock aggregating 5% or more of the total combinedvoting power or value of all classes of stock. A total of 600,000 commonshares have been registered with the Securities and Exchange Commission (SEC)for purchase under the two plans. In the quarter and six months ended December 31,2009, 11,378 and 34,547 shares, respectively, were issued under the plans. Inthe quarter and six months ended December 31, 2008, 17,665 and25,052shares, respectively, were issued under the plans.

 

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

 

*StockOptions as of December 31, 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 following table summarizes stock options outstanding asof December 31, 2009, and changes during the six months then ended:

 
| ** **                                    | ** ** | **Outstanding Options** | ** ** |
|-----------------------------------------------|------------|------------------------------|------------|
| ** **                                    | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  months)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Options outstanding at June 30, 2009     |       | 2,507,600                    |       | $ | 0.16 |   | 43.90 |   | $ | — |   |
| Granted                                       |       | 240,000                      |       | $ | 0.099 |   | 83.5 |   |   |   |
| Exercised                                     |       | —                       |       | $ | — |   | — |   |   |   |
| Cancelled, expired or forfeited               |       | (104,600                     | )          | $ | 0.36 |   | 1.7 |   |   |   |
| Options outstanding at December 31, 2009 |       | 2,643,000                    |       | $ | 0.33 |   | 37.3 |   | $ | — |   |
| Options exercisable at December 31, 2009 |       | 2,386,333                    |       | $ | 0.36 |   | 39.7 |   | $ | — |   |

 

The totalintrinsic value as of December 31, 2009 measures the difference betweenthe market price as of December 31, 2009 and the exercise price. Nooptions were exercised during the six months ended December 31, 2009.Consequently, no cash was received, nor did we realize any tax deductionsrelated to exercise of stock options during the period.

 

Total estimatedunrecognized compensation cost from unvested stock options as of December 31,2009, was approximately $4,399, which is expected to be recognized over aweighted average period of 36.0 months.

 

The weightedaverage per share fair value range of stock options granted during the sixmonth periods ending December 31, 2009 was $0.099. There were no optionsgranted during the six months ended December 31, 2008. The fair value wasestimated as of the grant date using the Black-Scholes option pricing modelwith the following assumptions:

 

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| ** **                 | ** ** | **Quarters Ended**    | ** ** | **Six Months Ended**  | ** ** |
|----------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| **Valuation  Assumptions** | ** ** | **2009**              | ** ** | **2008**              | ** ** | **2009** | ** ** | **2008** | ** ** |
| Expected life              |       | 7years                |       | N/A                   |       | 7years |   | N/A |   |
| Risk-free interest rate    |       | 2.69                  | %          | N/A                   |       | 2.69 | % | N/A |   |
| Expected volatility        |       | 84.7                  | %          | N/A                   |       | 84.7 | % | N/A |   |
| Expected dividend yield    |       | 0                     | %          | N/A                   |       | 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 or six monthperiod and recognized $3,333 and $6,666 in related share-based compensationexpense for the three and six month periods ended December 31, 2008.

 

As of December 31,2009, 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, none were newly orincrementally issued in the current quarter. However, 75,000 warrants wereissued in the six months ended December 31, 2009 pursuant to the LicenseAgreement with CCC, as noted above. Similarly, no warrants were issued in thequarter ended December 31, 2008, with 75,000 warrants newly orincrementally issued in the six months ended December 31, 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 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, LP, 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 funding period (which is theearlier of 120 days after the date of the 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 of $702,908.

 

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 second quarter and initial sixmonths of fiscal 2010, we sold $1,232,535 and $1,935,443, respectively, of ouraccounts receivable invoices to Summit Financial for approximately $997,813 and$1,630,430. Fees paid to Summit for interest and other services for the quarterand six months ended December 31, 2009 totaled $76,575 and $77,276,respectively.

 

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.

 

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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%) ofClient’s outstanding Acceptable Accounts, and (d) together with theaggregate amount of all other outstanding Advances, the Maximum Credit Line. OnSeptember 30, 2009, the initial advance to us from Summit on AcceptableInventory amounted to $351,454.

 

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.

 

The Original Promissory Note, payable to Summit, iffunded in full, provided up to $250,000 in the form of a term loan, due on September 30,2012, payable in monthly installments. Pursuant to this aspect of the Summitfinancing, we received Summit’s initial advance of $125,000 at the closing ofthe Summit Agreements on September 30, 2009. Further pursuant to the termsof this Promissory Note, when an equipment appraisal is completed, we would beeligible for a second advance equal to the lesser of one hundred twenty fivethousand dollars ($125,000), or sixty percent (60%) of the net orderlyliquidation value of Eligible Equipment, less the $125,000 already advanced. Ifthe liquidation value of the equipment did not exceed $208,333, then we wouldnot be eligible for a second advance, and would have to repay Summit for anycalculated over-advance. Based upon the completed independent appraisal of theEligible Equipment, the maximum amount of this term loan, based on theappraised net orderly liquidation value of the Eligible Equipment wasdetermined to be $50,000. Thus, effective November 30, 2009, we executedan amended and restated promissory note, payable to Summit, in the amount of$96,835, which required us to repay to Summit $46,835 of the $96,835 in themonth of December 2009, with the remaining $50,000 to the paid via monthlyinstallments of principal and interest totaling $1,647 commencing January 31,2010 through September of 2012.

 

We used a portion of the initial advance to retire thedebt evidenced by the Factoring and Security Agreement to Benefactor FundingCorp, 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.

 

OnMarch 17, 2009, we had entered into an agreement with Benefactor FundingCorp. (“Benefactor”) whereby Benefactor agreed to factor our domestic accountsreceivable invoices. The term of the agreement was originally for one year andwas terminated early as of September 30, 2009 upon the securing of theSummit credit facility.  For the threemonths ended September 30, 2009, when the agreement terminated, Benefactoradvanced us $950,263 against invoices totaling $1,198,681.

 

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.  The amount remaining on this inventoryadvance was also paid off on September 30, 2009 as part of the SummitFinancial financing.

 

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

 

Notes payable consist of thefollowing at December 31, 2009 and June 30, 2009:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | **December 31,  2009** | ** ** | **June 30, 2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                        |       |
| Note payable, unsecured, to redeemable common  stockholders, with interest at prime plus 2.0% (5.25% as of  September 30 and June 30, 2009) due in monthly installments with  principal payments of $5,200 plus interest through August 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | $                           | 57,400     |                        | $          | 73,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                        |       |
| Convertible term note payable to institutional  investors, net of discount of $0 with interest at the greater of  12%, as adjusted by a stock trading formula, or prime plus 3% (6.25% as  of  December 31, 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 |       | —                      |       | 38,039                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                        |       |
| Note payable, payable to Summit Financial  Resources, with interest at prime rate plus 2.75% (6% as of December 31,  2009) due in monthly installments with principal  payments of $3,803.67 plus interest through November 2009 plus  interest, and via a note modification dated November 30, 2009, weekly  principal payments of $12,500 plus interest, on December 7, 2009 and  December 14, 2009, and $21,835 plus interest on December 28, 2009,  and then in monthly installments with principal and interest of $1,647,  commencing January 31, 2010 through September 30, 2010,  collateralized by all assets of Corgenix                                                                                                                                    |       | 50,000                      |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | 107,400                     |       | 111,039                     |       |
| Current portion, net of current portion of  discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | (74,641                     | )          | (100,439                    | )          |
| Notes payable, excluding current portion and net  of long-term portion of discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | $                           | 32,759     |                        | $          | 10,600 |   |

 

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The convertible notes payablerestrict the payment of dividends on our common stock.

 

**Item 2.**

 

**Management’s Discussionand Analysis 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 years ending June 30,1997 and 2009, we have experienced revenue growth since our inception,primarily from sales of products and contract revenues from strategic partners.Contract revenues consist of service fees from research and developmentagreements with strategic 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, as previously stated,  we have experienced growth in revenues everyyear since 1990, except for 2009 and 1997, there can be no assurance that, inthe future, we will sustain revenue growth, current revenue levels, or achieveor maintain profitability. Our results of operations may fluctuate significantlyfrom period-to-period as the result of several factors, including: (i) whetherand when new products are successfully developed and introduced, (ii) marketacceptance of current or new products, (iii) seasonal customer demand, (iv) whetherand when we receive research and development payments from strategic partners, (v) changesin reimbursement policies for the products that we sell, (vi) competitivepressures on average selling prices for the products that we sell, and (vii) changesin the mix of products that we sell.

 

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

 

The FASB recognized the complexity of itsstandard-setting process and embarked on a revised process in 2004 thatculminated in the release on July 1, 2009, of the *FASBAccounting Standards Codification,*sometimes referred to as theCodification or ASC. The Codification does not change how we account for ourtransactions or the nature of related disclosures made in our financialstatements. However, when referring to guidance issued by the FASB, we refer totopics in the ASC rather than the numbers of specific Standards, Statements,Interpretations, Positions, etc. Consequently, we have updated references toGAAP in this Quarterly Report on Form 10-Q, to reflect the guidance in theCodification.

 

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

 

***ThreeMonths Ended December 31, 2009************compared to 2008***

 

*Net sales.*Net sales forthe quarter ended December 31, 2009 were $1,959,452 a 1.8% decrease versus$1,995,026 in the same quarter of the prior fiscal year. Total North Americansales decreased $62,785 or 4.3% to $1,393,818 versus $1,456,603 in the prioryear’s second quarter, while total sales to international distributorsincreased $27,211 or 5.1% to $565,634 versus $538,423 in the prior year’ssecond quarter. With respect to our major revenue categories and product lines,total worldwide Corgenix labeled product sales increased $15,402 or 1.1% to$1,447,069 versus $1,431,667 in the prior year’s second quarter. North AmericanCorgenix labeled product sales increased $11,744 or 1.2% to $1,004,960 versus$993,216 in the prior year’s second quarter, whereas international Corgenixlabeled product sales increased $3,658 or 1.0% to $442,109 versus $438,451 inthe prior year’s second quarter. Worldwide category results were as follows:Phospholipids kit sales (including OEM) decreased $54,504 or 6.0% to $855,335versus $909,839 in the prior year’s second quarter. Coagulation kit salesdecreased $12,401 or 2.9% to $412,891 versus $425,292 in the prior year’ssecond quarter. HA kit sales decreased $12,187 or 5.2% to $222,826 versus$235,013 in the prior year’s second quarter, while autoimmune kit sales increased$18,755 or 48.2% to $57,656 versus $38,901 in the prior year’s second quarter.Additionally, worldwide OEM revenues decreased $48,721 or 18.4% to $215,424versus $264,145 in the prior year’s second quarter, and contract manufacturingrevenue decreased $45,356 or 45.0% to $55,447 versus $138,750 in the prior year’ssecond quarter. R & D contract revenue increased $54,742 or 93.1% to$113,557 versus $58,816 in the prior year’s second quarter. Finally, AspirinWorks sales increased $5,394 or 11.6% to $51,924 versus $46,530 in the prioryear’s second quarter.

 

*Cost of sales*.  Cost of sales, as a percentage of sales,increased to 45.1% for the quarter ended December 31, 2009 from 42.2% inthe prior year’s comparable quarter. The increase was primarily attributable toone-time increases in scrap costs associated with a terminated contractmanufacturing relationship.

 

*Selling and marketing expenses. *For the quarter ended December 31,2009, selling and marketing expenses decreased $56,800 or 11.9% to $419,695 from$476,495 for the quarter ended December 31, 2008. The $56,800 decreaseversus the prior year resulted primarily from decreases of $22,242 inadvertising expense, $11,262 in labor-related expenses, $10,019 in consultingand outside services expenses, and $10,692 in travel related expenses,partially offset by a net increase of $5,234 in other selling and marketingexpenses.

 

*Research and developmentExpenses.* Research anddevelopment expenses decreased $26,158 or 13.6% to $166,060 for the quarterended December 31, 2009, from $192,218 for the quarter ended December 31,2008. The $26,158 decrease versus the prior year resulted primarily fromdecreases of $15,920 in clinical trial related expenses and $23,931inlabor-related expenses, partially offset by a net increase of $13,693 in otherresearch and development expenses.

 

*General and administrative expenses.* For thequarter ended December 31, 2009, general and administrative expensesdecreased 12.0% or $64,816 to $476,793 from $541,609 for the quarter ended December 31,2008. The $64,816 decrease versus the prior year resulted primarily fromdecreases of $6,462 in Corgenix-UK general and administrative expenses, $11,521in labor-related expenses, $12,371 in consulting and outside services expenses,$10,371 in legal fees, 22,481 in aborted financing costs, and a net increase of$1,610 in other general and administrative expenses.

 

*Interest expense.* Interestexpense decreased $119,676, or 55.4% to $96,410 for the quarter ended December 31,2009, from $216,086 for the quarter ended December 31, 2008. The $119,676reduction in interest expense was due primarily to the accelerated write off inMarch 2009 of 92.3% of the unaccreted discount and unamortized deferredfinancing costs as a result of the payoff of the convertible notes as part ofthe Benefactor financing.

 

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***Six  Months Ended December 31, 2009************compared to2008***

 

*Net sales.*Net sales forthe six month period ended December 31, 2009 were $4,004,419 a less than1% increase versus $3,996,922 for the comparable six month period of the priorfiscal year. Total North American sales increased $54,940 or 1.9% to $2,914,459versus $2,859,519 for the prior year’s comparable six month period, while totalsales to international distributors decreased $47,443 or 4.2% to $1,089,960versus $1,137,403 for the prior year’s comparable six month period. Withrespect to our major revenue categories and product lines, total worldwideCorgenix labeled product sales decreased $221,288 or 7.4% to $2,774,000 versus$2,995,288 for the prior year’s comparable six month period. North AmericanCorgenix labeled product sales decreased $112,262 or 5.4% to $1,962,346 versus$2,074,608 for the prior year’s comparable six month period, whereasinternational Corgenix labeled product sales decreased $109,026 or 11.8% to$811,654 versus $920,680 for the prior year’s comparable six month period.Worldwide category results were as follows: Phospholipids kit sales (includingOEM) decreased $63,194 or 3.4% to $1,776,425 versus $1,839,619 for the prioryear’s comparable six month period. Coagulation kit sales decreased $18,521 or2.3% to $803,639 versus $822,459 for the prior year’s comparable six monthperiod. HA kit sales decreased $125,265 or 23.1% to $417,725 versus $542,990for the prior year’s comparable six month period, while autoimmune kit salesincreased $3,472 or 4.2% to $86,946 versus $83,474 for the prior year’scomparable six month period. Additionally, worldwide OEM revenues increased$52,313 or 12.6% to $467,963 versus $415,650 for the prior year’s comparablesix month period, and contract manufacturing revenue increased $126,887 or102.8% to $250,339 versus $123,452 for the prior year’s comparable six monthperiod. R & D contract revenue increased $44,385 or 33.2% to $178,030versus $133,645 for the prior year’s comparable six month period. Finally,Aspirin Works sales increased $24,273 or 34.8% to $94,041 versus $69,768 forthe prior year’s comparable six month period.

 

*Cost of sales*.  Cost of sales, as a percentage of sales,increased to 45.3% for the six month period ended December 31, 2009 from43.4% for the prior year’s comparable six month period. The increase wasprimarily attributable to increases in scrap and rework costs.

 

*Selling and marketing expenses. *For the six month periodended December 31, 2009, selling and marketing expenses decreased $107,092or 11.4% to $829,212 from $936,304 for the comparable six month period ended December 31,2008. The $107,092 decrease versus the prior year resulted primarily fromdecreases of $43,890 in advertising expense, $26,211 in labor-related expenses,$23,784 in consulting and outside services expenses, and $41,595 in trade showand travel-related expenses, partially offset by a net increase of $28,388 inother selling and marketing expenses.

 

*Research and developmentExpenses.* Research anddevelopment expenses decreased $83,278 or 20.9% to $316,419 for the six monthperiod ended December 31, 2009, from $399,697 for the comparable six monthperiod ended December 31, 2008. The $83,278 decrease versus the prior yearresulted primarily from decreases of $37,615 in clinical trial related expensesand $51,240 in labor-related expenses, partially offset by a net increase of$5,577 in other research and development expenses.

 

*General and administrative expenses.* For the sixmonth period ended December 31, 2009, general and administrative expensesdecreased $126,312 or 11.8% to $948,732 from $1,075,044 for the comparable sixmonth period ended December 31, 2008. The $126,312 decrease versus theprior year resulted primarily from decreases of $49,085 in labor-relatedexpenses, $52,110 in legal fees, consulting and outside services expenses, and$9,794 in patent renewal fees, and a net increase of $15,323 in other generaland administrative expenses.

 

*Interest expense.* Interestexpense decreased $303,591, or 64.8% to $165,106 for the six month period endedDecember 31, 2009, from $468,697 for the comparable six month period endedDecember 31, 2008. This substantial reduction in interest expense was dueprimarily to the accelerated write off in March 2009 of 92.3% of theunaccreted discount and unamortized deferred financing costs as a result of thepayoff of the convertible notes as part of the Benefactor financing.

 

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

 

Our earnings before interest, taxes, depreciation,amortization and non cash expense associated with stock-based compensation (“AdjustedEBITDA”) increased $37,217 or 41.7% to $126,482 for the three months ended December 31,2009 compared with $89,265 for the corresponding three month period in fiscal2009, and increased $128,906 or 72.0% to $307,858 for the six months ended December 31,2009, compared with $178,952 for the corresponding six month period in fiscal2009. Although adjusted EBITDA is not a GAAP measure of performance orliquidity, we believe that it may be useful to an investor in evaluating ourability to meet future debt service, capital expenditures and working capitalguidance. However, investors should not consider these measures in isolation oras a substitute for operating income, cash flows from operating activities orany other measure for determining our operating performance or liquidity thatis calculated in accordance with GAAP. In addition, because adjusted EBITDA isnot calculated in accordance with GAAP, it may not necessarily be comparable tosimilarly titled measures employed by other companies. A reconciliation of AdjustedEBITDA to net earnings (loss) can be made by adding depreciation andamortization 

 

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expense,corporate stock-based compensation expense, interest expense, and income taxexpense to net income (loss) as in the following table:

 
| **RECONCILIATION  OF ADJUSTED EBITDA:**  | ** ** | **3 Months ended  December 31,  2009** | ** ** | **3 Months ended  December 31,  2008** | ** ** | **6 Months ended  December 31,  2009** | ** ** | **6 Months ended  December 31,  2008** | ** ** |
|------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Net loss                                 |       | $                                                     | (83,841    | )                                                     | $          | (268,374                                              | )          | (90,593                                               | )          | $ | (609,033 | ) |
|                                     |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Add back:                                |       |                                                  |       |                                                  |       |                                                  |       |                                                  |       |
| Depreciation and amortization            |       | 107,742                                               |       | 112,026                                               |       | 215,200                                               |       | 222,040                                               |       |
| Stock-based compensation expense         |       | 6,345                                                 |       | 33,462                                                |       | 18,460                                                |       | 107,268                                               |       |
| Interest expense, net of interest income |       | 96,236                                                |       | 212,151                                               |       | 164,791                                               |       | 458,677                                               |       |
| Adjusted EBITDA                          |       | 126,482                                               |       | 89,265                                                |       | 307,858                                               |       | 178,952                                               |       |
|                                          |            |                                                       |            |                                                       |            |                                                       |            |                                                       |            |  |  |  |

 

**(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, LP, 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 funding period (which is theearlier of 120 days after the date of the 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 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%) ofClient’s outstanding Acceptable Accounts, and (d) together with theaggregate amount of all other outstanding Advances, the Maximum Credit Line. OnSeptember 30, 2009, the initial advance to us from Summit on AcceptableInventory 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.

 

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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.

 

The Original Promissory Note, payable to Summit, iffunded in full, provided up to $250,000 in the form of a term loan, due on September 30,2012, payable in monthly installments. Pursuant to this aspect of the Summitfinancing, we received Summit’s initial advance of $125,000 at the closing ofthe Summit Agreements on September 30, 2009. Further pursuant to the termsof this Promissory Note, when an equipment appraisal is completed, we would beeligible for a second advance equal to the lesser of one hundred twenty fivethousand dollars ($125,000), or sixty percent (60%) of the net orderlyliquidation value of Eligible Equipment, less the $125,000 already advanced. Ifthe liquidation value of the equipment did not exceed $208,333, then we wouldnot be eligible for a second advance, and would have to repay Summit for anycalculated over-advance. Based upon the completed independent appraisal of theEligible Equipment, the maximum amount of this term loan, based on theappraised net orderly liquidation value of the Eligible Equipment wasdetermined to be $50,000. Thus, effective November 30, 2009, we executedan amended and restated promissory note, payable to Summit, in the amount of$96,835, which required us to repay to Summit $46,835 of the $96,835 in themonth of December 2009, with the remaining $50,000 to the paid via monthlyinstallments of principal and interest totaling $1,647 commencing January 31,2010 through September of 2012.

 

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 paid Summita fee equal to $2,250 for each month, or portion thereof, until the equipmentappraisal was completed.

 

We used a portion of the initial advance to retire thedebt evidenced by the Factoring and Security Agreement to Benefactor FundingCorp, a Colorado corporation. The payoff to Benefactor amounted $580,786.

 

Under the Summit Agreements, we made certain covenants,representations and warranties typical of a secured financing arrangement, andhave 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 granted to Summit asecurity 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.  In addition,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**

 

At December 31, 2009, our working capital increased by $29,694, to$2,042,928 from $2,013,234 at June 30, 2009, and concomitantly, ourcurrent ratio (current assets divided by current liabilities) increased from1.69 to 1 at June 30, 2009 to 1.80 at December 31, 2009. Thisincrease in working capital is primarily attributable to a reduced net loss forthe six months ended December 31, 2009, complimented by the incrementalproceeds of the Summit financing at September 30.

 

At December 31, 2009, trade and other receivables were $1,270,354versus $1,339,409 at June 30, 2009, largely because of a concertedcollection effort initiated over the prior months. Accounts payable, accruedpayroll and other accrued expenses decreased by a combined $306,375 from theend of fiscal 2009 corresponding with the Summit financing. At December 31,2009, inventories were $2,571,653, a slight decrease versus the $2,596,048 at June 30,2009.

 

For the six months ended December 31, 2009, cash provided byoperating activities amounted to $48,494, versus cash used by operatingactivities of $292,415 for the six months ended December 31, 2008. Thesignificant improvement in the cash provided by 

 

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operations for the current six month period, resulted primarily fromthe substantial reduction in the net loss for the period, plus the decrease inaccounts receivable and inventories.

 

Net cash used in investing activities, the purchase of laboratoryequipment, leasehold improvements and computer equipment was $28,407 for thesix months ended December 31, 2009, compared to $21,146 for the six monthsended December 31, 2008. We have no significant capital expendituresplanned for fiscal 2010.

 

Net cash used by financing activities amounted to $141,108 for the sixmonths ended December 31, 2009 compared to $461,902 for the six monthsended December 31, 2008. This significant decrease versus the comparableprior year’s six month period was primarily due to the proceeds from the Summitfinancing, which was partially offset by the payoff of the amount owed toBenefactor, which resulted in a large reduction in the amount due to factor, inaddition to the payments made on notes payable and 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 and redeemable convertiblepreferred stock, have aggregated $13,336,045, and there can be no assurancethat we will be able to generate positive cash flows to fund our operations inthe future or to pursue our strategic objectives.  Historically, we have financed our operationsprimarily through sales of diagnostic products and agreements with strategicpartners. Also, to supplement these sales, we have closed several financings,including the factoring of our trade accounts receivable, long-term debt andthe sales of common stock, redeemable common stock, and preferred stock.

 

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.  Although management, based upon a bottom up,account by account and product line analysis, is forecasting renewed revenue growth for the current fiscal year andsubsequent years, there can be absolutely no assurance that this will actuallybe the case. Management has not yet achieved the necessary level of sales, costof sales and operating efficiencies to achieve consistent profitability andpositive cash flow from operations. Given the continued recessionary environment in which we find ourselves,there are significant short- term and potentially intermediate-term risksassociated with the operating plan, and we might be forced to further modifythe plan, in order to achieve the goals of sustained profitability and positivecash 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 severalmonths, 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 flattening or reduction in our future salescaused by the continued recession, management sought and has been successful inobtaining debt relief, which was preceded by a modification of the formerconvertible notes from our two previous institutional convertible debt holders.This note modification was accomplished in conjunction with and in 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 December 31,2009 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 aslong-term financing, until we are in a position to replace said financing withtraditional commercial bank financing, if that should be made available to us.As a result of these recent debt financings, in addition to a stabilization andslight upturn of sales in the fourth fiscal quarter of last year plus theinitial six month period of the current fiscal year, and taking into considerationthe internally forecasted results of operations and the resultant cash flow forthe fiscal year ended June 30, 2010, management believes that we will haveadequate resources to continue operations 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 overall corporate profitability.

 

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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 will be automatically renewed after thatfor 12 months unless either party elects to cancel in writing at least 60 daysprior to the anniversary date.

 

**(h)****                                ****Off -BalanceSheet Arrangements**

 

None.

 

**(i)****                                   ****Contractual Obligations and Commitments**

 

On February 8,2006, we entered into a Lease Agreement (the “Lease”) with York County, LLC, aCalifornia limited liability company (“Landlord”) pursuant to which we leasedapproximately 32,000 rentable square feet (the “Property”) of Landlord’sapproximately 102,400 square foot building, commonly known as Broomfield Oneand located at 11575 Main Street, Broomfield, Colorado 80020.  In 2008, the Property was sold to The KrauszCompanies, Inc. a California corporation, and is part of Landlord’smulti-tenant real property development known as the Broomfield CorporateCenter.  We use the Property for ourheadquarters, laboratory research and development facilities and productionfacilities.

 

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

 

·                 December 1, 2006- The Second Amendment to theLease Agreement (the “Second 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 second 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, plus estimatedoperating 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 28 thereafterduring the initial Term, up to an estimated total rent of $13.18 per squarefoot 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 thatinformation required to be disclosed in our Exchange Act reports is (1) recorded,processed, summarized and reported in a timely manner, and (2) accumulatedand communicated to management, including the President and our Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

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

 

**PART II**

 

**Other Information**

 
| **Item 1.** | **Legal Proceedings**                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Item 2.** | **Unregistered Sales of Equity Securities and Use  of Proceeds**                                                                                                                                                                                                                                                                                                                                                                                                         |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ** **  | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **Item 3.** | **Defaults Upon Senior Securities**                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ** **  | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **Item 4.** | **Submission of Matters to a Vote of Security  Holders**                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|        | Annual  Shareholders Meeting held December 15, 2009                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        | *** ***                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        | ***Proposal Number 1 — Election of Directors***                                                                                                                                                                                                                                                                                                                                                                                                                     |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|        | Dr. Luis Lopez:  22,858,066 votes for; 954,161 votes withheld

Douglass T. Simpson:  22,856,066 votes for; 956,161 votes withheld

Robert Tutag:  22,910,408 votes for; 901,819 votes withheld

Dennis Walczewski:  22,077,680 votes for; 1,734,547 votes withheld

Larry G. Rau:  22,910,408 votes for; 901,819 votes withheld

C. David Kikumoto:  22,028,339 votes for; 1,783,888 votes withheld

Stephen P Gouze:  22,910,408 votes for; 901,819 votes withheld |

 

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|        | ***Proposal Number 2 — Ratification of Hein & Associates***                          |
|-------------|----------------------------------------------------------------------------------------------------|
|        | *** ***                                                                                       |
|        | Approval:   21,906,982 votes for; 743,356 votes against; 161,889 votes abstain; 0  not voted. |
| ** **  | ** **                                                                                         |
| **Item 5.** | **Other Information**                                                                              |
|        |                                                                                               |
|        | None                                                                                               |
|        |                                                                                               |
| I**tem 6.** | **Exhibits and Reports on Form 8-K.**                                                         |
| ** **  | ** **                                                                                         |
| ** **  | **a. Index to and Description of Exhibits***.*                                                     |

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

 

----

*                 Filed herewith.

 
| **(b)**    |   | **Reports on Form 8-K.** |
|------------|--------|-------------------------------|
| ** ** |   | ** **                    |
| ** ** |   | 1.                            | Form 8-K  filed October 6, 2009*. Entry into a Material Definitive Agreement,  Termination of a Material Definitive Agreement.* |
| ** ** |   |                          |   |
| ** ** |   | 2.                            | Form 8-K filed December 16, 2009. *Other Events.* |

 

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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 |
|-------------------------|-------------------------------|
|                    |                          |
|                    |                          |
| February 11,  2010 | By:                           | /s/  Douglass T. Simpson |
|                    |                          | Douglass  T. Simpson |
|                    |                          | President  and Chief Executive Officer |
| ** **              | ** **                    | **(Principal  Executive Officer)** |
|                    |                          |   |
|                    |                          |   |
|                    | By:                           | /s/  William H. Critchfield |
|                    |                          | Chief  Financial Officer |
| ** **              | ** **                    | **(Principal  Financial and Accounting Officer)** |

 

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