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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended September 30, 2013

For the transition period from                     to                   

Commission File Number 000-24541

CORGENIX MEDICAL CORPORATION

(Exact name of registrant as specified in its Charter)

11575 Main Street, Number 400, Broomfield, CO 80020

(Address of principal executive offices, including zip code)

(303) 457-4345

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant:  (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 guidance for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)  Yes o  No x

The number of shares of Common Stock outstanding was 50,651,413 as of October 1, 2013.

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CORGENIX MEDICAL CORPORATION

September 30, 2013

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PART I

Item 1. Condensed Consolidated Financial Statements

CORGENIX MEDICAL CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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CORGENIX MEDICAL CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

*Less than $ 0.01 per share

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CORGENIX MEDICAL CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

For the three months ended September 30, 2013

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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CORGENIX MEDICAL CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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CORGENIX MEDICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.                                      DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

(a)                                 Company Overview

We were organized as a C corporation,  in 1990, and our business includes research, development, manufacture, and marketing of in vitro diagnostic (“IVD”) products (tested outside the human body) for use in disease detection and diagnosis.

Our revenues are generated from the following:

·                  Sales of Manufactured Products—We manufacture and sell 50 diagnostic products on a worldwide basis to hospitals, clinical testing laboratories, universities, biotechnology and pharmaceutical companies and research institutions.

·                  In North America we sell our products directly through our own sales organization and through several small independent distributors.

·                  Outside of North America we sell ourproducts, excluding OEM products, through the ELITech Group (“ELITech”) which now serves as our international master distributor, which in turn sells our products through its wholly owned subsidiaries in addition to numerous independent distributors.

·                  Sales of OEM Products—We private label some of our IVD products for other diagnostic companies, which they then resell worldwide through their own distribution networks. Our most important OEM customers include Bio-Rad Laboratories, Inc., Helena Laboratories and Diagnostic Grifols, S.A.

·                  Sales of OM Products—We purchase some products from other healthcare manufacturers, which we then resell. These products include other IVD products, instruments, instrument systems and various reagents and supplies, and are primarily used to support the sale of our own manufactured products.

·                  Contract Manufacturing Agreements—We provide contract manufacturing services to other diagnostic and life science companies. Our most significant Contract Manufacturing customers are BG Medicine, Inc. (“BG Medicine”) and diaDexus, Inc. (“diaDexus”).

·                  Contract R&D Agreements—We provide contract product development services to strategic partners and alliances. Our most significant Contract R&D customers include ELITech, Tulane University (“Tulane”) and the National Institutes of Health (“NIH”).

·                  Other Revenues—This segment includes shipping and other miscellaneous revenues.

·                  Our three largest customers, collectively, account for 44.1% of our total revenues.

Most of our products are used in clinical laboratories for the diagnosis and/or the monitoring of three important sectors of health care:

·                  Autoimmune disease (diseases in which an individual creates antibodies to one’s self, for example systemic lupus erythematosus (“SLE”) and rheumatoid arthritis (“RA”);

·                  Vascular disease (diseases associated with certain types of thrombosis or clot formation, for example antiphospholipid syndrome, deep vein thrombosis, stroke and coronary occlusion); and

·                  Liver diseases (fibrosis and cirrhosis).

We are actively developing new laboratory tests in these and other important diagnostic testing areas

We develop and manufacture products in several commonly utilized testing formats:

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·                  Microplate Enzyme Linked ImmunoSorbent Assay (“ELISA”)—This is a clinical testing methodology commonly used worldwide. It is a format which must be run in laboratory conditions by trained technicians, and utilizes standard microplate reading instruments. Testing is performed on a standard 96-well plastic microplate and provides quantitative results.

·                  Lateral Flow Immunoassay (“LFI”)—This is a rapid testing format which utilizes small strip configuration. Patient samples are applied to the end of a strip and allowed to migrate along the strip with a positive or negative indicator. Results are typically obtained in a matter of minutes and can be performed in all settings including field testing.

·                  Immmunoturbidimetry (“IT”)—IT products are configured similar to ELISA Microplate products except that instead of coating microwell plates, this technology coats microbeads or microparticles. The assay configuration is more “automatable” than microplates, designed to be run on clinical chemistry analyzers in clinical testing laboratories by trained personnel. We use the IT format as part of our development and manufacturing agreements with ELITech.

Since 1990, our sales force and distribution partners have sold over 88 million tests worldwide under the REAADS and Corgenix labels, as well as OEM products. An integral part of our strategy is to work with corporate partners to develop market opportunities and access important resources including expanding our Contract Manufacturing and Contract R&D programs. We believe that our relationships with current and potential partners will enable us to enhance our menu of diagnostic products and accelerate our ability to penetrate the worldwide markets for new products.

We currently use the REAADS and Corgenix trademarks and trade names in the sale of the products which we manufacture. These products constitute the majority of our product sales.

(b)                                 Basis of Presentation

Financial Statement Preparation

The unaudited condensed consolidated financial statements have been prepared by Corgenix according to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. The Company has evaluated subsequent events through the date the financial statements were issued.

In the opinion of management, the accompanying unaudited financial statements for the periods presented reflect all adjustments, which consist only of normal and recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows. These unaudited financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013 filed with the SEC on September 30, 2013.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2.                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies were described in Note 1 to the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013. There have been no significant changes to these policies and no recent accounting pronouncements or changes in accounting pronouncements during the three months ended September 30, 2013 that are of significance or potential significance to the Company.

3.                                      INVENTORIES

Inventories consist of raw materials, work in process, finished goods and laboratory instruments and parts held for sale, and are recorded at the lower of average cost or market, using the first-in, first-out method. A provision is recorded to reduce excess and obsolete inventories to their estimated net realizable value, if and when necessary. No such provision was recorded as of September 30, 2013 or June 30, 2013. Components of inventories as of September 30, 2013 and June 30, 2013 are as follows:

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4.                                      EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding increased for potentially dilutive common shares outstanding during the period. The dilutive effect of stock options and their equivalents is calculated using the treasury stock method. Under the treasury stock method, the diluted earnings per share denominator includes the net of new shares potentially created by unexercised in-the-money warrants and options. This method assumes that the proceeds that we receive from an in-the-money option exercise would be used to repurchase common shares in the market.

*Less than $0.01 per share

All options and warrants were considered in the calculation of weighted average common shares and dilutive potential common shares above.

5.                                      LIQUIDITY

At September 30, 2013, our working capital decreased by $42,064 to $4,511,653 from $4,553,717 at June 30, 2013, and concurrently, our current ratio (current assets divided by current liabilities) decreased slightly from 5.77 to 1 at June 30, 2013 to 5.74 to 1 at September 30, 2013.

At September 30, 2013, trade and other receivables were $1,525,887 versus $1,500,461 at June 30, 2013. At September 30, 2013 inventories were $1,768,522 versus $2,032,545 as of June 30, 2013. The decrease in inventories was primarily attributable to the continuing effort to better manage the Company’s raw materials purchasing practices in addition to the continuing benefits being derived from the increased automation of the Company’s manufacturing processes.

For the three months ended September 30, 2013, cash used by operating activities amounted to $5,553, versus cash used by operating activities of $130,410 for the three months ended September 30, 2012. The decrease in the cash used by operations for the current quarter resulted primarily from the decrease in inventories and increase in accounts payable for the period.

Net cash used by investing activities amounted to $43,840 for the three months ended September 30, 2013, compared to net cash used by investing activities for the three months ended September 30, 2012 totaling $14,265.

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Net cash provided by financing activities amounted to $236,596 for the three months ended September 30, 2013 compared to net cash provided by financing activities for the three months ended September 30, 2012 totaling $93,591. This increase was primarily due to the increased proceeds received from the Company’s revolving line of credit.

In summary, the $236,596 cash provided by financing activities less the $5,553 of cash used by operating activities and the $43,840 net cash used by investing activities, resulted in a net increase of $187,203 in our cash balance as of September 30, 2013.

We have incurred operating losses and negative cash flow from operations for most of our history. Losses incurred since our inception, net of accreted dividends on redeemable common and redeemable preferred stock, have aggregated $13,842,629 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. Historically, we have financed our operations primarily through long-term debt, factoring of accounts receivables, and the sales of common stock, redeemable common stock, and preferred stock. We have also financed operations through sales of diagnostic products and agreements with strategic partners. We have developed and are continuing to modify an operating plan intended to eventually achieve sustainable profitability, positive cash flow from operations, and an adequate level of financial liquidity. Key components of this plan include consistent revenue growth and the cash to be derived from such growth, as well as the expansion of our strategic alliances with other biotechnology and diagnostic companies, securing diagnostic-related government contracts and grants, improving operating efficiencies to reduce our cost of sales as a percentage of sales, thereby improving gross margins, and lowering our overall operating expenses. If our sales were to decline, be flat, or achieve very slow growth, we would undoubtedly incur operating losses and a decreasing level of liquidity for that period of time. In view of this, and in order to further improve our liquidity and operating results, we entered into the ELITech collaboration and investment, as discussed in Notes 7 and 10.

We believe that we have sufficient working capital for our existing operations. However, we can provide no assurance that we will be able to secure additional funding for our future operations.  A sustained period of unprofitable operations may strain our liquidity and make it difficult to maintain compliance with our financing arrangements. While we may seek additional sources of working capital in response, we can provide no assurance that we will be able to secure this funding if necessary. We may sell additional equity or borrow additional amounts to improve or preserve our liquidity or expand our existing business. We can provide no assurance that we will be able to secure the funding necessary for additional working capital needs at reasonable terms, if at all.

6.                                  FAIR VALUE MEASUREMENT

The fair value of our financial instruments reflect the amounts that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels:

Level 1—quoted prices in active markets for identical assets and liabilities

Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3—unobservable inputs

The Company’s financial instruments are valued using quoted prices in active markets or based upon other observable inputs. The following table sets forth the fair value of the Company’s financial assets that were measured on a recurring basis:

As of September 30, 2013:

As of June 30, 2013:

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7.                                      STOCKHOLDERS’ EQUITY

(a)                                 Common Stock

On September 16, 2011, we received $500,000 from Wescor, pursuant to the Third Tranche under the Common Stock Purchase Agreement. Pursuant to the Common Stock Purchase Agreement, Wescor invested an additional $500,000 and was issued 3,333,333 shares of our common stock valued at $0.15 per share. For no additional consideration we issued a warrant to Wescor to purchase 1,666,667 shares at $0.15 per share. As a condition to the closing of the Third Tranche, the Executive Committee established under the Joint Product Development Agreement has determined the feasibility of creating not less than two (2) new Corgenix assays as further described in the Joint Product Development Agreement.

On July 28, 2011, we entered into a First Amended Joint Product Development Agreement (the “2011 Development Agreement”) with ELITech and Wescor. Each party will be responsible for its own costs, expenses and liabilities incurred under the Agreement; however, ELITech and Wescor will be responsible for expenses related to the development of new Corgenix Assays and systems. Pursuant to this agreement, each month we will notify Wescor of the amount of their stock purchase commitment, which is equal to sixty-six and 7/10 percent (66.7%) of the amount of each monthly R & D invoice at a per share price of $0.15. Wescor must purchase such shares within thirty (30) days of each notification. For the quarters ended September 30, 2013 and September 30, 2012, we generated $122,727 and $205,393, respectively in R & D revenue from Wescor, and issued 283,151and 895,061 shares, respectively under this arrangement. Also, pursuant to the 2011 Development Agreement, as of September 30, 2013 and September 30, 2012 there was $62,345 and $109,927 due from Wescor with respect to stock purchase commitments owing from Wescor for 415,633 and 732,860 shares, respectively, to be issued subsequent to September 30, 2013 and September 30, 2012, respectively. The $62,345 and $109,927 stock purchase commitments were not recorded as of September 30, 2013 or September 30, 2012.

As a result of these transactions, ELITech beneficially owned 45.2% of the Company’s outstanding shares as of September 30, 2013, and is considered a related party.

(b)                                 Employee Stock Purchase Plan

Effective January 1, 1999, the Company adopted an Employee Stock Purchase Plan to provide eligible employees an opportunity to purchase shares of its common stock through payroll deductions, up to 10% of eligible compensation. On April 26, 2008, Shareholders approved the Company’s Second Amended and Restated Employee Stock Purchase Plan. This plan is qualified under Section 423 of the Internal Revenue Code of 1986. Each quarter, participant account balances are used to purchase shares of stock at the lesser of 85% of the fair value of shares on the first business day (grant date) and last business day (exercise date) of each quarter. No right to purchase shares shall be granted if, immediately after the grant, the employee would own stock aggregating 5% or more of the total combined voting power or value of all classes of stock. A total of 600,000 common shares have been registered with the SEC for purchase under this plan.

On January 17, 2012, at our Annual Meeting of shareholders, the shareholders voted to approve The Third Amended & Restated Employee Stock Purchase Plan, effective January 1, 2012. The maximum number of shares that may be sold under the Third Amended & Restated Employee Stock Purchase Plan is 500,000 shares, which shares have been registered with the SEC. For the three months ended September 30, 2013, shares issued under the plans amounted to 14,270. For the three months ended September 30, 2012, shares issued under the plans amounted to 103,079.

(c)                                  Incentive Stock Option and Compensation Plans

Stock Options as of September 30, 2013

The total intrinsic value as of September 30, 2013 measures the difference between the market price as of September 30, 2013 and the exercise price. Options for 120,000 shares were exercised during the quarter ended September 30, 2013. No options were

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exercised during the quarter ended September 30, 2012. In exchange for the options exercised during the current quarter, $11,180 cash was received by the Company. We did not realize any tax deductions related to exercise of stock options during the period.

As of September 30, 2013, estimated unrecognized compensation cost from unvested stock options amounted to $178,071, which is expected to be recognized over a weighted average period of 72.8 months.

The weighted average per share fair value of stock options granted during the quarter ending September 30, 2013 was $0.20. The weighted average per share fair value of stock options granted during the quarter ending September 30, 2012 was $0.13. The fair value was estimated as of the grant date using the Black-Scholes option pricing model with the following assumptions:

(d)                                 Redeemable Convertible Preferred Stock

On February 3, 2009, as part of a debt restructuring agreement, the Company issued 36,680 shares of its Series B Convertible Preferred Stock (“Series B”) to Truk Opportunity Fund, LLC, a Delaware company and Truk International Fund, LP, a Cayman Islands company (collectively, “Truk”). The shares had a liquidation preference of $9,170, which would have been convertible into 146,720 shares of its common stock at the rate of $0.25 per share.

The liquidation preference of the convertible preferred stock was deemed to be a redemption feature of said stock. Accordingly, over the three year period, the amount of the convertible preferred stock as shown on the Balance Sheet, was accreted, such that, at the end of the three year period, the amount equaled the amount of common stock capable of being converted by the convertible preferred stock. This accretion of the convertible preferred stock has been reflected on the Statement of Operations, as accreted dividends.

According to the Company’s Certificate of Designations of Preferences, Rights & Limitations, Series B Convertible Preferred Stock, the Company did not automatically redeem Truk’s Series B Convertible Preferred Stock as required. According to the terms of the preferred shares, automatic redemption was to occur on February 3, 2012, at the Conversion Value per share, which at the time was $0.25 multiplied by 36,680 issued and outstanding shares for a total cash redemption of $9,170. On September 20, 2013, the Company redeemed Truk’s convertible shares together with interest of $746, for a total payment to Truk amounting to $9,916.

8.                                      REVOLVING LINE OF CREDIT

Under the LSQ Revolving Credit and Security Agreement (the “LSQ Agreement”), LSQ, the lender provided a line of credit (“Line”) to the Company under which LSQ agreed to make loans to the Company in the maximum principal amount outstanding at any time of $1,500,000.  The proceeds of the loans under the line of credit have been used to repay certain loans and other amounts payable by the Company.  The LSQ Agreement was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 20, 2011, and the description of material terms of the LSQ Agreement is qualified in its entirety by reference to that exhibit. Interest accrues on the average outstanding principal amount of the loans under the Line at a rate equal to 0.043% per day (15.7% APR). Loans under the Line may be repaid and such repaid amounts re-borrowed until the maturity date. Unless terminated by us or accelerated by LSQ in accordance with the terms of the Loan Agreement, the Line was to terminate and all loans there under repaid on July 14, 2013. In addition, pursuant to the terms of the Loan Agreement, we granted to LSQ a security interest in all of our personal property to secure the repayment of the loans under the Line and all other of our obligations to LSQ, whether under the Loan Agreement or otherwise. For the quarters ended September 30, 2013 and September 30, 2012, LSQ funded a total of $2,121,139 and $1,900,509, respectively under the Line, of which $1,080 and ($14,000) were outstanding as of September 30, 2013 and September 30, 2012, respectively. Fees paid to LSQ for interest and other services for the same periods totaled $440 and $509, respectively.

On August 28, 2013, the Company entered into a Business Loan Agreement (the “Loan Agreement”) effective August 15, 2013 between the Company and Bank of the West (the “Bank”).

Pursuant to the terms of the Loan Agreement, the Bank is providing a revolving line of credit (the “Line”) to the Company not to exceed $1,500,000.  Interest accrues at a variable one month LIBOR (currently 0.18%) plus 4.00% per annum.  Interest payments are due monthly.

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Unless terminated by the Company or accelerated by the Bank in accordance with the terms of the Loan Agreement, the Line will terminate and all loans thereunder must be repaid on November 5, 2014.

The Loan Agreement contains certain representations, warranties, covenants and events of default typical in financings of this type, including, for example, limitations on assuming additional debt, making investments, or the sale of Company assets or other changes in the ownership of the Company.

In addition, pursuant to the terms of the Loan Agreement, the Company will grant to the Bank a security interest in all of the Company’s assets to secure the repayment of the loans under the Line and to secure all other obligations of the Company to the Bank.

The Company will use the money it receives under the Loan Agreement for general short term working capital purposes.

The Loan Agreement and the accompanying Promissory Note were filed as Exhibits 10.1 and 10.2, respectively, to the Current Report on Form 8-K filed on September 4, 2013, and the description of material terms of such documents herein are qualified in their entirety by reference to such exhibits.

The Line will be activated when the notice period to LSQ described below has elapsed and the Bank is able to secure a first lien on the Company’s assets.

On August 28, 2013, the Company provided written notice to LSQ, that the Company desires to terminate the LSQ Agreement .  The LSQ Agreement requires 60 days’ notice by the Company to LSQ to terminate, and thus the termination became effective October 27, 2013. Any ancillary agreements and documents entered into in connection with the LSQ Agreement will terminate in connection with the termination of the LSQ Agreement. The notice states that the Company is not dissatisfied with its relationship with LSQ but desires to pursue other borrowing opportunities. The Company does not expect to incur any termination penalties as a result of the termination.

9.                                      NOTES PAYABLE

Notes payable consist of the following at September 30, 2013 and June 30, 2013:

10.                               RELATED PARTY TRANSACTIONS

The ELITech Group, a French diagnostic company, via its wholly owned subsidiaries, ELITech-UK (our master international distributor) and Wescor (located in Logan, Utah) (the “ELITech Group”) combined are considered to be a related party, beneficially owning 45.2% of the Company’s outstanding shares, and, as of September 30, 2013, was the Company’s largest customer.  For the three months ended September 30, 2013 and September 30, 2012, we generated $122,727 and $205,393, respectively in R & D revenue from Wescor. In addition, the Company’s international product sales to ELITech-UK for the three months ended September 30, 2013 and September 30, 2012 amounted to $141,853 and $251,620, respectively. Thus, in total, the ELITech Group (ELITech-UK and Wescor) represented approximately 9.2% and 16.2% of total revenues for the three months ended September 30, 2013 and September 30, 2012, respectively. Finally, the ELITech Group represented 13.7% and 23.6% of total trade accounts receivable at September 30, 2013 and June 30, 2013, respectively. At September 30, 2013 and September 30, 2012, the amount due us from the ELITech Group amounted to $208,361 and $405,148, respectively.

11.                               CONCENTRATION OF CREDIT RISK

The Company’s customers, with the exception of the ELITech Group, are principally located in the U.S.  The Company performs periodic credit evaluations of its customers’ financial condition but generally does not require collateral for receivables. For the three months ended September 30, 2013, our largest customers, the ELITech Group, DiaDexus, Inc., and BG Medicine, Inc. accounted for 9.2%, 20.4%, and 14.5% of our total revenues, respectively, and for the three months ended September 30, 2012, those same three customers accounted for 16.2%, 10.5%, and 14.1% of our total revenues, respectively. With respect to our total accounts receivable, as of September 30, 2013, the ELITech Group accounted for 13.7% of our total accounts receivable, while DiaDexus, inc. and B.G. Medicine, Inc., each represented 21.5% and 14.0%, respectively, of total accounts receivable. As of June 30, 2013, the ELITech Group accounted for 23.6% of our total accounts receivable, while DiaDexus, Inc. and BG Medicine, Inc. each represented less than 1% of total accounts receivable.

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Item 2.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes included elsewhere herein and in the Annual Report on Form 10-K for the year ended June 30, 2013.

(a)                                 Forward-Looking Statements

This 10-Q includes statements that are not purely historical and are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, beliefs, intentions or strategies regarding the future.  All statements other than historical fact contained in this 10-Q, including, without limitation, statements regarding future capital guidance, acquisition strategies, strategic partnership expectations, technological developments, the development, the availability of necessary components, research and development programs and distribution plans, are forward-looking statements.  All forward-looking statements included in this 10-Q 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.

We have incurred operating losses and negative cash flow from operations for most of our history. 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. There can be no assurance that, in the future, we will sustain revenue growth, current revenue levels, or achieve 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 research and development payments 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, and (vii) changes in the mix of products that we sell. For more discussion about each risk factor , see Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013.

(b)                                 General

Since our 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 50 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 direct sales representatives internationally through an extensive distributor network, and to several significant OEM partners.

We manufacture products for inventory based upon expected sales demand, shipping products to customers, usually within 24 hours of receipt of orders if in stock.  Accordingly, we do not operate with a significant customer order backlog.

Except for the fiscal years ending June 30, 1997, 2009, and 2011, we have experienced revenue growth since our inception, primarily from sales of products and contract revenues from strategic partners. Contract revenues consist of service fees from research and development agreements with strategic partners.

Beginning in fiscal year 1996, we began adding third-party OM licensed products to our diagnostic product line.  We expect to expand our relationships with other companies in the future to gain access to additional products.

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(c)                                  Results of Operations

Three months ended September 30, 2013 compared to three months ended September 30, 2012

Total revenues. The following two tables provide the reader with further insight as to the changes of the various components of our total revenues for the comparable quarters ended September 30, 2013 and September 30, 2012.

Cost of revenues.  Total cost of revenues, as a percentage of sales, decreased to 53.8% for the quarter ended September 30, 2013 versus 57.4% for the prior fiscal year. The primary reasons for the decrease for the quarter was the reduction in the cost of goods sold of our core products, which improved to 52.3% versus 55.4% in the previous year, along with the absolute and relative decrease in Research and Development and Grant revenue, which carry much higher cost of revenues than do our core business. The ongoing reduction in our manufacturing costs was primarily attributable to the continuing effort to better manage the Company’s raw materials purchasing practices in addition to the continuing benefits being derived from the increased automation of the Company’s manufacturing processes.

Quarter Ended September 30, 2013

Quarter Ended September 30, 2012

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Selling and marketing expenses.  For the quarter ended September 30, 2013, selling and marketing expenses increased $42,334 or 9.6% to $483,684 from $441,350, for the quarter ended September 30, 2012. The increase in these expenses versus the prior period resulted primarily from increases in instrument service and support, consulting expenses, advertising expense, and trade show and travel related expenses.

Research and development expenses. Gross research and development expenses, prior to the reclassification of a portion of said expenses to cost of revenues, decreased $11,499 or 3.0% to $376,393 for the quarter ended September 30, 2013, versus 387,892 for the quarter ended September 30, 2012. The $11,499 decrease resulted primarily from decreases in labor-related expenses, laboratory supplies, and travel-related expenses, as the joint product development effort with ELITech winds down.

General and administrative expenses. For the quarter ended September 30, 2013, general and administrative expenses increased $111,674, or 26.0% to $540,510 from $428,836 for the quarter ended September 30, 2012. This increase was primarily due to increases in labor-related expenses and travel-related expenses.

Interest expense. Interest expense decreased $2,603, or 40.7% to $3,797 for the quarter ended September 30, 2013, from $6,400 for the quarter ended September 30, 2012.

(d)                                 ADJUSTED EBITDA

Our adjusted earnings before interest, taxes, depreciation, amortization, and non cash expense associated with stock-based compensation (“ ADJUSTED EBITDA”) decreased $117,685 or 38.6% to $187,450 for the quarter ended September 30, 2013 compared with $305,135 for the corresponding three month period in fiscal 2013. Although Adjusted EBITDA is not a GAAP measure of performance or liquidity, we believe that it may be useful to an investor in evaluating our ability to meet future debt service, capital expenditures and working capital guidance. However, investors should not consider these measures in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with GAAP. In addition, because Adjusted EBITDA is not calculated in accordance with GAAP, it may not necessarily be comparable to similarly titled measures employed by other companies. A reconciliation of Adjusted EBITDA to net earnings (loss) can be made by adding depreciation and amortization expense, corporate stock-based compensation expense, interest expense, and income tax expense to net income (loss) as in the following table:

(e)                                  Financing Agreements

On August 28, 2013, the Company entered into a Business Loan Agreement (the “Loan Agreement”) effective August 15, 2013 between the Company and Bank of the West (the “Bank”).

Pursuant to the terms of the Loan Agreement, the Bank is providing a revolving line of credit (the “Line”) to the Company not to exceed $1,500,000.  Interest accrues at a variable one month LIBOR (currently 0.18%) plus 4.00% per annum.  Interest payments are due monthly.

Unless terminated by the Company or accelerated by the Bank in accordance with the terms of the Loan Agreement, the Line will terminate and all loans there under must be repaid on November 5, 2014.

The Loan Agreement contains certain representations, warranties, covenants and events of default typical in financings of this type, including, for example, limitations on assuming additional debt, making investments, or the sale of Company assets or other changes in the ownership of the Company.

In addition, pursuant to the terms of the Loan Agreement, the Company will grant to the Bank a security interest in all of the Company’s assets to secure the repayment of the loans under the Line and to secure all other obligations of the Company to the Bank.

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The Company will use the money it receives under the Loan Agreement for general short term working capital purposes.

The Loan Agreement and the accompanying Promissory Note were filed as Exhibits 10.1 and 10.2, respectively, to the Current Report on Form 8-K filed on September 4, 2013, and the description of material terms of such documents herein are qualified in their entirety by reference to such exhibits.

The Line will be activated when the notice period to LSQ described below has elapsed and the Bank is able to secure a first lien on the Company’s assets.

On August 28, 2013, the Company provided written notice to LSQ, that the Company desires to terminate the Revolving Credit and Security Agreement (the “LSQ Agreement”) dated July 14, 2011 between the Company and LSQ.  Under the LSQ Agreement, LSQ, the lender, provided a line of credit to the Company under which LSQ agreed to make loans to the Company in the maximum principal amount outstanding at any time of $1,500,000. The proceeds of the loans under the line of credit have been used to repay certain loans and other amounts payable by the Company. The LSQ Agreement requires 60 days’ notice by the Company to LSQ to terminate, and thus the termination will be effective October 27, 2013. Any ancillary agreements and documents entered into in connection with the LSQ Agreement will terminate in connection with the termination of the LSQ Agreement.

The notice states that the Company is not dissatisfied with its relationship with LSQ but desires to pursue other borrowing opportunities.

The Company does not expect to incur any termination penalties as a result of the termination.

In accordance with the July 10, 2010 Common Stock Purchase Agreement with ELITech and Wescor, Wescor purchased $2,000,000 of the Company’s common stock in three installments or tranches, and received warrants to purchase additional shares. Pursuant to the First Tranche of the Common Stock Purchase Agreement, on July 16, 2010, Wescor invested $1,250,000 to purchase 8,333,334 shares of the Company’s common stock valued at $0.15 per share. For no additional consideration the Company issued a warrant to Wescor to purchase 4,166,667 shares at $0.15 per share. Pursuant to the Second Tranche of the Common Stock Purchase Agreement, Wescor invested $250,000 to purchase 1,666,667 shares of our common stock valued at $0.15 per share. For no additional consideration we issued a warrant to Wescor to purchase 833,333 shares at $0.15 per share. Pursuant to the Third Tranche of the Common Stock Purchase Agreement. In July 2011, Wescor invested $500,000 to purchase 3,333,334 shares of our common stock valued at $0.15 per share. For no additional consideration we issued a warrant to Wescor to purchase 1,666,667 shares at $0.15 per share.

(f)                                   Liquidity and Capital Resources

At September 30, 2013, our working capital decreased by $42,064 to $4,511,653 from $4,553,717 at June 30, 2013, and concurrently, our current ratio (current assets divided by current liabilities) decreased slightly from 5.77 to 1 at June 30, 2013 to 5.74 to 1 at September 30, 2013.

At September 30, 2013, trade and other receivables were $1,525,887 versus $1,500,461 at June 30, 2013. At September 30, 2013 inventories were $1,768,522 versus $2,032,545 as of June 30, 2013. The decrease in inventories was primarily attributable to the continuing effort to better manage the Company’s raw materials purchasing practices in addition to the continuing benefits being derived from the increased automation of the Company’s manufacturing processes.

For the three months ended September 30, 2013, cash used by operating activities amounted to $5,553, versus cash used by operating activities of $130,410 for the three months ended September 30, 2012. The decrease in the cash used by operations for the current quarter resulted primarily from the decrease in inventories and increase in accounts payable for the period.

Net cash used by investing activities amounted to $43,840 for the three months ended September 30, 2013, compared to net cash used by investing activities for the three months ended September 30, 2012 totaling $14,265.

Net cash provided by financing activities amounted to $236,596 for the three months ended September 30, 2013 compared to net cash provided by financing activities for the three months ended September 30, 2012 totaling $93,591. This increase was primarily due to the increased proceeds received from the Company’s revolving line of credit.

In summary, the $187,203 cash provided by financing activities less the $5,553 of cash used by operating activities and the $43,840 net cash used by investing activities, resulted in a net increase of $187,203 in our cash balance as of September 30, 2013.

We have incurred operating losses and negative cash flow from operations for most of our history. Losses incurred since our inception, net of accreted dividends on redeemable common and redeemable preferred stock, have aggregated $13,842,629 and there

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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. Historically, we have financed our operations primarily through long-term debt, factoring of accounts receivables, and the sales of common stock, redeemable common stock, and preferred stock. We have also financed operations through sales of diagnostic products and agreements with strategic partners. We have developed and are continuing to modify an operating plan intended to eventually achieve sustainable profitability, positive cash flow from operations, and an adequate level of financial liquidity. Key components of this plan include consistent revenue growth and the cash to be derived from such growth, as well as the expansion of our strategic alliances with other biotechnology and diagnostic companies, securing diagnostic-related government contracts and grants, improving operating efficiencies to reduce our cost of sales as a percentage of sales, thereby improving gross margins, and lowering our overall operating expenses. If our sales were to decline, are flat, or achieve very slow growth, we would undoubtedly incur operating losses and a decreasing level of liquidity for that period of time. In view of this, and in order to further improve our liquidity and operating results, we entered into the ELITech collaboration and investment.

We believe that we have sufficient working capital for our existing operations. However, we can provide no assurance that we will be able to secure additional funding for our future operations.  A sustained period of unprofitable operations may strain our liquidity and make it difficult to maintain compliance with our financing arrangements. While we may seek additional sources of working capital in response, we can provide no assurance that we will be able to secure this funding if necessary. We may sell additional equity or borrow additional amounts to improve or preserve our liquidity or expand our existing business. We can provide no assurance that we will be able to secure the funding necessary for additional working capital needs at reasonable terms, if at all.

(g)                                 Off -Balance Sheet Arrangements

None.

(h)                                 Contractual Obligations and Commitments

On February 8, 2006, we entered into a Lease Agreement (the “Lease”) with York County, LLC, a California limited liability company (“York”) pursuant to which we leased approximately 32,000 rentable square feet (the “Property”) of York’s approximately 102,400 square foot building, commonly known as Broomfield One and located at 11575 Main Street, Broomfield, Colorado 80020. In 2008, the Property was sold to The Krausz Companies, Inc. a California corporation, aka KE Denver One, LLC (the “Landlord”), and is part of Landlord’s multi-tenant real property development known as the Broomfield Corporate Center. We use the Property for our headquarters, laboratory research and development facilities and production facilities. The Lease was amended on several occasions, as previously reported.

On April 11, 2011, we entered into Lease Amendment No. 5 (the “Fifth Lease Amendment”) with the Landlord. The Fifth Lease Amendment extends the term of the Lease to April 30, 2019 and removes any option to further extend the Lease.

The Fifth Lease Amendment also adjusts the base rent (“Base Rent”) payable under the Lease.

·                  For the period of May 1, 2011 through April 30, 2012, Base Rent will be $289,600.00 per annum payable in monthly installments of $24,133.33 per month.

·                  For the period of May 1, 2012 through April 30, 2013, Base Rent will be $299,840.00 per annum payable in monthly installments of $24,986.67 per month.

·                  For the period of May 1, 2013 through April 30, 2014, Base Rent is $254,720.00 per annum payable in monthly installments of $21,226.67 per month.

·                  For the period of May 1, 2014 through April 30, 2015, Base Rent will be $277,120.00 per annum payable in monthly installments of $23,093.33 per month.

·                  For the period of May 1, 2015 through April 30, 2016, Base Rent will be $288,204.00 per annum payable in monthly installments of $24,017.00 per month.

·                  For the period of May 1, 2016 through April 30, 2017, Base Rent will be $299,732.99 per annum payable in monthly installments of $24,977.75 per month.

·                  For the period of May 1, 2017 through April 30, 2018, Base Rent will be $311,722.31 per annum payable in monthly installments of $25,976.86 per month.

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·                  For the period of May 1, 2018 through April 30, 2019, Base Rent will be $324,191.20 per annum payable in monthly installments of $27,015.93 per month.

The Fifth Lease Amendment also establishes an amount to be paid to Landlord by us in the event of a default by us under the Lease. The payment due upon default by us will be $180,000 multiplied by a fraction, the numerator of which is equal to the number of months remaining in the term of the Lease, and the denominator of which is 96.

We have not invested in any real estate or real estate mortgages.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4.

Controls and Procedures

Under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer, our management has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Rule 13a-15(b) or Rule 15(d)-15(e) under the Exchange Act. Based on that evaluation, the President and Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective and ensure that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Other Information

Item 1.                               Legal Proceedings

None

Item 1A.                      Risk Factors

Not required for smaller reporting companies.

Item 2.                               Unregistered Sales of Equity Securities and Use of Proceeds

On July 28, 2011, we entered into a First Amended Joint Product Development Agreement (the “2011 Development Agreement”) with ELITech and Wescor. Each party will be responsible for its own costs, expenses and liabilities incurred under the 2011 Development Agreement; however, ELITech and Wescor will be responsible for expenses related to the development of new Corgenix Assays and systems. Pursuant to this agreement, each month we will notify Wescor of the amount of their stock purchase commitment, which is equal to sixty-six and 7/10 percent (66.7%) of the amount of each monthly R & D invoice at a per share price of $0.15. Wescor must purchase such shares within thirty (30) days of each notification. For the quarter ended September 30, 2013, we issued 283,151shares under this arrangement. The proceeds have been used for general working capital purposes.

Item 3.                               Defaults Upon Senior Securities

None

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Item 4.                               Mine Safety Disclosure

Not applicable

Item 5.                               Other Information

None

Item 6.                               Exhibits

a.              Index to and Description of Exhibits.

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SIGNATURES

In accordance with the guidance of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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