DGS-150328.1
May 10, 2000 8:33 AM
DGS-150328.1
May 10, 2000 8:33 AM
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 March 31, 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 17,416,562, as of May 8,
2000.
Transitional Small Business Disclosure Format. Yes _ No X
<PAGE>
CORGENIX MEDICAL CORPORATION
March 31, 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 7
Part II
Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
- -------------------------------------------------------------------
March 31, June 30,
2000 1999
--------------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 33,167 15,963
Accounts receivable, less 750,145 516,182
allowance for doubtful accounts of $7,000
Note receivable - 27,425
Inventories 573,808 518,215
Prepaid expenses 47,348 954
--------------------------
Total current assets 1,404,468 1,078,739
Equipment:
Machinery and laboratory 318,728 302,949
equipment
Furniture, fixtures and office 262,216 255,695
equipment
--------------------------
580,944 558,644
Accumulated depreciation and (441,483) (399,109)
amortization
--------------------------
Net equipment 139,461 159,535
Intangible assets:
Patents, net of accumulated 416,782 470,557
amortization of $700,762 and
$646,987 at March 31, 2000 and June
30, 1999, respectively
Goodwill, net of accumulated 24,313 25,411
amortization of $37,275 and $36,177
at March 31, 2000 and June
30, 1999, respectively
Organization costs, 75,000 -
health-outfitters.com, Inc. --------------------------
516,095 495,968
--------------------------
Due from officer 12,000 12,000
Other assets 18,584 14,285
--------------------------
Total assets $ 2,090,608 1,760,527
==========================
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Current portion of notes payable $ 241,099 296,954
Accounts payable 981,221 795,262
Accrued payroll and related 127,744 114,061
liabilities
Other liabilities 142,737 105,528
Current portion capital lease 4,766 3,483
obligation
Employee stock purchase plan 2,539 2,984
payable --------------------------
Total current liabilities 1,500,106 1,318,272
Notes payable, excluding current 713,415 790,959
portion
Leases payable, excluding current 3,864 7,703
portion
-------------------------
Total liabilities 2,217,385 2,116,934
Stockholders' deficit:
Preferred stock, $0.001 par - -
value. Authorized 5,000,000
shares; none issued or outstanding
Common stock, $0.001 par value. 17,394 16,852
Authorized 20,000,000 shares;
issued and outstanding 17,394,072 in
March and 16,852,116 shares in June
Additional paid-in capital 4.046,006 3,859,806
Accumulated deficit (4,190,177) (4,233,065)
-------------------------
Total stockholders' deficit (126,777) (356,407)
-------------------------
Total liabilities and $ 2,090,608 1,760,527
stockholders' deficit =========================
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
- -------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
--------------------------------------------
(Unaudited) (Unaudited)
Net Sales $ 855,635 711,675 2,566,259 1,832,338
Cost of Sales 382,931 298,768 1,014,298 819,555
--------------------------------------------
Gross Profit $ 472,704 412,907 1,551,961 1,012,783
Operating expenses:
Selling and marketing 211,369 57,729 593,658 538,041
Research and development 100,946 111,640 260,291 289,419
General and Admin. 181,201 303,779 548,884 688,078
--------------------------------------------
Total Expense 493,516 473,148 1,402,833 1,515,538
Operating profit(loss) $ (20,812) (60,241) 149,128 (502,755)
Interest expense, net 42,254 36,758 106,240 118,727
--------------------------------------------
Net profit (loss) $ (63,066) (96,999) 42,888 (621,482)
Net profit (loss) per $ (0.00) (0.01) 0.00 (0.13)
share, basic and diluted
Weighted average shares 17,383,680 16,370,428 17,170,836 14,013,953
outstanding
See accompanying notes to consolidated financial statements.
<PAGE>
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------
Nine Months Ended
March 31, March 31,
2000 1999
---------------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 42,888 (609,372)
Adjustments to reconcile net
income (loss) to net cash used
by operating activities:
Depreciation and amortization 97,247 116,223
Common stock issued for service - 12,000
Changes in operating assets and liabilities:
Accounts receivable (206,538) (65,097)
Inventories (55,593) 26,767
Prepaid expenses and other assets (125,693) 16,250
Accounts payable 185,959 287,828
Accrued payroll and related 13,683 65,002
liabilities
Other liabilities 37,209 24,555
Employee stock purchase plan payable (445) -
---------------------
Net cash used by operating activities (11,283) (174,954)
---------------------
Cash flows used by investing activities -
Purchase of equipment (22,300) (15,682)
Cash flows from financing activities:
Borrowings on notes payable 92,918 15,996
(Payments) on notes payable (228,873) (55,984)
Cash receipts on stock subscription - 25,651
Cash receipts for stock 186,742 -
---------------------
Net cash provided by (used by) 50,787 (14,337)
financing activities ---------------------
Net increase (decrease) in cash 17,204 (204,973)
and cash equivalents
Cash and cash equivalents
at beginning of period $ 15,963 216,314
---------------------
Cash and cash equivalents $ 33,167 11,341
at end of period =====================
Supplemental disclosure - $ 106,240 46,975
cash paid for interest
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.
The Company markets its products to hospitals and free-standing laboratories
worldwide through a network of sales representatives, distributors, and private
label (OEM) agreements. The Company's offices and manufacturing facility are
located in Westminster, Colorado.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Corgenix (UK) Limited (Corgenix UK) and
health-outfitters.com, Inc. (health-outfitters.com). Corgenix UK was established
as a United Kingdom company during 1996 to market the Company's products in
international markets. health-outfitters.com was incorporated in Colorado in
December 1999 to market healthcare products to consumers primarily through
e-commerce.
The accompanying consolidated financial statements have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
consolidated financial statements be read in connection with the financial
statements and notes thereto included in the Company's annual report on Form
10-KSB for the year ended June 30, 1999.
In the opinion of the Company, the accompanying consolidated financial
statements include all adjustments, consisting of normal recurring accruals and
adjustments, required to present fairly the Company's financial position at
March 31, 2000 and June 30, 1999, and the results of their operations for each
of the three and nine month periods ended March, 2000 and 1999, and the cash
flows for the nine month periods then ended.
The operating results for the three months and the nine months ended March
31, 2000 are not necessarily indicative of the results that may be expected for
the year ended June 30, 2000.
2. PROFIT (LOSS) PER SHARE
Basic profit (loss) per share is presented based on the weighted average
number of common shares outstanding during the period.
3. INCOME TAXES
The Company incurred profits in the nine months ended March 31, 2000 and
losses in the three months ended March 31, 2000, and the three and nine months
ended March 31, 1999. Although the Company has generated profit in the current
fiscal year, the Company has historically incurred losses and accordingly no tax
benefit is recognized. It is not more likely than not that tax losses will
result in a benefit to the Company.
<PAGE>
CORGENIX MEDICAL CORPORATION
Item 2. 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, Corgenix has been primarily involved in the
research, development, manufacturing and marketing of diagnostic tests for sale
to clinical laboratories. Corgenix currently markets 23 products covering
autoimmune disorders, vascular diseases, bone and joint diseases and liver
disease. Corgenix's products are sold in the United States through the Company's
marketing and sales organization that includes direct sales representatives,
internationally through an extensive distributor network, and to several
significant OEM partners.
Corgenix manufactures products for inventory based upon expected sales
demand, shipping products to customers, usually within 24 hours of receipt of
orders. Accordingly, Corgenix does not usually operate with a backlog.
Except for the fiscal year ending June 30, 1997, the Company has
experienced revenue growth since its inception, primarily from sales of products
and contract revenues from strategic partners. Contract revenues consist of
licensing fees, milestone payments, and royalty payments from research and
development agreements with strategic partners.
Beginning in fiscal year 1996, Corgenix added third-party OEM licensed
products to its diagnostic product line. The Company currently markets products
through OEM licenses from third party manufacturers and expects to expand its
relationship with other companies in the future to gain access to additional
products.
Although Corgenix has experienced growth in revenues every year since 1990
except for 1997, there can be no assurance that, in the future, Corgenix will
sustain revenue growth or achieve consistent profitability. Corgenix's results
of operations may fluctuate significantly from period-to-period as the result of
several factors, including: (i) whether and when new products are successfully
developed and introduced, (ii) market acceptance of current or new products,
(iii) seasonal customer demand, (iv) whether and when Corgenix receives R&D
milestone payments and license fees from strategic partners, (v) changes in
reimbursement policies for the products that Corgenix sells, (vi) competitive
pressures on average selling prices for the products that Corgenix sells, and
(vii) changes in the mix of products that Corgenix sells.
Results of Operations
Three Months Ended March 31, 2000 and 1999
Net sales. Net sales for the three months ended March 31, 2000 were
$856,000, a 20.2% increase from $712,000 in 1999. The increase was due to
product sales through the Company's expanded international distribution network
including the addition of a direct sales force in the UK, growth in sales of new
products launched in 1998 - 1999, the addition of products from other
manufacturers, and expansion of private labeling agreements with other
diagnostic companies.
Cost of sales. Cost of sales in dollars increased to $383,000 in 2000 from
$299,000 in 1999 due to increased sales for the quarter and product mix. As a
percentage of sales, cost of sales increased to 44.7% in 2000 from 42.0% in
1999, largely due to increased sales of products manufactured by third parties
with lower gross margins Gross profit increased 14.5% to $473,000 in 2000 from
$413,000 in 1999.
Selling and marketing. Selling and marketing expenses increased to
$211,000 in 2000 from $58,000 in 1999 because of increased selling and marketing
expenses resulting from recruitment expense and operating expense of adding a
direct sales force in the UK at the end of December 1999. In 1999, selling and
marketing expenses were low due to significantly lower promotional and
advertising expenses. As a percentage of sales, selling and marketing expenses
decreased to 24.6% in 2000 from 8.1% in 1999.
Research and development. Research and development expenses decreased 9.8%
to $101,000 in 2000 from $112,000 in 1999. The decrease was due to lower
clinical testing expenses in 2000.
General and administrative. General and administrative expenses decreased
40.5% to $181,000 in 2000 from $304,000 in 1999, due to lower legal and
accounting expense as seen in previous reporting periods.
Net profit (loss). Net loss for the third quarter improved 35.1% to
($63,000) in 2000 from ($97,000) in 1999 as a result of increased product sales
and decreases in operating expense.
Nine Months Ended March 31, 2000 and 1999
Net sales. Net sales for the nine months ended March 31, 2000 were
$2,566,000, a 40.1% increase from $1,832,000 in 1999. The increase was due to
increased market share penetration of existing products, expansion of the
Company's distribution network, and the contribution of new products.
Cost of sales. Cost of sales increased to $1,014,000 in 2000 from $820,000
in 1999. As a percentage of sales, cost of sales decreased to 39.5% in 2000 from
44.8% in 1999. This reduction was mainly reflective of product mix and
efficiencies realized from larger manufacturing lot sizes. Gross profit
increased 53.2% to $1,552,000 in 2000 from $1,013,000 in 1999.
Selling and marketing. Selling and marketing expenses increased 10.4% to
$594,000 in 2000 from $538,000 in 1999, primarily due to expenses associated
with the addition of the UK sales force in 2000.
Research and development. Research and development expenses decreased
10.3% to $260,000 in 2000 from $289,000 in 1999, due to the credit of expense in
2000 for clinical trials that were cancelled.
General and administrative. General and administrative expenses decreased
20.2% to $548,000 in 2000 from $688,000 in 1999 due to lower legal and
accounting expense in the period in 2000.
Net profit (loss). Net profit for the first nine months increased to
$43,000 in 2000 from ($621,000) in 1999 due to increased product sales, an
increase in percent gross profit, and decreases in operating expenses.
Liquidity and Capital Resources
Since inception, Corgenix has financed its operations primarily through
private placements of common and preferred stock, raising net proceeds of
approximately $4.1 million from sales of these securities. Corgenix has also
received financing for operations from sales of diagnostic products and
agreements with strategic partners. Through March 31, 2000, Corgenix has
invested $139,000, (net of accumulated depreciation) in leasehold improvements,
laboratory and computer equipment and office furnishings and equipment to
support its development and administrative activities.
At March 31, 2000, the Company had cash of $33,000, a working capital
deficit of $96,000, and short and long-term notes and leases payable of
$963,000, with $246,000 due in the following twelve months and the remainder due
at varying dates through February 2006.
Management expects that cash flows from current operations will be
sufficient to fund such operations at current levels. The Company is
aggressively pursuing financing alternatives to provide funds for its current
operations and its growth plans including health-outfitters.com and planned
international expansion, which financing alternatives may involve accessing the
public equity or debt markets. There can be no assurance that the Company will
be able to obtain sufficient capital from such financings to offset its working
capital deficits or to pursue its 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 the Company's
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,
acquisition strategies, strategic partnership expectations, technological
developments, the availability of necessary components, research and development
programs and distribution plans, are forward-looking statements. All
forward-looking statements included in this 10-QSB are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update such forward-looking statements. Although the Company
believes that the assumptions and expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct or that the Company will take any actions that may
presently be planned.
Certain factors that could cause actual results to differ materially from
those expected include the following:
Losses Incurred; Future Capital Needs; Uncertainty of
Additional Funding
The Company has incurred operating losses and negative cash flow from
operations for most of its history. Losses incurred by the Company since its
inception have aggregated over $4.1 million, and there can be no assurance that
the Company will be able to generate positive cash flows to fund its operations
in the future. Assuming no significant uses of cash in acquisition activities or
other significant changes, the Company believes it will have sufficient cash to
satisfy its funding needs for at least the next year. If the Company is not able
to operate profitably and generate positive cash flows, however, it may need to
raise additional capital to fund its continuing operations. If the Company needs
additional financing to meet its requirements, there can be no assurance that it
will be able to obtain such financing on terms satisfactory to it, if at all.
Alternatively, any additional equity financing may be dilutive to existing
stockholders, and debt financing, if available, may include restrictive
covenants. If adequate funds are not available, the Company might be required to
limit its research and development activities or its selling and marketing
activities, either of which could have a material adverse effect on the future
of the Company's business.
Dependence on Collaborative Relationships and Third Parties
for Product Development and Commercialization
The Company has historically entered into licensing and research and
development agreements with collaborative partners, from which it derived a
significant percentage of its revenues in past years. Pursuant to these
agreements, the Company's collaborative partners have specific responsibilities
for the costs of development, promotion, regulatory approval and/or sale of the
Company's products. The Company will continue to rely on future collaborative
partners for the development of products and technologies. There can be no
assurance that the Company 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 the Company is
not able to establish such arrangements, it could experience increased capital
requirements or be forced to undertake such activities at its own expense. The
amount and timing of resources that any of these partners devotes to these
activities will generally be based on progress by the Company in its product
development efforts. Usually, collaborative arrangements may be terminated by
the partner upon prior notice without cause and there can be no assurance that
any of these partners will perform its contractual obligations or that it will
not terminate its agreement. With respect to any products manufactured by third
parties, there can be no assurance that any third-party manufacturer will
perform acceptably or that failures by third parties will not delay clinical
trials or the submission of products for regulatory approval or impair the
Company's ability to deliver products on a timely basis.
No Assurance of Successful or Timely Development of
Additional Products
The Company's business strategy includes the development of additional
diagnostic products. The Company's success in developing new products will
depend on its ability to achieve scientific and technological advances and to
translate these advances into commercially competitive products on a timely
basis. Development of new products requires significant research, development
and testing efforts. The Company will have limited resources to devote to the
development of products and, consequently, a delay in the development of one
product or the use of resources for product development efforts that prove
unsuccessful may delay or jeopardize the development of other products. Any
delay in the development, introduction and marketing of future products could
result in such products being marketed at a time when their cost and performance
characteristics would not enable them to compete effectively in their respective
markets. If the Company is unable, for technological or other reasons, to
complete the development and introduction of any new product or if any new
product is not approved or cleared for marketing or does not achieve a
significant level of market acceptance, the Company's results of operation could
be materially and adversely affected.
Competition in the Diagnostics Industry
Competition in the human medical diagnostics industry is, and is expected
to remain, significant. The Company's competitors range from development stage
diagnostics companies to major domestic and international pharmaceutical
companies. Many of these companies have financial, technical, marketing, sales,
manufacturing, distribution and other resources significantly greater than those
of the Company. In addition, many of these companies have name recognition,
established positions in the market and long standing relationships with
customers and distributors. Moreover, the diagnostics industry has recently
experienced a period of consolidation, during which many of the large domestic
and international pharmaceutical companies have been acquiring mid-sized
diagnostics companies, further increasing the concentration of resources. There
can be no assurance that technologies will not be introduced that could be
directly competitive with or superior to the Company's technologies.
Governmental Regulation of Diagnostics Products
The testing, manufacture and sale of the Company's products is subject to
regulation by numerous governmental authorities, principally the FDA and certain
foreign regulatory agencies. Pursuant to the Federal Food, Drug, and Cosmetic
Act, and the regulations promulgated thereunder, the FDA regulates the
preclinical and clinical testing, manufacture, labeling, distribution and
promotion of medical devices. The Company will not be able to commence marketing
or commercial sales in the United States of new products under development until
it receives clearance from the FDA. The testing for, preparation of and
subsequent FDA regulatory review of required filings can be a lengthy, expensive
and uncertain process. Noncompliance with applicable requirements can result in,
among other consequences, fines, injunctions, civil penalties, recall or seizure
of products, repair, replacement or refund of the cost of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing clearances
or approvals, and criminal prosecution.
There can be no assurance that the Company will be able to obtain
necessary regulatory approvals or clearances for its products on a timely basis,
if at all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, limitations
on intended use imposed as a condition of such approvals or clearances or
failure to comply with existing or future regulatory requirements could have a
material adverse effect on the Company's business.
Dependence on Distribution Partners for Sales of Diagnostic
Products in International Markets
The Company has entered into distribution agreements with collaborative
partners in which Corgenix has granted distribution rights for certain Corgenix
products to these partners within specific international geographic areas.
Pursuant to these agreements, the Company's collaborative partners have certain
responsibilities for market development, promotion, and sales of the products.
If any of these partners fails to perform its contractual obligations or
terminates its agreement, this could have a material adverse effect on the
Company's business, financial condition and results of operation.
Governmental Regulation of Manufacturing and Other Activities
As a manufacturer of medical devices for marketing in the United States,
the Company is required to adhere to applicable regulations setting forth
detailed good manufacturing practice requirements, which include testing,
control and documentation requirements. The Company must also comply with
Medical Device Report ("MDR") requirements, which require that a manufacturer
report to the FDA any incident in which its product may have caused or
contributed to a death or serious injury, or in which its product malfunctioned
and, if the malfunction were to recur, it would be likely to cause or contribute
to a death or serious injury. The Company is also subject to routine inspection
by the FDA for compliance with QSR requirements, MDR requirements and other
applicable regulations. The FDA has recently implemented new QSR requirements,
including the addition of design controls that will likely increase the cost of
compliance. Labeling and promotional activities are subject to scrutiny by the
FDA and, in certain circumstances, by the Federal Trade Commission. The Company
may incur significant costs to comply with laws and regulations in the future,
which may have a material adverse effect upon the Company's business, financial
condition and results of operations.
Regulation Related to Foreign Markets
Distribution of diagnostic products outside the United States is subject
to extensive government regulation. These regulations, including the
requirements for approvals or clearance to market, the time required for
regulatory review and the sanctions imposed for violations, vary from country to
country. The Company may be required to incur significant costs in obtaining or
maintaining its foreign regulatory approvals. In addition, the export by the
Company of certain of its products that have not yet been cleared for domestic
commercial distribution may be subject to FDA export restrictions. Failure to
obtain necessary regulatory or the failure to comply with regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
Uncertain Availability of Third Party Reimbursement for
Diagnostic Products
In the United States, health care providers that purchase diagnostic
products, such as hospitals and physicians, generally rely on third party
payors, principally private health insurance plans, federal Medicare and state
Medicaid, to reimburse all or part of the cost of the procedure. Third party
payors are increasingly scrutinizing and challenging the prices charged for
medical products and services and they can affect the pricing or the relative
attractiveness of the Decreases in reimbursement amounts for tests performed
using the Company's diagnostic products, failure by physicians and other users
to obtain reimbursement from third party payors, or changes in government and
private third party payors' policies regarding reimbursement of tests utilizing
diagnostic products, may affect the Company's ability to sell its diagnostic
products profitably. Market acceptance of the Company's products in
international markets is also dependent, in part, upon the availability of
reimbursement within prevailing health care payment systems.
Uncertainty of Protection of Patents, Trade Secrets and
Trademarks
The Company's success depends, in part, on its ability to obtain patents
and license patent rights, to maintain trade secret protection and to operate
without infringing on the proprietary rights of others. There can be no
assurance that the Company's issued patents will afford meaningful protection
against a competitor, or that patents issued to the Company will not be
infringed upon or designed around by others, or that others will not obtain
patents that the Company would need to license or design around. The Company
could incur substantial costs in defending itself or its licensees in litigation
brought by others or prosecuting infringement claims against third parties. If
the outcome of any such litigation is unfavorable to the Company, the Company's
business could be adversely affected.
Risks Regarding Potential Future Acquisitions
The Company's growth strategy includes as a material element the desire to
acquire complementary companies, products or technologies. There is no assurance
that the Company will be able to identify appropriate companies or technologies
to be acquired, to negotiate satisfactory terms for such an acquisition, or to
obtain sufficient capital to make such acquisitions. Moreover, because of
limited cash resources, the Company will be unable to acquire any significant
companies or technologies for cash and the Company's ability to effect
acquisitions in exchange for the Company's capital stock may depend upon the
market prices for the Common Stock. If the Company does complete one or more
acquisitions, a number of risks arise, such as short-term negative effects on
the Company's reported operating results, diversion of management's attention,
unanticipated problems or legal liabilities, and difficulties in the integration
of potentially dissimilar operations. The occurrence of some or all of these
risks could have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Suppliers
The components of the Company's products include chemical and packaging
supplies that are generally available from several suppliers, except certain
antibodies, which the Company purchases from single suppliers. The Company
mitigates the risk of a loss of supply by maintaining a sufficient supply of
such antibodies to ensure an uninterrupted supply for at least six months.
Although the Company believes that it can substitute a new supplier with respect
to any of these components in a timely manner, there can be no assurances that
the Company will be able to substitute a new supplier in a timely manner and
failure to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
Limited Manufacturing Experience with Certain Products
Although the Company has manufactured over ten million diagnostic tests
based on its proprietary applications of ELISA technology, certain of the
Company's diagnostic products in development or in consideration for future
development, incorporate technologies with which the Company has no
manufacturing experience. Assuming successful development and receipt of
required regulatory approvals, significant work may be required to scale up
production for each new product prior to such product's commercialization. There
can be no assurance that such work can be completed in a timely manner and that
such new products can be manufactured cost-effectively, to regulatory standards
or in sufficient volume.
Seasonality of Products; Quarterly Fluctuations in Results
of Operations
The Company's revenue and operating results have historically been
minimally subject to quarterly fluctuations. There can be no assurance that such
seasonality in the Company's results of operations will not have a material
adverse effect on the Company's business.
Dependence on Key Personnel
Because of the specialized nature of the Company's business, the success
of the Company will be highly dependent upon its ability to attract and retain
qualified scientific and executive personnel. In particular, the Company
believes its success will depend to a significant extent on the efforts and
abilities of Dr. Luis R. Lopez and Douglass T. Simpson, who would be difficult
to replace. There can be no assurance that the Company will be successful in
attracting and retaining such skilled personnel, who are generally in high
demand by other companies. The loss of, inability to attract, or poor
performance by key scientific and executive personnel may have a material
adverse effect on the Company's business, financial condition and results of
operations.
Product Liability Exposure and Limited Insurance
The testing, manufacturing and marketing of medical diagnostic devices
entails an inherent risk of product liability claims. To date, the Company has
experienced no product liability claims, but any such claims arising in the
future could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's product liability insurance
coverage is currently limited to $2 million. Potential product liability claims
may exceed the amount of the Company's insurance coverage or may be excluded
from coverage under the terms of the Company's policy or limited by other claims
under the Company's umbrella insurance policy. Additionally, there can be no
assurance that the Company's existing insurance can be renewed by the Company at
a cost and level of coverage comparable to that presently in effect, if at all.
In the event that the Company is held liable for a claim against which it is not
insured or for damages exceeding the limits of its insurance coverage, such
claim could have a material adverse effect on the Company's business, financial
condition and results of operations.
New Business Strategy
The Company 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 the
Company's website, www.healthoutfitters.com. Neither the Company nor its current
management has any experience in managing internet businesses, and the Company
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 the Company's traditional business, and that traditional
business may decline.
The e-commerce healthcare market is a relatively new and unproven
business. Whether the Company succeeds depends upon broad acceptance of
internet-based healthcare product purchasing.
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 the Company. In addition, many of
these companies have name recognition, established positions in the market and
existing relationships with customers and distributors.
Limited Public Market; Possible Volatility in Stock Prices;
Penny Stock Rules
There has, to date, been no active public market for the Company's Common
Stock, and there can be no assurance that an active public market will develop
or be sustained. Although the Company's Common Stock has been traded on the OTC
Bulletin Board(R) since February 1998, the trading has been sporadic with
insignificant volume.
Moreover, the over-the-counter markets for securities of very small
companies such as the Company historically have experienced extreme price and
volume fluctuations during certain periods. These broad market fluctuations and
other factors, such as new product developments and trends in the Company's
industry and the investment markets and economic conditions generally, as well
as quarterly variation in the Company's results of operations, may adversely
affect the market price of the Company's Common Stock. In addition, the
Company's Common Stock is subject to rules adopted by the Securities and
Exchange Commission regulating broker-dealer practices in connection with
transactions in "penny stocks." As a result, many brokers are unwilling to
engage in transactions in the Company's Common Stock because of the added
disclosure requirements.
<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
(a) The Registrant's Annual Meeting of Stockholders was held on
January 26, 2000.
(b) The following directors were elected for the ensuing year at
the Annual Meeting: Luis R. Lopez, M.D., Douglass T.
Simpson, Brian E. Johnson.
(c) The matters voted upon at the Annual Meeting, the number of votes cast
for, against, or withheld, as well as the number of abstentions and
non-votes as to each such matter were as follows:
1. The election of Luis R. Lopez, M.D., as a director:
11,957,636 votes for; 0 votes against; 1,134,687
votes withheld; 4,227,841 non-votes.
2. The election of Douglass T. Simpson as a director:
11,959,636 votes for; 0 votes against; 1,132,687
votes withheld; 0 abstentions; 4,227,841 non-votes.
3. The election of Brian E. Johnson as a director: 11,959,636
votes for; 0 votes against; 1,132,687 votes withheld;
0 abstentions; 4,227,841 non-votes.
4. Approval of the Corgenix 1999 Incentive Stock Plan:
12,678,590 votes for; 337,843 votes against; 0 votes
withheld; 75,890 abstentions; 4,227,841 non-votes.
5. Approval of the Employee Stock Purchase Plan: 12,622,474
votes for; 252,785 votes against; 151,780 votes
withheld; 65,284 abstentions; 4,227,841 non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<PAGE>
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.
Bylaws of health-outfitters.com, Inc. dated November 16,
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).
10.4 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).
10.24 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.
10.26 Promissory note dated September 21, 1999 with Transglobal Financial
Corporation and the Company.
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
May 10, 2000 By: /s/ Luis R. Lopez
Luis R. Lopez, M.D.
Chairman and Chief Executive Officer
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