Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CONX > SEC Filings for CONX > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for CORGENIX MEDICAL CORP/CO

Form 10-Q for CORGENIX MEDICAL CORP/CO


13-Nov-2012

Quarterly Report

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.


Table of Contents

(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.

(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 52 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, contract sales representatives, internationally through an extensive distributor network, and to several significant OEM partners.

We manufacture products for inventory based upon expected sales demand, shipping products to customers, usually within 24 hours of receipt of orders 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. Currently we sell 128 products licensed from or manufactured by third party manufacturers. We expect to expand our relationships with other companies in the future to gain access to additional products.

We have incurred operating losses and negative cash flow from operations for most of our history. Losses incurred since our inception, net of dividends on redeemable common and redeemable preferred stock, have aggregated $13,995,014 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. 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.

(c) Results of Operations

Three months ended September 30, 2012 compared to three months ended September 30, 2011

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, 2012.

                                Quarter ended
                                September 30,         % Incr.
                             2012          2011       (Decr.)
Total Revenues
Geographical Breakdown:
North America             $ 2,445,763   $ 1,875,897      30.4 %
International             $   375,303   $   302,311      24.1 %
Total Revenues            $ 2,821,066   $ 2,178,208      29.5 %


Table of Contents

                                        Quarter Ended
                                        September 30,         % Incr.
                                     2012          2011       (Decr.)
Total Revenues
By Category:
Phospholipid Sales*               $   786,698   $   824,704      (4.6 )%
Coagulation Sales*                $   425,504   $   322,977      31.7 %
Aspirin Works Sales               $   184,693   $   155,334      18.9 %
Hyaluronic Acid Sales             $   277,872   $   203,534      36.5 %
Autoimmune Sales                  $    26,130   $    35,517     (26.4 )%
Contract Manufacturing            $   695,618   $   177,884     291.1 %
R & D and Grants                  $   285,398   $   299,138      (4.6 )%
Shipping, instruments and Other   $   139,153   $   159,120     (12.6 )%
Total Revenues                    $ 2,821,066   $ 2,178,208      29.5 %



* Includes OEM Sales $ 271,007 $ 220,960 22.6 %

Cost of revenues. Total cost of revenues, as a percentage of sales, increased to 57.4% for the quarter ended September 30, 2012 versus 51.9% for the prior fiscal year. The primary reasons for the increase for the quarter was the product sales mix, which was much more heavily weighted towards lower margin sales such as contract manufacturing, OEM sales and international product sales, in addition to the increased revenue generated from contract R & D and grants, which carries a much higher cost of revenues than do our core products. The following table shows, for the quarter ended September 30, 2012, the composition of the cost of revenues, between the cost of sales related to our core business and that the cost of revenues related to our contract research and development and grant revenues, and their relative percentage of related revenues.

                        Quarter Ended September 30, 2012



                                             CORE       R & D AND
                                           BUSINESS       GRANT
REVENUES                                  $ 2,535,667   $  285,399
DIRECTLY RELATED COST OF REVENUES         $ 1,403,507   $  215,607
COST OF REVENUES AS % OF TOTAL REVENUES          55.4 %       75.5 %

                        Quarter Ended September 30, 2011



                                             CORE       R & D AND
                                           BUSINESS       GRANT
REVENUES                                  $ 1,879,070   $  299,138
DIRECTLY RELATED COST OF REVENUES         $   927,976   $  203,012
COST OF REVENUES AS % OF TOTAL REVENUES          49.4 %       67.9 %

Selling and marketing expenses. For the quarter ended September 30, 2012, selling and marketing expenses decreased $67,977 or 13.3% to $441,350 from $509,327 for the quarter ended September 30, 2011. The $67,977 decrease versus the prior year resulted primarily from decreases of $53,091 in labor-related expenses, $4,306 in advertising expense, and $3,177 in trade show and travel related expenses, plus a net decrease of $7,403 in other selling and marketing expenses.

Research and development expenses. Gross Research and development expenses, prior to the reclassification of a portion of said expenses to cost of sales, increased $108,438 or 38.8% to $387,892 for the quarter ended September 30, 2012, from $279,454 for the quarter ended September 30, 2011. The $108,438 increase versus the prior year resulted primarily from a $47,492 increases in labor-related expenses, and a $60,059 increase in laboratory supplies, plus a net increase of $887 in other research and development expenses.

General and administrative expenses. For the quarter ended September 30, 2012, general and administrative expenses increased $3,928 or less than 1% to $428,836 from $424,908 for the quarter ended September 30, 2011. This slight increase was primarily due to increases of $22,717 in labor related expenses and $16,576 in outside service expenses, mostly offset by a net decrease of $35,565 in other general and administrative expenses for the period.

Interest expense. Interest expense decreased $53,822, or 89.4% to $6,400 for the quarter ended September 30, 2012, from $60,222 for the quarter ended September 30, 2011. This substantial decrease in interest expense was due primarily to the considerably lower borrowings for the current period.


Table of Contents

(d) ADJUSTED EBITDA

Our adjusted earnings before interest, taxes, depreciation, amortization, non cash expense associated with stock-based compensation and the one-time costs associated with exit or disposal activities ("Adjusted EBITDA") increased $181,633 or 147.1% to 305,135 for the quarter ended September 30, 2012 compared with $123,502 for the corresponding three month period in fiscal 2011. 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:

                                                        3 Months ended      3 Months ended
                                                        September 30,       September 30,
                                                             2012                2011
RECONCILIATION OF ADJUSTED EBITDA:
Net income (loss)                                      $        198,314    $        (50,234 )

Add back:
Depreciation and amortization                                    74,326              70,138
Stock-based compensation expense                                 26,213              26,373
Interest expense, net of interest income                          6,282              60,023
Costs associated with exit or disposal activities                     -              17,202
Adjusted EBITDA                                        $        305,135    $        123,502

(e) Financing Agreements

On July 14, 2011, we entered into a Revolving Credit and Security Agreement (the "Loan Agreement") with LSQ Funding Group, L.C., a Florida limited liability company ("LSQ").

Pursuant to the terms of the Loan Agreement, LSQ is providing a line of credit (the "Line") to us under which LSQ agrees to make loans to us in the maximum principal amount outstanding at any time of $1,500,000. The maximum amount of the loans under the Line shall also be governed by a borrowing base equal to 85% of Eligible Accounts Receivable plus 50% of Eligible Inventory, with certain limits and exclusions more fully set forth in the Loan Agreement.

Interest accrues on the average outstanding principal amount of the loans under the Line at a rate equal to 0.043% per day.

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 will terminate and all loans there under must be repaid on July 14, 2013.

The Loan Agreement contains certain representations, warranties, covenants and events of default typical in financings of this type, including, for example, limitations on additional debt and investments and limitations on the sale of additional equity by us or other changes in our ownership. Please refer to the Loan Agreement for all such representations, warranties, covenants and events of default.

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.

We have used the money we received under the Loan Agreement and the Line to pay off our outstanding debt obligations to Summit Financial Resources, L.P. ("Summit"), which totaled $732,894 as of July 14, 2011, which was the date of payment. Such payment resulted in our indebtedness and obligations owing to Summit being terminated and satisfied in full.

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.


Table of Contents

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.

In connection with the Common Stock Purchase Agreement, at the initial closing, which occurred on July 16, 2010, we entered into the Master Distribution Agreement with ELITech UK, and we entered into the Joint Product Development Agreement with ELITech. Under the terms and conditions of the Master Distribution Agreement, and as a condition precedent to the closing of the Second Tranche, ELITech UK became the exclusive distributor of the Company's Products (as that term is defined therein) outside of North America. Accordingly, we along with Corgenix UK assigned and/or transferred the economic benefit to ELITech UK, and ELITech UK assumed all of the obligations of the Company or Corgenix UK under all distribution agreements executed by us or Corgenix UK, as the case may be, related to any distributor whose territory is outside of North America.

(f) Liquidity and Capital Resources

At September 30, 2012, our working capital increased by $349,251 to $3,993,889 from $3,644,638 at June 30, 2012, and concurrently, our current ratio (current assets divided by current liabilities) decreased slightly from 4.16 to 1 at June 30, 2012 to 4.07 to 1 at September 30, 2012. This increase in working capital is primarily attributable to the $500,000 third tranche investment by ELITech in addition to the substantial reduction in short term borrowings as evidenced by the revolving line of credit.

At September 30, 2012, trade receivables were $1,781,552 versus $1,396,938 at June 30, 2012. Accounts payable, accrued payroll and other accrued expenses increased by a combined $154,100 to $1,159,406 from $1,005,306 at June 30, 2012. At September 30, 2012, inventories increased $101,703 to $2,220,372 versus $2,118,669 at June 30, 2012.

For the three months ended September 30, 2012, cash used by operating activities amounted to $130,410, versus cash provided by operating activities of $19,553 for the three months ended September 30, 2011. The decrease in the cash provided by operations for the current quarter resulted primarily from the increases in accounts receivable and inventories, which more than offset the net income realized for current period.

Net cash used by investing activities, the purchase of laboratory equipment, leasehold improvements and computer equipment, was $14,265 for the three months ended September 30, 2012, compared to net cash used by investing activities for the three months ended September 30, 2011 totaling $13,788.

Net cash provided by financing activities amounted to $93,591 for the three months ended September 30, 2012 compared to net cash provided by financing activities for the three months ended September 30, 2011 totaling $328,716. This decrease versus the comparable prior year was primarily due to the significantly lower amount of proceeds from the issuance of common stock to ELITech in the current three month period versus the proceeds received in the prior period.

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 $14,006,898 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, 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.

In summary, the cash provided by financing activities was more than offset by the net cash used in operating and investing activities, resulting in a net decrease in cash of $51,084 for the current three month period.


Table of Contents

The $2,000,000 ELITech common stock investment in addition to the LSQ $1,500,000 July 14, 2011 credit facility, in conjunction with our current revised forecasts indicating profitability for the current fiscal year, should provide adequate resources to continue operations for longer than 12 months

(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 will be $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.

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.


Table of Contents

Item 3.

  Add CONX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CONX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.