SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-KSB
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from to
Commission File Number 000-24541
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CORGENIX MEDICAL CORPORATION
(Name of Small Business Issuer in its charter)
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Nevada 93-1223466
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
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12061 Tejon Street, Westminster, Colorado 80234
(Address of principal executive offices, including zip code)
(303) 457-4345
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.001 Par Value
Check whether the issuer: (1)filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2)has been subject to such filing requirements for the past 90
days. Yes x No o
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.0
The issuer's revenues for its most recent fiscal year were: $2,642,848
The aggregate market value of the voting stock held by non-affiliates of the
issuer was $3,478,306 as of September 1, 1999.
The number of shares of Common Stock outstanding was 16,867,163 as of
September 1, 1999.
Transitional Small Business Disclosure Format. Yes o No x
DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated by Reference: Items 9, 10 and 11 of Part III are
incorporated by reference from the definitive proxy statement of Corgenix
Medical Corporation to be filed within 120 days after June 30, 1999.
PART I
Item 1. Description of Business.
Certain terms used herein are defined in the Glossary that follows at
the end of this Part.
<PAGE>
Company Overview
Corgenix Medical Corporation ("Corgenix" or the "Company") is a
diagnostic biotechnology company whose principal focus has been the discovery
and development of novel diagnostic markers for the detection and management
of important immunological disorders. Until May 22, 1998, this business was
conducted by and under the name of REAADS Medical Products, Inc., a Delaware
corporation ("REAADS"). On May 22, 1998, REAADS became a subsidiary of
Corgenix, and its name was changed to Corgenix, Inc., when a wholly owned
subsidiary of the Company merged (the "Merger") with and into REAADS. In
connection with the Merger, the Company issued to the REAADS stockholders a
total of 6,120,000 shares of the Company's common stock, $.001 par value (the
"Common Stock"), together with the contingent obligation to issue up to
4,000,000 additional shares of Common Stock upon the occurrence (or
non-occurrence) of certain events. In addition, the REAADS management assumed
the management of the Company. On November 22, 1998, the 4,000,000 additional
shares were issued to the REAADS stockholders.
The Company was incorporated under the name Benjun Chemicals Inc. on
April 22, 1994 as a wholly owned subsidiary of Superior Equities Limited
(the "Predecessor"). The Predecessor was incorporated on April 9, 1985 under
the laws of the Province of British Columbia, Canada. In 1987 and 1991, the
Predecessor issued a total of 1,957,259 shares of its common stock in two
private placements to sophisticated investors in the Province of British
Columbia, Canada. On April 27, 1994, the shareholders of the Predecessor
exchanged all of the outstanding shares of common stock of the Predecessor on
a one-for-one basis for shares of common stock in the Company, and on March
5, 1996, the Company changed its name to Gray Wolf Technologies, Inc. ("Gray
Wolf"). During the three fiscal years prior to the Merger, Mike M.
Mustafoglu, a former director of the Company, was a director and the
president and treasurer of Gray Wolf. However, from the time of the
Predecessor's incorporation until the Merger, neither the Predecessor nor the
Company engaged in any significant business activity other than the search
for acquisition opportunities, and in the three fiscal years prior to the
Merger, the Company did not have any significant assets or liabilities.
In connection with the Merger, the Company offered and sold in a private
transaction (the "Offering") 3,950,000 shares of Common Stock for gross
proceeds of $1,000,000. The net proceeds of such sale, which were
approximately $882,000, were used by the Company to redeem certain preferred
stock of REAADS in connection with the Merger, to repay debt, to reduce
accounts payable and for working capital.
Following the Merger and the Offering, and the issuance of the
additional 4,000,000 shares of Common Stock to the REAADS stockholders on
November 22, 1998, the Common Stock was held by the following groups of
persons in the approximate percentages indicated:
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Stockholders1 Number of Shares Percentage Ownership1
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Former REAADS 10,120,000 63.1%
Stockholders
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Former Gray Wolf 1,957,259 12.2%
Stockholders
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Offering Stockholders 3,950,000 24.7%
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1 Excludes 153,000 shares held by TransGlobal Financial Corporation ("TGF"),
a consultant to the Company, which were received by TGF in consideration of
financial advisory services provided to Gray Wolf in connection with the
Merger.
The determination of the consideration, including the contingent Common
Stock, paid or payable to the former REAADS stockholders and the
determination of the purchase price of the Common Stock sold in the Offering
was made in consultation with the Company's and REAADS' financial advisors.
Also in connection with the Merger, the Company entered into a
consulting agreement with TransGlobal Financial Corporation ("TGF"). The
president and controlling shareholder of TGF is Mike M. Mustafoglu, who
served as a director of the Company from May 22, 1998 until November 10,
1998. Under the terms of the consulting agreement, TGF provides advice to
the Company regarding financial and business matters, including assistance
with fundraising to implement the Company's business plans, review and
assessment of capitalization, merger and acquisition prospects, and other
transactions, on an exclusive basis. The consulting agreement is effective
for a three-year term ending May 22, 2001. TGF's fee for its financial and
business advisory services is $180,000.00 (payable in 36 monthly installments
of $5,000) plus a transaction fee equal to a percentage of any funds
committed to the Company, the value of any acquisition, or the income
generated by any joint venture, in each case to the extent that TGF assisted
the Company in obtaining such funds, acquisition or venture. See "Part III.
Item 12. Certain Relationships and Related Transactions - TGF Consulting
Agreement."
The Company's consulting agreement with TGF also requires the Company to
nominate for election two designees selected by TGF to the Company's Board of
Directors each year during the term of the agreement, and requires that there
shall be no more than five directors of the Company unless TGF consents to a
greater number. The consulting agreement also requires the Company to obtain
TGF's consent to the issuance of more than 5% of any class of its equity
securities. See "Part III. Item 12. Certain Relationships and Related
Transactions - TGF Consulting Agreement."
The Company is also a party to an option agreement with TGF, whereby TGF
has the option to purchase 1,000,000 units, each unit comprised of one share
of the Company's authorized but unissued Series A 5% Convertible Preferred
Stock and one warrant to purchase one share of Common Stock at an exercise
price of $2.00, for an aggregate purchase price of $1,000,000. See "Part
III. Item 12. Certain Relationships and Related Transactions - Option
Agreement."
Business Overview
The Company's research program has resulted in the successful
development of 23 products currently used in clinical laboratories for the
diagnosis and/or monitoring of four important areas of health care:
* Autoimmune disorders (diseases in which an individual creates
antibodies to one's self, for example systemic lupus erythematosus
("SLE") and rheumatoid arthritis ("RA"));
* Vascular diseases (diseases associated with certain types of
thrombosis or clot formation, for example antiphospholipid
syndrome, deep vein thrombosis, stroke and coronary occlusion);
* Bone and joint diseases (such as osteoporosis and osteoarthritis);
and
* Liver diseases (cirrhosis and transplanted organ rejection).
In addition to its current products, the Company is actively developing
new laboratory tests in other important diagnostic testing areas. See"-
Chugai Strategic Relationship" and "- Other Strategic Relationships." In
this connection, the Company manufactures and markets to clinical
laboratories and other testing sites worldwide. Its customers include large
and emerging health care companies such as Chugai Diagnostics Science
("Chugai"), a wholly owned subsidiary of Chugai Pharmaceuticals Co., Ltd.
("Chugai Pharma"), which owns approximately 4.6% of the Common Stock of the
Company. See "- Chugai Strategic Relationship."
<PAGE>
Corgenix products are based on its patented and proprietary application
of Enzyme Linked ImmunoSorbent Assay ("ELISA") technology, a clinical testing
methodology commonly used worldwide. All of the Company's current products
are based on this platform technology in a delivery format convenient for
clinical testing laboratories. The delivery format ("Microplate") allows the
testing of up to 96 samples per plate, and is one of the most commonly used
formats, employing conventional testing equipment found in virtually all
clinical laboratories. The availability and broad acceptance of ELISA
Microplate products reduces entry barriers worldwide for the Company's new
products that employ this technology and delivery format. Corgenix's products
are sold as "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 a series of reagent additions into the
Microplate triggering a complex immunological reaction in which a resulting
color occurs. The amount of color developed in the final step of the test is
directly proportional to the amount of the specific marker being tested for
in the patient or unknown sample. The amount of color is measured and the
results calculated using laboratory instrumentation. The Corgenix technology
specifies a process by which biological materials are attached to the fixed
surface of a diagnostic test platform. Products developed using this unique
attachment method typically demonstrate a more uniform and stable molecular
configuration, providing a longer average shelf life, increased accuracy and
superior specificity than the products of the Company's competitors.
Corgenix's diagnostic tests are intended to aid in the identification of
the causes of illness and disease, enabling a physician to select appropriate
patient therapy. Internally and through collaborative arrangements, the
Company is developing additional products that are intended to broaden the
range of applications for its existing products and to result in the
introduction of new products. Corgenix is specifically engaged in the
development of a line of diagnostic products that applies the ELISA
technology into a different testing format. This format involves the addition
of a single patient sample into a test system in which color is developed in
a very short period of time with a minimal number of reagents. This format,
unlike the Microplate format, does not require instrumentation and is better
suited for testing outside of a typical testing laboratory. Testing can be
performed by medical personnel such as physicians and nurses, but also can be
designed so that testing can by performed directly by the patient. This
format is referred to as rapid testing ("Rapid Test") as the results are
available in only a few minutes.
Products developed in a Rapid Test format allow the prompt detection of
a variety of medical conditions. Development of this product line will enable
the Company to expand its product base beyond the conventional testing
laboratory into point of care ("POC") market segments, which include
physician's office laboratories ("POL"), and also directly to the medical
consumer through retail distribution, referred to as over-the counter
("OTC").
Since 1990, Corgenix's sales force and distribution partners have sold
over 10 million tests worldwide under the REAADS label, as well as labels of
other companies under private label, or original equipment manufacture
("OEM"), agreements. An integral part of Corgenix's strategy is to work with
corporate partners to develop market opportunities and access important
resources. In this regard, Corgenix has established strategic relationships
with a number of companies, including Chugai, Cambridge Life Sciences
("Cambridge"), a division of Byk Gulden located in Cambridge, UK, and Helena
Laboratories Corporation ("Helena"), a privately held company located in
Beaumont, Texas. Corgenix believes that its relationships with these and
other potential partners will enable Corgenix to enhance its menu of
diagnostic products and accelerate its ability to penetrate the worldwide
markets for new products
The Company currently uses the REAADS trademarks and tradenames in the
sale of its products.
Industry Overview
In vitro diagnostic ("IVD") testing is the process of analyzing the
components of a wide variety of body fluids outside of the body to identify
the presence of markers for diseases or other human health conditions. The
worldwide human health IVD market consists of reference laboratory and
hospital laboratory testing, testing in physician offices and the emerging
OTC market, in which testing is done at home by the consumer.
Traditionally, diagnostic testing has been performed in large,
high-volume commercial or hospital-based laboratories using instruments
operated by skilled technicians. Corgenix products in a Microplate format are
designed for such instrumentation and are marketed to these types of
laboratories. The instrumentation and supportive equipment required to use
the Corgenix ELISA tests is relatively simple, and typically is used by a
laboratory for many different products.
<PAGE>
One of the fastest growing segments of the human health IVD market is
the market for highly accurate tests that can be used logistically close to
the point of patient care (such as clinics, physician offices, homes, patient
bedsides and emergency rooms) as well as in laboratories. The growth in this
POC market is primarily due to pressure on health care providers to reduce
the overall cost of health care as well as the availability of technology
that enables health care providers to process tests on-site, rather than
sending them to remote laboratories. POC testing helps to reduce overall
health care delivery costs and can improve patient outcomes by enabling the
primary caregiver to determine a diagnosis of the medical condition during
the patient's initial visit, minimizing the time to medical intervention and
reducing the need for additional patient follow-up.
The IVD industry has undergone major consolidation over the last few
years. As a result, the industry is characterized by a small number of large
companies or divisions of large companies that manufacture and sell numerous
diagnostic products incorporating a variety of technologies. In addition,
there are many small diagnostic companies, which generally have limited
resources to commercialize new products. As a result of technological
fragmentation and customer support requirements, Corgenix believes that there
may be a substantial competitive advantage for companies with unique and
differentiated technologies that can be used to generate a broad menu of
diagnostic products and that have developed successful customer support
systems.
Strategy
Corgenix's primary objective is to apply its proprietary ELISA
technology to the development and commercialization of products for use in a
variety of markets. Corgenix's strategies for achieving this objective
include the following:
Apply the Company's ELISA Technology to Additional Diagnostic Markets.
Corgenix has focused its resources on development of highly accurate
tests in the Microplate format for sale to clinical testing
laboratories. The Company believes it can expand its market focus with
the addition of new tests complementary to the current product line.
Develop a Line of Rapid Tests Using the Company's ELISA Technology. The
Company intends to broaden the ELISA application into a line of Rapid
Tests enabling expansion into new market areas including POC and OTC.
Expand into Additional Large Diagnostic Market. Corgenix has focused its
product development and sales efforts on the human diagnostic market in
autoimmunity, bone and joint disease, vascular disease, and liver
disease. The Company intends to target other large indication human
health applications (such as cancer, infectious diseases and critical
care diagnostic tests) through both expanded internal research and
development efforts and collaborations with strategic partners.
Leverage Sales and Marketing Resources. Corgenix maintains a nationwide
marketing and sales organization, which is experienced in selling
diagnostic tests into the laboratory market. The Company expects to
expand this sales organization, adding distribution channels into the
outpatient market. The Company will also expand its product menu with
more high value, quality products through internal development,
acquisition or in-licensing of complementary products and technologies.
Continue to Develop Strategic Alliances to Leverage Company Resources.
Corgenix has developed, and expects to continue to develop, strategic
alliances to access complementary resources (such as proprietary
markers, funding, marketing expertise and research and development
assistance), to leverage its technology, expand its product menu and
maximize the use of its sales force.
Pursue Synergistic Product and/or Technology Acquisitions. Corgenix
intends to proactively evaluate strategic acquisitions of companies,
technologies and product lines where the Company identifies a strategic
opportunity to expand its core business while increasing revenues and
earnings from these new technologies.
<PAGE>
Products and Markets
Corgenix and its distribution partners are currently selling ELISA tests
in major markets worldwide. To date, Corgenix's sales force and distribution
partners have sold over 10 million tests since Corgenix first received
product marketing clearance from the United States Food and Drug
Administration (the "FDA") for the first anti-cardiolipin antibody ("aCL")
test in 1990. Several peer reviewed medical publications, abstracts and
symposia have been presented on the favorable technical differentiation of
Corgenix's tests over competitive products.
To extend the product offering for current product lines, and to
complement its premium-priced, existing assays, Corgenix will continue to add
products from strategic partners. Corgenix's current product menu,
commercialized under the trademark "REAADS," includes the following:
Autoimmune Disease Products
Corgenix's ELISA Autoimmune Disease Product line consists of nine
products including a screening test for antinuclear antibodies (ANA), and
specific tests to measure antibodies to rheumatoid factor, dsDNA, Sm, SM/RNP,
SSA, SSB, Jo-1 and anti-Scl-70. The products are used for the diagnosis and
monitoring of autoimmune diseases including RA, SLE, Mixed Connective Tissue
Disease, Sjogren's Syndrome, Dermatopolymyositis and Scleroderma.
The Company's autoimmune disease products are formatted in the ELISA
Microplate format, and are differentiated from the competition by their user
convenience. Historically, diagnostic tests utilized antiquated technologies
that presented significant limitations for the clinical laboratory
environment, including greater labor requirements and the need for a
subjective interpretation of the results. Corgenix's ELISA Autoimmune Tests
overcome these technology shortfalls, permitting a clinical laboratory to
automate its tests, lowering the laboratory's labor costs as well as
providing objectivity to test result interpretation.
Antiphospholipid Antibody Testing Products
The Company has eight products for antiphospholipid antibody testing,
which in 1997 represented over 58% of Corgenix's total product sales. These
include aCL IgG, aCL IgA, aCL IgM, anti-phosphatidylserine ("aPS") IgG, aPS
IgM, B2-Glycoprotein I ("B2GPI") IgG, B2GPI IgA, and B2GPI IgM. These tests
are used in the diagnosis of SLE, antiphospholipid syndrome and thrombosis.
Antiphospholipid antibodies are measured in clinical laboratories
primarily using ELISA technology with cardiolipin as the most commonly used
antigen. High levels of these antibodies are seen in venous and arterial
thrombosis, thrombocytopenia and/or recurrent abortion, now considered the
main clinical criteria for the diagnosis of a clinical entity referred to as
the antiphospholipid syndrome. The antiphospholipid syndrome may be seen in
association with an underlying disease (i.e. autoimmune such as SLE or
SLE-like disease), or may be seen in patients without any obvious or apparent
disease. When high serum levels of antiphospholipid antibodies are found in
individuals without any clinical manifestations, it is regarded as an
important risk factor for the development of antiphospholipid syndrome.
The importance of the antiphospholipid syndrome resides in its
association with serious clinical manifestations such as chronic and
recurrent venous (deep vein) thrombosis, as well as arterial thromboembolic
disease including heart attacks, strokes and pulmonary embolism.
Thrombocytopenia has been attributed to the temporary removal of platelets
from circulation during a thrombotic episode (clot formation).
<PAGE>
Vascular Disease Products
The Company markets seven tests for vascular diseases. Four products
(Protein C Antigen ELISA, Protein S Antigen ELISA, Monoclonal Free Protein S
ELISA and von Willebrand Factor Antigen ELISA) are manufactured by Corgenix,
and four others (ABP von Willebrand Factor Activity Test, GTI Platelet Factor
4 Test, and the ABS Thrombus Precursor Protein and ABS Ristocetin) are
manufactured for Corgenix by other companies. These products are useful in
the diagnosis of certain clotting and bleeding disorders including von
Willebrand's Disease (Hemophilia B).
Hemostasis (the normal stable condition in which there is neither
excessive bleeding nor excessive clotting) is maintained in the body by the
complex interaction of the endothelial cells of blood vessels, coagulation
cells such as platelets, coagulation factors, lipids (cholesterol) and
antibodies (autoantibodies). All play important roles in maintaining this
hemostasis. In clinical situations in which an individual demonstrates
excessive clotting or bleeding, a group of laboratory tests is typically
performed to assess the source of the disorder using the tests marketed by
the Company.
Bone and Joint Disease Products; Liver Disease Products
The Company developed and manufactures the Chugai Hyaluronic Acid
("Hyaluronic Acid" or "HA") Test in a Microplate format in collaboration with
Chugai. This product is currently distributed through the Chugai distribution
network in Japan, and through the Company's United Kingdom subsidiary in the
United Kingdom, and is used in the diagnosis and monitoring of rheumatoid
arthritis and liver cirrhosis.
Hyaluronic Acid is a component of the matrix of connective tissues,
found in synovial fluid of the joints where it acts as a lubricant and for
water retention. It is produced in the synovial membrane and may leak into
the circulation via the lymphatic system where it is quickly removed by
specific receptors located in the liver. Increased serum levels of HA have
been described in patients with rheumatoid arthritis due to increased
production from synovial inflammation, and in patients with liver disease due
to interference with the removal mechanism. Patients with cirrhosis will have
the highest serum HA levels, which correlate with the degree of liver
involvement.
Technology
The Corgenix ELISA application technology was developed to provide the
clinical laboratory with a more sensitive, specific, and objective technology
to measure clinically relevant antibodies in patient serum samples. High
levels of these antibodies are frequently found in individuals suffering from
various immunological diseases, and their serologic determination is useful
not only for specific diagnosis but also for assessing disease activity
and/or response to treatment. To accomplish these objectives, the current
Corgenix product line applies the ELISA technology in a 96-Microplate format
as a delivery system. ELISA provides a solid surface to which purified
antigens are attached, allowing their interaction with specific
autoantibodies during incubation. This antigen-antibody interaction is then
objectively measured by reading the intensity of color generated by an
enzyme-conjugated secondary antibody and a chemical substrate added to the
system.
The Corgenix technology overcomes two basic problems seen in many other
ELISA systems. First, the material coated onto the plate can be consistently
coated without causing significant alteration of the molecular structure
(which ensures maintenance of immunologic reactivity), and the stability of
these coated antigens on the surface can be maintained (which provides a
product shelf life acceptable for commercial purposes). Corgenix's
proprietary immunoassay technology is useful in the manufacture of ELISA test
kits for the detection of many analytes for the diagnosis and management of
immunological diseases. This same ELISA technology will also be applied to
the Rapid Test products allowing entry into additional market segments.
The Corgenix technology results in products demonstrating performance
characteristics that exceed those of competitive testing procedures. Many
testing laboratories worldwide subscribe to external quality control schemes
or programs conducted by independent, third- party organizations. These
programs typically involve the laboratory receiving unknown test samples on a
routine basis, performing certain diagnostic tests on the samples, and
providing results of their testing to the third party. Reports are generally
provided by the third party that tells the testing laboratory how it compares
to other testing laboratories in the program. Several of the Company's
products are included in a third-party survey periodically conducted by an
unaffiliated entity, and Corgenix's products routinely demonstrate the best
standard deviation for its products when compared to other manufacturers
included in such survey.
<PAGE>
A Corgenix product typically requires less hands-on time by laboratory
personnel and provides an objective, quantitative or semi-quantitative
interpretation to improve and standardize the clinical significance of
results. The Corgenix proprietary technology will continue to be the mainstay
for future Corgenix diagnostic products. Most of the products in development
will incorporate the basic Corgenix technology, even in alternate delivery
formats (including Rapid Test products).
Additional technologies may be required for some of the newly identified
tests, particularly for the POC business. Management believes that, in
additional to internal expertise, most technology and delivery system
requirements are available through joint venture or licensing arrangements or
through acquisition.
Delivery Systems
All of the current Corgenix products employ the Microplate delivery
system using ELISA technology. This format is universally accepted in
clinical laboratory testing and requires routine equipment currently
available in most clinical labs.
Sales and Marketing
Corgenix currently markets and sells its products to the traditional
clinical laboratory market, both hospital based and free standing
laboratories. The Company utilizes a diverse distribution program for its
products. Corgenix labeled products are sold directly to testing laboratories
in the United States through contract sales representatives.
Internationally, Corgenix labeled products are sold through established
diagnostic companies in Argentina, Australia, Austria, Belgium, Brazil,
Canada, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary,
India, Israel, Italy, Japan, Korea, Kuwait, Lebanon, Malaysia, Mexico,
Norway, Paraguay, Peoples Republic of China, Peru, Portugal, Saudi Arabia,
Singapore, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syria,
Taiwan, Turkey and the United Kingdom. Discussions are underway that are
expected to provide access to additional markets in Europe, South America,
Asia and the Pacific Rim. Corgenix's agreements with its international
distribution partners are on terms that are generally terminable by Corgenix
if the distributor fails to achieve certain sales targets. The Company also
has established private labeled product agreements with several United States
and European companies. The Company has international distribution
headquarters in the United Kingdom and will add direct commercialization and
distribution in selected additional countries as appropriate.
The Company has an active marketing and promotion program for its
diagnostic testing products. Corgenix publishes technical and marketing
promotional materials, which it distributes to current and potential
customers. The Company attends major industry trade shows and conferences,
and the Company's scientific staff actively publishes articles and technical
abstracts in peer review journals.
Manufacturing
Corgenix's manufacturing process for its products utilizes a
semi-automated production line for the manufacturing, assembly and packaging
of its ELISA Microplate products. Corgenix's current production capacity is
10,000 tests per day with a single eight-hour shift. Since 1990, Corgenix's
manufacturing group has successfully produced over 10 million tests in its
Westminster, Colorado facility, and the Company expects that current
manufacturing facilities will be sufficient to meet expected customer demand
for the foreseeable future.
<PAGE>
The Company's manufacturing operations are fully integrated and consist
of reagent purification, reagent and Microplate processing, filling,
labeling, packaging and distribution. The Company has considerable experience
in manufacturing its products using its proprietary technology. The Company
expects increases in the demand for its products, and plans to increase its
manufacturing capability while remaining in compliance with regulatory
requirements at acceptable costs to meet that increased demand. The Company
also maintains ongoing investigation of scale-up opportunities for
manufacturing to meet future requirements. Corgenix expects production costs
to decline if more products are added to the product menu in the future,
permitting the Company to achieve greater economies of scale as higher
volumes are attained. Corgenix has registered its facility with the FDA and
operates in compliance with the FDA Quality System Regulations ("QSR")
requirements for its products.
In April, 1999, the Company received notification that it had received
ISO 9001: 1994 certification from TUV Product Service GmbH, a world leader in
medical device testing and certification. ISO 9001 represents the
international standard for quality management systems developed by the
International Organization for Standardization (ISO) to facilitate global
commerce. To assure continued compliance with the rigorous standards of ISO
9001, companies must undergo regularly scheduled assessments and
re-certification every three years. The ISO 9001 initiative is an important
component in the Company's commitment to maintain excellence.
The manufacturing process starts with the qualification of raw
materials. The Microplates are then coated and bulk solutions prepared. The
components and the Microplates are checked for performance by the Company's
quality control department and adjustments in the bulk solutions are
performed to provide optimal performance and lot-to-lot consistency. The bulk
solutions are then dispensed and packaged into planned kit configurations.
The final packaging step in the manufacturing process includes kit assembly,
where all materials are packaged into finished product. The final kit has one
final kit performance performed by the Company's quality control department.
The final stage before product release for sale is quality assurance,
verification that all quality control testing and manufacturing processes
have been completed, documented and have met all performance specifications.
The majority of raw materials and purchased components used to
manufacture the Company's products are readily available. The Company has
established good working relationships with its primary vendors, particularly
those that supply unique or critical components for the Company's products.
Corgenix mitigates the risk of a loss of supply by maintaining a sufficient
supply of antibodies and critical components to ensure an uninterrupted
supply for at least three months. Corgenix also believes that it can
substitute a new supplier with regard to any of these components in a timely
manner. However, there can be no assurances that Corgenix will be able to
substitute a new supplier in a timely manner, and failure to do so could have
a material adverse effect on Corgenix's business, financial condition and
results of operations.
A significant percentage of the Company's product revenues are derived
from sales outside of the United States. International regulatory bodies
often establish varying regulations governing product standards, packaging
and labeling requirements, import restrictions, tariff regulations, duties
and tax requirements. As a result of the Company's sales in Europe, the
Company has obtained ISO certification and to receive a "CE" mark
certification, an international symbol of quality and compliance with
applicable European medical device directives for certain of its products.
Chugai Strategic Relationship
Chugai Diagnostics Science, Co. Ltd. is a wholly owned subsidiary of
Chugai Pharmaceutical Co., Ltd., a Tokyo based pharmaceutical company. The
relationship between Corgenix and Chugai was established in June 1993 with
the execution of a letter of intent to negotiate and execute a series of
agreements including a Manufacturing Memorandum, Stock Purchase Agreement and
a Distribution Agreement. The relationship is a multifaceted strategic
affiliation that can be summarized as follows:
Equity Ownership. In 1993, Chugai Pharma purchased common stock of
REAADS, and as of September 1, 1999, owned approximately 5.5% of the Common
Stock. Under the terms of the September 1, 1993 stock purchase agreement,
Chugai has certain rights, including antidilution rights and rights to a
board seat on the Corgenix Board of Directors.
<PAGE>
Distribution of Corgenix Products. In 1993, Corgenix and Chugai executed
distribution agreement (the "Japanese Distribution Agreement") whereby
Corgenix granted to Chugai certain distribution rights in Japan of Corgenix
products. The distribution rights provide Chugai with non-exclusive rights
for certain existing Corgenix products, and exclusive rights for all future
Corgenix products. The initial term of the Japanese Distribution Agreement is
for 7 years, expiring August 26, 2000, with successive one year extension
options.
Joint Development of Corgenix Products. In 1993, Corgenix and Chugai
executed a memorandum, which established a joint product development program
whereby Corgenix, in collaboration with Chugai, developed a unique second
generation immunodiagnostic assay for the measurement of HA. The product
replaced a first generation HA product that was being manufactured and
distributed in Japan by Chugai. This product is used to measure HA in serum
to aid in the diagnosis of certain liver diseases and the monitoring of
rheumatoid arthritis patients. In 1997, Corgenix and Chugai executed a
contract research agreement whereby Corgenix and Chugai made certain
technical improvements to the HA product, and Chugai provided certain
financial support.
Manufacturing of Corgenix Products. In 1994, Corgenix and Chugai
executed a manufacturing agreement (the "HA Manufacturing Agreement") whereby
Corgenix has the exclusive right to manufacture the HA product for Chugai for
sale in Japan. Corgenix began the manufacture of the HA product in 1995 and
sales of the product were initiated in Japan by Chugai. The HA Manufacturing
Agreement has been amended several times, and Corgenix now manufactures the
HA product for other distribution outlets to be designated by Chugai. In
1997, sales of the HA product began in the United Kingdom through Corgenix's
sales and distribution channels. In 1995, Corgenix and Chugai executed a
letter agreement whereby Chugai agreed, under certain conditions, to
reimburse Corgenix for the purchase of certain pieces of equipment required
for HA manufacturing.
Regulatory Affairs. In 1995, Corgenix and Chugai executed a regulatory
letter of understanding whereby Corgenix agreed to manage the regulatory
application prosecution of the HA kit in the United States for Chugai.
Corgenix managed the clinical trial testing of the HA product, and has filed
a 510(k) application on the HA product with the FDA on behalf of Chugai. See
"-Regulation."
HA Product Distribution. In 1997, Corgenix and Chugai executed a
distribution agreement (the "UK Agreement") whereby Corgenix was granted
exclusive distribution rights for the Chugai HA product in the United
Kingdom. The UK Agreement is initially for a two-year period expiring on
November 17, 1999, with one-year extension rights. The UK Agreement
establishes certain minimum sales target requirements for Corgenix, and
provides early cancellation rights to Chugai if Corgenix does not meet annual
sales targets. The UK Agreement is the only international distribution rights
granted by Chugai.
Other Strategic Relationships
In addition to the Chugai strategic relationship, an integral part of
Corgenix's strategy has been and will continue to be entering into other
strategic alliances as a means of accessing unique technologies or resources
or developing specific markets. The primary aspects of Corgenix's corporate
partnering strategy with Chugai and other strategic affiliations include:
* Companies that are interested in co-developing diagnostic tests
that use the Corgenix technology;
* Companies with complementary technologies;
* Companies with complementary products and novel disease markers;
and/or
* Companies with access to distribution channels that supplement
Corgenix's existing distribution channels.
In furtherance of the foregoing strategies, Corgenix has established
strategic relationships with the following companies in addition to Chugai:
<PAGE>
Cambridge Life Sciences. Cambridge, a division of Byk Gulden and located
in Cambridge, United Kingdom, is a leading manufacturer of immunology and
microbiology diagnostic tests. In 1993, Corgenix and Cambridge entered into
an agreement by which the Company provides to Cambridge certain products that
are sold worldwide under the Cambridge label. These products are primarily
sold in the United Kingdom, and in the remainder of Europe through the Byk
Gulden distribution network.
Helena Laboratories Corporation. Helena, a privately held company
located in Beaumont, Texas, is one of the world market leaders in clinical
electrophoresis instrumentation and technology. In 1993, Corgenix and Helena
entered into a development and manufacturing agreement pursuant to which
Corgenix developed a series of vascular disease products for joint
distribution. Three of these received FDA clearance in 1997 and one is
currently in development. Corgenix manufactures these products for worldwide
distribution through the Helena network, as well as under the Corgenix label
for distribution through the Corgenix network. Pursuant to the agreement,
Helena has the right to incorporate several of the Company's current products
and technology (both those jointly developed and also other Corgenix
products) into a proprietary Helena instrumentation for sale to hospitals and
clinical laboratories. Corgenix and Helena have also entered into an
agreement under which the Company has agreed to provide additional products
to be sold worldwide under the Helena label. There can be no assurance that
the product development program will be successful, and if successful, that
the products developed will achieve broad market acceptance.
American Biochemical & Pharmaceutical Corporation. ABP is a privately
held company located in Marlton, New Jersey that sells a line of diagnostic
products in coagulation and vascular medicine. In June 1998, Corgenix became
a non-exclusive distributor of ABP's von Willebrand Factor Activity in the
United States. Corgenix distributes this product under the Corgenix label
through Corgenix's distribution network, primarily in the United States. This
product complements Corgenix's expanding line of vascular disease products.
The initial term of the distribution arrangement with ABP will expire in June
2001 and it may be renewed at Corgenix's election for additional successive
one-year terms. ABP also sells this test under the Corgenix label through its
own distribution network. Under the terms of a separate distribution
agreement, ABP will sell the Corgenix von Willebrand Factor Antigen Kit
worldwide under the Corgenix label through its distribution network.
American Biogenetic Science ("ABS"). ABS is a publicly traded company
located in Boston, Massachusetts that has developed patented antigen-free
technology. In June 1998, Corgenix became a non-exclusive distributor of
ABS's Thrombus Precursor Protein and Functional Intact Fibrinogen products in
the United States and North America, marketing them through the Corgenix
distribution network. The initial term of the distribution agreement with ABS
will expire in August 1999 and it may be renewed at Corgenix's election for
two additional successive one-year terms. ABS also sells these tests under
their own labeling through a small network of regional distributors.
GTI, Inc. GTI is a privately held company located in Brookfield,
Wisconsin that manufactures ELISA diagnostic products. In April 1998,
Corgenix and GTI signed an agreement by which Corgenix became a co-exclusive
distributor of GTI's Platelet Factor 4 ELISA test kit in the United States.
The initial term of the agreement is one year and may be renewed at
Corgenix's option. This product is also part of Corgenix's vascular disease
product strategy.
The Company has established OEMs agreements with several international
diagnostic companies. Under these agreements, Corgenix manufactures selected
products under the partner's label for worldwide distribution. These
partnerships include Meditech-BioPool (United States), Chromogenix (Sweden),
Medic (Italy), and Schiapparelli Biosystems (The Netherlands).
Research and Development
Corgenix is directing its research and development efforts towards
continuously improving its proprietary platform ELISA technology in the
Microplate format, as well as applying the technology to a Rapid Test format
to address operator ease-of-use and expand the Company's market
opportunities. In that regard, Corgenix has organized its research and
development department into three major areas: (i) new product development,
(ii) technology assessment, and (iii) technical and product support.
<PAGE>
The product development group is responsible for research and
development of new clinical diagnostic products for commercialization. This
group evaluates the performance of reagents (prepared internally or purchased
commercially), creates working prototypes of potential products, performs
internal studies, participates in clinical trials, produces pilot lots of new
products, produces a validated method that can be consistently manufactured,
creates documentation required for manufacturing and testing of new products,
and works closely with the Company's quality assurance department to satisfy
regulatory requirements and support regulatory clearance. This group
includes individuals skilled in immunology, assay development, protein
biochemistry, biochemistry and basic sciences. Group leaders are also
skilled in planning and project management under FDA-mandated design
control. See "-Regulation."
The technology assessment group is responsible for assessing the
performance of new technologies and determining the technical feasibility of
their introduction by Corgenix. The technology assessment group investigates
the patent / license issues associated with new technologies. This group
includes individuals skilled in immunology, assay development, protein
biochemistry, biochemistry, basic sciences and intellectual property review.
The technical and product support group are responsible for supporting
all products on the market through scientific investigation, and are
responsible for design transfer to manufacturing for all new products
developed. This group also assesses the performance of and validates all
externally-sourced products. This group includes individuals skilled in
immunology, assay development, protein biochemistry, biochemistry and basic
sciences. Corgenix maintains facilities to support its development efforts
at its Westminster, Colorado headquarters.
Products and Technology in Development
Corgenix intends to expand its product menu through internal
development, development in collaboration with strategic partners and
acquisition or licensing of new products and technologies. Corgenix is
currently working with partners to develop additional tests to supplement the
existing product lines. The following summarizes Corgenix's current product
and technology development programs:
Antiphopholipid Antibody Testing Products
The Company has completed the development of three additional
antiphospholipid products to complement the existing line of five products in
the ELISA Microplate format. These new tests, anti-(beta)2 Glycoprotein I -
IgG, anti-(beta)2 Glycoprotein I - IgM and anti-(beta)2 Glycoprotein I - IgA,
will be marketed for the diagnosis of antiphospholipid syndrome and related
immunological disorders. Corgenix is one of the market leaders in
development of innovative tests in the antiphospholipid market, and these
future products will help ensure the Company's strong position. These new
antiphospholipid products have been found to be more specific for thrombosis
and the antiphospholipid syndrome over the conventional aCL and aPS tests,
and will be configured for sale to hospital based and free-standing
independent laboratories. Filing of the 510(k) application on the new tests
was made during the third quarter of 1998. See "-Regulation."
Vascular Disease Tests
The Company has entered into a joint development agreement to develop
additional assays for the measurement of selected coagulation factors that
are significant in the diagnosis and treatment of certain clotting and
bleeding disorders. The measurement of Free Protein S using a monoclonal
antibody provides a more direct and specific assay for the functionally
active "free" form of Protein S in the assessment of thrombosis. This
project is currently at the preclinical stage with FDA filing expected during
the fourth quarter of 1998. These tests will use the Company's ELISA format
and will provide significant improvement over existing technology in the
market. These assays will also be formatted as Rapid Tests for the POC
market. The Company is also is early stage development of several unique
immunological tests to measure risk of coronary artery disease and stroke.
These markers may prove to be far more specific and functional than
conventional cholesterol or lipid testing, and could significantly change the
risk assessment market worldwide.
<PAGE>
Two of the products in early stage development are anti-oxidized LDL and
Lp(a). Atherosclerotic cardiovascular disease is the leading cause of death
in the industrialized world and in the United States alone there are over 1.5
million individuals suffering a heart attack every year. Application of
Corgenix technology to the measurement of anti-oxidized LDL antibodies and
Lp(a) will provide more clinically relevant tests compared with current
conventional tests for cholesterol.
Rapid Test Delivery System
Corgenix believes that the Rapid Test delivery technology will
significantly expand the POC market opportunity. This technology will allow
the introduction of next generation products, which will require a
substantially shorter period to develop, test and submit for regulatory
approval. Each test piece will contain all of the reagents necessary to
conduct the assay, following the simple step of sample addition. If
successful, this technology could enable the Company to make products that
are easier to use and provide immediate analysis of biological samples.
Initial development will focus on qualitative measurement of markers that aid
in the establishment of the diagnosis or prognosis of disease conditions.
Products in early stage development include tests for pregnancy, diagnosis of
certain infectious diseases, and tests to measure cardiac markers.
Liver Disease Markers
The Company has a letter of intent with a medical university that, if
consummated, would grant Corgenix exclusive worldwide marketing rights to a
recently discovered, very sensitive liver enzyme. In early clinical testing,
this enzyme appears to be a unique indicator of the pending rejection of a
transplanted liver, and could also be a sensitive indicator of other causes
of cellular damage to liver tissue. Corgenix expects that development of a
diagnostic test for this enzyme, in multiple formats to address many market
segments, may begin in late 1998.
Corgenix's goal is to continue to develop and bring to the marketplace
innovative, unique diagnostic products with significant market potential,
resulting in more effective and less costly health care delivery. The Company
will take advantage of the many advances in biotechnology by developing new
products for the diagnosis and treatment of immunological disease. As
discussed above, future projects will include expansion into additional high
growth areas including infectious diseases.
Acquisitions
On September 17, 1998, the Company executed a letter of intent to
acquire all of the assets of Integrated Diagnostics, Inc., ("Integrated") a
privately held, Baltimore, Maryland diagnostics company, for cash and
restricted Common Stock valued at approximately $2.2 million. The letter of
intent expired on December 31, 1998 but the Company has continued discussions
with Integrated regarding the possible acquisition. The closing of the
transaction is dependent upon the Company's ability to obtain financing for
the transaction, the results of the Company's due diligence and upon the
negotiation and execution of a definitive agreement. There can be no
assurance that this transaction will be successfully consummated. See
"Part II. Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward Looking Statements and Risk
Factors - Risks Regarding Potential Future Acquisitions." On April 19, 1999
and April 20, 1999, the Company executed two distribution agreements with
Integrated whereby the Company has been granted certain exclusive and
non-exclusive rights to distribute Integrated products in the international
market.
The Company continually evaluates a variety of company, product and/or
technology acquisition opportunities. Although the Company intends to pursue
acquisitions that provide strategic opportunities to expand the Company's
core business while increasing revenues and earnings from these new
technologies, there can be no assurance that it will be successful in doing
so. See "Part II. Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Forward Looking Statements
and Risk Factors - Risks Regarding Potential Future Acquisitions."
<PAGE>
Competition
Competition in the human medical diagnostics industry is significant.
The Company's competitors range from development stage diagnostics companies
to major domestic and international pharmaceutical companies. Many of these
companies have financial, technical, marketing, sales, manufacturing,
distribution and other resources significantly greater than Corgenix. In
addition, many of these companies have name recognition, established
positions in the market and long standing relationships with customers and
distributors. The diagnostics industry has recently experienced a period of
consolidation during which many of the large domestic and international
pharmaceutical companies have been acquiring mid-sized diagnostics companies,
further increasing the concentration of resources. However, competition in
diagnostic medicine is highly fragmented, with no company holding a dominant
position in autoimmune, vascular diseases or bone and joint disease. There
can be no assurance that new, superior technologies will not be introduced
that could be directly competitive with or superior to Corgenix's
technologies.
Corgenix's competitors include Inova Diagnostics, Inc., Sanofi
Diagnostics Pasteur (a licensee of Corgenix technology under a paid up
license), INCSTAR Corporation, Pharmacia Upjohn, Diagnostica Stago, American
Bioproducts, Helena Laboratories Corporation (an existing licensee of
Corgenix technology), Organon Teknika, Helix Diagnostics, Hemagen
Diagnostics, Sigma Diagnostics and Diamedix Corporation. Some of these
companies are larger than Corgenix and have substantial resources and market
presence. Corgenix competes against these companies on the basis of product
performance and customer service.
Patents, Trade Secrets and Trademarks
Corgenix has built a strong patent and intellectual property position
around its proprietary application of ELISA technology. Corgenix holds five
United States patents that expire beginning in 2004 and ending in 2010.
Corgenix has no pending patent applications. The Hyaluronic Acid product is
protected by U.S., Japanese and European patents held by Chugai. As part of
the agreement with Chugai, Corgenix has a license to use the Chugai patents
to manufacture this product.
Patent applications in the United States are maintained in secrecy until
patents issue. There can be no assurance that Corgenix's patents, and any
patents that may be issued to it in the future, will afford protection
against competitors with similar technology. In addition, no assurances can
be given that patents issued to Corgenix will not be infringed upon or
designed around by others or that others will not obtain patents that
Corgenix would need to license or design around. If the courts uphold
existing or future patents containing broad claims over technology used by
Corgenix, the holders of such patents could require Corgenix to obtain
licenses to use such technology. See "Part II. Item 6. management's
Discussion and Analysis - Forward-Looking Statements and Risk Factors -
Uncertainty of Protection of Patents, Trade Secrets and Trademarks."
Corgenix has registered its trademark "REAADS" on the principal federal
trademark register and with the trademark registries in many countries of the
world. This trademark is eligible for renewal in 2006 and will expire in
2007. The Company has a federal trademark registration pending for the name
"Corgenix."
The Company intends to obtain patent protection for its products and
processes, to preserve its trade secrets and to operate without infringing
the proprietary rights of third parties. Corgenix also relies on trade
secrets and proprietary know-how in its manufacturing processes. The Company
requires each of its employees, consultants and advisors to execute a
confidentiality agreement upon the commencement of any employment, consulting
or advisory relationship with the Company. Each agreement provides that all
confidential information developed or made known to the individual during the
course of the relationship will be kept confidential and not disclosed to
third parties except in specified circumstances. In the case of employees,
the agreements provide that all inventions conceived of by an employee shall
be the exclusive property of the Company.
Regulation
The testing, manufacturing and sale of Corgenix's products are subject
to regulation by numerous governmental authorities, principally the FDA and
foreign regulatory agencies. The FDA regulates the clinical testing,
manufacture, labeling, distribution and promotion of medical devices, which
includes diagnostic products. Corgenix is restricted from marketing or
selling diagnostic products in the United States until clearance is received
from the FDA. In addition, various foreign countries in which Corgenix's
products are or may be sold impose local regulatory requirements. The
preparation and filing of documentation for FDA and foreign regulatory review
can be a lengthy, expensive and uncertain process.
<PAGE>
In the United States, medical devices are classified by the FDA into one
of three classes (Class I, II or III) on the basis of the controls deemed
necessary by the FDA to ensure their safety and effectiveness in a reasonable
manner. Class I devices are subject to general controls (e.g., labeling,
premarket notification and adherence to QSR requirements). Class II devices
are subject to general and special controls (e.g., performance standards,
post-market surveillance, patient registries and FDA guidelines). Generally,
Class III devices are those that must receive premarket approval by the FDA
to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable devices or new devices that have been found
not to be substantially equivalent to legally marketed devices). All of
Corgenix's current products and products under development are or are
expected to be classified as Class I or Class II devices.
Before a new device can be introduced in the market, the Company must
obtain FDA clearance or approval through either clearance of a 510(k)
premarket notification or approval of a product marketing approval ("PMA")
application, which is a more extensive and costly application. All of the
Company's products have been cleared using a 510(k) application, and the
Company expects that most, if not all, future products will also qualify for
clearance using a 510(k) application.
It generally takes from four to 12 months from submission to obtain
510(k) premarket clearance but may take longer. The FDA may determine that a
proposed device is not substantially equivalent to a legally marketed device
or that additional information is needed before a substantial equivalence
determination can be made. A "not substantially equivalent" determination,
or a request for additional information, could prevent or delay the market
introduction of new products that fall into this category. For any devices
that are cleared through the 510(k) process, modifications or enhancements
that could significantly affect safety or effectiveness, or constitute a
major change in the intended use of the device, will require new 510(k)
submissions. There can be no assurance that Corgenix will be able to obtain
necessary regulatory approvals or clearances for its products on a timely
basis, if at all, and delays in receipt of or failure to receive such
approvals or clearances, the loss of previously received approvals or
clearances, limitations on intended use imposed as a condition of such
approvals or clearances, or failure to comply with existing or future
regulatory requirements could have a material adverse effect on Corgenix's
business, financial condition and results of operations. See "Part II. Item
6. management's Discussion and Analysis- Forward-Looking Statements and
Risk Factors - Governmental Regulation of Diagnostic Products."
Corgenix's customers using diagnostic tests for clinical purposes in the
United States are also regulated under the Clinical Laboratory Information
Act of 1988 (the "CLIA"). The CLIA is intended to ensure the quality and
reliability of all medical testing in laboratories in the United States by
requiring that any health care facility in which testing is performed meets
specified standards in the areas of personnel qualification, administration,
participation in proficiency testing, patient test management, quality
control, quality assurance and inspections. The regulations have established
three levels of regulatory control based on test complexity: "waived,"
"moderately complex" and "highly complex." Corgenix's current ELISA tests are
categorized as "moderately complex" tests for clinical use in the United
States. Under the CLIA regulations, all laboratories performing high or
moderately complex tests are required to obtain either a registration
certificate or certification of accreditation from the United States Health
Care Financing Administration ("HCFA"). There can be no assurance that the
CLIA regulations and future administrative interpretations of CLIA will not
have an adverse impact on the potential market for Corgenix's future
products. Corgenix expects that the to be developed Rapid Tests will be
categorized as CLIA "waived" tests. Laboratories performing CLIA "waived"
tests face less stringent registration and certification requirements.
Corgenix also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that Corgenix
will not incur significant costs to comply with laws and regulations in the
future or that such laws or regulations will not have a material adverse
effect upon Corgenix's business, financial condition and results of
operations.
Reimbursement
<PAGE>
Corgenix's largest market segment is the hospital based and free
standing independent laboratory market. Payment for testing in this segment
is largely based on third party payor reimbursement. The site, which performs
the test, will submit an invoice to the patient's insurance provider (or the
patient if not covered by a program). Each diagnostic procedure (and in some
instances, specific technologies) is assigned a current procedural
terminology ("CPT") code by the American Medical Association. Each CPT code
is then assigned a reimbursement level by HCFA. Third party insurance payors
typically establish a specific fee to be paid for each code submitted. Third
party payor reimbursement policies are generally determined with reference to
the reimbursement for CPT codes for Medicare patients, which themselves are
determined on a national basis by HCFA.
Employees
As of September 7, 1999, Corgenix employed 32 employees, 29 full time
and 3 part-time. Of these, 6 hold advanced scientific or medical degrees.
None of Corgenix's employees is covered by a collective bargaining agreement.
Corgenix believes that it maintains good relations with its employees.
Item 2. Description of Property.
Corgenix currently leases approximately 12,000 square feet of space in
one building in Westminster, Colorado, which is used for its administrative
offices, research and development facilities and manufacturing operations.
The lease expires May 30, 2001 with renewal options. Corgenix also leases
approximately 1,400 square feet of office space in Peterborough,
Cambridgeshire, United Kingdom under a lease that expires September 25, 2001.
Corgenix believes that suitable additional or alternative space will be
available on commercially reasonable terms as needed, but that its existing
facilities will be sufficient for its operational purposes through the end of
the leases.
Item 3. Legal Proceedings
Corgenix is not a party to any material litigation or legal proceedings.
Item 4. Submission or Matters to a Vote of Security Holders.
None
GLOSSARY
antibody - a protein produced by the body in response to contact with an
antigen, and having the specific capacity of neutralizing, hence creating
immunity to, the antigen.
anti-cardiolipin antibodies (aCL) - a class of antiphospholipid antibody
which reacts with a negatively-charged phospholipid called cardiolipin;
frequently found in patients with SLE and other autoimmune diseases; also
reported to be significantly associated with the presence of both arterial
and venous thrombosis, thrombocytopenia, and recurrent fetal loss.
antigen - an enzyme, toxin, or other substance, usually of high
molecular weight, to which the body reacts by producing antibodies.
anti-phosphatidylserine antibodies (aPS)- a class of antiphospholipid
antibody which reacts to phosphatidylserine; similar to aCL; believed to be
more specific for thrombosis.
anti-oxidized LDL cholesterol antibodies - antibodies to the oxidized
form of LDL cholesterol.
antiphospholipid antibodies - a family of autoantibodies with
specificity against negatively charged phospholipids, that are frequently
associated with recurrent venous or arterial thrombosis, thrombocytopenia, or
spontaneous fetal abortion in individuals with SLE or other autoimmune
disease.
antiphospholipid syndrome - a clinical condition characterized by venous
or arterial thrombosis, thrombocytopenia, or spontaneous fetal abortion, in
association with elevated levels of antiphospholipid antibodies and/or lupus
anticoagulant.
assay - a laboratory test; to examine or subject to analysis.
autoantibody - an antibody with specific reactivity against a component
substance of the body in which it is produced; a disease marker.
autoimmune diseases - a group of diseases resulting from reaction of the
immune system against self components.
beta 2 glycoprotein I (B2GPI) - a serum protein (cofactor) that
participates in the binding of antiphospholipid antibodies.
coagulation - the process by which blood clots.
cofactor - a serum protein that participates in the binding of
antiphospholipid antibodies, for example B2GPI.
delivery format - the configuration of the product. Current Corgenix
products utilize a 96-well microplate system for its delivery format.
hemostasis - mechanisms in the body to maintain the normal liquid state
of blood; a balance between clotting and bleeding.
<PAGE>
hyaluronic acid (HA) - a polysaccharide found in synovial fluid, serum
and other body fluids and tissues, elevated in certain rheumatological and
hepatic (liver) disorders.
HDL cholesterol - high density lipoprotein associated with cholesterol.
immunoassay - a technique for analyzing and measuring the concentration
of disease markers using antibodies; for example, ELISA.
immunoglobulin - a globulin protein that participates in the immune
reaction as the antibody for a specific antigen.
immunology - the branch of medicine dealing with (a) antigens and
antibodies, esp. immunity to disease, and (b) hypersensitive biological
reactions (such as allergies), the rejection of foreign tissues, etc.
in vitro - isolated from the living organism and artificially
maintained, as in a test tube.
in vivo - occurring within the living organism.
LDL cholesterol - low density lipoprotein associated with cholesterol.
lipids - a group of organic compounds consisting of the fats and other
substances of similar properties.
Lp(a) - abnormal form of LDL cholesterol.
oxidized LDL cholesterol - chemical modification (oxidized form) of LDL
cholesterol; the most damaging form.
platelets - small cells in the blood which play an integral role in
coagulation (blood clotting).
platform technology - the basic technology in use for a majority of the
Company's products, in essence the "platform" for new products. In the case
of Corgenix, the platform technology is ELISA (enzyme linked immunosorbent
assay).
phospholipids - a group of fatty compounds found in animal and plant
cells which are complex triglyceride esters containing long chain fatty
acids, phosphoric acid and nitrogenous bases.
protein C - normal blood protein that regulates hemostasis; decreased
levels lead to thrombosis.
protein S - normal blood protein that regulates hemostasis; decreased
levels lead to thrombosis.
rheumatic diseases - a group of diseases of the connective tissue, of
uncertain cause and including rheumatoid arthritis (RA), rheumatic fever,
etc., usually characterized by inflammation, pain and swelling of the joints
and/or muscles.
serum - the clear yellowish fluid which separates from a blood clot
after coagulation and centrifugation.
systemic lupus erythematosus (SLE) - a usually chronic disease of
unknown cause, characterized by red, scaly patches that tend to produce
scars, frequently affecting connective tissue and involving the kidneys,
spleen, etc.
thrombin - the enzyme of the blood, formed from prothrombin, that causes
clotting by converting fibrinogen to fibrin.
thrombocytopenia - a condition in which there is an abnormally small
number of platelets in the circulating blood.
<PAGE>
thromboembolism - the obstruction or occlusion of a blood vessel by a
thrombus.
thrombosis - coagulation of the blood within a blood vessel of any
organ, forming a blood clot.
tumor markers - serum proteins or molecules found in high
concentrations in patients with selected cancers.
vascular - of or pertaining to blood vessels.
von Willebrand's Factor (vWF) - normal blood protein that regulates
hemostasis; decreased levels lead to abnormal bleeding and increased levels
may produce thrombosis.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Common Stock is currently traded on the OTC Bulletin Board under
the symbol "COGX". From February 27, 1998 until the Merger on May 22, 1998,
the Common Stock was quoted on the OTC Bulletin Board under the symbol
"GRWT." On September 23, 1999, the last bid price of the Common Stock on the
OTC Bulletin Board as reported by the OTC Bulletin Board was $0.17.
The following table sets forth, for the periods indicated, the high and
low bid prices of the Common Stock as reported on the OTC Bulletin Board.
The following quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not represent actual transactions.
Year Ended June 30, 1998 High Low
Fourth Quarter $1.55 $0.31
Year Ended June 30, 1999
First Quarter $0.28 $0.16
Second Quarter $0.70 $0.19
Third Quarter $0.59 $0.38
Fourth Quarter $0.41 $0.18
On September 23, 1999 there were approximately 147 holders of record of
the Common Stock.
To date, the Company has not paid any dividends on its Common Stock, and
the Board of Directors of the Company does not currently intend to declare
cash dividends on the Common Stock. The Company instead intends to retain
its earnings, if any, to support the growth of the Company's business. Any
future cash dividends would depend on future earnings, capital requirements
and the Company's financial condition and other factors deemed relevant by
the Board of Directors. The Company is restricted from paying dividends
without the approval of its financial advisor, pursuant to the terms of the
Consulting Agreement with TGF. See "Part III. Item 12. Certain
Relationships and Related Transactions - Consulting Agreement." In addition,
under the terms of a promissory note in favor of Vectra Bank, the Company is
prohibited from paying dividends on the Common Stock without the consent of
Vectra Bank. The Series A Preferred Stock, if and when issued, also would
prohibit the Company from paying cash dividends on the Company's Common Stock
under certain circumstances.
Private Placements
In April 1999, the Company sold in a private placement transaction a
total of 300,000 shares of Common Stock at a price of $.3333 per share to a
single investor. This sale was made in reliance upon exemptions from the
registration requirements of Section 5 of the Act provided by Section 4(2) of
the Act.
The issuance of the shares of Common Stock in the Offering met the
requirements of Rule 504 of Regulation D under the Act. In addition, the
Company is not an "investment company" or "development company," as evidenced
by the active business and over five year operating results of the Company's
wholly owned operating subsidiary Corgenix, Inc. Finally, the amount of
securities offered and sold was within the regulatory maximum permitted by
Rule 504.
Stock Purchase Plan and Stock Compensation Plan
On December 17, 1998, the Company enacted an employee stock purchase
plan (the "Stock Purchase Plan") and a stock compensation plan (the "Stock
Compensation Plan") to provide officers of the Company with an opportunity to
receive shares of the Company's common stock in lieu of all or a portion of
their salaries. On December 17, 1998, the Company reserved 500,000 shares of
the Company's authorized but unissued common stock for the Stock Purchase
Plan and the Stock Compensation Plan. As of September 23, 1999, the Company
had issued 335,075 shares of Common Stock pursuant to the Stock Purchase Plan
and the Stock Compensation Plan.
Item 6. management's Discussion and Analysis or Plan of Operation.
The following discussion should be read in conjunction with the
financial statements and accompanying notes included elsewhere herein.
General
Since the Company's inception, Corgenix has been primarily involved in
the research, development, manufacturing and marketing/distribution of
diagnostic tests for sale to clinical laboratories. Corgenix currently
markets 32 products covering autoimmune disorders, vascular diseases, bone
and joint diseases and liver disease. Corgenix's products are sold in the
United States through the Company's marketing and sales organization that
includes contract sales representatives, internationally through an extensive
distributor network, and to several significant OEM partners.
Corgenix manufactures products for inventory based upon expected sales
demand, shipping products to customers, usually within 24 hours of receipt of
orders. Accordingly, Corgenix does not operate with a backlog.
Except for the fiscal year ending June 30, 1997, the Company has
experienced revenue growth since its inception, primarily from sales of
products and contract revenues from strategic partners. Contract revenues
consist of licensing fees, milestone payments, and royalty payments from
research and development agreements with strategic partners.
Beginning in fiscal year 1996, Corgenix added third-party OEM licensed
products to its diagnostic product line. Currently the Company sells 15
products licensed from other third party manufacturers. Corgenix expects to
expand its relationships with other companies in the future to gain access to
additional products.
Although Corgenix has experienced growth in revenues every year since
1990 except for 1997, there can be no assurance that, in the future, Corgenix
will sustain revenue growth or achieve profitability. Corgenix's results of
operations may fluctuate significantly from period-to-period as the result of
several factors, including: (i) whether and when new products are
successfully developed and introduced, (ii) market acceptance of current or
new products, (iii) seasonal customer demand, (iv) whether and when Corgenix
receives R&D milestone payments and license fees from strategic partners, (v)
changes in reimbursement policies for the products that Corgenix sells;,(vi)
competitive pressures on average selling prices for the products that
Corgenix sells, and (vii) changes in the mix of products that Corgenix sells.
Results of Operations
Years Ended June 30, 1999 and 1998
Net Sales. Net sales for the year ended June 30, 1999 was $2.64 million,
a 2.0% increase from $2.59 million in 1998. A component of net sales, product
sales, remained unchanged at $2.58 million in 1999 as in 1998. Sales of
Hyaluronic Acid product (HA) to Chugai for distribution in Japan decreased
45.9% to $415,000 in 1999 from $767,000 in 1998 due to increased competition
in the Japanese market. The Company expects that this trend will not continue
and that sales to Chugai in 2000 will increase over the 1999 level due to
expansion of Chugai's distribution network worldwide. Product sales of
Corgenix manufactured products increased 19.3% to $2.16 million in 1999 from
$1.81 million in 1998 due to the additional expansion of the Company's
international distribution network and the market acceptance of recently
launched products.
Also included in net sales are partnership payments from strategic
alliances that increased 50% to $69,000 in 1999 from $46,000 in 1998 due to
timing of ongoing development projects.
Cost of sales. Cost of sales increased 16.7% to $1,053,000 in 1999 from
$902,000 in 1998 in 1997, due primarily to product mix related to the
shortfall in sales of HA to Chugai as the HA products generate higher gross
profit than other Corgenix products. Gross profit decreased to 60.1% in 1999
from 65.2% in 1998 due primarily to the impact of lower sales to Chugai.
Research and development. Research and development expenses increased
4.7% to $406,000 in 1999 from $387,000 in 1998. During 1999, several ongoing
projects remained in development but no new projects were added during this
period.
Selling and marketing. Selling and marketing expenses increased 5.6% to
$793,000 in 1999 from $751,000 in 1998 due to an increases in promotional
expense associated with the launch of new products in 1999.
General and administrative. General and administrative expenses
decreased 20.5% to $1.05 million in 1999 from $1.32 million in 1998, due in
part to legal, accounting and other costs relating to strategic partnering
activities, financing activities and the costs of transforming into a public
company which occurred in 1998.
Other expenses. Other expenses increased 1.5% to $155,000 in 1999 from
$152,000 in 1998. Interest expense decreased to $146,000 in 1999 from
$150,000 in 1998 due to repayment of debt in 1999.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of common and preferred stock, raising net proceeds of approximately
$2.7 million from sales of these securities prior to 1998. In 1998, the
Company raised $1,000,000 before offering expenses through a Rule 504
offering related to the Merger Transaction, and an additional $100,000 in a
private offering in 1999.
Corgenix has also received financing for operations from sales of
diagnostic products and agreements with strategic partners. At June 30, 1999
and June 30, 1998, Corgenix had invested $159,535 and $215,084 respectively,
(net of accumulated depreciation) in leasehold improvements, laboratory and
computer equipment and office furnishings and equipment to support its
development and administrative activities. In 1999, the Company's accounts
payable increased 86.4 % to $798,000 from $428,000 in 1998, and the Company's
accounts receivable increased 39.5% to $516,000 from $370,000 in 1998.
Corgenix's principal sources of liquidity are short and long term debt
financing, of which $1,085,288 remained outstanding as of June 30, 1999.
Management believes that the Company needs to enter into new debt agreements
and/or sell additional equity securities in fiscal year 2000 to achieve
appropriate liquidity. Management is aggressively pursing several financing
alternatives.
<PAGE>
Year 2000 Effect
The Year 2000 will impact computer programs written using two digits
rather than four to define the applicable year. Any programs with
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operation, including a temporary
inability to process transactions, send invoices or engage in other ordinary
activities. This problem largely affects software programs written years ago,
before the issue came to prominence. Corgenix recently reviewed all of its
software for exposure to Year 2000 issues, including network and workstation
software, and does not believe that such software poses significant risks
associated with the Year 2000 problem. Corgenix primarily uses third-party
software programs written and updated by outside firms, each of whom has
stated that its software is Year 2000 compliant. To assure that all software
programs can successfully work in conjunction with each other using the
Company's computer hardware after the year 1999, Corgenix tested all of its
software and hardware during the third quarter of 1998 using a combination of
past and future dates. Such testing revealed that some of the Company's
computer hardware could not correctly process dates after December 31, 1999.
The Company will be required to replace such equipment, at a cost not
expected to exceed $20,000, before December 31, 1999.
The Company has received written assurance that all suppliers of
materials considered critical are Year 2000 compliant.
The Company has also begun the process of obtaining written assurances
from the Company's material customers regarding their Year 2000 compliance.
In addition, the Company has instituted a requirement that all new customers
placing standing orders of the Company's products must certify in writing
that they are Year 2000 compliant or provide written assurances as to the
steps they are taking to become Year 2000 compliant. The Company has
received written notification from customers representing greater than 85%
of Company revenues that such customers are Year 2000 compliant or that they
are will become Year 2000 compliant before December 31, 1999.
Although the Company has taken significant steps to address the Year
2000 problem, there can be no assurance that the failure of the Company
and/or its material customers or suppliers to timely attain Year 2000
compliance will not materially reduce the Company's revenues or income, or
that these failures and/or the impacts of broader compliance failures by
telephone, mail, data transfer or other utility or general service providers
or government or private entities will not have a material adverse effect on
the Company.
Forward-Looking Statements and Risk Factors
This 10K-SB includes statements that are not purely historical and are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1934, as amended, including statements regarding the
Company's expectations, beliefs, intentions or strategies regarding the
future. All statements other than historical fact contained in this 10K-SB,
including, without limitation, statements regarding future product
developments, acquisition strategies, strategic partnership expectations,
technological developments, the availability of necessary components,
research and development programs and distribution plans, are
forward-looking statements. All forward-looking statements included in this
10K-SB are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update such forward-looking
statements. Although the Company believes that the assumptions and
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct
or that the Company will take any actions that may presently be planned.
Certain factors that could cause actual results to differ materially
from those expected include the following:
Losses Incurred; Future Capital Needs; Uncertainty of Additional Funding
<PAGE>
The Company has incurred operating losses and negative cash flow from
operations for the last three fiscal years. Losses incurred by the Company
since its inception have aggregated over $4.2 million, and there can be no
assurance that the Company will be able to generate positive cash flow to
fund its operations in the near future. Assuming no significant uses of cash
in acquisition activities or other significant changes, the Company believes
it will have sufficient cash to satisfy its funding needs for at least the
next year. If the Company is not able to operate profitably and generate a
positive cash flow, however, it may need to raise additional capital to fund
its continuing operations. If the Company needs additional financing to meet
its requirements, there can be no assurance that it will be able to obtain
such financing on terms satisfactory to it, if at all. Alternatively, any
additional equity financing may be dilutive to existing stockholders, and
debt financing, if available, may include restrictive covenants. If adequate
funds are not available, the Company might be required to limit its research
and development activities or its selling and marketing activities, either of
which could have a material adverse effect on the future of the Company's
business.
Dependence on Collaborative Relationships and Third Parties for Product
Development and Commercialization
The Company has entered into licensing and research and development
agreements with collaborative partners, from which it derived a significant
percentage of its revenues in 1997. Pursuant to these agreements, the
Company's collaborative partners have specific responsibilities for the costs
of development, promotion, regulatory approval and/or sale of the Company's
products. The Company will continue to rely on present and future
collaborative partners for the development of products and technologies.
There can be no assurance that the Company will be able to negotiate future
such collaborative arrangements on acceptable terms, if at all, or that
current or future collaborative arrangements will be successful. To the
extent that the Company is not able to establish such arrangements, it could
experience increased capital requirements or be forced to undertake such
activities at its own expense. The amount and timing of resources that any
of these partners devotes to these activities will generally be based on
progress by the Company in its product development efforts. Usually,
collaborative arrangements may be terminated by the partner upon prior notice
without cause and there can be no assurance that any of these partners will
perform its contractual obligations or that it will not terminate its
agreement. With respect to any products manufactured by third parties, there
can be no assurance that any third-party manufacturer will perform acceptably
or that failures by third parties will not delay clinical trials or the
submission of products for regulatory approval or impair the Company's
ability to deliver products on a timely basis. See "- Dependance on
Distribution Partners for Sales of Diagnostic Products in International
Markets," "Part I. Item 1. Description of Business - Chugai Strategic
Relationship" and "- Other Strategic Relationships."
No Assurance of Successful or Timely Development of Additional Products
The Company's business strategy includes the development of additional
diagnostic products. The Company's success in developing new products will
depend on its ability to achieve scientific and technological advances and to
translate these advances into commercially competitive products on a timely
basis. Development of new products requires significant research,
development and testing efforts. The Company will have limited resources to
devote to the development of products and, consequently, a delay in the
development of one product or the use of resources for product development
efforts that prove unsuccessful may delay or jeopardize the development of
other products. Any delay in the development, introduction and marketing of
future products could result in such products being marketed at a time when
their cost and performance characteristics would not enable them to compete
effectively in their respective markets. If the Company is unable, for
technological or other reasons, to complete the development and introduction
of any new product or if any new product is not approved or cleared for
marketing or does not achieve a significant level of market acceptance, the
Company's results of operation could be materially and adversely affected.
See "Part I. Item 1. Description of Business - Products and Markets" and
"-Regulation."
Competition in the Diagnostics Industry
Competition in the human medical diagnostics industry is, and is
expected to remain, significant. The Company's competitors range from
development stage diagnostics companies to major domestic and international
pharmaceutical companies. Many of these companies have financial, technical,
marketing, sales, manufacturing, distribution and other resources
significantly greater than those of the Company. In addition, many of these
companies have name recognition, established positions in the market and long
standing relationships with customers and distributors. Moreover, the
diagnostics industry has recently experienced a period of consolidation,
during which many of the large domestic and international pharmaceutical
companies have been acquiring mid-sized diagnostics companies, further
increasing the concentration of resources. There can be no assurance that
technologies will not be introduced that could be directly competitive with
or superior to the Company's technologies. See "Part I. Item 1. Description
of Business - Competition."
<PAGE>
Governmental Regulation of Diagnostics Products
The testing, manufacture and sale of the Company's products is subject
to regulation by numerous governmental authorities, principally the FDA and
certain foreign regulatory agencies. Pursuant to the Federal Food, Drug, and
Cosmetic Act, and the regulations promulgated thereunder, the FDA regulates
the preclinical and clinical testing, manufacture, labeling, distribution and
promotion of medical devices. The Company will not be able to commence
marketing or commercial sales in the United States of new products under
development until it receives clearance from the FDA. The testing for,
preparation of and subsequent FDA regulatory review of required filings can
be a lengthy, expensive and uncertain process. Noncompliance with applicable
requirements can result in, among other consequences, fines, injunctions,
civil penalties, recall or seizure of products, repair, replacement or refund
of the cost of products, total or partial suspension of production, failure
of the government to grant premarket clearance or premarket approval for
devices, withdrawal of marketing clearances or approvals, and criminal
prosecution. See "Part I. Item 1. Description of Business - Regulation."
There can be no assurance that the Company will be able to obtain
necessary regulatory approvals or clearances for its products on a timely
basis, if at all, and delays in receipt of or failure to receive such
approvals or clearances, the loss of previously received approvals or
clearances, limitations on intended use imposed as a condition of such
approvals or clearances or failure to comply with existing or future
regulatory requirements could have a material adverse effect on the Company's
business.
Dependence on Distribution Partners for Sales of Diagnostic Products in
International Markets
The Company has entered into distribution agreements with collaborative
partners in which Corgenix has granted distribution rights for certain
Corgenix products to these partners within specific international geographic
areas. Pursuant to these agreements, the Company's collaborative partners
have certain responsibilities for market development, promotion, and sales of
the products. If any of these partners fails to perform its contractual
obligations or terminates its agreement, this could have a material adverse
effect on the Company's business, financial condition and results of
operation.
Additionally, the Company intends to expand its distribution network
into additional countries and into different market segments including the
POC market. There can be no assurance that Corgenix will be successful in the
expansion of the distribution network, and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operation.
Governmental Regulation of Manufacturing and Other Activities
As a manufacturer of medical devices for marketing in the United States,
the Company is required to adhere to applicable regulations setting forth
detailed good manufacturing practice requirements, which include testing,
control and documentation requirements. The Company must also comply with
Medical Device Report ("MDR") requirements, which require that a manufacturer
report to the FDA any incident in which its product may have caused or
contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, it would be likely to
cause or contribute to a death or serious injury. The Company is also
subject to routine inspection by the FDA for compliance with QSR
requirements, MDR requirements and other applicable regulations. The FDA has
recently implemented new QSR requirements, including the addition of design
controls that will likely increase the cost of compliance. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. The Company may incur
significant costs to comply with laws and regulations in the future, which
may have a material adverse effect upon the Company's business, financial
condition and results of operations.
<PAGE>
Regulation Related to Foreign Markets
Distribution of diagnostic products outside the United States is subject
to extensive government regulation. These regulations, including the
requirements for approvals or clearance to market, the time required for
regulatory review and the sanctions imposed for violations, vary from country
to country. The Company may be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals. In addition, the
export by the Company of certain of its products that have not yet been
cleared for domestic commercial distribution may be subject to FDA export
restrictions. Failure to obtain necessary regulatory or the failure to
comply with regulatory requirements could have a material adverse effect on
the Company's business, financial condition and results of operations.
Uncertain Availability of Third Party Reimbursement for Diagnostic
Products
In the United States, health care providers that purchase diagnostic
products, such as hospitals and physicians, generally rely on third party
payors, principally private health insurance plans, federal Medicare and
state Medicaid, to reimburse all or part of the cost of the procedure. Third
party payors are increasingly scrutinizing and challenging the prices charged
for medical products and services and they can affect the pricing or the
relative attractiveness of the Decreases in reimbursement amounts for tests
performed using the Company's diagnostic products, failure by physicians and
other users to obtain reimbursement from third party payors, or changes in
government and private third party payors" policies regarding reimbursement
of tests utilizing diagnostic products, may affect the Company's ability to
sell its diagnostic products profitably. See "Part I. Item 1. Description
of Business - Regulation" and "- Reimbursement." Market acceptance of the
Company's products in international markets is also dependent, in part, upon
the availability of reimbursement within prevailing health care payment
systems.
Uncertainty of Protection of Patents, Trade Secrets and Trademarks
The Company's success depends, in part, on its ability to obtain patents
and license patent rights, to maintain trade secret protection and to operate
without infringing on the proprietary rights of others. There can be no
assurance that the Company's issued patents will afford meaningful protection
against a competitor, or that patents issued to the Company will not be
infringed upon or designed around by others, or that others will not obtain
patents that the Company would need to license or design around. The Company
could incur substantial costs in defending itself or its licensees in
litigation brought by others or prosecuting infringement claims against third
parties. If the outcome of any such litigation is unfavorable to the
Company, the Company's business could be adversely affected. See "Part I.
Item 1. Description of Business - Patents, Trade Secrets and Trademarks."
Risks Regarding Potential Future Acquisitions
The Company's growth strategy includes as a material element the desire
to acquire complementary companies, products or technologies. Except as
disclosed in "Item 1. Description of Business - Acquisitions," the Company
has not targeted any acquisition candidates and there is no assurance that
the Company will be able to identify appropriate companies or technologies to
be acquired, to negotiate satisfactory terms for such an acquisition., or to
obtain sufficient capital to make such acquistions. Moreover, because of
limited cash resources, the Company will be unable to acquire any significant
companies or technologies for cash and the Company's ability to effect
acquisitions in exchange for the Company's capital stock may depend upon the
market prices for the Common Stock. If the Company does complete one or more
acquisitions, a number of risks arise, such as short-term negative effects on
the Company's reported operating results, diversion of management's
attention, unanticipated problems or legal liabilities, and difficulties in
the integration of potentially dissimilar operations. The occurrence of some
or all of these risks could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Part I. Item
1. Description of Business - Strategy."
Dependence on Suppliers
The components of the Company's products include chemical and packaging
supplies that are generally available from several suppliers, except certain
antibodies, which the Company purchases from single suppliers. The Company
mitigates the risk of a loss of supply by maintaining a sufficient supply of
such antibodies to ensure an uninterrupted supply for at least six months.
Although the Company believes that it can substitute a new supplier with
respect to any of these components in a timely manner, there can be no
assurances that the Company will be able to substitute a new supplier in a
timely manner and failure to do so could have a material adverse effect on
the Company's business, financial condition and results of operations.
Limited Manufacturing Experience with Certain Products
Although the Company has manufactured over ten million diagnostic tests
based on its proprietary applications of ELISA technology, certain of the
Company's diagnostic products in development, particularly POC tests,
incorporate technologies with which the Company has no manufacturing
experience. Assuming successful development and receipt of required
regulatory approvals, significant work may be required to scale up production
for each new product prior to such product's commercialization. There can be
no assurance that such work can be completed in a timely manner and that such
new products can be manufactured cost-effectively, to regulatory standards or
in sufficient volume.
Seasonality of Products; Quarterly Fluctuations in Results of Operations
The Company's revenue and operating results have historically been
minimally subject to quarterly fluctuations. Certain of the Company's
diagnostic products in development, particularly POC tests for infectious
disease, may demonstrate a higher degree of seasonality. There can be no
assurance that such seasonality in the Company's results of operations will
not have a material adverse effect on the Company's business.
Dependence on Key Personnel
Because of the specialized nature of the Company's business, the success
of the Company will be highly dependent upon its ability to attract and
retain qualified scientific and executive personnel. In particular, the
Company believes its success will depend to a significant extent on the
efforts and abilities of Dr. Luis R. Lopez and Douglass T. Simpson, who would
be difficult to replace. There can be no assurance that the Company will be
successful in attracting and retaining such skilled personnel, who are
generally in high demand by other companies. The loss of, inability to
attract, or poor performance by key scientific and executive personnel may
have a material adverse effect on the Company's business, financial condition
and results of operations.
Product Liability Exposure and Limited Insurance
The testing, manufacturing and marketing of medical diagnostic devices
entails an inherent risk of product liability claims. To date, the Company
has experienced no product liability claims, but any such claims arising in
the future could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's product
liability insurance coverage is currently limited to $2 million. Potential
product liability claims may exceed the amount of the Company's insurance
coverage or may be excluded from coverage under the terms of the Company's
policy or limited by other claims under the Company's umbrella insurance
policy. Additionally, there can be no assurance that the Company's existing
insurance can be renewed by the Company at a cost and level of coverage
comparable to that presently in effect, if at all. In the event that the
Company is held liable for a claim against which it is not insured or for
damages exceeding the limits of its insurance coverage, such claim could have
a material adverse effect on the Company's business, financial condition and
results of operations.
<PAGE>
Limited Public Market; Possible Volatility in Stock Prices; Penny Stock
Rules
There has, to date, been no active public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained. Although the Company's Common Stock has been
traded on the OTC Bulletin Board since February 1998, the trading has been
sporadic with insignificant volume.
Moreover, the over-the-counter markets for securities of very small
companies such as the Company historically have experienced extreme price and
volume fluctuations during certain periods. These broad market fluctuations
and other factors, such as new product developments and trends in the
Company's industry and the investment markets and economic conditions
generally, as well as quarterly variation in the Company's results of
operations, may adversely affect the market price of the Company's Common
Stock. In addition, the Company's Common Stock is subject to rules adopted
by the Securities and Exchange Commission regulating broker-dealer practices
in connection with transactions in "penny stocks." As a result, many brokers
are unwilling to engage in transactions in the Company's Common Stock because
of the added disclosure requirements.
Item 7. Financial Statements.
The financial statements listed in the accompanying index to the
consolidated financial statements are filed as part of this Annual Report on
Form 10-KSB.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial
Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the
Exchange Act.
There is hereby incorporated by reference the information to appear
under the caption "Election of Directors" in the Company's proxy statement
for its 1999 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 1999.
Item 10. Executive Compensation.
There is hereby incorporated by reference the information to appear
under the caption "Compensation of Directors and Executive Officers" in the
Company's proxy statement for its 1999 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission within 120 days
after June 30, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
There is hereby incorporated by reference the information to appear
under the caption "Principal Shareholders of the Company" in the Company's
proxy statement for its 1999 Annual Meeting of Shareholders, which will be
filed with the Securities and Exchange Commission within 120 days of June 30,
1999.
Item 12. Certain Relationships and Related Transactions.
The Company has the following relationships with certain of its
stockholders, directors and affiliates.
<PAGE>
TGF Consulting Agreement
The Company is party to a Consulting Agreement dated May 22, 1998 with
TGF. The Consulting Agreement was entered into in connection with closing of
the Merger. The president and controlling shareholder of TGF is Mike M.
Mustafoglu, who served as a director of the Company from May 22, 1998 to
November 10, 1998.
Under the terms of the Consulting Agreement, TGF provides advice to the
Company regarding financial and business matters, including but not limited
to, identifying sources of capital to implement the Company's business plans,
review and assessment of capitalization, merger and acquisition prospects,
and other transactions, on an exclusive basis. The Consulting Agreement is
effective for a three-year term ending May 22, 2001. TGF's fee for its
financial and business advisory services is $180,000.00 (payable in 36
monthly installments of $5,000) plus a transaction fee equal to (i) 5% of any
funds committed and available to the Company in an equity financing secured
through TGF and (ii) 3% of any funds committed and available to the Company
in any debt financing secured through TGF. In addition, in the event TGF
represents the Company with respect to a merger, acquisition or other
transaction involving the disposition or exchange of securities or assets of
the Company, TGF is entitled to a transaction fee equal to 5% of the total
market value of the stock, cash, assets or other property exchanged by the
Company or any of its security holders in connection with the transaction,
such fee payable in the same form as the consideration payable to the Company
or its security holders in the transaction. Finally, in the event TGF
introduces the Company to a joint venture partner or customer and sales
develop as a result of the introduction, TGF is entitled to a fee equal to 5%
of the before-tax income generated from the introduction, such fee payable
for the life of the venture or relationship developed.
In addition to the foregoing fees, TGF is entitled to reimbursement of
its fees and disbursements incurred in providing its advisory services to the
Company, including without limitation, travel, hotels, food and associated
expenses. The Consulting Agreement includes a number of covenants for the
benefit of TGF. The Company agrees to promptly furnish TGF a copy of all
periodic reports filed by the Company with the Securities and Exchange
Commission, a copy of all press releases released by the Company, copies of
financial statements and other periodic or special reports as and when
provided from time to time to holders of any class of the Company's
securities or to its directors and officers. The Company also agrees to
provide such additional documents and information with respect to the Company
as TGF my from time to time reasonably request.
The Consulting Agreement requires the Company to cause two designees
selected by TGF to be nominated to the Company's Board of Directors during
each year of the term of the Agreement, and to notify TGF of each meeting of
the Board. In connection with this right, the Company agrees that the Board
of Directors shall number five members, which number will not be changed
without the prior written consent of TGF, and that the Company will schedule
not less than four regular meetings of the Board of Directors. The right to
designate members to the Company's Board of Directors under the Consulting
Agreement terminates upon the issuance by the Company of an aggregate of
250,000 or more shares of the Company's Series A Preferred Stock and warrants
to purchase in aggregate of 250,000 or more shares of the Company's Common
Stock. Thereafter, TGF is entitled to have an observer designated by it
present at all meetings of the Board of Directors. The Company agrees to
indemnify and hold TGF and its Board representatives harmless against any
claims, damages, costs and expenses arising solely out of attendance and
participation at any Board meeting, and to include such representatives on
any liability insurance policy providing coverage for the acts of the
Company's officers and directors.
During the term of the Consulting Agreement, the Company is required to
obtain the written consent of TGF (not to be unreasonably withheld) prior to
issuing more than 5% of any class of its Common Stock or preferred stock (or
warrants, options or rights to purchase Common Stock or preferred stock).
<PAGE>
The Consulting Agreement requires the Company to indemnify and hold TGF
harmless from any and all liabilities, claims, lawsuits or other judgments or
awards which it may become subject to ( a "Claim") insofar as such Claim
arises out of or is in connection with services rendered by TGF under the
Consulting Agreement or any transactions in connection therewith. Such
indemnity excludes, however, indemnification for Claims arising out of the
reckless acts or omissions of TGF. In turn, TGF agrees to indemnify and hold
the Company harmless against any and all Claims which arise out of or are
based upon any misstatement or omission made by the Company in reliance upon
information furnished in writing to the Company by TGF for inclusion in any
registration statement or prospectus in connection with a transaction to
which the Consulting Agreement applies.
Pursuant to the Consulting Agreement, on May 22, 1998 TGF named Mike M.
Mustafoglu and Alev Lewis as its designees to be nominated as members of the
Company's Board of Directors. On November 10, 1998, Mike M. Mustafoglu
resigned from the Board of Directors and no replacement has been designated
as of September 23, 1999. On September 21, 1999, Alev Lewis resigned from the
Board of Directors and no replacement has been designated as of September 23,
1999. To date, TGF has provided general financial advisory services to the
Company pursuant to the Consulting Agreement. Such services have included
financial planning and review, business plan development, identification of
financing sources, identification of and due diligence on acquisition
opportunities, assistance in negotiating agreements, and evaluation of
strategic partner opportunities. TGF has informed the Company that it does
not engage in the business of buying and selling securities for others or for
its own account or advising others, for compensation, as to the value of
securities or the advisability of investing in, purchasing or selling,
securities. TGF has further informed the Company that it is not currently
licensed as a broker-dealer or investment advisor and that TGF is not
required to be so licensed to perform the activities called for under the
Consulting Agreement. TGF has agreed with the Company that if any such
activities are required to be performed by a licensed broker-dealer or
investment advisor, TGF will take the appropriate steps to obtain such
licenses or will inform the Company that it must retain a licensed
broker-dealer or investment company, as appropriate, to perform such
activities.
Option Agreement
The Company also is party to an Option Agreement dated May 22, 1998 with
TGF. Under the Option Agreement, TGF has the option to purchase 1,000,000
units (the "Units", each unit comprised of one share of the Company's
authorized but unissued Series A 5% Convertible Preferred Stock and one
warrant to purchase one share of Common Stock at an exercise price of $2.00,
for an aggregate purchase price of $1,000,000. The option is exercisable by
written notice to the Company on or prior to the expiration of a period of 90
days after the date on which the Securities and Exchange Commission declares
effective a registration statement covering the Units and the shares of
Common Stock issuable upon conversion or exercise thereof. The option is
assignable, in whole or in part, by TGF; however the option must be exercised
collectively as to all of the Units subject thereto. TGF may not, however,
assign, sell, transfer, pledge or otherwise dispose of any of the Units or
any other securities of the Company without the prior written consent of the
Company.
Corporate Relations Agreement
The Company is a party to an agreement dated April 14, 1998 with
Corporate Relations Group, a Florida corporation ("CRG"). Pursuant to this
agreement and a related payment agreement, CRG provides corporate relations
services to the Company for a period of one year for a fee of $75,000. In
connection with the execution of this Agreement, Gulf Atlantic Publishing,
Inc. purchased 950,000 shares of the Company's Common Stock for total
consideration of $50,000. CRG and Gulf Atlantic Publishing, Inc. are both
corporations that are wholly owned by Strattcom Media, Ltd., a publicly-held
corporation.
To date, CRG has provided the Company with investor relations services,
including assistance with the preparation and dissemination of press releases
and the preparation of articles regarding the Company and its products. CRG
has also assisted the Company in placing such articles in various magazines
and brochures published by certain of CRG's affiliates. CRG has informed the
Company that CRG is not a licensed broker-dealer or investment advisor, and
that it is not required to be so licensed to perform the activities called
for under the corporate relations agreement described above.
The agreement with CRG expired on April 14, 1999 and was not renewed.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
a. Index to and Description of Exhibits
Exhibit
Number Description of Exhibit
2.1 Agreement and Plan of Merger dated as of May 12, 1998 by and among Gray
Wolf Technologies, Inc., Gray Wolf Acquisition Corp. And REAADS Medical
Products, Inc. (filed as Exhibit 2.1 to the Company's Registration
Statement on Form 10-SB filed June 29, 1998, and incorporated herein by
reference).
2.2 First Amendment to Agreement and Plan of Merger dated as of May 22, 1998
by and among Gray Wolf Technologies, Inc., Gray Wolf Acquisition Corp.
And REAADS Medical Products, Inc. (filed as Exhibit 2.2 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
2.3 Second Amendment to Agreement and Plan of Merger dated as of June 17,
1998 by and among the Company and TransGlobal Financial Corporation.
(filed as Exhibit 2.3 to the Company's Registration Statement on Form
10-SB filed June 29, 1998, and incorporated herein by reference).
3.1 Articles of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
3.2 Bylaws (filed as Exhibit 3.2 to the Company's Registration Statement on
Form 10-SB filed June 29, 1998, and incorporated herein by reference).
4.1 Certificate of Designations for Series A Preferred Stock (filed as
Exhibit 4.1 to the Company's Registration Statement on Form 10-SB filed
June 29, 1998, and incorporated herein by reference).
10.1 Manufacturing Agreement dated September 1, 1994 between Chugai
Pharmaceutical Co., Ltd. and REAADS Medical Products, Inc. (filed as
Exhibit 10.1 to the Company's Registration Statement on Form 10-SB filed
June 29, 1998, and incorporated herein by reference).
10.2 Amendment to the Manufacturing Agreement dated as of January 17, 1995
between Chugai Pharmaceutical Co., Ltd. and REAADS Medical Products,
Inc. (filed as Exhibit 10.2 to the Company's Registration Statement on
Form 10-SB filed June 29, 1998, and incorporated herein by reference).
10.3 Amendment Agreement dated November 17, 1997 between Chugai Diagnostic
Science, Co., Ltd. and REAADS Medical Products, Inc. (filed as Exhibit
10.3 to the Company's Registration Statement on Form 10-SB filed June
29, 1998, and incorporated herein by reference).
10.4 Distribution Agreement dated August 26, 1993 between Chugai
Pharmaceutical Co., Ltd. and REAADS Medical Products, Inc. (filed as
Exhibit 10.4 to the Company's Registration Statement on Form 10-SB filed
June 29, 1998, and incorporated herein by reference).
10.5 Amendment to the Distribution Agreement dated September 7, 1994 between
Chugai Pharmaceutical Co., Ltd. and REAADS Medical Products, Inc. (filed
as Exhibit 10.5 to the Company's Registration Statement on Form 10-SB
filed June 29, 1998, and incorporated herein by reference).
10.6 Distribution Agreement dated November 14, 1997 between Chugai
Diagnostics Science Co, Ltd. and REAADS Bio-Medical Products (UK) Ltd.
(filed as Exhibit 10.6 to the Company's Registration Statement on Form
10-SB filed June 29, 1998, and incorporated herein by reference).
10.7 Product Development and Manufacturing Agreement dated September 12, 1994
between REAADS Medical Products, Inc. and Helena Laboratories
Corporation (filed as Exhibit 10.7 to the Company's Registration
Statement on Form 10-SB filed June 29, 1998, and incorporated herein by
reference).
10.8 Amendment to Product Development and Manufacturing Agreement effective
December 15, 1997 between REAADS Medical Products, Inc. and Helena
Laboratories Corporation (filed as Exhibit 10.8 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
<PAGE>
10.9 Office Lease dated February 6, 1996 between Stream Associates, Inc. And
REAADS Medical Products, Inc. (filed as Exhibit 10.9 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
10.10 Guarantee dated November 1, 1997 between William George Flemming,
Douglass Simpson and Geoffrey Vernon Callen (filed as Exhibit 10.10 to
the Company's Registration Statement on Form 10-SB filed June 29, 1998,
and incorporated herein by reference).
10.11 Employment Agreement dated May 22, 1998 between Luis R. Lopez and the
Company (filed as Exhibit 10.11 to the Company's Registration Statement
on Form 10-SB filed June 29, 1998, and incorporated herein by reference).
10.12 Employment Agreement dated May 22, 1998 between Douglass T. Simpson and
the Company (filed as Exhibit 10.12 to the Company's Registration
Statement on Form 10-SB filed June 29, 1998, and incorporated herein by
reference).
10.13 Employment Agreement dated May 22, 1998 between Ann L. Steinbarger and
the Company (filed as Exhibit 10.13 to the Company's Registration
Statement on Form 10-SB filed June 29, 1998, and incorporated herein by
reference).
10.14 Employment Agreement dated May 22, 1998 between Taryn G. Reynolds and
the Company (filed as Exhibit 10.14 to the Company's Registration
Statement on Form 10-SB filed June 29, 1998, and incorporated herein by
reference).
10.15 Employment Agreement dated May 22, 1998 between Catherine (O'Sullivan)
Fink and the Company (filed as Exhibit 10.15 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
10.16 Consulting Contract dated May 22, 1998 between Wm. George Fleming, Bond
Bio-Tech, Ltd. and the Company (filed as Exhibit 10.16 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
10.17 Stock Purchase Agreement dated September 1, 1993 between Chugai
Pharmaceutical Co., Ltd. and REAADS Medical Products, Inc. (filed as
Exhibit 10.17 to the Company's Registration Statement on Form 10-SB
filed June 29, 1998, and incorporated herein by reference).
10.18 Lead Generation/Corporate Relations Agreement dated April 14, 1998
between the Company and Corporate Relations Group, Inc. (filed as
Exhibit 10.18 to the Company's Registration Statement on Form 10-SB
filed June 29, 1998, and incorporated herein by reference).
10.19 Note dated January 6, 1997 between REAADS Medical Products, Inc. and
Eagle Bank (filed as Exhibit 10.19 to the Company's Registration
Statement on Form 10-SB filed June 29, 1998, and incorporated herein by
reference).
10.20 Deed of Guarantee Sterling and Currency dated May 14, 1997 by REAADS
Bio-Medical Products (UK) Limited (filed as Exhibit 10.20 to the
Company's Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
10.21 Option Agreement dated as of May 22, 1998 between TransGlobal Financial
Corporation and the Company (filed as Exhibit 10.21 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
10.22 Consulting Agreement dated May 22, 1998 between TransGlobal Financial
Corporation and the Company (filed as Exhibit 10.22 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
10.23 Distributor Agreement dated as of August 3, 1998 by and between American
Biogenetic Sciences, Inc. and the Company (filed as Exhibit 10.23 to
the Company's Registration Statement on Form 10-SB/A-1 filed September
24, 1998, and incorporated herein by reference).
10.24 Form of Indemnification Agreement between the Company and its directors
and officers (filed as Exhibit 10.24 to the Company's Registration
Statement on Form 10-SB/A-1 filed September 24, 1998, and incorporated
herein by reference).
21.1 Subsidiaries of the Registrant (filed as Exhibit 21.1 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference).
<PAGE>
23.1* Consent of Certified Public Accountants
27* Financial Data Schedule
_____________________
*Filed herewith.
Reports on Form 8-K.
None.
<PAGE>
Consent of Independent Auditors
The Board of Directors
Corgenix Medical Corporation:
We consent to incorporation by reference in the registration statement on
Form S-8 of Corgenix Medical Corporation of our report dated September 10,
1999, relating to the consolidated balance sheets of Corgenix Medical
Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders" equity (deficit) and
cash flows for the years then ended which reports appears in the June 30,
1999, annual report on Form 10-KSB of Corgenix Medical Corporation.
KPMG LLP
Denver, Colorado
September 27, 1999
<PAGE>
CORGENIX MEDICAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------
Item Page Number
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Independent Auditors" Report F-1
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Consolidated Balance Sheets as of June 30,
1999 and 1998 F-2
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Consolidated Statement of Operations for
Years Ended June 30, 1999 and 1998 F-3
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Consolidated Statements of Stockholders"
Equity (Deficit) for the Years Ended June 30, F-4
1999 and 1998
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1999 and 1998 F-5
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Notes to Consolidated Financial Statements F-6
- -----------------------------------------------------------------------
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARY
Consolidated Financial Statements
June 30, 1999 and 1998
(With Independent Auditors" Report Thereon)
<PAGE>
Independent Auditors" Report
The Board of Directors
Corgenix Medical Corporation:
We have audited the accompanying consolidated balance sheets of Corgenix
Medical Corporation and subsidiary (Company) as of June 30, 1999 and 1998,
and the related consolidated statements of operations, stockholders" equity
(deficit) and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Corgenix
Medical Corporation and subsidiary as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a stockholders" deficit and a working
capital deficit as of June 30, 1999 and has suffered recurring losses from
operations, which factors raise substantial doubt about its ability to
continue as a going concern. management's plans in regard to this matter are
also described in Note 1. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Denver, Colorado
September 10, 1999
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and 1998
Assets 1999 1998
Current assets:
Cash and cash equivalents $ 15,963 216,314
Accounts receivable, less allowance for
doubtful accounts of $7,000 and $6,600 in
1999 and 1998,respectively 516,182 369,710
Note receivable 27,425 27,425
Inventories 518,215 511,408
Prepaid expenses 954 16,876
Total current assets 1,078,739 1,141,733
Equipment:
Machinery and laboratory equipment 302,949 304,744
Furniture, fixtures and office equipment 255,695 238,761
558,644 543,505
Accumulated depreciation and amortization (399,109) (328,421)
Net equipment 159,535 215,084
Intangible assets:
Patents, net of accumulated amortization of $646,987
and $572,484 in 1999 and 1998, respectively 470,557 545,060
Goodwill, net of accumulated amortization of
$36,177 and $32,523 in 1999 and 1998, respectively 25,411 29,065
495,968 574,125
Due from officer 12,000 12,000
Other assets 14,285 22,652
Total assets $ 1,760,527 1,965,594
Liabilities and Stockholders" Equity (Deficit)
Current liabilities:
Current portion of notes payable $ 296,954 287,765
Accounts payable 795,262 427,809
Accrued payroll and related liabilities 114,061 106,757
Other liabilities 105,528 116,054
Current portion capital lease obligation 3,483 -
Employee stock purchase plan payable 2,984 -
Total current liabilities 1,318,272 938,385
Notes payable, excluding current portion 790,959 853,349
Capital lease obligation, excluding current portion 7,703 _
Total liabilities 2,116,934 1,791,734
Stockholders" equity (deficit):
Preferred stock, $0.001 par value. Authorized 5,000,000
shares, none issued or outstanding _ _
Common stock, $0.001 par value. Authorized 20,000,000
shares; issued and outstanding 16,852,116 and
12,102,494 shares in 1999 and 1998, respectively 16,852 12,102
Additional paid-in capital 3,859,806 3,610,798
Stock subscription receivable - (25,651)
Accumulated deficit (4,233,065) (3,423,389)
Total stockholders" equity (deficit) (356,407) 173,860
Commitments and contingencies (notes 6 and 8)
Total liabilities and stockholders"
equity (deficit) $ 1,760,527 1,965,594
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1999 and 1998
1999 1998
Net sales $ 2,642,848 2,592,175
Cost of sales 1,053,232 901,699
Gross profit 1,589,616 1,690,476
Operating expenses:
Selling and marketing 793,188 751,244
Research and development 405,517 387,260
General and administrative 1,045,998 1,321,990
2,244,703 2,460,494
Operating loss (655,087) (770,018)
Other expenses:
Interest expense, net (146,248) (150,148)
Other, net (8,341) (2,132)
(154,589) (152,280)
Net loss $ (809,676) (922,298)
Net loss per share basic and diluted $ (0.06) (0.15)
and diluted 14,717,221 6,343,133
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders" Equity (Deficit)
Years ended June 30, 1999 and 1998
Common Common Additional Stock Accmltd. Total
Stock, stock, paid-in subscript. deficit s-holders"
$0.01 $0.001 capital receivable equity
par par (deficit)
- -----------------------------------------------------------------------------
Balances at June $1,640 - 2,337,313 - (2,421,671) (82,718)
Preferred stock - - - - (36,330) (36,330)
dividend requirement
Issuance of common 54 153 165,423 - - 165,630
Issuance of - - 10,000 - - 10,000
warrants to
purchase common stock
Conversion of 56 - 169,744 - - 169,800
preferred stock to
common stock
Conversion of (2,040) 6,120 (4,080) - - -
REAADS common
stock to Corgenix
common stock
Issuance of common - 1,957 - - (43,090) (41,133)
stock in
connection with
merger
Issuance of common - 3,872 878,012 - - 881,884
Vascular Diseas
placement offering
Common stock - - 25,651 (25,651) - -
subscription
------- ------- -------- -------- --------- --------
Net Loss - - - - (922,298) (922,298)
Balances at June - 12,102 3,610,798 (25,651) (3,423,389) 173,860
30, 1998
Issuance of common - 297 99,703 - - 100,000
stock
A Corgenix product typically requires less hands-on time by laboratory
stock for services
Issuance of common - 4,000 (4,000) - - -
stock under
contingency
agreement
Issuance of common - 78 (78) 25,651 - 25,651
The Comp
connection with
stock subscription
Net loss - - - - (809,676) (809,676)
------- ------- -------- -------- --------- --------
Balances at June $ - 16,852 3,859,806 - (4,233,065) (356,407)
30, 1999
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1999 and 1998
1999 1998
Cash flows from operating activities:
Net loss $ (809,676) (922,298)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 153,016 162,023
Common stock issued for services 153,758 194,625
Accretion of interest - 7,375
Interest capitalized to note payable 19,255 -
Provision for doubtful accounts 4,722 3,147
Loss on disposal of equipment 8,341 -
Accounts receivable (151,194) 229,082
Inventories (6,807) (276,647)
Prepaid expenses and other assets 24,289 71,173
Accounts payable 367,453 (132,295)
Accrued payroll and related liabilities 7,304 (2,281)
Employee stock purchase plan payable 2,984 -
Other liabilities (10,526) (700)
Net cash used by operating activities (237,081) (666,796)
Cash flows from investing activities:
Purchases of equipment (15,682) (14,240)
Proceeds from return of equipment - 63,916
Net cash provided (used) by investing
activities 15,682 (49,676)
Cash flows from financing activities:
Proceeds from issuance of common stock 100,000 881,914
Proceeds from issuance of notes payable 18,620 293,995
Payments on notes payable (91,076) (483,561)
Proceeds from stock subscription 25,651 -
Payments on capital lease obligations (783) -
Net cash provided by financing activities 52,412 692,348
Net increase (decrease) in cash and cash
equivalents (200,351) 75,228
Cash and cash equivalents at beginning of year 216,314 141,086
Cash and cash equivalents at end of year $ 15,963 216,314
Supplemental cash flow disclosures -
cash paid for interest $ 104,688 156,940
Acquisition:
Assets acquired $ - 27,425
Accumulated deficit - 43,090
Liabilities assumed - (68,558)
Common stock issued - (1,957)
Net cash paid for acquisition $ - -
Noncash financing activities:
Common stock warrants issued with note
payable $ - 10,000
Conversion of pref. stock to notes payable $ - 254,961
Common stock subscription $ - 25,651
Issuance of 4,000,000 shares for no cash in
November 1998
Noncash investing activity -
equipment acquired under capital leases $ 11,969 -
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(1) Summary of Significant Accounting Policies
(a) Business, Basis of Presentation and Merger
On May 22, 1998, REAADS Medical Products (REAADS) completed a merger
with a subsidiary of Gray Wolf Technologies, Inc., an inactive
corporation with no significant assets or operations. The resulting
merged corporation was named Corgenix, Inc. The parent corporation
was renamed Corgenix Medical Corporation (Corgenix or the Company).
Effective with the merger, all previously outstanding common stock,
preferred stock, options and warrants of REAADS were exchanged for
common stock of Corgenix in an exchange ratio of 1 share of REAADS in
exchange for 30 shares of Corgenix, resulting in the previous
stockholders of REAADS owning approximately 76% of the common stock of
Corgenix.
Corgenix develops, manufactures and markets diagnostic products for
the serologic diagnosis of certain vascular diseases and autoimmune
disorders using proprietary technology. The Company markets its
products to hospitals and free-standing laboratories worldwide through
a network of sales representatives, distributors and private label
(OEM) agreements. The Company's offices and manufacturing facility
are located in Westminster, Colorado.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, REAADS Bio-medical Products
(UK) Limited (REAADS UK). REAADS UK was established as a United
Kingdom company during 1996 to market the Company's products in
Europe. The operations of REAADS UK were not significant for the
years ended June 30, 1999 and 1998. Transactions are generally
denominated in US dollars and REAADS UK holds nominal assets and
liabilities. Therefore, there is no foreign currency translation gain
or loss or other comprehensive income recorded.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the
accompanying financial statements, the Company has a working capital
deficit of $266,958 as of June 30, 1999, has incurred a net loss of
($837,101) for the year ended June 30, 1999, and has a stockholders"
deficit of $383,832, which factors raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments relating to the
outcome of this uncertainty.
management's future plans to continue as a going concern include
attaining future profitable operations through distribution agreements
and obtaining additional equity or debt financing.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
significantly from those estimates.
<PAGE>
(c) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments, purchased
with maturities of three months or less to be cash equivalents.
(d) Inventories
Inventories are recorded at the lower of cost or market, using the
first-in, first-out method. Components of inventories as of June 30,
are as follows:
1999 1998
---------- -----------
Raw materials $ 90,035 131,709
Work-in-process 235,823 210,307
Finished goods 192,357 169,392
---------- -----------
$ 518,215 511,408
========== ===========
(e) Equipment
Equipment is recorded at cost. Depreciation, which totaled $74,859
and $84,667 for the years ended June 30, 1999 and 1998, respectively,
is calculated primarily using the straight-line method over the
estimated useful lives of the assets which range from 3 to 7 years.
(f) Intangible Assets
Intangible assets consist of purchased patents and goodwill, which are
amortized using the straight-line method over 15 years.
(g) Income Taxes
Under the asset and liability method of recording income taxes, which
the Company follows, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes the
enactment date.
(h) Revenue Recognition
Revenue is recognized upon shipment of products.
<PAGE>
(i) Research and Development
Research and development costs and any costs associated with
internally developed patents, formulas or other proprietary technology
are expensed as incurred.
(j) Long-Lived Assets
The Company's long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve
break-even operating results over an extended period. The Company
evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should an impairment in value be
indicated, the carrying value of intangible assets will be adjusted,
based on estimates of future discounted cash flows resulting from the
use and ultimate disposition of the asset.
(k) Stock-Based Compensation
In accounting for its stock purchase plan, the Company records
compensation expense on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. Pro forma
net income (loss) disclosures for employee stock option grants as if
the fair value based method had been applied are also provided.
(2) Business Combination
On May 22, 1998, REAADS purchased, in an exchange of common stock, a
subsidiary of Gray Wolf Technologies, Inc. (Gray Wolf) in a transaction
accounted for using the purchase method of accounting. The total
purchase price and carrying value of net assets acquired of Gray Wolf was
$1,957. Net assets acquired are as follows:
Net current assets $ 27,425
Accumulated deficit 43,090
Net current liabilities (68,558)
----------
$ 1,957
==========
As Gray Wolf was an inactive corporation with no significant operations,
the Company recorded the carryover historical basis of net tangible
assets acquired. The results of operations subsequent to the date of
acquisition are included in the Company's consolidated operations.
<PAGE>
(3) Notes Payable
Notes payable consist of the following at June 30, 1999 and 1998:
1999 1998
---------- ----------
Note payable to a bank, with interest
at prime plus
2.75% (10.5% at June 30, 1999),
due in monthly
installments of $14,415 through
January 2007, $ 895,224 918,603
collateralized by the Company's
common stock,
commercial security agreements
and a key man life
insurance policy
Note payable to a bank, with interest
at prime plus
2.5% (10.25% at June 30, 1999)
due in monthly 18,000 40,000
installments of $2,000 and a
balloon payment due
August 30, 1999, collateralized
by accounts receivable
Notes payable to former preferred
stockholders, with 136,689 144,511
interest at 12%, due November
1999
Note payable, with interest at prime
plus 3%, due on 38,000 38,000
demand
---------- ----------
1,087,913 1,141,114
Less current portion (296,954) (287,765)
---------- ----------
Notes payable, excluding $ 790,959 853,349
current portion
========== ==========
Aggregate maturities of notes payable by year as of June 30, 1999, are as
follows:
Years ending June 30:
2000 $ 296,954
2001 84,695
2002 95,177
2003 106,957
2004 120,195
Thereafter 383,935
-----------
$ 1,087,913
===========
<PAGE>
The carrying values of notes payable approximate fair value based on their
terms and floating market based interest rates.
(4) Stockholders' Equity
In connection with the merger, the Company had a contingent obligation to
issue 4,000,000 shares of common stock to former REAADS stockholders. The
contingent shares were issuable upon the occurrence of the following
events: (i) the conversion of one or more shares of the Company's
authorized but unissued Series A 5% convertible preferred stock to common
stock or the exercise of one or more common stock purchase warrants
issued in connection with the Series A Preferred Stock, in which case the
maximum number of contingent shares issuable was 2,000,000 shares, (ii)
November 23, 1998, if as of such date the Company has sold less than
$1,000,000 of Series A Preferred Stock, in which case the maximum number
of contingent shares issuable was 4,000,000 shares less (a) the number of
shares of common stock issuable upon conversion of all then outstanding
Series A preferred stock and exercise of all preferred stock less (b)
four times the dollar amount of Series A preferred stock sold by the
Company as of such date. The contingent shares were issuable to the
former stockholders of REAADS without payment of additional
consideration. On November 23, 1998, the Company had not sold any Series
A Preferred Stock. Accordingly, 4,000,000 common shares were issued
November 30, 1998.
Effective with the purchase of Gray Wolf, 3,872,235 shares of Corgenix
common stock were issued at a weighted average price of $.2532 per
share. Proceeds of $881,884 were recorded net of commissions and
expenses. An additional 77,765 shares of Corgenix common stock were
subscribed, and a subscription receivable was recorded of $25,651 as of
June 30, 1998. Payment for the subscription was received in July 1998
and the shares were issued in July 1998.
(5) Stock Compensation and Stock Purchase Plan
Effective January 1, 1999, the Company adopted an Employee Stock Purchase
Plan to provide eligible employees an opportunity to purchase shares of
its common stock through payroll deductions, up to 10% of eligible
compensation. The plan is registered under Section 423 of the Internal
Revenue Code of 1986. Each quarter, participant account balances are
used to purchase shares of stock at the lesser of 85% of the fair value
of shares on the beginning (grant date) and end (exercise date) of each
quarter. No right to purchase shares shall be granted if, immediately
after the grant, the employee would own stock aggregately 5% or more of
the total combined voting power or value of all classes of stock. A
total of 500,00 common shares were registered under an S-8 filing, a
portion of which are available for purchase under the plan. There were
10,322 shares issued under the plan during fiscal year 1999.
Compensation expense is recognized for the fair value of the employee's
purchase rights. The weighted-average fair value of those purchase
rights granted in fiscal year 1999 was $.375 per share.
<PAGE>
Effective January 1, 1999, the Company adopted a Stock Compensation Plan
to provide executive officers an opportunity to purchase shares of its
common stock as a bonus or in lieu of cash compensation for services
rendered. Each quarter, the officers may purchase shares of stock at the
lesser of 85% of the fair value of shares on the beginning (grant date)
and end (exercise date) of each quarter. The Stock Compensation Plan
expires on December 31, 2000. A total of 500,000 common shares were
registered under an S-8 filing, a portion of which are available for
purchase under the plan. There were 334,706 shares issued under the plan
during fiscal 1999. Compensation expense is recognized for the fair
value of the executive officers' purchase rights. The weighted-average
fair value of those purchase rights granted in fiscal year 1999 was
$0.375 per share.
(6) Commitments and Contingencies
(a) Royalty Agreement
The Company has a royalty agreement with BioStar Medical Products,
Inc. (BioStar) whereby the Company pays 5% of certain product sales,
up to an aggregate of $600,000, in royalties. As of June 30, 1999,
$600,000 of cumulative royalties have been paid to BioStar and no
future royalty obligation exists. Royalty expense under this
agreement totaled $61,000 and $92,000 for the years ended June 30,
1999 and 1998, respectively.
(b) Leases
The Company is obligated under various noncancelable operating and
capital leases primarily for its operating facility and certain office
equipment. The leases generally require the Company to pay related
insurance costs, maintenance costs and taxes. Future minimum lease
payments under noncancelable leases with initial or remaining terms in
excess of one year as of June 30, 1999, are as follows:
Capital Operating
lease leases
----------- -----------
Years ending June 30:
2000 $ 5,119 133,000
2001 5,119 135,000
2002 3,839 11,000
----------- -----------
Total future minimum lease payments 14,077 279,000
===========
Less amount representing interest (2,891)
-----------
Present value of minimum 11,186
lease payments
Less current portion (3,483)
-----------
$ 7,703
===========
<PAGE>
Rent expense totaled $96,000 and $115,000 for the years ended June 30,
1999 and 1998, respectively.
(c) Employment Agreements
The Company has employment agreements with certain key employees,
certain of whom are also stockholders. In addition to salary and
benefit provisions, these agreements include defined commitments
should the employees terminate their employment with or without cause.
(7) Income Taxes
At June 30, 1999, the Company has a net operating loss carryforward for
income tax purposes of approximately $1,300,000 expiring during the
period from 2006 to 2019. Research and development tax credit
carryforwards approximate $200,000. The future utilization of the
operating loss carryforwards or the time period in which the
carryforwards may be utilized could be limited if certain historical
stockholders of REAADS sell their shares within two years of the purchase
of Gray Wolf.
As of June 30, 1999, the Company had a gross deferred tax asset of
approximately $1,360,000 relating primarily to the Company's net
operating losses and research and development credit carryforwards. A
valuation allowance in the amount of the deferred tax asset has been
recorded due to management's determination that it is not more likely
than not that the tax assets will be utilized.
(8) Related Party Transactions
The Company has a consulting agreement with TransGlobal Financial
Corporation (TGF), a company whose president also serves as a director of
Corgenix. TGF is to provide business and financial advice in return for
a monthly fee of $5,000 through May 22, 2001, plus a percentage of funds
committed and available to the Company through debt or equity financing.
TGF is also entitled to a transaction fee for any business combination or
joint venture it represents for Corgenix. Two of Corgenix's directors
were nominated by TGF for the term of the agreement unless the Company
issues an aggregate of 250,000 or more shares of Series A preferred stock
and warrants to purchase an aggregate of 250,000 or more shares of common
stock. Thereafter, TGF is entitled to have a designated observer present
at all board meetings. During the term of the agreement, the Company is
required to obtain TGF's written consent prior to issuing more than 5% of
any class of common or preferred stock.
The Company has issued options to TGF for the purchase of 1,000,000 units
of Series A 5% convertible preferred stock and warrants to purchase one
share of common stock at an exercise price of $2.00, for an aggregate
purchase price of $1,000,000.
The Company has entered into product development, manufacturing and
distribution agreements with Chugai, which provide certain rights for
Chugai to distribute the Company's products in Japan.
<PAGE>
In November 1997, the Company borrowed $100,000 under a note payable from
a stockholder. The note and related interest was repaid in May 1998.
Amounts due from an officer are due on June 30, 2001 and do not bear
interest.
(9) Concentration of Credit Risk
The Company's customers are principally located in the United States,
although it has some foreign customers. The Company has a distribution
agreement with Cambridge Life Sciences plc to distribute the Company's
products in Europe. The Company performs periodic credit evaluations of
its customers" financial condition but generally does not require
collateral for receivables.
Chugai is the Company's largest customer, representing approximately 16%
and 30% of sales in the years ended June 30, 1999 and 1998, respectively,
and approximately 20% and 21% of accounts receivable at June 30, 1999 and
1998, respectively.
(10) Fourth-Quarter Adjustments
Year-end adjustments, which are primarily comprised of differences of
inventory valuation, unrecorded liabilities for foreign sales activities,
and collectibility of receivables, had a statement of operation's effect
of $(193,000) impact as follows:
Increase
to net Increase
loss and in net
accumulated loss per
deficit share
---------- -----------
Quarter ended September $ (41,000) -
30, 1998
Quarter ended December (44,000) -
31, 1998
Quarter ended March 31, (68,000) (.01)
1999
Quarter ended June 30, (40,000) (.01)
1999
----------
$ (193,000)
==========
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on this 28th day of September, 1999.
CORGENIX MEDICAL CORPORATION
By:
Luis R. Lopez, M.D.
Chairman and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signatures Title Date
/s/_________________ Chairman of the Board, Chief September 28,1999
Luis R. Lopez, M.D. Executive Officer and Director
(principal executive officer)
/s/_________________ President, (principal financial September28, 1999
Douglass T. Simpson and accounting officer) and
Director
/s/_________________ Director September 28, 1999
Brian E. Johnson
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<PERIOD-START> JUL-1-1998
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