DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | 6 Months Ended |
Dec. 31, 2014 |
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | |
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | |
1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
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(a)Company Overview |
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We are organized as a “C” corporation, were established 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. |
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Our revenues are generated from the following: |
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| · | | Sales of Manufactured Products—We manufacture and sell in excess of 50 diagnostic products on a worldwide basis to hospitals, clinical testing laboratories, universities, biotechnology and pharmaceutical companies and research institutions. |
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| · | | In North America we sell our products directly through our own sales organization and through several small independent distributors. |
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| · | | Outside of North America, effective October 1, 2010, we sell our products through the ELITech Group (“ELITech”) which serves as our international master distributor, selling our products through its wholly owned subsidiaries in addition to numerous independent distributors. |
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| · | | Sales of OEM Products—We private label some of our IVD products for other diagnostic companies, both domestic and international, 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. |
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| · | | Sales of Other Manufacturers’ (“OM”) Products—We purchase some products, on a very limited basis, 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. |
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| · | | Contract Manufacturing Agreements—We provide contract manufacturing services to other diagnostic and life science companies. Our most significant Contract Manufacturing customers are BG Medicine and DiaDexus. |
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| · | | Contract R&D Agreements—We provide contract product development services, including companion diagnostics development, to strategic partners and alliances. Our most significant Contract R &D customers include Eli Lilly, Tulane University (“Tulane”) and the National Institutes of Health (“NIH”). The Joint Product Development Agreement with Wescor, a wholly owned subsidiary of ELITech (“Wescor”), terminated on June 30, 2014. |
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| · | | Other Revenues—This category includes shipping and other miscellaneous revenues. |
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| · | | For the current quarter, our four largest non-governmental customers, collectively, accounted for 49.3% of our total revenues. |
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Most of the products we sell are used in clinical laboratories for the diagnosis and/or the monitoring of three important sectors of health care: |
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| · | | Vascular disease (diseases associated with certain types of thrombosis or clot formation, for example antiphospholipid syndrome, deep vein thrombosis, stroke and coronary occlusion); |
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| · | | The aspirin effect on platelets; and |
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| · | | Liver diseases (fibrosis and cirrhosis). |
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We are actively developing new laboratory tests in these and other important diagnostic testing areas. |
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We develop and manufacture products in several commonly utilized testing formats: |
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| · | | Microplate Enzyme Linked ImmunoSorbent Assay (“ELISA”)—This platform 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. |
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| · | | Lateral Flow Immunoassay (“LFI”)—This format 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. |
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| · | | 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. |
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Since 1990, our sales force and distribution partners have sold over 12 million tests worldwide under the REAADS and Corgenix labels, as well as OEM products. An integral part of our strategy is to work with corporate partners to develop market opportunities and access important resources 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. |
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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. |
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(b)Recent Developments |
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Merger Agreement and Special Shareholder Meeting |
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On August 27, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Centennial Medical Holdings, Inc., a Delaware corporation (“Parent”), and Centennial Integrated, Inc., a Nevada corporation and newly-formed subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into us (the “Merger”), with Corgenix Medical Corporation surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Water Street Healthcare Partners, LLC. The Merger Agreement was approved by our Board of Directors. The description of the Merger Agreement and related voting agreement below does not purport to be complete and is qualified in its entirety by the full text of the Merger Agreement, as filed with our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 28, 2014. |
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At the effective time of the Merger, each share of our common stock issued and outstanding immediately prior to the effective time (other than shares (i) held by us in treasury, (ii) owned by Parent or Merger Sub or any other wholly owned subsidiary of Parent, or (iii) held by shareholders who have perfected and not withdrawn a demand for appraisal rights under Nevada law) will be cancelled and converted automatically into the right to receive $0.27 in cash (the “Merger Consideration”), without interest. Each stock option and warrant which has not been exercised will be cancelled and the holder will be entitled to receive cash equal to the aggregate number of shares of our common stock issuable upon exercise times the excess, if any, of the Merger Consideration over the per share exercise price, subject to any withholding taxes. Any holders of options or warrants with an exercise price greater than the Merger Consideration are not entitled to any payment. |
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Consummation of the Merger is subject to various closing conditions, including the lack of certain litigation related to the Merger. |
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On December 18, 2014, the Company held the Special Meeting to adopt the Merger Agreement. Adoption of the Merger Agreement required the affirmative vote of the holders of at least a majority of the shares of the Company’s common stock outstanding at the close of business on October 14, 2014 and entitled to vote in accordance with Nevada law. According to the report of the inspector of elections, the Merger Agreement was approved by the Company’s shareholders at the Special Meeting. |
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The closing of the merger is expected to occur in the first quarter of calendar year 2015. See Note 10 “Commitments and Contingencies” to the condensed financial statements for further information on litigation related to the Merger. |
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The Eli Lilly Agreement |
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On August 15, 2014, we entered into a Technology Transfer, License and Product Development Agreement (the “Lilly Agreement”) with Eli Lilly and Company, an Indiana corporation (“Eli Lilly”). Under the terms of the Lilly Agreement, Corgenix and Eli Lilly will work together to conduct a study to determine the feasibility of developing and manufacturing certain diagnostic test kits for the measurement of certain materials. Each party grants rights to use its respective technology to the other party under the terms of the Lilly Agreement. The Lilly Agreement continues in effect indefinitely unless and until terminated by either party in accordance with its terms. A copy of the Lilly Agreement, in redacted form pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, is filed as Exhibit 10.1 to the Company’s Form 8-K filed with the Securities Exchange Commission on August 20, 2014. The foregoing description of the Lilly Agreement does not purport to be complete and is qualified in its entirety by the full text of the Agreement, as filed. |
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NIH and Gates Foundation Ebola Grants |
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On June 26, 2014, we were awarded a three-year, $2.9 million National Institutes of Health (“NIH”) grant to advance the development of Ebola diagnostic tests. Collaborating with us on the program are members of the Viral Hemorrhagic Fever Consortium (“VHFC”), a collaboration of academic and industry members headed by Tulane University and partially funded with the support from the NIH. |
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We have been working to develop Ebola diagnostic products pursuant to this and a previous NIH grant awarded to Corgenix and the VHFC in 2010. At this time, we have developed a prototype rapid diagnostic test (RDT) substantially ahead of our originally anticipated schedule, and it has been tested on clinical specimens in West Africa, and also tested under controlled laboratory conditions here in the U.S. Further, the product is being tested in several independent clinical studies in West Africa by the World Health Organization (“WHO”).Thus far, we believe the results have been encouraging. We are continuing to do additional testing, both clinical and analytical, which may be required before we can secure clearances or approvals from regulatory agencies such as the U.S. Food and Drug Administration (FDA), the WHO, and others. Such regulatory clearances or approvals would be required before we would be able to use or sell this test. |
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Based on results to date, we have begun the process of applying for an Emergency Use Authorization (EUA) with the FDA. This application is an iterative process and will likely require several submissions to complete the process. We cannot predict how long this might take, or whether other countries will grant similar approvals. |
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Other companies are also working to develop rapid diagnostic tests for Ebola that would likely compete with any product or products that we might bring to the market, and those other products could be preferred over any product or products we might offer. We do not know the relative performance of our Ebola product as compared to other Ebola products, or what the market for our product might be. Further, we cannot predict when our Ebola product might secure regulatory approval or clearance. If we do receive regulatory approval or clearance and orders for our Ebola products during the current outbreak of Ebola, we believe this could have a material impact on our results. We cannot predict when the next Ebola outbreak might occur or whether any of our products, if cleared or approved, will be the product of choice at that time or be able to generate significant revenues, if any. |
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In December 2014, we were awarded two grants totaling $818,182 to advance the development of an Ebola rapid diagnostic test kit. The grants were awarded to Corgenix by the Bill & Melinda Gates Foundation and the Paul G. Allen Family Foundation. Corgenix has selected three subcontractors to assist on the project: Tulane University, Autoimmune Technologies, LLC and Zalgen Labs, LLC. |
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(c)Basis of Presentation |
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Financial Statement Preparation |
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The unaudited condensed 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. |
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In the opinion of management, the accompanying unaudited condensed financial statements for the periods presented, reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited condensed 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, 2014 filed with the SEC on September 10, 2014. |
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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. |
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