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, 2000
|_| 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 |_|
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. |X|
The issuer's revenues for its most recent fiscal year were:
$3,544,953
The aggregate market value of the voting stock held by non-affiliates of the
issuer was $3,171,941 as of September 19, 2000.
The number of shares of Common Stock outstanding was 17,424,584 as of September
19, 2000.
Transitional Small Business Disclosure Format. Yes |_| 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, 2000.
<PAGE>
PART I
Item 1. Description of Business.
Certain terms used herein are defined in the Glossary that follows at the
end of this Part.
Company Overview
Corgenix Medical Corporation ("Corgenix" or the "Company") is engaged in
two principal areas of the healthcare products business:
o The research, development, manufacture, and marketing of in
vitro (outside the body) diagnostic products for use in
disease detection and prevention (the "Professional
Products Business"). We currently sell 140 (the
"Professional Products") Professional Products on a
worldwide basis to hospitals, clinical laboratories,
commercial reference laboratories, and research
institutions; and
o The sale and distribution of healthcare and related products
(the "Consumer Products") to consumers via e-commerce
(the "Consumer Healthcare Business"). In the fiscal year
ended June 30, 2000, sales of Consumer Products were not
significant, in the financial performance of the Company.
We did progress significantly in the development stage of
the e-commerce site, www.healthoutfitters.com, which is
projected to open during the fiscal year ending June 30,
2001.
Our corporate office is located in Westminster, Colorado. The Company was
established in May 1998 resulting from a merger (the "Merger") between REAADS
Medical Products, Inc., ("REAADS") a Delaware Corporation, and Gray Wolf
Technologies, Inc., ("Gray Wolf") a Nevada corporation. Prior to May 22, 1998,
our business was conducted by and under the name of REAADS Medical Products,
Inc. We have three wholly-owned operating subsidiaries:
o Corgenix, Inc., ("Corgenix, Inc.") (formerly REAADS),
established in 1990 and located in Westminster, Colorado.
Corgenix, Inc. is responsible for sales and marketing
activities for North America and Japan, and also conducts
product development, product support, regulatory affairs
and product manufacturing of the Professional Products.
o Corgenix (UK) Ltd., ("Corgenix UK"), incorporated in the United Kingdom
in 1996 as REAADS Bio-Medical Products (UK) Limited ("REAADS UK"), and
is located in Peterborough, England. Corgenix UK manages our
international sales and marketing activities except for distribution in
North America and Japan which is under the responsibility of Corgenix,
Inc.
o Health-outfitters.com, Inc., ("health-outfitters.com"), a
Colorado corporation established in 1999, and located in
Westminster, Colorado. Health-outfitters.com manages our
Consumer Healthcare Business. The business was not
operational at June 30, 2000.
The Professional Products Business
Introduction
Our Professional Products Business is managed by Corgenix, Inc. and
Corgenix UK, and includes the research, development, manufacture, and marketing
of in vitro diagnostic products for use in disease detection and prevention. We
sell 140 Professional Products on a worldwide basis to hospitals, clinical
laboratories, commercial reference laboratories, and research institutions. Some
of these are products which we have developed and which we manufacture at our
Colorado facility, and others are products which we purchase from other
healthcare manufacturers ("OEM" products). All of these products are used in
clinical laboratories for the diagnosis and/or monitoring of five important
areas of health care:
o Autoimmune disease and Antiphospholipid antibody testing (diseases in
which an individual creates antibodies to one's self, for example
systemic lupus erythematosus ("SLE") and rheumatoid arthritis ("RA"));
<PAGE>
o Vascular disease (diseases associated with certain types of thrombosis
or clot formation, for example antiphospholipid syndrome, deep vein
thrombosis, stroke and coronary occlusion);
o Infectious diseases (diseases caused by certain bacterial
and other microorganisms), for example gonorrhea,
mononucleosis and herpes;
o Liver diseases (cirrhosis and transplanted organ rejection);
and
o Miscellaneous testing (pregnancy, fecal occult blood and related
products).
In addition to our current Professional Products, we are actively
developing new laboratory tests in other important diagnostic testing areas. See
"-- Other Strategic Relationships." In this connection, we manufacture and
market to clinical laboratories and other testing sites worldwide. Our 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 5.3% of the Common Stock of the
Company. See "-- Chugai Strategic Relationship."
Most of our products are based on our patented and proprietary application
of Enzyme Linked ImmunoSorbent Assay ("ELISA") technology, a clinical testing
methodology commonly used worldwide. All of our 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 our new products that employ this technology and delivery
format. Our products are sold as "tests" 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. Our 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 our competitors.
Some of the OEM products which we obtain from other manufacturers and sell
through our distribution network utilize technologies other than our patented
and proprietary ELISA technology.
Our 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, we are
developing additional products that are intended to broaden the range of
applications for our existing products and to result in the introduction of new
products.
Since 1990, our sales force and distribution partners have sold over 12
million tests worldwide under the REAADS and Corgenix labels, as well as OEM
products. An integral part of our strategy is to work with corporate partners to
develop market opportunities and access important resources. We believe that our
relationships with current and potential partners will enable us to enhance our
menu of diagnostic products and accelerate our ability to penetrate the
worldwide markets for new products.
We currently use the REAADS trademarks and tradenames in the sale of the
products which we manufacture. These products constitute the majority of our
product sales..
<PAGE>
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 over-the-counter ("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. Our 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 our ELISA tests is
relatively simple, and typically is used by a laboratory for many different
products.
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 ("POC") (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, we believe 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
Our primary objective is to apply our proprietary ELISA technology to the
development and commercialization of products for use in a variety of markets.
Our strategies for achieving this objective include the following:
Apply our ELISA Technology to Additional Diagnostic Markets. We have
focused our resources on development of highly accurate tests in the
Microplate format for sale to clinical testing laboratories. We believe we
can expand our market focus with the addition of new tests complementary
to the current product line.
Leverage Sales and Marketing Resources. We maintain a small marketing and
sales organization, which is experienced in selling diagnostic tests into
the laboratory market. We plan to expand this sales organization, adding
distribution channels where appropriate. We will also seek to expand our
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. We
have developed, and will continue to pursue, strategic alliances to access
complementary resources (such as proprietary markers, funding, marketing
expertise and research and development assistance), to leverage our
technology, expand our product menu and maximize the use of our sales
force.
Pursue Synergistic Product and/or Technology Acquisitions. We intend to
proactively evaluate strategic acquisitions of companies, technologies and
product lines where we identify a strategic opportunity to expand our core
business while increasing revenues and earnings from these new
technologies.
Expand Line of Diagnostic Tests into Home Use. The products
sold by health-outfittters.com., Inc. will include a wide
range of home tests for certain diagnostic uses. We will
initially sell products manufactured for us by other
companies, then develop our own line of products as
appropriate.
<PAGE>
Products and Markets
We currently sell ELISA tests in major markets worldwide. To date, our
sales force and distribution partners have sold over 12 million tests since we
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. Many peer reviewed medical publications, abstracts and symposia have
been presented on the favorable technical differentiation of our tests over
competitive products.
To extend the product offering for current product lines, and to
complement our premium-priced, existing assays, we plan to add products from
strategic partners. Our current product menu, commercialized under the
trademarks "REAADS" and "Corgenix" includes the following:
Autoimmune Disease Products
Our ELISA Autoimmune Disease Product line consists of twenty-one products,
including a screening test for antinuclear antibodies (ANA), and specific tests
to measure antibodies to dsDNA, Sm, SM/RNP, SSA, SSB, Jo-1, Scl-70, histones,
gliadin, ASCA, rP, centromere, mitochondria, MPO, PR3, thyroglobulin, thyroid
peroxidase, nucleo, intrinsic factor and ASG-PR. We manufacture one of these
products; the remainder are manufactured for us by other companies. 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.
These 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. These 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
We have nine products for antiphospholipid antibody testing, which in the
fiscal year ended June 30, 2000 represented over 57% of our total product sales.
These include aCL IgG, aCL IgA, aCL IgM, anti-phosphatidylserine ("aPS") IgG,
aPS IgA, aPS IgM, anti-(beta)2-Glycoprotein I ("a(beta)2GPI") IgG, a(beta)2GPI
IgA, and a(beta)2GPI 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
We market 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, Inc., and three
others (abp von Willebrand Factor Activity Test, GTI Platelet Factor 4 Test, and
abp Ristocetin) are manufactured for us 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 that we market.
Infectious Disease Products
We market fifteen products for the detection and diagnosis of certain
infectious disease organisms. These products are mainly sold by us in the United
Kingdom, and all of the products are manufactured for us by other companies.
These products include test tests for: adenovirus, helicobacter pylori (the
bacteria suspected of causing ulcers), Group A streptococcus, gonorrhea,
mycobacterium tuberculosis (the causative agent of tuberculosis), syphilis,
cryptococcal antigen, toxoplasma, mononucleosis, cytomegalovirus, herpes,
varicella zoster, Epstein Barr virus, mumps and measles.
Liver Disease Products
We developed and manufacture 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 our United Kingdom subsidiary in the United Kingdom, and is used in the
diagnosis and monitoring of certain liver diseases.
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.
Miscellaneous Products
We market two additional testing products manufactured for us by other
companies. These products are sold in the U.K. through the Corgenix UK sales
force, and include tests for pregnancy and fecal occult blood.
Technology
Our 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, our current 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.
Our 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). Our proprietary immunoassay technology is
useful in the manufacture of ELISA test tests for the detection of many analytes
for the diagnosis and management of immunological diseases.
Our technology results in products generally demonstrating performance
characteristics that exceed those of competitive testing procedures. Many
testing laboratories worldwide subscribe to external quality control systems 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 then provided by the third
party that tells the testing laboratory how it compares to other testing
laboratories in the program. Several of our products are included in a
third-party survey periodically conducted by an unaffiliated entity, and our
products routinely demonstrate the best performance and/or reproducibility when
compared to other manufacturers included in such survey.
<PAGE>
Our products typically require less hands-on time by laboratory personnel
and provide an objective, quantitative or semi-quantitative interpretation to
improve and standardize the clinical significance of results. Our proprietary
technology will continue to be the mainstay for future diagnostic products. Most
of the products in development will incorporate our basic technology.
Additional technologies may be required for some of the newly identified
tests, particularly for the POC business. We believe 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
Most of our current 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
We currently market and sell our products to the traditional clinical
laboratory market, both hospital based and free standing laboratories. We
utilize a diverse distribution program for our products. Our labeled products
are sold directly to testing laboratories in the United States through contract
sales representatives.
Internationally, our labeled products are sold through established
diagnostic companies in Argentina, Australia, Austria, Belgium, Botswana,
Brazil, Canada, Chile, Denmark, Egypt, Finland, France, Germany, Greece,
Guatemala, Hong Kong, Hungary, India, Ireland, Israel, Italy, Japan, Korea,
Kuwait, Lebanon, Malaysia, Mexico, Mozambique, Namibia, The Netherlands, New
Zealand, Norway, Paraguay, Peoples Republic of China, Peru, Portugal, San
Marino, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sri Lanka,
Sweden, Switzerland, Syria, Taiwan, Thailand, Turkey, the United Kingdom,
Uruguay, the Vatican State and Zimbabwe. Discussions are underway that are
expected to provide access to additional markets worldwide. Our agreements with
international distribution partners are on terms that are generally terminable
by us if the distributor fails to achieve certain sales targets. We have also
established private labeled product agreements with several United States and
European companies. We have international distribution headquarters in the
United Kingdom and will add direct commercialization and distribution in
selected additional countries as appropriate.
We have an active marketing and promotion program for our diagnostic
testing products. We publish technical and marketing promotional materials,
which we distribute to current and potential customers. We attend major industry
trade shows and conferences, and our scientific staff actively publishes
articles and technical abstracts in peer review journals.
Manufacturing
Our manufacturing process for our products utilizes a semi-automated
production line for the manufacturing, assembly and packaging of our ELISA
Microplate products. Our current production capacity is 10,000 tests per day
with a single eight-hour shift. Since 1990, we have successfully produced over
12 million tests in our Westminster, Colorado facility, and we expect that
current manufacturing facilities will be sufficient to meet expected customer
demand for the foreseeable future.
<PAGE>
Our manufacturing operations are fully integrated and consist of raw
material purification, reagent and Microplate processing, filling, labeling,
packaging and distribution. We have considerable experience in manufacturing our
products using our proprietary technology. We expect increases in the demand for
our products and have prepared plans to increase our manufacturing capability
while remaining in compliance with regulatory requirements at acceptable costs
to meet that increased demand, and are in the process of implementation. We also
maintain an ongoing investigation of scale-up opportunities for manufacturing to
meet future requirements. We anticipate that production costs will decline as
more products are added to the product menu in the future, permitting us to
achieve greater economies of scale as higher volumes are attained. We have
registered our facility with the FDA and we operate in compliance with the FDA
Quality System Regulations ("QSR") requirements for our products.
In April 1999, we 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 ensure continued compliance with the rigorous
standards of ISO 9001, companies must undergo regularly scheduled assessments
and re-certification every year. The ISO 9001 initiative is an important
component in our commitment to maintain excellence. We received re-certification
in November 1999, and are scheduled for an annual re-certification inspection in
November 2000.
Our 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 ability to meet pre-established specifications
by our quality control department. If required, adjustments in the bulk
solutions are made to provide optimal performance and lot-to-lot consistency.
The bulk solutions are then dispensed and packaged into planned component
configurations. The final packaging step in the manufacturing process includes
kit assembly, where all materials are packaged into finished product. The
finished kit undergoes one final performance test by our quality control
department. Before product release for sale, our Quality Assurance department
must verify 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
our products are readily available. We have established good working
relationships with primary vendors, particularly those that supply unique or
critical components for our products. We mitigate 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. We have also qualified
second vendors for all critical raw materials and believe that we can substitute
a new supplier with regard to any of these components in a timely manner.
However, there can be no assurances that we will be able to substitute a new
supplier in a timely manner, and failure to do so could have a material adverse
effect on our business, financial condition and results of operations.
A significant percentage of our 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 our sales in Europe, we have obtained ISO
certification and expect to receive a "CE" mark certification, an international
symbol of quality and compliance with applicable European medical device
directives for certain of our products once the European directive for in vitro
diagnostic products has been finalized.
Since 1990, we have entered into several contract manufacturing agreements
with other companies whereby we manufacture specific products for the partner
company. We expect to continue investigating and evaluating opportunities for
additional agreements.
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 at September 1, 2000, owned approximately 5.3% 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 a
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 then
existing Corgenix products, and exclusive rights for all future Corgenix
products. The initial term of the Japanese Distribution Agreement was for 7
years, expiring August 26, 2000 with successive one-year extension options. It
has been extended until August 26, 2001.
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 of agreement whereby
Chugai agreed, under certain conditions, to reimburse Corgenix for the purchase
of certain pieces of equipment required for HA manufacturing.
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 was initially for a two-year period which expired November 17,
1999, with one-year extension rights. The UK Agreement was amended on January 3,
2000. 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 right granted by Chugai.
Other Strategic Relationships
In addition to the Chugai strategic relationship, an integral part of our
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 our corporate partnering strategy with
Chugai and other strategic affiliations include:
o Companies that are interested in co-developing
diagnostic tests that use our technology;
o Companies with complementary technologies;
o Companies with complementary products and novel disease
markers; and/or
o Companies with access to distribution channels that supplement our
existing distribution channels.
In furtherance of the foregoing strategies, we have 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, we entered into an agreement with
Cambridge by which we provide 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. We also distribute several
products manufactured by Cambridge through our 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, we entered into a
development and manufacturing agreement with Helena pursuant to which we
developed a series of vascular disease products for joint distribution. Three of
these received FDA clearance in 1997 and one in 1999. We manufacture these
products for worldwide distribution through both the Helena network and our
network. Pursuant to the agreement, Helena has the right to incorporate several
of our current products and technology (both those jointly developed and also
other of our products) into a proprietary Helena instrumentation for sale to
hospitals and clinical laboratories.
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, we became a non-exclusive
distributor of abp's von Willebrand Factor Activity in the United States. We
distribute this product under our label through our distribution network,
primarily in the United States. This product complements our 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 our election for
additional successive one-year terms. abp also sells this test under our label
through its distribution network. Under the terms of a separate distribution
agreement, abp will sell our von Willebrand Factor Antigen, Protein C, Protein S
and Monoclonal Free Protein S products worldwide under the Corgenix label
through their distribution network.
GTI, Inc. GTI is a privately held company located in Brookfield, Wisconsin
that manufactures ELISA diagnostic products. In April 1998, we signed an
agreement with GTI by which we became a non-exclusive distributor of GTI's
Platelet Factor 4 ELISA test kit in the United States. The initial term of the
agreement was one year and has been renewed at our option. This product is also
part of our vascular disease product strategy.
We have established OEM agreements with several international diagnostic
companies. Under these agreements, we manufacture selected products under the
partner's label for worldwide distribution.
Research and Development
We direct our research and development efforts towards development of new
products on our proprietary platform ELISA technology in the Microplate format,
as well as applying our technology to automated laboratory testing systems and
to a rapid test format to address operator ease-of-use and expand our market
opportunities. In that regard, we have organized our research and development
effort into three major areas: (i) new product development, (ii) technology
assessment, and (iii) technical and product support.
<PAGE>
Our technical staff 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 our quality assurance department to satisfy
regulatory requirements and support regulatory clearance. They are responsible
for assessing the performance of new technologies along with determining the
technical feasibility of market introduction, and investigating the patent /
license issues associated with new technologies.
Our technical staff is responsible for supporting current products on the
market through scientific investigation, and are responsible for design transfer
to manufacturing of all new products developed. They assess the performance and
validate all externally-sourced products.
The technical staff includes individuals skilled in immunology, assay
development, protein biochemistry, biochemistry and basic sciences. We maintain
facilities to support our development efforts at the Westminster, Colorado
headquarters. 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."
Products and Technology in Development
We intend to expand our product menu through internal development,
development in collaboration with strategic partners and acquisition or
licensing of new products and technologies. We are currently working with
partners to develop additional tests to supplement the existing product lines.
The following summarizes our current product and technology development
programs:
<PAGE>
Antiphospholipid Antibody Testing Products
We are one of the market leaders in development of innovative tests in the
antiphospholipid market, and expect to continue developing products in this area
to ensure our ongoing strong market position. In the fiscal year ended June 30,
1999, we developed three new antiphospholipid products which are more specific
for thrombosis and the antiphospholipid syndrome when incorporated with the
conventional aCL and aPS tests, and are configured for sale to hospital based
and free-standing independent laboratories. Filing of the 510(k) applications
for the new tests was completed and one of the products, anti-phosphatidylserine
IgA, was cleared by the FDA in April 2000. Two additional products in this area
are still in the application process and clearance by the FDA is expected in the
fiscal year ending June 30, 2001. An additional product in this area is in final
stages of development, and we expect to file an application with the FDA in
2000-2001. See "-- Regulation."
Automated Laboratory Testing Systems
We believe that the application of our proprietary ELISA technology to
automated laboratory testing systems will significantly expand the hospital and
specialized laboratory market opportunity through OEM partnerships and direct
sales to high volume testing laboratories. We have several such development
programs pending with strategic partners.
Rapid Test Delivery System
We believe that development of a rapid test delivery technology could
significantly expand our market opportunity. This technology would allow the
introduction of next generation products, which will require a substantially
shorter period to develop, test and submit for regulatory approval. We expect to
add several diagnostic products manufactured for us by other companies to the
product offerings of health-outfitters.com, and are investigating opportunities
to develop this technology internally. If adopted, products targeted for
development and internal manufacturing include pregnancy, diagnosis of certain
infectious diseases, and tests to measure cardiac markers.
<PAGE>
Competition
Competition in the human medical diagnostics industry is significant. Our
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 we do. 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
continues to experience significant consolidation in which many of the large
domestic and international healthcare 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 or vascular diseases. There
can be no assurance that new, superior technologies will not be introduced that
could be directly competitive with or superior to our technologies.
Our competitors include Inova Diagnostics, Inc., DIASORIN, 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 we are and have substantial resources
and market presence. We compete against these companies on the basis of product
performance and customer service.
Patents, Trade Secrets and Trademarks
We have built a strong patent and intellectual property position around
our proprietary application of ELISA technology. We hold five United States
patents that expire beginning in 2004 and ending in 2010. We have 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, we
have 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 our patents, and any patents that
may be issued to us in the future, will afford protection against competitors
with similar technology. In addition, no assurances can be given that patents
issued to us will not be infringed upon or designed around by others or that
others will not obtain patents that we would need to license or design around.
If the courts uphold existing or future patents containing broad claims over
technology used by us, the holders of such patents could require us 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."
We have registered our 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.
An allowance for the trademark "Corgenix" was received September 2000.
Were appropriate, we intend to obtain patent protection for our products
and processes. We also rely on trade secrets and proprietary know-how in our
manufacturing processes. We require each of our employees, consultants and
advisors to execute a confidentiality agreement upon the commencement of any
employment, consulting or advisory relationship with us. 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 be
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.
The majority of our product sales, approximately 70%, for the fiscal year
end June 30, 2000, where products which utilized our proprietary technology.
Regulation
The testing, manufacturing and sale of our 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. We are 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 our 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 our 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, we 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 our products have been
cleared using a 510(k) application, and we expect that most, if not all, future
products will also qualify for clearance using a 510(k) application.
It generally takes up to 90 days 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 we will be able to obtain necessary regulatory approvals or clearances for
our 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 our 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."
Our 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." Our 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 our future
products.
We are 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 we 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 our business,
financial condition and results of operations.
<PAGE>
Reimbursement
Currently our largest market segment is the hospital based and free
standing independent laboratory market in the United States. Payment for testing
in this segment is largely based on third party payor reimbursement. The
laboratory that 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.
The Consumer Healthcare Business
Introduction
health-outfitters.com, Inc. is an Internet-based consumer
healthcare business projected to be launched in the fiscal year
ending June 30, 2001. The website, www.healthoutfitters.com, is
expected to be a consumer-focused interactive site including:
|X| an extensive and expanding line of healthcare-related
products available for convenient purchase and delivery;
and
|X| links to a vast array of healthcare information such as acute ailments,
chronic illnesses, nutrition, fitness and wellness, medical databases,
publications and medical or health related news.
The website will be designed to provide easy access to health related
information for the customer. Our mission is to establish health-outfitters.com
as a premier source of consumer healthcare product and information needs via the
Internet (the global computer network). The site will be designed to promote
independent healthy living - featuring medical and health information, home
diagnostics and nutritional supplements, fitness enhancing products, mobility
aids, home accessories and convenience products to empower individuals to lead
more productive lives. By providing all of these components in one extensive
site, we expect health-outfitters.com to be the consumer's best choice to supply
all their healthcare needs.
We intend to develop a high degree of brand recognition, drive high
volumes of traffic to www.healthoutfitters.com, and acquire and distribute
relevant health information. We expect to expand the network by establishing
relationships with companies and organizations providing healthcare products and
services, as well as those which have the ability to direct large numbers of
users to www.healthoutfitters.com. We expect to create a trusted brand on which
consumers will rely for their healthcare needs.
Industry Overview
Healthcare is the largest segment of the U.S. economy, representing an
annual expenditure exceeding $1.0 trillion. Industry analysts expect that an
increasing percentage of health-related expenditures will be made on-line as the
e-commerce activity in this segment of the economy increases. Accordingly,
companies such as health-outfitters.com that establish a clear brand identity as
a trusted source of on-line consumer healthcare products, services and
information could have a significant opportunity to capitalize on these revenue
sources.
The Internet has become an important alternative to traditional marketing
and sales channels. Advertisers can target very specific demographic groups;
on-line merchants can reach a vast audience, operating with lower costs and
greater economy of scale. Consumers gain greater selections, lower prices and
heightened convenience, compared to conventional retailing. We believe that all
participants in the healthcare industry will benefit from the Internet because
of its unique attributes as an open, low-cost and flexible technology for the
execution of electronic transactions and exchange of information.
Strategy
The business strategy of health-outfitters.com will incorporate the
following key elements:
|X| establish and aggressively promote the health-outfitters.com
brand;
|X| build the www.healthoutfitters.com site and attract an
increasingly large audience of consumers by using targeted
advertising;
|X| offer the most extensive line of unique healthcare related products
available on the Internet, with the products coming from high quality
vendors;
|X| build an efficient and responsive customer service, order fulfillment
and distribution function to support sales growth while generating a
high degree of user loyalty;
|X| maintain competitive pricing via direct shipping to
customers by suppliers while maximizing gross margin and
earnings;
|X| provide an attractive and informative website to deliver advertising in
a highly targeted manner and draw a large number of advertisers who
desire to reach the selected users; and
|X| implement a profitable e-commerce business model.
We intend to continually develop additional distribution relationships
with retailers, manufacturers and other providers to offer healthcare products
and services. We expect to partner with our vendors for shared advertising
dollars. Vendors will feature their products, and wherever possible,
health-outfitters.com will be listed as the premier Internet source from which
to purchase their products. We will feature regular specials on products, and
www.healthoutfitters.com will provide information on specific healthcare topics
relevant to the products.
Products
We intend to make the following types of products available through
health-outfitters.com: Home Diagnostics (pregnancy and fertility, drugs of
abuse, infectious diseases); Nutritionals and Nutraceuticals (health foods,
vitamin supplements, herbal medicines); Home Medical Products including, Wound
Care (first aid tests, pressure relief, dressings); Aids to Daily Living (bath
safety, dressing aids, eating accessories); Durable Medical Equipment
(wheelchairs, seating and positioning systems, rehabilitation products); Sports
& Fitness Products (sports medicine and fitness equipment); and Veterinary
Accessories (diagnostics and pet accessories).
Competition
Although there are other websites that sell selected healthcare products,
most are limited to a single market area and do not combine the variety of
products expected to be offered by health-outfitters.com. Many of the
manufacturers themselves also have websites that advertise and sell product
directly to consumers. The advantage over these sites is that
health-outfitters.com is expected to offer a vast selection of unique products,
giving the customer the advantage of choosing products from different
manufacturers and the ability to bundle into a single purchase. This is
convenient not only because of time restraints and billing ease, but also it
allows for comparison shopping and gives the customer more buying power through
volume discounts.
Customer Experience
Establishing, retaining, and increasing a satisfied customer base demands
a superior customer experience. Today's on-line shopper is looking for the most
convenient means of acquiring the goods and services needed to suit their
personal needs. The site must provide ease of use, accessibility and overall
value to exceed a variety of consumers' expectations. We intend to implement
several features to ensure this process.
We plan to design the site with speed and convenience as top priority,
providing quick, intuitive and easy navigation. We intend to provide obvious
starting points and clear paths to all segments of the site will be provided,
allowing the first time visitor the ability to easily browse or the experienced
shopper the option of proceeding directly to product categories for quick
purchases. We plan to offer health and medical information along with
recommendations of the best choices of products to fulfill the customer's needs.
Employees
As of September 20, 2000, we employed 34 employees, 32 full time and 2
part-time. Of these, 6 hold advanced scientific or medical degrees. None of
Corgenix's employees is covered by a collective bargaining agreement. We believe
that the Company maintains good relations with our employees.
Item 2. Description of Property.
We currently lease approximately 12,000 square feet of space in one
building in Westminster, Colorado, which is used for our administrative offices,
research and development facilities and manufacturing operations. The lease
expires May 30, 2001 with renewal options. We also lease approximately 1,400
square feet of office space in Peterborough, Cambridgeshire, United Kingdom
under a lease that expires September 25, 2001. We believe that suitable
additional or alternative space will be available on commercially reasonable
terms as needed, but that our existing facilities will be sufficient for our
operational purposes through the end of the leases.
Item 3. Legal Proceedings
We are not a party to any material litigation or legal proceedings.
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 or a
phospholipid-cofactor complex; 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.
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 ((beta)2GPI) -- 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 (beta)2GPI.
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.
lipids -- a group of organic compounds consisting of the fats and other
substances of similar properties.
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 on the skin 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 (R) 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 (R) under the symbol "GRWT."
On September 19, 2000, the last bid price of the Common Stock on the OTC
Bulletin Board (R) as reported by the OTC Bulletin Board (R) was $0.22.
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 (R).
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, 1999 High Low
First Quarter $0.28 $0.16
Second Quarter $0.70 $0.19
Third Quarter $0.59 $0.38
Fourth Quarter $0.41 $0.18
Year Ended June 30, 2000
First Quarter $0.28 $0.13
Second Quarter $0.25 $0.09
Third Quarter $0.72 $0.19
Fourth Quarter $0.50 $0.22
On September 19, 2000, there were approximately 138 holders of record of
the Common Stock.
To date, we have not paid any dividends on our Common Stock, and the Board
of Directors of the Company does not currently intend to declare cash dividends
on the Common Stock. We instead intend to retain 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. We are restricted from
paying dividends on the Common Stock under the terms of a promissory note in
favor of Vectra Bank ("Vectra") without the consent of Vectra.
Stock Issuance
In October 1999, we issued in two transactions a total of 399,195 shares
of Common Stock at an average price of $0.245 per share to Transglobal Financial
Corporation and Transition Partners, Ltd. This issuance was made in satisfaction
of payables of $97,940.36 to the two firms for past financial consulting
services to the Company. These sales were made to accredited investors in
reliance upon an exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended.
On October 21, 1999, we issued 20,000 shares of common stock to Mr. Brian
E. Johnson, a director of the Company, in compensation of his services to the
Company.
Issuance of Warrants
On June 1, 2000, we issued warrants to purchase 29,347 shares of common
stock of Corgenix to Taryn G. Reynolds, a Vice President of the Company. The
warrants were issued to Mr. Reynolds in connection with a $16,000 loan Mr.
Reynolds made to the Company on February 5, 1999. The warrants are exercisable
anytime prior to June 1, 2008, at an exercise price of $0.13673 per share. This
sale was made to an accredited investor in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
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, we have been primarily involved in the
research, development, manufacturing and marketing/distribution of diagnostic
tests for sale to clinical laboratories. We currently market 140 products
covering autoimmune disorders, vascular diseases, infectious diseases and liver
disease. Our products are sold in the United States, the UK and other countries
of the world through our marketing and sales organization that includes contract
sales representatives, internationally through an extensive distributor network,
and to several significant OEM partners.
We manufacture products for inventory based upon expected sales demand,
shipping products to customers, usually within 24 hours of receipt of orders.
Accordingly, we do not operate with a backlog.
Except for the fiscal year ending June 30, 1997, we have experienced
revenue growth since our 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, we began adding third-party OEM licensed
products to our diagnostic product line. Currently we sell 128 products licensed
from or manufactured by third party manufacturers. We expect to expand our
relationships with other companies in the future to gain access to additional
products.
Although we have experienced growth in revenues every year since 1990
except for 1997, there can be no assurance that, in the future, we will sustain
revenue growth or maintain profitability. Our 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 we receive R&D milestone payments and
license fees from strategic partners, (v) changes in reimbursement policies for
the products that we sell, (vi) competitive pressures on average selling prices
for the products that we sell, (vii) changes in the mix of products that we
sell. and (viii) the acceptance of e-commerce by consumers.
Results of Operations
Years Ended June 30, 2000 and 1999
Net Sales. Net sales for the year ended June 30, 2000 were $3,545,000, a
34.1% increase from $2,643,000 in 1999. A component of net sales, product sales,
increased 36.6% to $3,525,000 in 2000 from $2,580,000 in 1999 due to continued
expansion of our worldwide distribution network and the revenue contribution of
new products launched in 1998 and 1999. Product sales increased in all
divisions. Sales in the US increased 21.7%; sales to international distributors
increased 92.0%; and sales to OEM partners increased 17.7%. Sales of Hyaluronic
Acid to Chugai for distribution in Japan increased 44.6% to $600,000 in 2000
from $415,000 in 1999. We expect that sales to Chugai in 2001 will be similar to
products sold in 2000. Sales of products manufactured for us by other companies
while still relatively small are expected to increase significantly in 2001.
Sales of products by health-outfitters.com were not significant in 2000.
Cost of sales. Cost of sales increased 39.9% to $1,473,000 in 2000 from
$1,053,000 in 1999, due to the increase in net sales and the product mix
including an increase in sales of products manufactured for us by other
companies which typically have lower gross margins. Gross profit decreased to
58.4% in 2000 from 60.1% in 1999.
Research and development. Research and development expenses decreased
14.3% to $348,000 in 2000 from $406,000 in 1999 due to a credit of $43,000 in
previously realized expenses for outside clinical trials which have been
determined to be no longer necessary and which have been cancelled. Without the
$43,000 credit, research and development expenses would have decreased 3.7% to
$391,000 in 2000 from $406,000 in 1999.
Selling and marketing. Selling and marketing expenses decreased 15.0% to
$674,000 in 2000 from $793,000 in 1999 due to capitalization of $94,000 in
expenses allocated to the development of health-outfitters.com. Without the
allocation, selling and marketing expenses would have decreased 3.2% to $765,000
in 2000.
General and administrative. General and administrative expenses decreased
33.02 to $701,000 in 2000 from $1,046,000 in 1999, due to capitalization of
$80,000 of development expenses allocated to health-outfitters.com, and a
continued reduction in legal, accounting and other costs relating to financing
activities and the costs of transforming into a public company which occurred in
1998 and continued into 1999. Without the expenses allocation and
capitalization, general and administrative expenses would have decreased 25.3%
to $781,000 in 2000.
Interest expenses. Interest expense increased 2.0% to $149,000 in 2000
from $146,000 in 1999.
Liquidity and Capital Resources
Historically, we have financed our 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, we raised $1,000,000
before offering expenses through a Rule 504 offering related to the Merger, and
an additional $100,000 in a private offering in 1999.
We have also received financing for operations from sales of diagnostic
products and agreements with strategic partners. At June 30, 2000 and June 30,
1999, we had invested $633,232 and $159,535 respectively, (net of accumulated
depreciation) in leasehold improvements, laboratory and computer equipment and
office furnishings and equipment to support our development and administrative
activities. In 2000, our accounts payable increased 12.02% to $894,000 from
$798,000 in 1999, and our accounts receivable increased 18.4% to $611,000 from
$516,000 in 1999 because of the general growth of the business.
Our principal sources of liquidity are short and long term debt financing,
of which $949,295 remained outstanding as of June 30, 2000. We believe that we
will need to continue investigating new debt agreements and/or sell additional
equity securities in fiscal year 2001 to achieve appropriate liquidity and to
pursue our health-outfitters.com strategic objectives. We are aggressively
pursing several financing alternatives.
Forward-Looking Statements and Risk Factors
This 10-KSB 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 our expectations,
beliefs, intentions or strategies regarding the future. All statements other
than historical fact contained in this 10-KSB, including, without limitation,
statements regarding future product developments, statements regarding our
intent to develop the Consumer Products Business, acquisition strategies,
strategic partnership expectations, technological developments, the development,
launch and operation of health-outfitters.com, the availability of necessary
components, research and development programs and distribution plans, are
forward-looking statements. All forward-looking statements included in this
10-KSB are based on information available to us on the date hereof, and we
assume no obligation to update such forward-looking statements. Although we
believe that the assumptions and expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct or that we 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; Risks Relating to the
Professional Products Business; Uncertainty of Additional Funding
We have incurred operating losses and negative cash flow from operations
for most of our history. Losses incurred since our inception have aggregated
over $4,033,000, and there can be no assurance that we will be able to generate
positive cash flows to fund our operations in the future or to pursue our
strategic objectives. Assuming no significant uses of cash in acquisition
activities or other significant changes, we believe that we will have sufficient
cash to satisfy our funding needs for at least the next year. If we are not able
to operate profitably and generate positive cash flows sufficient for both the
Professional Products and health-outfitters.com, we may need to raise additional
capital to fund our continuing operations. If we need additional financing to
meet our requirements, there can be no assurance that we will be able to obtain
such financing on terms satisfactory to us, 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, we might be required to limit our research and development
activities, our selling and marketing activities or our plans to develop the
Consumer Products Business, any of which could have a material adverse effect on
the future of the our business.
Dependence on Collaborative Relationships and Third Parties
for Product Development and Commercialization
We have historically entered into licensing and research and development
agreements with collaborative partners, from which we derived a significant
percentage of our revenues in past years. Pursuant to these agreements, our
collaborative partners have specific responsibilities for the costs of
development, promotion, regulatory approval and/or sale of our products. We will
continue to rely on future collaborative partners for the development of
products and technologies. There can be no assurance that we will be able to
negotiate such collaborative arrangements on acceptable terms, if at all, or
that current or future collaborative arrangements will be successful. To the
extent that we are not able to establish such arrangements, we could experience
increased capital requirements or be forced to undertake such activities at our
own expense. The amount and timing of resources that any of these partners
devotes to these activities will generally be based on progress by us in our
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 our ability to deliver products on a timely basis.
No Assurance of Successful or Timely Development of
Additional Products
Our business strategy includes the development of additional diagnostic
products both for the Professional Products and health-outfitters.com. Our
success in developing new products will depend on our 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. We 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 we are 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, our results of operations could be
materially and adversely affected.
<PAGE>
Competition in the Diagnostics Industry
Competition in the human medical diagnostics industry is, and is expected
to remain, significant. Our 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 ours. 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 our technologies.
Competition in the E-commerce Industry
Competition in the e-commerce industry is, and is expected to remain,
significant. The competitors for the new business range from development stage
internet companies to divisions of larger companies. Many of these companies
have financial, marketing, sales, manufacturing, distribution and other
resources significantly greater than those of us. In addition, many of these
companies have name recognition, established positions in the market and
existing relationships with customers and distributors.
Governmental Regulation of Diagnostics Products
The testing, manufacture and sale of our 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. We are not able to commence marketing or commercial sales in the United
States of new products under development until we receive 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.
There can be no assurance that we will be able to obtain necessary
regulatory approvals or clearances for our 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 our business.
Dependence on Distribution Partners for Sales of Diagnostic
Products in International Markets
We have entered into distribution agreements with collaborative partners
in which we have granted distribution rights for certain of our products to
these partners within specific international geographic areas. Pursuant to these
agreements, our 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 our business, financial condition and
results of operations.
Governmental Regulation of Manufacturing and Other Activities
As a manufacturer of medical devices for marketing in the United States,
we are required to adhere to applicable regulations setting forth detailed good
manufacturing practice requirements, which include testing, control and
documentation requirements. We 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. We are 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. We may incur significant costs
to comply with laws and regulations in the future, which may have a material
adverse effect upon our business, financial condition and results of operations.
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. We may be required to incur significant costs in obtaining or
maintaining foreign regulatory approvals. In addition, the export of certain of
our products that have not yet been cleared for domestic commercial distribution
may be subject to FDA export restrictions. Failure to obtain necessary
regulatory approval or the failure to comply with regulatory requirements could
have a material adverse effect on our 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 product. Decreases in reimbursement amounts for tests
performed using our 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 our ability to sell our diagnostic products
profitably. Market acceptance of our 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
Our success depends, in part, on our 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
our issued patents will afford meaningful protection against a competitor, or
that patents issued to us will not be infringed upon or designed around by
others, or that others will not obtain patents that we would need to license or
design around. We could incur substantial costs in defending the Company or our
licensees in litigation brought by others. Our business could be adversely
affected.
Risks Regarding Potential Future Acquisitions
Our growth strategy includes the desire to acquire complementary
companies, products or technologies. There is no assurance that we 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 acquisitions. Moreover, because of limited cash resources, we will be
unable to acquire any significant companies or technologies for cash and our
ability to effect acquisitions in exchange for our capital stock may depend upon
the market prices for our Common Stock. If we do complete one or more
acquisitions, a number of risks arise, such as short-term negative effects on
our 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 our business, financial condition
and results of operations.
Dependence on Suppliers
The components of our products include chemical and packaging supplies
that are generally available from several suppliers, except certain antibodies,
which we purchases from single suppliers. We mitigate the risk of a loss of
supply by maintaining a sufficient supply of such antibodies to ensure an
uninterrupted supply for at least three months. We have also qualified second
vendors for all critical raw materials and believe that we can substitute a new
supplier with respect to any of these components in a timely manner. However,
there can be no assurances that we will be able to substitute a new supplier in
a timely manner and failure to do so could have a material adverse effect on our
business, financial condition and results of operations.
Limited Manufacturing Experience with Certain Products
Although we have manufactured over twelve million diagnostic tests based
on our proprietary applications of ELISA technology, certain of our diagnostic
products in consideration for future development, incorporate technologies with
which we have little 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
Our revenue and operating results have historically been minimally subject
to quarterly fluctuations. There can be no assurance that such seasonality in
our results of operations will not have a material adverse effect on our
business.
Dependence on Key Personnel
Because of the specialized nature of our business, our success will be
highly dependent upon our ability to attract and retain qualified scientific and
executive personnel. In particular, we believe our 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 we 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 our 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, we have
experienced no product liability claims, but any such claims arising in the
future could have a material adverse effect on our business, financial condition
and results of operations. Our product liability insurance coverage is currently
limited to $2 million. Potential product liability claims may exceed the amount
of our insurance coverage or may be excluded from coverage under the terms of
our policy or limited by other claims under our umbrella insurance policy.
Additionally, there can be no assurance that our existing insurance can be
renewed by us at a cost and level of coverage comparable to that presently in
effect, if at all. In the event that we are held liable for a claim against
which we are not insured or for damages exceeding the limits of our insurance
coverage, such claim could have a material adverse effect on our business,
financial condition and results of operations.
Risks Related to the Consumer Products Business
New Business Strategy
We established a new wholly owned subsidiary, health-outfitters.com, Inc.,
in December 1999. This subsidiary will focus on sales of consumer healthcare
products primarily through e-commerce using our website,
www.healthoutfitters.com. We do not have any experience in managing internet
businesses, and we may not be able to successfully develop this new business.
The demands of attempting to grow this new business may prevent management from
devoting time and attention to our traditional diagnostic business, and that
traditional business may decline.
The e-commerce healthcare market is a relatively new and unproven
business. Whether we succeed depends upon broad acceptance of internet-based
healthcare product purchasing, as well as our ability to generate brand awarance
and vendor relationships.
Competition in the e-commerce industry is, and is expected to remain,
significant. The competitors for the new business range from development stage
internet companies to divisions of larger companies. Many of these companies
have financial, marketing, sales, manufacturing, distribution and other
resources significantly greater than those of us. In addition, many of these
companies have name recognition, established positions in the market and
existing relationships with customers and distributors.
Other Risks
Limited Public Market; Possible Volatility in Stock Prices;
Penny Stock Rules
There has, to date, been no active public market for our Common Stock, and
there can be no assurance that an active public market will develop or be
sustained. Although our Common Stock has been traded on the OTC Bulletin
Board(R) since February 1998, the trading has been sporadic with insignificant
volume.
Moreover, the over-the-counter markets for securities of very small
companies 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 our industry and the investment
markets and economic conditions generally, as well as quarterly variation in our
results of operations, may adversely affect the market price of our Common
Stock. In addition, our 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 our Common Stock because of the added
disclosure requirements.
Risks Associated with Exchange Rates
Our financial schedules are consolidated in US dollars. At the end of each
fiscal quarter and the fiscal year, we convert the financials from Corgenix UK,
which operates in pounds sterling, into US dollars, and consolidate them with
results from Corgenix, Inc. We may, from time to time, also need to exchange
currency from income generated by Corgenix UK. Foreign exchange rates are
volatile and can change in an unknown and unpredictable fashion. Should the
foreign exchange rates change to levels different than anticipated by us, our
business, financial condition and results of operations may be materially
adversely affected.
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 our proxy statement for our 2000 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after June 30, 2000.
Item 10. Executive Compensation.
There is hereby incorporated by reference the information to appear under
the caption "Compensation of Directors and Executive Officers" in our proxy
statement for our 2000 Annual Meeting of Shareholders, which will be filed with
the Securities and Exchange Commission within 120 days after June 30, 2000.
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 our proxy statement for
our 2000 Annual Meeting of Shareholders, which will be filed with the Securities
and Exchange Commission within 120 days of June 30, 2000.
Item 12. Certain Relationships and Related Transactions.
We have the following relationships with certain of our stockholders,
directors and affiliates.
<PAGE>
TGF Consulting Agreement
We were party to a Consulting Agreement dated May 22, 1998 with
Transglobal Financial Corporation ("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. The Consulting Agreement was
cancelled on September 21, 1999 as part of a settlement agreement between the
Company and Transglobal Financial Corporation.
AR Medical Consulting Agreement
We entered into a consulting agreement (the "AR Consulting Agreement")
with AR Medical Supply, Inc. ("AR Medical") on January 18, 2000, whereby AR
Medical will provide certain consulting and advisory services at an hourly rate
regarding home medical equipment to health-outfitters.com, Inc., a wholly owned
subsidiary of the Company. Ms. Ann Steinbarger, a Vice President of Corgenix
Medical Corporation is married to the president of AR Medical. We believe that
the terms of the agreement with AR Medical are favorable to the Company.
Issuance of Warrants
On June 1, 2000, we issued warrants to purchase 29,347 shares of common
stock of Corgenix to Taryn G. Reynolds, a Vice President of the Company. The
warrants were issued to Mr. Reynolds in connection with a $16,000 loan Mr.
Reynolds made to the Company on February 5, 1999. The warrants are exercisable
anytime prior to June 1, 2008, at an exercise price of $0.13673 per share. This
sale was made to an accredited investor in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
<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).
3.3
Articles of Incorporation of health-outfitters.com, Inc.
3.4 dated November 16, 1999 (filed as Exhibit 3.3 to the
Company's filing on Form 10-QSB for the fiscal quarter ended December
31, 1999).
Bylaws of health-outfitters.com, Inc. dated November 16, 1999 (filed as
Exhibit 3.4 to the Company's filing on Form 10-QSB for the fiscal
quarter ended December 31, 1999).
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).
<PAGE>
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).
10.9 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 Fleming,
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).
10.19 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 * Consulting Agreement dated January 18, 2000 between AR
Medical Supply, Inc. and the Company.
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)
10.25 Settlement Agreement and General Release dated September 21, 1999 with
Transglobal Financial Corporation and the Company (filed as Exhibit
10.25 to the Company's filing on Form 10-QSB for the fiscal quarter
ended December 31, 1999).
10.26 Promissory note dated September 21, 1999 with Transglobal 10.27 *
Financial Corporation and the Company (filed as Exhibit 10.26 to the
Company's filing on Form 10-QSB for the fiscal quarter ended December
31, 1999).
10.27* Warrant agreement dated June 1, 2000 between the Company
and Taryn G. Reynolds.
21.1* Amended Subsidiaries of the Registrant (filed as Exhibit 21.1 to the
Company's Registration Statement on Form 10-SB filed June 29, 1998).
23.1* Consent of Certified Public Accountants
23.2* Consent of Certified Public Accountants
27* Financial Data Schedule
* Filed herewith.
----------------------------------------
(b) Reports on Form 8-K.
None
Reports on Form 8-K.
None.
<PAGE>
Exhibit 10.23
CONSULTING AGREEMENT
This Agreement is made effective as of January 18, 2000, between
health-outfitters.com, a subsidiary of Corgenix Medical Corporation
("health-outfitters.com) and AR Medical Supply, Inc. ("AR Medical").
1. Background. health-outfitters.com desires to engage AR
Medical as an independent contractor to provide such advice,
consultation, and other assistance in the marketing of certain
healthcare products as health-outfitters.com may from time to
time request. This Agreement sets forth the terms and conditions
for such services.
2. Services. AR Medical will be engaged as an independent
contractor to provide such services as may from time to time be
requested by health-outfitters.com in connection with
health-outfitters.com business operations, as follows:
(a) Attendance at and participation in meetings to be held at
health-outfitters.com facilities in Westminster, Colorado, or at other
sites to be agreed to by both parties.
(b) AR Medical will provide consulting services to health-outfitters.com
during regular business hours on days in which AR Medical is not providing
services at the facility in Westminster. These services will include, but
not be limited to, telephone calls, faxes, e-mails and written
correspondence. Such services will not exceed reasonable limits.
3. Compensation. During the term of this Agreement, AR
Medical will receive the following compensation for services.
(a) An hourly rate of $50.00 per hour, invoiced bi-weekly.
Invoices shall be paid as follows:
(i) from the date first written above until May 1, 2000, a minimum of
33% shall be paid in cash net 15 days from date of invoice, with
any unpaid amount accrued;
(ii) On May 1, 2000, all accrued and unpaid invoices shall be
paid in full; and
(iii) after May 1, 2000, all invoices shall be paid in full net 15 days
from date of invoice.
(b) Warrants or stock options for shares of health-outfitters.com common
stock will be issued to AR Medical commensurate with warrants or stock
options issued to product managers for other health-outfitters.com product
lines.
(c) Reimbursement for reasonable business expenses actually incurred in
the performance of consulting services (including airfare, meals and
lodging).
4. Independent Contractor. In the performance of the consulting services,
AR Medical shall be deemed to be an independent contractor (and not an employee
or agent of health-outfitters.com) for all purposes under any and all laws,
whether existing or future, including without limitation Social Security laws,
unemployment insurance laws, and withholding and other employment taxation laws.
AR Medical agrees to comply with applicable laws, rules, and regulations in
respect to independent contractors, including without limitation, the payment of
all taxes required.
5. Prior Obligation or Restriction. Both parties warrant and agree that
there is no obligation or restriction and neither will assume any obligation or
restriction that would in any way interfere or be inconsistent with its duties
and/or responsibilities under this Agreement.
6. Confidential Information. AR Medical shall not, at any time during or
following the work on behalf of health-outfitters.com, directly or indirectly
distribute, use, or disclose to any person other than authorized officers or
personnel of health-outfitters.com, trade secret or confidential information
relating to any activity of health-outfitters.com (hereafter "Confidential
Information"). All notes, memoranda, or other writings made by AR Medical or
which may come into AR Medical's possession while working with
health-outfitters.com, or which relate in any way to or embody any Confidential
Information concerning any activity of health-outfitters.com marketing and
business ideas, shall be the exclusive property of health-outfitters.com and
shall be kept on the health-outfitters.com premises except when required
elsewhere in connection with its activities. Upon completion of AR Medical's
services, AR Medical will deliver to the Company all physical materials in its
possession or within its control relating to any Confidential Information which
belongs to health-outfitters.com. AR Medical shall execute all such documents of
assignment or other documents as health-outfitters.com may deem reasonably
required to effect the provisions of this Paragraph 6. The provisions of this
Paragraph 6 shall survive the termination of this Agreement.
7. Term. The term of this Agreement shall commence on the date hereof and
continue for two (2) years; provided, however, that the term of this Agreement
will be continued in additional one year increments unless cancelled by either
party in writing at least 30 days in advance of the anniversary date of this
agreement.
8. Miscellaneous. This Agreement shall be governed by the
laws of the state of Colorado. If any term or provision of this
Agreement is found by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever, such illegality or
invalidity shall not affect the validity of the remainder hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
health-outfitters.com AR Medical Supply, Inc.
By: /s/ Douglass T. Simpson By: /s/ Ray Raczkowski
Douglass T. Simpson Ray Raczkowski
President President
<PAGE>
Exhibit 10.27
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement") is made this June 1, 2000
between Corgenix Medical Corporation, a Nevada corporation, (the "Company")
and Taryn G. Reynolds, ("Mr. Reynolds").
In conjunction with a promissory note (the "Note") dated February 5,
1999 between the Company and Mr. Reynolds and attached hereto, the Company
desires to grant Mr. Reynolds an option to purchase its Common Stock
(hereinafter called the "Stock"), under the terms specified by the Board of
Directors of the Company (the"Board") at its meeting (the "Board Meeting") held
October 21, 1999.
1. Grant of Option. The Company hereby irrevocably grants to Mr.
Reynolds the option to purchase (the "Option") all or any part of an aggregate
of -29,347- shares of Stock (hereinafter called the "Warrant Shares") (such
number being subject to adjustment as provided in Paragraph 9 hereof) on the
terms and conditions herein set forth.
2 Purchase Price. The purchase price of the Stock covered by the
Agreement shall be $0.1363 per share, the average closing price of the calendar
month preceeding the Board Meeting. The purchase price of any Stock exercised
shall be payable in full in cash at the time of exercise.
3. Exercise of Option. Subject to the terms and conditions set forth
herein, this Option shall be exercisable at any time during a period of eight
(8) years from the date of grant. Mr. Reynolds shall not have any of the rights
of a stockholder with respect to the Warrant Shares covered by the Option except
to the extent that one or more certificates for such shares shall be delivered
to him upon the due exercise of the Option.
4. Term of Option. The term of the Option shall be for a period of
eight years from the date hereof, subject to earlier termination as provided
in Paragraphs 7 and 8 hereof.
5. Nontransferability. The Option shall not be transferable otherwise than
by will or the laws of descent and distribution. Without limiting the generality
of the foregoing, the Option may not be assigned, transferred (except as
provided above), pledged, or hypothecated in any way, shall not be assignable by
operation of law, and shall not be subject to execution, attachment, or similar
process. Any attempted assignment, transfer, pledge, hypothecation, or other
disposition of the Option contrary to the provisions hereof, and the levy of any
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
6. Disclosure and Risk. Mr. Reynolds represents and warrants to the
Company oration as follows:
(a) The Warrant Shares will be acquired by Mr. Reynolds for his own
account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act").
(b) Mr. Reynolds understands that at time of grant and exercise the
Warrant Shares have not been and probably will not have been registered under
the Securities Act by reason of their issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) thereof, and that they must be held by Mr. Reynolds
indefinitely, and that Mr. Reynolds must therefore bear the economic risk of
such investment indefinitely, unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from registration.
(c) As a result of inquiries made by Mr. Reynolds and information
furnished to him by the Company, Mr. Reynolds has as of the date of grant (and
will have as of the date(s) of exercise) reviewed all information necessary to
make an informed investment decision.
(d) Mr. Reynolds understands that, under certain conditions,
disposition of the Warrant Shares subject to this Agreement could result in
adverse tax consequences because of failure to meet prescribed holding period
requirements.
Each certificate representing the Warrant Shares shall be endorsed with
the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES OR (ii) THE CORPORATION RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THE CORPORATION,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
The Company need not register a transfer of any of the Warrant Shares
unless one of the Conditions specified in the foregoing legend is satisfied. The
Company may also instruct its transfer agent not to register the transfer of any
of the Warrant Shares unless one of the conditions specified in the foregoing
legend is satisfied.
The legend endorsed on a certificate pursuant to the foregoing language
and the stop transfer instructions with respect to such Stock, shall be removed
and the Company shall promptly issue a certificate without such legend to the
holder of such Stock if such Stock is registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder provides the Company with an opinion of counsel for
such holder satisfactory to the Company, to the effect that a public sale,
transfer or assignment of such Stock may be made without registration.
7. Company Registration.
(a) If the Company shall determine to register any of its securities
either for its own account or for the account of a security holder exercising a
demand registration right, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a transaction of the type
described in Rule 145 under the Act, or any successor to Rule 145, or, a
registration on any registration form which does not permit secondary sales or
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registerable
Securities, the Company will:
(1) promptly give to Mr. Reynolds a written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such Registerable Securities under the
applicable blue sky or other state securities laws); and
(2) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Warrant Shares specified in a written
request or requests, made by Mr. Reynolds within 20 days after
receipt of the written notice from the Company. Such written request
may specify all or a part of Mr. Reynolds Warrant Shares.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise Mr. Reynolds as a part of the written notice given
pursuant to this Section. In such event, the right of Mr. Reynolds to
registration pursuant to this Section shall be conditioned upon Mr. Reynolds'
participation in such underwriting and the inclusion of Mr. Reynolds' Warrant
Shares in the underwriting to the extent provided herein. Mr. Reynolds shall
(together with the Company and any other shareholders distributing securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company. Notwithstanding any other provision of this Section, if the underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude from such registration and underwriting some or all of the
Registerable Securities which would otherwise be underwritten pursuant hereto.
The Company shall so advise all Holders of securities requesting registration,
and the number of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner: the
number of shares that may be included in the registration and underwriting by
each of the Holders and the other Persons requesting to participate in such
registration (other than the Company, in the case of a registration for the
account of the Company, and other than securities held by holders who by
contractual right demanded such registration) shall be reduced, on a pro-rata
basis, by such minimum number of shares as is necessary to comply with such
limitation. If any of the Holders or any Person disapproves of the terms of any
such underwriting, he or it may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any Registerable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.
(c) Number. Mr. Reynolds shall be entitled, pursuant to this
Section, to have his Warrant Shares included in a maximum of three
registrations which have been declared or ordered effective.
(d) Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section shall be borne by the Company, and all Selling Expenses shall be borne
by Mr. Reynolds of the securities so registered pro-rata and the basis of the
number of the shares so registered.
(e) Registration Procedures. In the case of each registration effected by
the Company pursuant to this Section, the Company will keep
Mr. Reynolds, as applicable, advised in writing as to the
initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(1) Keep such registration effective for a period of 120 days or
until Mr. Reynolds, as applicable, has completed the distribution
described in the registration statement relating thereto, whichever
first occurs; provided, however, that (1) such 120-day period shall
be extended for a period of time equal to the period during which Mr.
Reynolds, as applicable, refrain from selling any securities included
in such registration in accordance with provisions in this Section
hereof;
(2) Furnish such number of prospectuses and other documents incident
thereto as Mr. Reynolds, as applicable, from time to time may
reasonably request.
8. Changes in Capital Structure.
(a) The following terms used in this Paragraph 8 shall have the meanings set
forth below:
"Person" shall mean an individual, a partnership, a joint
venture, a corporation, an association, a limited liability company, a joint
stock company, a trust, an unincorporated organization and a government entity
or any department, agency or political subdivision thereof.
"Organic Change" shall mean (i) any consolidation or merger to
which the Company is a party, except for a merger in which the Corporation is
the surviving party and after giving effect to such merger, the holders of the
Company's capital stock (on a fully diluted basis) immediately prior to the
merger will own the Company's capital stock (on a fully diluted basis) having a
majority of the ordinary voting power to elect the Company's board of directors,
and (ii) a sale or transfer in one transaction or a series of related
transactions of 50% or more of the Company's assets (on a consolidated basis) to
another Person.
(b) Notwithstanding the vesting provisions set forth in Paragraph 3
above, the Company will make appropriate provision to insure that Mr. Reynolds
shall be entitled to exercise this Option prior to the consummation of any
Organic Change. If Mr. Reynolds elects not to exercise the Option as provided in
this Paragraph 7(b), this Option will automatically terminate and be of no
further force or effect upon the effective date of such Organic Change.
(c) Appropriate adjustment shall be made in the maximum number of
shares of Stock subject to this Option and in the number, kind, and option price
of shares covered by this Option to the extent it is outstanding to give effect
to any stock dividends, stock splits, stock combinations, recapitalizations and
other similar changes in the capital structure of the Corporation after the
grant of this Option.
9. Method of Exercising Option. Subject to the terms and conditions of
this Agreement, the Option may be exercised by written notice to the Company, at
its principal office. Such notice shall state the election to exercise the
Option and the number of shares in respect of which it is being exercised, and
shall be signed by the person or persons so exercising the Option. Such notice
shall be accompanied by payment of the full purchase price of such shares, and
the Company ration shall deliver a certificate or certificates representing such
shares as soon as practicable after the notice shall be received. Payment of
such purchase price shall be made by check payable to the order of the Company
poration. The certificate or certificates for the shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option and shall be delivered as provided above to or
upon the written order of the person or persons exercising the Option.
In the event the Option shall be exercised, pursuant to Paragraph 5
hereof, by any person or persons other than Mr. Reynolds such notice shall be
accompanied by appropriate proof of the right of such person or persons to
exercise the Option. All shares that shall be purchased upon the exercise of the
Option as provided herein shall be fully paid and nonassessable.
10. General. The Company shall at all times during the term of the Option
reserve and keep available such number of shares of Stock as will be sufficient
to satisfy the requirements of this Agreement, shall pay all original issue and
transfer taxes with respect to the issue and transfer of shares pursuant hereto
and all other fees and expenses necessarily incurred by the Company in
connection therewith, and will from time to time use its best efforts to comply
with all laws and regulations which, in the opinion of counsel for the
Corporation, shall be applicable thereto.
11. Subsidiary. As used herein, the term "subsidiary" or "parent" shall
mean any present or future corporation which would be a "subsidiary corporation"
or "parent corporation" of the Company, as that term is defined in Section 422
of the Internal Revenue Code of 1986.
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be
duly executed by its officers thereunto duly authorized, and the Employee has
executed this Agreement, all as of the day and year first above written.
Corgenix Medical Corporation
By /s/Douglass T. Simpson
-----------------------------
Douglass T. Simpson, President
/s/ Taryn G. Reynolds
-----------------------------
Taryn G. Reynolds
<PAGE>
Consent of Independent Auditors
The Board of Directors
Corgenix Medical Corporation
We consent to incorporation by reference in the registration statements on Form
S-8 of Corgenix Medical Corporation of our report dated September 25, 2000,
relating to the balance sheets of Corgenix UK Limited as of June 30,2000 and
1999, and the related Financial Statements for the year then ended which reports
appears in the June 30, 2000, annual report on Form 10-KSB of Corgenix Medical
Corporation.
SR HOWELL & CO
Ramsey, UK
September 28, 2000
<PAGE>
Consent of Independent Auditors
The Board of Directors
Corgenix Medical Corporation:
We consent to incorporation by reference in the registration statements on Form
S-8 of Corgenix Medical Corporation of our report dated September 26, 2000,
relating to the consolidated balance sheets of Corgenix Medical Corporation and
subsidiaries as of June 30, 2000 and 1999, and the related consolidated
statements of operations and comprehensive income (loss), stockholders' equity
(deficit) and cash flows for the years then ended which reports appears in the
June 30, 2000, annual report on Form 10-KSB of Corgenix Medical Corporation.
KPMG LLP
Denver, Colorado
September 28, 2000
<PAGE>
CORGENIX MEDICAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------
Item Page Number
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Independent Auditors' Report F-1
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Consolidated Balance Sheets as of June 30,
2000 and 1999 F-2
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Consolidated Statement of Operations for
Years Ended June 30, 2000 and 1999 F-3
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Consolidated Statements of Stockholders'
Equity (Deficit) for the Years Ended June 30, F-4
2000 and 1999
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Consolidated Statements of Cash Flows for the
Years Ended June 30, 2000 and 1999 F-5
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Notes to Consolidated Financial Statements F-6
-----------------------------------------------------------------------
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARY
Consolidated Financial Statements
June 30, 2000 and 1999
(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 subsidiaries (Company) as of June 30, 2000 and 1999, and the
related consolidated statements of operations and comprehensive income (loss),
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 did not audit the financial
statements of Corgenix UK Limited, a wholly-owned subsidiary, as of and for the
year ended June 30, 2000, which statements reflect total assets constituting 22
percent and total revenue constituting 23 percent in 2000, respectively, of the
related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Corgenix UK Limited, as of and for the year ended June
30, 2000 is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Corgenix Medical Corporation and
subsidiaries as of June 30, 2000 and 1999, and the results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has a stockholders' deficit and a
working capital deficit as of June 30, 2000, 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
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG LLP
Denver, Colorado
September 26, 2000
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and 1999
Assets 2000 1999
-----------------------------
Current assets:
Cash and cash equivalents $ 46,698 15,963
Accounts receivable, less allowance for
doubtful accounts of $7,000
in 2000 and 1999 610,591 516,182
Note receivable -- 27,425
Inventories 551,082 518,215
Prepaid expenses 511 954
-----------------------------
Total current assets 1,208,882 1,078,739
-----------------------------
Equipment:
Machinery and laboratory equipment 302,949 302,949
Software, furniture, fixtures and office
equipment 800,055 255,695
-----------------------------
1,103,004 558,644
Accumulated depreciation and amortization (469,772) (399,109)
-----------------------------
Net equipment 633,232 159,535
-----------------------------
Intangible assets:
Patents, net of accumulated amortization of
$721,490 and $646,987
in 2000 and 1999, respectively 396,054 470,557
Goodwill, net of accumulated amortization of
$40,087 and $36,177
in 2000 and 1999, respectively 21,501 25,411
-----------------------------
417,555 495,968
-----------------------------
Due from officer 12,000 12,000
Other assets 18,718 14,285
-----------------------------
Total assets $ 2,290,387 1,760,527
=============================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of notes payable $ 213,816 296,954
Current portion of capital lease obligation 19,667 3,483
Accounts payable 890,907 795,262
Accrued payroll and related liabilities 125,163 114,061
Other liabilities 289,982 105,528
Employee stock purchase plan payable 2,656 2,984
-----------------------------
Total current liabilities 1,542,191 1,318,272
Notes payable, excluding current portion 735,479 790,959
Capital lease obligation, excluding current
portion 56,189 7,703
-----------------------------
Total liabilities 2,333,859 2,116,934
-----------------------------
2000 1999
-----------------------------
-----------------------------
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 17,416,562 and 16,852,116
shares in 2000 and 1999, respectively 17,417 16,852
Additional paid-in capital 3,958,898 3,859,806
Accumulated deficit (4,032,648) (4,233,065)
Accumulated other comprehensive income 12,861 --
-----------------------------
Total stockholders' equity (deficit) (43,472) (356,407)
-----------------------------
Commitments and contingencies
Total liabilities and stockholders'
equity (deficit) $ 2,290,387 1,760,527
=============================
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
Years ended June 30, 2000 and 1999
2000 1999
------------- -----------------
Net sales $ 3,544,953 2,642,848
Cost of sales 1,472,954 1,053,232
------------- -----------------
Gross profit 2,071,999 1,589,616
------------- -----------------
Operating expenses:
Selling and marketing 673,609 793,188
Research and development 348,449 405,517
General and administrative 700,670 1,045,998
------------- -----------------
1,722,728 2,244,703
------------- -----------------
Operating income (loss) 349,271 (655,087)
------------- -----------------
Other expenses:
Interest expense, net (148,854) (146,248)
Other, net -- (8,341)
------------- -----------------
(148,854) (154,589)
------------- -----------------
Net income (loss) $ 200,417 (809,676)
============= =================
Net income (loss) per share basic and
diluted $ 0.01 (0.06)
============= =================
Weighted average shares outstanding
basic and diluted 17,230,707 14,699,339
============= =================
Net income (loss) $ 200,417 (809,676)
Other comprehensive income -
foreign currency translation gain 12,861 --
------------- -----------------
Total comprehensive income
(loss) $ 213,278 (809,676)
============= =================
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended June 30, 2000 and 1999
Common Accumulated Total
stock, Additional Stock other stckhldrs'
$0.001 paid-in subscript Accumulate comprehensive equity
par capital receivable deficit income (deficit)
--------------------------------------------------------------
Balances at $12,102 3,610,798 (25,651) 3,423,38 -- 173,860
June 30, 1998
Issuance of 297 99,703 -- -- -- 100,000
common stock
Issuance of common 375 153,383 -- -- -- 153,758
stock for services
Issuance of common
stock under
contingency
agreement 4,000 (4,000) -- -- -- --
Issuance of common
stock in connection
with stock
subscription 78 (78) 25,651 -- -- 25,651
Net loss -- -- -- (809,676) -- (809,676)
----------------------------------------------------------------
Balances at 16,852 3,859,806 -- (4,233,065) -- (356,407)
June 30, 1999
Issuance of common 565 99,092 -- -- -- 99,657
stock for services
Foreign currency
translation -- -- -- -- 12,861 12,861
adjustment
Net income -- -- -- 200,417 -- 200,417
----------------------------------------------------------------
Balances at $17,417 3,958,898 -- (4,032,648) 12,861 (43,472)
June 30, 2000
=================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2000 and 1999
2000 1999
------------ -----------
Cash flows from operating activities:
Net income (loss) $ 200,417 (809,676)
Adjustments to reconcile net income (loss)
to net cash provided
(used) by operating activities:
Depreciation and amortization 149,076 153,016
Common stock issued for services 99,657 153,758
Interest capitalized to note payable -- 19,255
Provision for doubtful accounts -- 4,722
Loss on disposal of equipment -- 8,341
Changes in operating assets and
liabilities:
Accounts receivable (94,409) (151,194)
Inventories (32,867) (6,807)
Prepaid expenses and other assets 23,435 24,289
Accounts payable 106,685 367,453
Accrued payroll and related
liabilities 11,102 7,304
Employee stock purchase plan payable (328) 2,984
Other liabilities 184,454 (10,526)
------------ -----------
Net cash provided (used) by 237,081)
operating activities 647,222 (
------------ -----------
Cash flows used by investing activities - (472,791) (15,682)
purchase of equipment ------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 100,000
Proceeds from issuance of notes payable 18,960 18,620
Payments on notes payable (157,578) (91,076)
Proceeds from stock subscription -- 25,651
Payments on capital lease obligations (6,899) (783)
------------ -----------
Net cash provided (used) by
financing activities (145,517) 52,412
------------ -----------
Net increase (decrease) in cash and
cash equivalents 28,914 (200,351)
Impact of foreign currency translation
adjustment on cash (1,821) --
Cash and cash equivalents at beginning of year 15,963 216,314
------------ -----------
Cash and cash equivalents at end of year $ 46,698 15,963
============ ===========
Supplemental cash flow disclosures -
cash paid for interest $ 101,457 104,688
============ ===========
Noncash financing activities:
Common stock warrants issued for note
payable $ 66,040 --
============ ===========
Accounts payable converted to note payable $ 55,000 --
============ ===========
Noncash investing and financing activity -
equipment acquired under capital leases $ 71,569 11,969
============ ===========
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(1) Summary of Significant Accounting Policies
(a) Business and Basis of Presentation
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 corporate office and manufacturing facility
are located in Westminster, Colorado.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Corgenix, Inc. and Corgenix
UK Limited (Corgenix UK) and healthoutfitters.com, Inc. Corgenix UK was
established as a United Kingdom company during 1996 to market the
Company's products in Europe. The operations of Corgenix UK were not
significant for the year ended June 30, 1999. Transactions are generally
denominated in US dollars and Corgenix UK held nominal assets and
liabilities through September 1999. Therefore, there is no foreign
currency translation gain or loss or other comprehensive income recorded
in the year ended June 30, 1999.
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
$333,309 as of June 30, 2000, and has a stockholders' deficit of
$43,472, 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 and maintaining 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 accounting
principles generally accepted in the United States of America 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.
(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:
2000 1999
---------- -----------
Raw materials $ 141,064 90,035
Work-in-process 236,078 235,823
Finished goods 173,940 192,357
---------- -----------
$ 551,082 518,215
========== ===========
(e) Equipment
Equipment is recorded at cost. Depreciation, which totaled $70,663 and
$74,859 for the years ended June 30, 2000 and 1999, respectively, is
calculated primarily using the straight-line method over the estimated
useful lives of the assets which range from 3 to 7 years. In the year
ended June 30, 2000 the Company established a web site for selling
medical products directly to consumers. The internal and external costs
of developing the software, other than initial design, were capitalized
and will be amortized on the straight-line method over three years
starting in fiscal year 2001.
(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.
(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
The Company accounts for its stock plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeds the exercise
price. The Company has adopted Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income (loss) disclosures for employee stock option grants made in 1995
and thereafter as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures
required by SFAS No. 123.
(l) Earnings Per Share
Basic earnings per share is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing income
(loss) available to common stockholders by the weighted average number
of common shares outstanding increased for potentially dilutive common
shares outstanding during the period. The dilutive effect of stock
options and their equivalents is calculated using the treasury stock
method in fiscal year 2000, which are anti-dilutive due to the exercise
price exceeding market price.
2000 1999
----------- -----------
Net income (loss) $ 200,417 (809,676)
----------- -----------
----------- -----------
Common and common equivalent shares outstanding:
Historical common shares
outstanding at beginning of
year 16,852,116 12,102,494
Weighted average common
equivalent shares issued
during year 378,591 2,596,845
----------- -----------
----------- -----------
Weighted average common
shares - basic 17,230,707 14,699,339
Weighted average common
equivalent shares issued
during the year -- --
----------- -----------
----------- -----------
Weighted average common
shares - diluted 17,230,707 14,699,339
=========== ===========
Net income (loss) per basic share-
income (loss) per share $ .01 (.06)
Net income (loss) per diluted share -
income (loss) per share .01 (.06)
(2) Notes Payable
Notes payable consist of the following at June 30, 2000 and 1999:
2000 1999
---------- ----------
Note payable to a bank, with interest at prime plus 2.75% (12.25% at June
30, 2000), due in monthly installments of principal and interest of $14,415
through January 2007, collateralized by commercial security agreements and a
key man life insurance policy $ 818,274 895,224
Note payable to a bank, with interest at prime plus 2.5% due in monthly
installments of $2,000 and a balloon payment due August 30, 1999,
collateralized by accounts receivable -- 18,000
Notes payable to former preferred
stockholders, with interest at 12%,
due on demand 104,061 136,689
Note payable, with interest at prime
plus 3%, due on demand 8,000 38,000
Note payable to former consultants,
with interest of 10.25% due in 12
monthly installments 18,960 --
---------- ----------
---------- ----------
949,295 1,087,913
Less current portion (213,816) (296,954)
---------- ----------
Notes payable, excluding
current portion $ 735,479 790,959
========== ==========
Certain of the notes payable restrict the payment of dividends on the
Company's common stock. Aggregate maturities of notes payable by year as of
June 30, 2000, are as follows:
Years ending June 30:
2001 $ 213,816
2002 92,834
2003 104,091
2004 116,713
2005 130,866
Thereafter 290,975
-----------
$ 949,295
===========
The carrying values of notes payable approximate fair value based on their
terms and floating market based interest rates.
(3) 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.
(4) 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 aggregating 5% or more of the total combined voting power or value
of all classes of stock. 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 95,251 and 10,322 shares issued under the plan during
fiscal year 2000 and 1999, respectively. 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 2000 and 1999 was
$.178 and $.375 per share, respectively.
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
50,000 and 334,706 shares issued under the plan during fiscal 2000 and 1999,
respectively. 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 2000 and 1999 was $0.188 and
$0.375 per share, respectively.
In March 2000 the Company reserved 1,000,000 shares of its common stock for
an incentive stock option plan (Plan) for employees, directors and
consultants. Options are granted at the discretion of the board of directors
with an exercise price equal to or greater than fair value at the grant
date.
In 2000, a total of 30,050 options were granted by the board to employees
which expire in 2007.
<PAGE>
In 2000, a total of 60,000 shares were granted by the board to the directors
of the Company which expire in 2007. Detail of options follows:
Weighted
average
Number of Range of exercise
shares price price
------------ ------------ -----------
------------ ------------ -----------
Balance at June 30, -- -- --
1999
Granted 90,050 $ 0.656 - $1.00 0.6791
Exercised -- -- --
Canceled -- -- --
------------
------------
Balance at June 30, 90,050 0.656 - $1.00 0.6791
2000 ============
None of the options are exercisable.
Had the Company determined compensation cost based on the fair value at the
date of grant for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below for
the year ended June 30, 2000.
Net income as reported $ 200,417
Net income pro forma 185,417
Net income per share is not different for
pro forma purposes compared to net income
as reported.
Fair value was determined using the Black Scholes option - pricing model
with the following assumptions. No expected dividends, volatility of 80%,
risk-free interest rate of 6.4% and expected lives of seven years.
(5) Commitments and Contingencies
(a) Royalty Agreement
The Company had a royalty agreement with BioStar Medical Products, Inc.
(BioStar) whereby the Company paid 5% of certain product sales, up to an
aggregate of $600,000, in royalties. As of June 30, 1999, $600,000 of
cumulative royalties has been paid to BioStar and no future royalty
obligation exists. Royalty expense under this agreement totaled $61,000
for the year ended June 30, 1999.
<PAGE>
(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, 2000, are as follows:
Capital Operating
leases leases
---------- ----------
Years ending June 30:
2001 $ 19,667 142,104
2002 32,921 18,511
2003 30,337 7,248
2004 2,486 7,248
2005 -- 1,812
---------- ----------
Total future minimum lease 85,411 176,923
payments ==========
Less amount representing interest (9,555)
----------
Present value of minimum 95,856
lease payments
Less current portion (19,667)
----------
$ 56,189
==========
Rent expense totaled $100,000 and $96,000 for the years ended June 30,
2000 and 1999, 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.
(6) Income Taxes
Income tax (expense) benefit differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax income (loss) as a result
of the following:
2000 1999
----------- -----------
Computed exported tax expense (benefit) $ 68,000 (275,000)
Reduction (increase) in income taxes
resulting from:
State and local taxes, net of federal
benefit 7,900 32,000
Permanent differences (35,000) (35,000)
Impact of foreign loss not
deductible in the United States 45,000 --
Change in valuation allowance (85,900) 278,000
----------- -----------
----------- -----------
$ -- --
=========== ===========
At June 30, 2000, the Company has a net operating loss carryforward for
income tax purposes of approximately $3,150,000 expiring during the period
from 2006 to 2020. Research and development tax credit carryforwards
approximate $225,000. 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, 2000, the Company had a gross deferred tax asset of
approximately $1,150,000 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.
(7) Related Party Transactions
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.
Amounts due from an officer are due in 2001, and do not bear interest.
(8) Concentration of Credit Risk
The Company's customers are principally located in the United States,
although there are significant 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 17% and
16% of sales in the years ended June 30, 2000 and 1999, respectively, and
approximately 9% and 20% of accounts receivable at June 30, 2000 and 1999,
respectively.
(9) Reportable Segments
The Company has two segments of business, domestic and international
operations. International operations primarily transacts sales with
customers in the United Kingdom and Europe, while domestic operations
transact all other sales. The following table sets forth selected financial
data for these segments for the year ended June 30, 2000. As the operating
structure was one segment in 1999 comparative information is not provided:
Year ended June 30, 2000
----------------------------------
Domestic International Total
---------- ---------- ---------
Net sales - external
customers
Net sales - internal $ 3,101,872 799,758 3,901,630
-- (356,677) (356,677)
---------- ---------- ---------
---------- ---------- ---------
Total net sales $ 3,101,872 443,081 3,544,953
========== ========== =========
========== ========== =========
Depreciation and 149,076
amortization $ 146,180 2,896
========== ========== =========
========== ========== =========
Interest expense $ (148,854) -- (148,854)
========== ========== =========
========== ========== =========
Net income (loss) $ 333,861 (133,444) 200,417
========== ========== =========
========== ========== =========
Segment assets $ 2,139,779 150,608 2,290,387
========== ========== =========
<PAGE>
(10) Fourth-Quarter Adjustments (Unaudited)
Year-end adjustments, which are primarily comprised of differences in
inventory valuation, unrecorded liabilities for foreign sales activities,
and capitalization of software development costs, had a statement of
operation's impact as follows:
Increase
(decrease)
to net Increase
income (decrease)
and in net
accumulated income
deficit per share
---------- ----------
Quarter ended September $ (77,815) --
30, 1999
Quarter ended December (82,305) --
31, 1999
Quarter ended March 31, 12,036 --
2000
Quarter ended June 30, 245,940 .01
2000
---------- ----------
$ 97,856 .01
========== ==========
<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 2nd day of October 2000.
CORGENIX MEDICAL CORPORATION
By: /s/ Luis R. Lopez, M.D.
-----------------------------
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/ Luis R. Lopez Chairman of the Board October 2, 2000
---------------------- Chief Executive Officer
Luis R. Lopez (principal executive officer)
/s/ Douglass T. Simpson President, (principal October 2, 2000
----------------------- and accounting officer)
Douglass T. Simpson Director
/s/ Brian E. Johnson Director October 2, 2000
-----------------------
Brian E. Johnson
