[PG NUMBER]
DGS-150328.1
November 13, 2000 8:34 AM
[PG NUMBER]
DGS-150328.1
November 13, 2000 8:34 AM
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended September 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
CORGENIX MEDICAL CORPORATION
(Name of Small Business Issuer in its Charter)
Nevada 93-1223466
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
12061 Tejon Street, Westminster, Colorado 80234
(Address of principal executive offices, including zip code)
(303) 457-4345
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
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 ___
-
The number of shares of Common Stock outstanding was 17,424,584 as of November
1, 2000.
Transitional Small Business Disclosure Format. Yes _ No X_
<PAGE>
CORGENIX MEDICAL CORPORATION
September 30, 2000
TABLE OF CONTENTS
Page
Part I
Financial Information
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II
Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
-------------------------------------------------------------------------------
September 30, 2000 June 30, 2000
-----------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 11,531 46,698
Accounts receivable, less allowance
for doubtful accounts of $7,000 542,474 610,591
Inventories 531,711 551,082
Prepaid expenses - 511
---------- -----------
Total current assets 1,085,716 1,208,882
Equipment:
Machinery and laboratory equipment 302,949 302,949
Furniture, fixtures and 391,155 385,088
office equipment ------------ ------------
694,104 688,037
Accumulated depreciation and (485,343) (469,772)
amortization ------------ -------------
Net equipment 208,761 218,265
Intangible assets:
Patents, net of accumulated
amortization of $740,114 and
$721,490, respectively 377,430 396,054
Goodwill, net of accumulated
amortization of $41,065 and
$40,087, respectively 20,523 21,501
Software development costs 510,018 414,967
Due from officer 12,000 12,000
Other assets 18,673 18,718
----------- -------------
Total assets $ 2,233,121 2,290,387
================= =================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of notes payable $ 209,200 213,816
Current portion of capital 51,042 19,667
lease obligation
Accounts payable 861,674 890,907
Accrued payroll and related liabilities 135,741 125,163
Other liabilities 147,434 289,982
Employee stock purchase plan payable 4,683 2,656
------------ ---------------
Total current liabilities 1,409,774 1,542,191
Notes payable, excluding current portion 710,057 735,479
Capital lease obligation, excluding 47,325 56,189
current portion
------------ ----------------
Total liabilities 2,167,156 2,333,859
------------- ----------------
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 17,424,584
in September and 17,416,562 in June 17,425 17,417
Additional paid-in capital 3,960,660 3,958,898
Accumulated deficit (3,917,050) (4,032,648)
Accumulated other comprehensive income 4,930 12,861
Total stockholders' equity (deficit) 65,965 (43,472)
------------ ---------------
Total liabilities and stockholders'
equity (deficit) $ 2,233,121 2,290,387
============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
-------------------------------------------------------------------------------
Three Months Ended
September 30, September 30,
2000 1999
--------------------------------------
(Unaudited) (Unaudited)
Net sales $908,731 $805,870
Cost of sales 338,330 304,666
--------------------------------
Gross profit 570,401 501,204
Operating expenses:
Selling and marketing 187,234 151,686
Research and development 88,677 99,165
General and 162,738 181,110
administrative
--------------------------------
Total expense 438,649 431,961
Operating income 131,752 69,243
Interest expense, net 29,014 27,859
--------------------------------
Net income $102,738 $41,384
======== =======
Net income per share basic $ 0.01 $ 0.00
Net income per share $ 0.01 $ 0.00
diluted
Weighted average shares 17,423,538 16,866,345
outstanding basic
Weighted average shares 17,425,114 16,866,345
outstanding diluted
Net income $ 102,738 $ 41,384
Other comprehensive 4,930 -
income - foreign currency
translation gain
Total comprehensive income $ 107,668 $ 41,384
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------------
Three Months
Ended
September September
30, 2000 30, 1999
---------------------
(Unaudited)
Cash flows from operating activities:
Net income $102,738 41,384
Adjustments to reconcile
net income to net cash
provide by (used by)
operating
activities
Depreciation and amortization 35,173 32,416
Changes in operating assets and liabilities:
Accounts receivable 68,117 (14,023)
Inventories 19,371 5,750
Prepaid expenses and other assets (509,463) (207)
Accounts payable (29,233) (207)
Accrued payroll and related liabilities 10,578 (4,432)
Other liabilities (142,548) (3,982)
Employee stock purchase plan payable 2,027 (8)
---------------------
Net cash provided by (used by) (443,240) 30,734
operating activities ---------------------
Cash flows provided by (used 436,758 -
by)investing activities - purchase of
equipment and software
development costs
Cash flows from financing activities:
Payments on notes payable (30,038) (49,319)
Payments on leases payable (5,347) (853)
Cash receipts from Employee 1,770 3,582
stock purchase plan
---------------------
Net cash used (33,615) (46,590)
by financing activities ---------------------
Net decrease in (40,097) (15,856)
cash and cash equivalents
Impact of foreign currency 4,930 -
translation adjustment on cash
Cash and cash equivalents at $46,698 15,963
beginning of period ---------------------
Cash and cash equivalents at $11,531 107
end of period =====================
Supplemental cash flow $29,014 27,859
disclosures-cash paid for interest
Noncash investing and $27,858 -
financing activity -
Equipment acquired under
capital leases
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Corgenix Medical Corporation (Corgenix or the Company) develops,
manufactures and markets diagnostic products for the serologic diagnosis of
certain vascular diseases and autoimmune disorders using proprietary technology.
We market our products to hospitals and free-standing laboratories worldwide
through a network of sales representatives, distributors, and private label
(OEM) agreements. Our offices 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., 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 period ended September
30, 1999. Transactions are generally denominated in US dollars and Corgenix UK
held nominal assets and liabilities through September 1999.
The accompanying consolidated financial statements have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the Company, the financial statements
include all adjustments (consisting of normal recurring accruals and
adjustments) required to present fairly the Company's financial position at
September 30, 2000 and June 30, 2000 and the results of their operations for
each of the three month periods ended September 30, 2000 and 1999, and the cash
flows for each of the three month periods then ended.
The operating results for the three months ended September 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 2001.
2. INCOME PER SHARE
Basic and diluted income per share is presented based on the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed on the basis of the weighted average number of common
shares outstanding plus the effect of outstanding stock options using the
"treasury stock" method unless the impact is non-dilutive. The difference
between basic earnings per share and diluted earnings per share is due to the
effect of the outstanding warrants. For the three months ended September 30,
2000, the dilutive effect of outstanding warrants would have been 1,576. The
effect of outstanding warrants was anti-dilutive for the three months ended
September 30, 1999.
3. INCOME TAXES
The Company recognized net income in the three months ended September 30,
2000 and 1999. Although we recognized net income in the fiscal year ended June
30, 2000, we have historically incurred losses, and accordingly no tax benefit
is recognized as it is more likely than not that taxable income will be offset
by utilization of net operating loss carryforwards.
4. REPORTABLE SEGMENTS
The Company has two segments of business: domestic and international
operations. International operations primarily transacts sales of diagnostic
products with customers in the United Kingdom and Europe, while domestic
operations transact all other sales of diagnostic products. The Company's other
subsidiary, health-outfitters.com, had no revenue for the quarter ended
September 30, 2000. The following table sets forth selected financial data for
these segments for the quarter ended September 30, 2000. As the operating
structure was one segment in 1999 comparative information is not provided:
<PAGE>
Quarter ended September 30, 2000
---------------------------------------
Domestic International Total
------------- ------------ ------------
Net sales - $791,093 220,486 1,011,579
external customers
Net sales - (102,848) 0 (102,848)
internal ============= ============ ============
Total $688,245 220,486 908,731
net sales
============= ============ ============
Depreciation $ 35,173 0 35,173
and amortization
============= ============ ============
Interest expense $ (24,989) (4,025) (29,014)
============= ============ ============
Net income $ 63,968 38,770 102,738
(loss) ============= ============ ============
Segment assets $ 2,201,288 31,833 2,233,121
============= ============ ============
5. Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through
private placements of common and preferred stock, raising net proceeds of
approximately $3.9 million from sales of these securities. The Company has also
received financing for operations from sales of diagnostic products and
agreements with strategic partners. Through September 30, 2000, Corgenix had
invested $209,000, (net of accumulated depreciation) in leasehold improvements,
laboratory and computer equipment and office furnishings and equipment to
support its development and administrative activities.
At September 30, 2000, the Company had cash of $11,531, a working capital
deficit of $324,498, and short and long-term notes and leases payable of
$1,017,624, with $260,242 due in the following twelve months and the remainder
due at varying dates through February 2006. In 2000, the Company's accounts
payable decreased 3.3% to $862,000 from $891,000 in 1999, and accounts
receivable decreased 11.3% to $542,000 from $611,000 in 1999.
The Company expects that cash flows from current operations will be
sufficient to fund such operations at current levels. Management is aggressively
pursuing financing alternatives to provide funds for current operations and
growth plans including health-outfitters.com, which financing alternatives may
involve accessing the public equity or debt markets.
<PAGE>
CORGENIX MEDICAL CORPORATION
Management's Discussion and Analysis Of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the
consolidated 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
through our marketing and sales organization that includes contract sales
representatives, in the UK through a direct sales force, 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 revenue from strategic partners. Contract revenue consists 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 revenue 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 for healthcare products by
consumers.
Results of Operations
Three Months Ended September 30, 2000 and 1999
Net sales. Net sales for the three months ended September 30, 2000 were
$909,000, a 12.8% increase from $806,000 in 1999. A component of net sales,
gross product sales, increased 4.5% to $839,000 in 2000 from $803,000 in 1999,
because of expansion of the Company's customer base in the United States,
enlargement of the Company's international distribution network, and the
worldwide market launch of several new products.
Cost of sales. Cost of sales in dollars for the first quarter increased to
$338,000 in 2000 from $305,000 in 1999. As a percentage of sales, cost of sales
was relatively unchanged at 37.2% in the first quarter of 2000 compared to 37.8%
in the first quarter of 1999. The gross profit increased 13.8% to $570,000 in
2000 from $501,000 in 1999.
Selling and marketing. Selling and marketing expenses increased 23.0% to
$187,000 in the first quarter of 2000 from $152,000 in the first quarter of
1999, primarily due to the addition of a direct sales force in the UK. As a
percentage of sales, selling and marketing expenses increased to 20.6% in 2000
from 18.9% in 1999.
Research and development. Research and development expenses decreased
10.1% to $89,000 in the first quarter of 2000 from $99,000 in the first quarter
of 1999. As a percentage of sales, research and development expenses decreased
to 9.8% in the first quarter of 2000 from 12.3% in the first quarter of 1999. No
additional projects were added to the ongoing development program during the
first quarter of fiscal year 2001.
General and administrative. General and administrative expenses decreased
10.1 % to $163,000 in the first quarter of 2000 from $181,000 in the first
quarter of 1999, due in part to a reduction in legal, accounting and related
costs. As a percentage of sales, general and administrative expenses decreased
to 17.8% in 2000 from 22.6% in 1999.
Net profit. Net profit for the first quarter in 2000 was $103,000,
compared to a net profit of $41,000 in the first quarter of 1999.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
placements of common and preferred stock, raising net proceeds of approximately
$3.9 million from sales of these securities. We have also received financing for
operations from sales of diagnostic products and agreements with strategic
partners. Through September 30, 2000, we have invested $209,000, (net of
accumulated depreciation) in leasehold improvements, laboratory and computer
equipment and office furnishings and equipment to support our development and
administrative activities.
At September 30, 2000, we had cash of $11,531, a working capital deficit
of $324,058, and short and long-term notes and leases payable of $1,017,624,
with $260,242 due in the following twelve months and the remainder due at
varying dates through February 2006. In the first quarter of 2000, our accounts
payable decreased 3.3% to $862,000 from $891,000 in 1999, and our accounts
receivable decreased 11.3% to $542,000 from $611,000 in 1999.
We expect that cash flows from our current operations will be sufficient
to fund such operations at current levels. We are aggressively pursuing
financing alternatives to provide funds for our current operations and our
growth plans including health-outfitters.com, which financing alternatives may
involve accessing the public equity or debt markets. There can be no assurance
that we will be able to obtain sufficient capital from such financings to offset
our working capital deficits or to pursue our expansion plans.
Forward-Looking Statements and Risk Factors
This 10-QSB 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-QSB, 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-QSB 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 $3,917,000, 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
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
health-outfitters.com business, any of which could have a material adverse
effect on the future of 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.
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.
<PAGE>
Regulation Related to Foreign Markets
Distribution of diagnostic products outside the United States is subject
to extensive government regulation. These regulations, including the
requirements for approvals or clearance to market, the time required for
regulatory review and the sanctions imposed for violations, vary from country to
country. 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.
<PAGE>
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
awareness 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 statements are consolidated in US dollars. At the end of
each fiscal quarter and the fiscal year, we convert the financials statements of
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 US dollars to pounds sterling, or from pounds sterling to
US dollars. 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.
<PAGE>
CORGENIX MEDICAL CORPORATION
Part II
Other Information
Item 1. Legal Proceedings
Corgenix is not a party to any material litigation or legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the period covered by this report.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<PAGE>
ExhibitNumber 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.
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).
3.4 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).
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).
<PAGE>
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).
10.23 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
10.26 Form 10-QSB for the fiscal quarter ended December 31,
1999).
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).
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).
27* Financial Data Schedule
-------------------------------
* Filed herewith.
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORGENIX MEDICAL CORPORATION
November 13, 2000 By: /s/ Luis R. Lopez
Luis R.Lopez, M.D.
Chairman and Chief Executive Officer
