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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended June 30,
1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
______________to______________
Commission file number 33-93132
LA JOLLA DIAGNOSTICS, INC.
[Name of small business issuer in its charter]
<TABLE>
<S> <C>
California 94-2901715
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization) 92037
7777 Fay Avenue, Suite 160, La Jolla, California (Zip Code)
(Address of principal executive office)
</TABLE>
Registrant's telephone number including area code: (619) 454-6790
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of Act:
Common Stock, No Par Value
(Title of Class)
Check whether this issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $143,977.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was last sold by the
registrant outstanding as of June 30, 1996 was $1,923,677.
The number of shares of the Common Stock of the registrant outstanding
as of June 30, 1996 was 7,576,175.
Documents incorporated by reference and parts of Form 10-KSB into which
incorporated: One.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
THIS REPORT INCLUDES A TOTAL OF 42 PAGES. THE EXHIBIT INDEX APPEARS ON PAGE 41.
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PART 1
ITEM 1. BUSINESS
La Jolla Diagnostics, Inc. (the "Company"), a California corporation (OTC
Electronic Bulletin Board, Symbol LAJD) is a medical and healthcare products
company. The Company has two divisions, an Ophthalmic Division engaged in
developing ophthalmic solutions and related products, and a Diagnostic Division,
primarily concerned with the development and marketing of clinical diagnostic
products using immunological and molecular biological technologies.
Prior to April 17, 1995, the Company had not engaged in significant business
activities since December 31, 1991. As of April 17, 1995, the Company acquired
Unified Technologies, Inc. ("Unified"). The Company is now utilizing the
business, scientific and technical expertise of the founders of Unified to
develop its ongoing business operations. The Company was incorporated April 26,
1983 under the name Women's Health Centers of America, Inc. On February 8, 1990,
the Company completed the acquisition of Chemical Dependency Healthcare, Inc. On
April 17, 1995, following the acquisition of Unified, the Company change its
name to La Jolla Diagnostics, Inc. The Company currently has three subsidiaries,
Unified Technologies, Inc., Antisera Associates, Ltd., and Chemical Dependency
Healthcare of California, Inc. The discussion of the Company herein refers to
the Company and its subsidiaries on a consolidated basis.
The Company's corporate headquarters are located at 7777 Fay Avenue, Suite 160,
La Jolla, California 92037 with laboratory facilities in nearby Sorrento Valley
at 11107 Roselle, San Diego, California 92121.
The Company's management and scientists have extensive expertise in a wide
variety of healthcare areas, including basic science, clinical investigation,
product development and dealing with the Food & Drug Administration (FDA).
LA JOLLA DIAGNOSTICS, INC.
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OPHTHALMIC PRODUCTS DIAGNOSTIC PRODUCTS
------------------- -------------------
- LIVING WATER EYE LOTION(TM) - Antisera Reagents
- Glaucoma Drug - DNA Test for Breast Cancer
- Veterinary Eye Drop - Test for Colon Cancer
- HYPERTONIC LW(TM) - Myocardial Infarction Predictor
- Other Ophthalmic Solutions - Other
- Nasal Spray
- Contact Lenses & Misc.
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OPHTHALMIC DIVISION PRODUCTS
OPHTHALMIC SOLUTIONS
One of the Company's founders, Don Brucker, was a pioneer in the development of
soft contact lenses and other ophthalmic products, and using his know-how and
reputation, the Company has negotiated for exclusive access to a proprietary
technology for the special preparation of ophthalmic solutions. These solutions
have certain properties which give them competitive advantages over existing
solutions. These solutions include:
LIVING WATER EYE LOTION(TM) (currently being marketed)
LIVING WATER EYE LOTION(TM) is an eye wash or irrigating solution, used in
cleansing the eye to help relieve irritation, burning, stinging, and itching due
to loose foreign material, air pollutants (smog or pollen), or chlorinated
water.
The solution is a specially borate buffered, sterile isotonic aqueous solution
containing sodium chloride. It is preserved with a mild preservative, 0.1%
sorbic acid and disodium EDTA (ingredients commonly used in solutions for
sensitive eyes). In contrast with:
- "Eye lubricants," "Artificial Tears," and "Lens Lubricants," which
contain ingredients which increase fluid viscosity in an attempt to
relieve eye dryness or re-wet contact lenses.
- "Eye redness relievers," which contain vasoconstrictors which can
cause eye problems when used too frequently.
- Eye drops, which contain antihistamines to treat allergy symptoms.
LIVING WATER EYE LOTION(TM) is specially formulated to enhance eye comfort by
irrigating, flushing and cleansing without interfering with natural functions.
The product has been test marketed for several months and has generally exceeded
the expectations of those who have tried it.
PILOCARPINE LW(TM) (future marketing effort and product)
PILOCARPINE LW(TM) is a prescription drug used in the treatment of glaucoma, a
condition of the eye in which there is usually an elevation of the intraocular
pressure which may lead to deterioration of the visual fields and ultimately to
blindness. The condition, more prevalent after the age of forty, is frequently
symptomless in its early stages unless it is diagnosed during an eye
examination.
The active ingredient in the product, pilocarpine (one of the oldest methods of
glaucoma treatment), is in a solution similar to the Company's LIVING WATER EYE
LOTION(TM). The properties of LIVING WATER EYE LOTION(TM) make it an exceptional
vehicle for the introduction of the pilocarpine to the eye. Presently, the use
of pilocarpine (a miotic, i.e., makes the pupil smaller) is
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limited, because it is uncomfortable to use and is frequently only partially
effective. Its use in a LIVING WATER EYE LOTION(TM) type of solution may allow
the use of a smaller concentration of pilocarpine, and deminish side effects.
HYPERTONIC LW(TM) (future marketing effort and product)
HYPERTONIC LW(TM) is a hypertonic saline (2%) agent (eye drop) which may be used
to reduce corneal edema (swelling) of various etiologies, including the
overwearing of contact lenses, and healing after photorefractive keratectomy
(PRK) surgery.
A hypertonic solution exerts an osmotic gradient greater than that present in
body tissues and fluids, so that water is drawn from the body tissue across
semi-permeable membranes. Applied topically to the eye, it draws fluid out of
the cornea.
Most hypertonic saline agents may cause temporary burning and irritation on
instillation. The HYPERTONIC LW(TM) formulation is similar that of LIVING WATER
EYE LOTION(TM), and is designed to enhance eye comfort.
VETERINARY EYE DROP
An eye drop based on the LIVING WATER EYE LOTION(TM) technology helps in
cleansing the eyes of dogs and cats (a major problem in certain breeds ).
OTHER OPHTHALMIC SOLUTIONS
Several compounds, such as steroids, antibiotics and antioxidants using LIVING
WATER EYE LOTION(TM)type of solution as a vehicle are being studied by the
Company. As with PILOCARPINE LW(TM) the use of a LIVING WATER EYE LOTION(TM)
type solution may offer certain advantages to the user.
MISCELLANEOUS PRODUCTS
The Company has arranged to have contact lenses privately labeled by a large
manufacturer under the name of the BRUCKER THIN PROFILE(TM) Soft Contact Lens.
This lens is designed to allow the efficient fitting of AN exceptionally
versatile contact lens which enables the fitter to stock a small inventory of
lenses, and is especially suited for export. Several orders have been shipped to
Russia during the past year.
The Company is also working on certain other product related projects, and is
test marketing a muscle relaxing device called Electronic-2.
A nasal spray solution using LIVING WATER EYE LOTION(TM) technologies is also
being developed, which the Company feels will be a major product.
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DIAGNOSTIC DIVISION PRODUCTS
The Diagnostic Division is developing and marketing clinical diagnostic products
using immunologic and molecular biologic technologies. These products include:
ANTISERA
All clinical diagnostic laboratories that analyze serum for immunoglobulin
profiles require at least five antibody reagents: anti-IgG, anti-IgM, anti-IgA,
anti-lambda chain and anti-kappa chain for routine clinical analysis of patient
serum by immunoelectrophoresis and nephelometry.
The Company is now marketing an inventory of such antisera reagents. The entire
inventory was valued by unrelated parties (brokers) as of June 1994 in excess of
$4.1 million on a bulk sale basis. These valuations have been substantiated by
an independent research scientist as of June 1995 and again as of June 1996. The
cost of marketing and processing the antisera for sale has been factored in
arriving at the $4.1 million valuation.
In addition to the antisera in inventory, the Company has a large supply of
antigen samples which can be used for the continued production of antisera if
the company makes the decision to produce additional antisera.
The Company has added three anti-opioid receptor antibodies to its line of
Antisera Products, making them available commercially for the first time.
There is good evidence that these anti-bodies, Polyclonal anti-kappa receptor
antibodies, Ployclonal anti-mu receptor antibodies and Polyclonal anti-delta
receptor antibodies, will prove useful as research immuno-reagents for studies
in: 1) AIDS and generalized immunosuppression; 2) autoimmune diseases; 3)
habitual drug use; and 4) neuropharmacology.
In addition the Company is adding two new anti-human cytokine antibodies to its
research product line. Neutralizing Polyclonal antibodies specific for human
Interleukin-6 and Interleukin-8 will now be offered. These cytokines are known
to be involved in: 1) the regulation of normal antibody synthesis; 2) autoimmune
diseases; and 3) inflammatory responses.
MOLECULAR DIAGNOSTICS (BREAST CANCER TEST)
The Company is expanding its current technology to develop tests for the DNA
fingerprinting by use of gene amplification of certain proteins specifically
associated with both primary and metastatic breast cancer tumors.
Potential molecular diagnostic tests include the DNA fingerprinting of tumor
biopsies. Breast cancer has been targeted as the first tumor for diagnostic
development. This molecular diagnostic method of breast cancer detection has the
potential to be intrinsically superior to the present method of identification
by histological examination.
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The Company's method of finding cancerous tissue may be so sensitive that it can
identify small numbers of malignant cells, which could prove critically
important in the search for both primary and metastatic tumors which may spread
to the lymph system and beyond.
Tissue samples have been tested using the Company's Breast Cancer DNA
fingerprinting, and preliminary results of a blinded study confirm the
specificity and sensitivity of the technology.
The Company anticipates beginning clinical trials of its breast cancer markers
soon, with the objective of receiving clearance from the FDA to market the
product in a diagnostic test.
Ultimately this DNA fingerprint technology could be developed for many other
tumor types.
IMMUNODIAGNOSTICS (COLON CANCER TEST)
Immunodiagnostic tests are frequently used by clinical diagnostic laboratories
for the diagnosis of cancer, autoimmune and infectious diseases. A list of
potential tests have been identified by the Company and several have been
selected for possible development. The serologic diagnostic test for colon
cancer will be the first in the lit to be developed.
The test uses Enzyme-Linked Immunosorbent Assay (ELISA) technology, and appears
to have a specificity for colon cancer.
The Company has access to clinical serum samples recruited from patients to
validate the test in cooperation with clinicians at Sharp Rees-Stealy Medical
Center in San Diego (which has a Certificate of Approval from the Western
International Review Board to collect samples).
Preliminary results from a small number of samples are encouraging, and the
Company has made the decision to expand the study. If the results continue to be
positive, the Company plans to proceed with clinical trials leading towards FDA
clearance to market the product as an immunodiagnostic test.
MYOCARDIAL INFARCTION PREDICTOR
The Company is filing for patent application on a novel method of identifying
risk factors for myocardial infarction among a certain subset of mature people.
The company intends to market an inexpensive test which would be used for
screening purposes. Those with this risk factor are several times more likely to
experience morbidity or mortality from a condition which may be ameliorated by
changes in living conditions and life style.
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DOMESTIC MARKET, OPHTHALMIC DIVISION
LIVING WATER EYE LOTION(TM)
LIVING WATER EYE LOTION(TM) falls under the category of an OTC eye wash or
irrigating solution. It can be used BY anyone who wishes to cleanse the eye to
relieve irritation, burning, stinging or itching. However, because of its
superior qualities it is frequently being used in place several different types
of OTC eye solutions including vasoconstrictors such as Visine, astringents such
as Murine, and lubricating agents or artificial tears. The total OTC ophthalmic
solution market in the Untied States is in the hundreds of millions of dollars.
Major ophthalmic solution suppliers include Allergan, Alcon Laboratories (a
subsidiary of Nestle), Bausch and Lomb, Ciba Vision Corp., IOLab (a subsidiary
of Johnson & Johnson), Merck, Pharmacia Ophthalmic and Pilkington Barnes-Hind.
Therefore, though LIVING WATER EYE LOTION(TM) compares favorably with other OTC
eye solutions, the Company does nOT intend to compete with the brand leaders. In
addition to traditional sales and marketing efforts, it intends to use existing
specialized distributors and marketing channels which it has identified, and who
have specialized capabilities and/or interests. These channels include the
Internet, multi-level marketing groups, and certain other consumer groups with
special needs.
PILOCARPINE LW(TM)
It is estimated that over 2 million people suffer from glaucoma in the United
States, with almost 80,000 Americans blind from the condition, making it the
nation's leading cause of preventable blindness.
There are many glaucoma medications on the market. Existing products have
unpleasant side effects, such as, blurred vision, burning eyes, conjunctivitis,
headaches and heart palpitations. The leading glaucoma product is Timoptic by
Merck with sales estimated of $175 million in the United States, and $395
million worldwide.
Because Pilocarpine LW contains a low concentration of this active ingredient in
a solution similar the Company's Living Water Eye Lotion(TM), it should be well
accepted by both patients and opthalmologists who will prescribe it.
HYPERTONIC LW(TM)
In addition to being used as a "first aid" treatment in cases of corneal edema
caused by the overwearing of contact lenses, HYPERTONIC LW(TM) is suitable for
use on a standard prophylactic basis for a period of weeks or months on a
post-PRK patient.
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VETERINARY EYE DROPS
The domestic market for veterinary ophthalmic solutions is a highly fragmented
market estimated at $10.8 million in annual revenues. The Company believes its
eye drop, which is especially effective in cleansing the eyes of dogs and cats
(a major problem in certain breeds), will capture a significant portion of the
market.
OTHER OPHTHALMIC SOLUTIONS
The properties of LIVING WATER EYE LOTION(TM) would benefit many other types of
ophthalmic solutions, and while the volume of use of many of these solutions is
not great because they are usually not used chronically, they may make
profitable niche markets of several million dollars each.
CONTACT LENSES
The domestic contact lens market is crowded and competitive and the Company has
no plans to market any lenses now available in this country.
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DOMESTIC MARKET, DIAGNOSTIC DIVISION
ANTISERA PRODUCTS
The primary users of antisera products include universities and other research
facilities, clinical diagnostic laboratories, hospitals and clinics, where
anti-IgG, anti-IgM and anti-IgA antibody reagents are used in large volume.
Smaller volumes of the anti-IgD and anti-IgE are in demand because the IgD and
IgE antigens are rarer.
Although there are many immunological reagent suppliers, there is an apparent
inadequate number of primary manufacturing suppliers of certain types of
top-quality highly purified antibodies which are needed for basic research and
clinical immunological assays. The Company has the capacity to further purify
antigens as needed, should the demand justify it.
CANCER DIAGNOSTIC PRODUCTS
Based on the estimated sales for a single serum test being marketed for prostate
cancer, the combined estimated sales of diagnostic tests for the cancers listed
below exceeded $250 million in 1993 in the United States, and has increased
since then. As new tests are developed that are more accurate and more specific
the market will expand accordingly.
There were over $70 million of prostatic specific antigen (PSA) test kits for
prostatic cancer distributed by the PSA kit manufacturers in the United States
during 1992, when the product was still in an introductory phase.
Estimated New Cancer Cases and Cancer Deaths for 1993 (American Cancer Society)
<TABLE>
<CAPTION>
SITE OF CANCER ESTIMATED NEW CANCER CASES ESTIMATED
-------------- (000'S) CANCER DEATHS (000'S)
-------------------------- ---------------------
<S> <C> <C>
Breast 183 46
Ovary 22 13
Colon-Rectum 152 57
Lung 170 149
Bladder 52 10
--- ---
TOTAL FOR SELECTED SITES 579 276
</TABLE>
BREAST CANCER MOLECULAR DIAGNOSTIC TEST
The incidence of breast cancer among women appears to be increasing. In the
l970s, one in twenty women could expect to experience the condition during their
lifetime. Today the incidence has increased to one in eight. The present method
of cancer detection is the histological examination of tissue.
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The Company's DNA fingerprinting diagnostic test could be used on all breast
tumor biopsies submitted for diagnostic analysis as a confirmatory test for
malignant tissue.
In addition, because of its sensitivity, the Company's breast cancer marker test
should have special value in determining if a malignant tumor has metastasized
to the lymph glands, where a small number of cancerous cells might be overlooked
during a histological exam.
Ultimately, all pathologists, clinical diagnostic laboratories, and hospital
laboratories involved in breast cancer detection would be potential customers
for the Company's product.
COLON CANCER IMMUNODIAGNOSTIC TEST
There are approximately 150,000 new occurrences of Colorectal Cancer each year
in the United States and 60,000 deaths, making it second only to lung cancer as
a cause of death from cancer.
Several key immune system components are already being measured already using
ELISA-based technology. These tests report the presence of the antigen for which
the substance is being tested.
The Company's colon cancer serologic test using ELISA technology appears to be
very specific to colon cancer. If the specificity of the preliminary study
continues to hold true, the test may become a screening test to be used in
conjunction with routine physical examinations.
Ultimately, all 4,000 general medical diagnostic laboratories and all hospital
laboratories would be targeted customers for the product.
MYOCARDIAL INFRACTION PREDICTOR
The Company's myocardial infarction risk factor predictor for mature people has
the potential for broad use, especially in a managed care environment where the
cost saving advantages of disease prevention are stressed.
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INTERNATIONAL MARKETS
OPHTHALMIC SOLUTIONS
Because of the unique properties of its ophthalmic solutions, the Company
believes it will find a ready market overseas. The Company has had numerous
discussions with a Japanese pharmaceutical group which is interested in the
Company's products for purchase and resale. The Japanese market OTC and RX
ophthalmic solutions is estimated to be several hundred million dollars per
year.
Initially contacts have been made with certain groups located in Asia and
Europe. Several groups in Mexico and Latin America have expressed interest with
respect to these products.
CONTACT LENSES
The Company's contact lenses and fitting philosophy are customized for export.
The Company's Russian distributor is currently ordering several thousand lenses
a month.
DIAGNOSTIC PRODUCTS
The entire world of in vitro diagnostic products market is reported to be
approximately $7 billion, with the United States approximately $3.7 billion.
It is possible to export diagnostic products and kits prior to receiving final
FDA clearance if permission is given by the foreign governments involved. FDA
approval would further facilitate the large scale export from the United States
of the Company's diagnostic kits.
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RESEARCH AND DEVELOPMENT
The Company is maintaining an active research and development program in the
areas of ophthalmic products and immuno/molecular diagnostics using a network of
prominent consultants as an addition to its internal staff and facilities.
REGULATORY AFFAIRS
As a manufacturer, importer and distributor of medical products, the Company is
subject to various regulations of the FDA, and various state and foreign health
regulatory agencies. The FDA has promulgated regulations to which the Company
must adhere relating to the effectiveness and safety of the Company's products.
These regulations include, but are not limited to, pre-market approval
regulations, manufacturing and quality assurance procedures, and conditions and
procedures under which investigation of new products or new uses may be
conducted. The Company's antisera products do not require FDA approval for its
use as research reagents. The Company's diagnostic tests may require submission
to the FDA as a pre-marketing application (PMA) for a new type of diagnostic
product or a pre-market notification under Section 510(k) for any diagnostic
product which is substantially similar to an existing product with FDA approval.
Some of the Company's diagnostic tests now in the planning stage are unique, and
therefore, will require clinical trials to prove its efficacy before a PMA can
be submitted to the FDA.
The Company estimates the total time for clearance for each test will be between
two and three years. However, it is possible that diagnostic products which are
unique and life saving could receive a fast track registration which would
significantly shorten the time needed for FDA approval. The Company believes
that its molecular diagnostic kit for the identification of breast cancer and
its immunodiagnostic kit for ulcerative colitis might qualify for fast track
treatment. However, for planning purposes, it is assumed that the FDA would
follow a traditional approval process.
Ophthalmic solutions do not require FDA clearance if they fall into certain OTC
or generic categories. Other types do require pre-clearance. The Company's
products will fall into both categories. The Company may search for a
pharmaceutical company to enter into a joint venture for the development of
products requiring full FDA pre-clearance.
The Company believes its long-term success will be partially dependent on its
ability to efficiently gain approval on the products which will require FDA
pre-clearance. The Company's Chief Executive Officer has had substantial
experience in dealing with FDA registration and regulation requirements.
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PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for the Company's products, processes and know-how is
important to the Company's business. Thus, the Company plans to aggressively
prosecute and defend its proprietary technology. The Company intends to file
patent applications, where appropriate, to protect technology, inventions and
improvements that are considered important to the development of its business.
The Company also relies upon trade secrets, know-how, continuing technological
innovation and licensing opportunities to develop and maintain its competitive
position.
The Company currently holds no patents and has not yet filed any patent
applications, though it is processing an application on it's Myocardial
Infarction Predictor.
The Company has an exclusive license agreement to market LIVING WATER(TM) eye
and nasal products from the developer and founder of this technology, who holds
a patent pending on such technology, however not yet issued.
The patent positions of medical product firms, including the Company's, are
generally uncertain and involve complex legal and factual questions.
Consequently, even though the Company may prosecute its patent applications with
the United States and foreign patent offices, the Company does not know whether
any applications will result in the issuance of patents or whether any issued
patents will provide significant proprietary protection or will be circumvented
or invalidated. Since patent applications in the United States are maintained in
secrecy until patents are issued, and publication of discoveries in the
scientific or patent literature tend to lag behind actual discoveries, the
Company cannot be certain that it was the original creator of inventions which
may be covered by patent applications or that it was the first to file patent
applications for such inventions.
There can be no assurance that patents, if issued, would be held valid by a
court of competent jurisdiction. Moreover, to determine priority of invention,
the Company may have to participate in interference proceedings declared by the
United States Patent and Trademark Office or opposition proceedings before an
equivalent foreign agency, which could result in substantial cost to the
Company.
There can be no assurance that the patent applications, if any, will result in
patents being issued or that if issued, the patents will afford protection
against competitors with similar technology; nor can there be any assurance that
others will not obtain patents that the Company would need to license or
circumvent.
The Company will also rely upon unpatented trade secrets, and there can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology, or that the Company can meaningfully
protect its right to unpatented trade secrets.
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HUMAN RESOURCES
As of June 30, 1996, the Company had three full-time employees and utilized the
services of five part-time personnel, of whom four were engaged in research,
development and manufacturing, and three in marketing, customer service and
general administration. The Company's research and development staff, which
includes four degreed professionals, is largely made up of professionals working
as independent contractors, who perform their services in exchange for Common
Stock and Warrants. See "Management, Consultants and Advisors." None of the
Company's employees are covered by a collective bargaining agreement, and the
Company has experienced no work stoppages. The Company believes that it
maintains positive relations with its personnel.
The success of the Company in its research and development of medical products
is dependent upon the experience and know-how of its key scientific and
technical personnel.
ITEM 2. PROPERTY
The corporate headquarters of the Company are located at 7777 Fay Avenue, Suite
160, La Jolla, California 92037. The facilities are approximately 1,300 square
feet and are leased at approximately $1,900 per month. The lease is for 24
months with an option to renew. As of this date, the Company has 12 months left
on this lease.
The Company's laboratory facility of approximately 1,200 square feet is located
at 11107 Roselle St., San Diego, California 92121 (the Sorrento Valley
Facility). The Company leases the Sorrento Valley Facility at a current monthly
rate of $3,250 through September 30, 1996 at which time the rent will increase
to $3,500. The Company's 2-year renewal option will expire on September 30,
1997. The Company has the right to renew this lease on a year-to-year basis. The
Company expects to renew the lease at approximately the same rental.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholder meeting on September 18, 1996
at which time the following matters were presented to the security holders
regarding ratification by the Board of Directors, increasing the authorized
number of shares of common stock from 10,000,000 to 50,000,000, authorizing an
Incentive Bonus and Stock Option Plan and approving the auditors.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
No public trading market exists for the Common Stock of the Company. At
September 15, 1996, there were over 500 holders of record of the Common Stock.
The Company has not paid cash dividends on its capital stock since inception nor
does it intend to for the future. The Company currently intends to retain
earnings, if any, for use in its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The Company has not had significant revenues from operations in each of its last
three fiscal years and is believed to still be in its development stage. The
Company's business is divided into two separate, distinct operations: the
Diagnostic Division and the Unified Technologies Division.
PLAN OF OPERATIONS
Financial Resources
At June 30, 1996 and 1995, the Company had current assets of $131,616 and
$88,418 (including cash of $28,083 and $20,358) and inventory of $4,151,885 and
$4,154,181 ($4,140,579 and 4,142,784 of which constituted the inventory of
antisera) for both periods, respectively. The antisera inventory was the result
of fifteen years of work by the late Dr. James Plummer, a well-known San Diego
immunologist. On June 8, 1994, Unified acquired the inventory from the Plummer
Family Trust in exchange for 1,065,940 shares of Unified common stock along with
warrants to purchase an additional 120,000 shares of Unified stock at $0.10 per
share (532,970 shares of the Company's common stock along with warrants to
purchase an additional 60,000 shares at $0.20 per share, after giving effect for
the subsequent 1 for 2 shares of Unified stock exchanged in the merger). The
purchase was recorded at Unified's cost, the fair value of the inventory
received for the stock of $4,142,784 based on the valuation of the antisera as
of June 8, 1994; equivalent to $7.77 per share for the common stock received by
the Plummer Family Trust. The inventory was transferred at historical cost to La
Jolla Diagnostics, Inc. on April 17, 1995, the date of the acquisition of
Unified, as the business combination was recorded under the pooling of interest
method.
The antisera inventory consists of antibody reagents used in clinical diagnostic
laboratories that analyze serum for immunoglobulin profiles. In addition, the
Company has antigen samples which can be used for the continued production of
antisera once the existing antisera reagent inventory is sold. The Company
intends to purify and package the antisera in individual commercial quantities
and offer it for sale to the medical and scientific communities.
In addition, from time to time, the Company may use its Antisera in producing
certain diagnostic tests, which it intends to market.
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The antisera and antigen samples are kept frozen and have a shelf life in excess
of twenty years. Since the Company intends to market and sell the antisera
reagents over the next four years, there is not expected to be any obsolescence
or deterioration of the inventory.
There might be a modest change in titre (concentration) over a prolonged period
of time. During May and June 1995, the Company began to advertise the antisera
for sale in a variety of trade magazines. Through June 30, 1996 and 1995,
antisera sales were approximately $3,100 and $3,000. The net (decrease)/increase
in inventory of ($2,300) and $5,510 at June 30, 1996 and 1995, respectively,
relates to the Company's inventory levels of its Electronica-2 muscle relaxer
and Living Water(TM) Ophthalmic Solutions, which are maintained at a fairly
constant inventory level of approximately $10,000 to $15,000.
Management has carefully considered whether inventory is stated above market, as
defined in ARB 43, and whether a loss would need to be recognized. The Company
has concluded, that the current market price for the antisera reagent has not
dropped below cost. Even considering the fact the Company is marketing the
antisera at 90 percent of comparable published prices and costs of disposal of
up to $600,000, the Company has concluded that the market value is in excess of
its original cost as of June 30, 1996.
Management believes that cash on hand and generated from sales of inventory will
be sufficient to fund operations for an additional twelve months. Sales for the
years ended June 30, 1996 and 1995 were $143,977 and $131,091, comprised of
$17,005 and $30,516 in eye lotion, $1,485 and $3,636 in Electronica-2's, $75 and
$3,129 in antisera sales, and $123,647 and $93,835 in contact lenses,
respectively, for each period. Contact lens sales were all overseas and
constituted approximately 95 and 72 percent of total sales, respectively, for
each period reported.
Costs and expenses for the twelve months ended June 30, 1996 and 1995 were
$662,480 and $1,474,884 resulting in a loss from operations for the period of
$518,503 and $1,343,793, respectively. Costs and expenses included consulting
services of $105,808 and $760,533, and research and development expense of
$82,951 and $443,017, substantially all of which was for services performed by
the directors, officers and advisors identified in the section "Management", who
accepted as compensation for such services common stock and warrants to acquire
common stock of the Company. See "Executive Compensation - Stock Awards and
Performance Warrants."
16
<PAGE> 17
The increase in selling and administrative expenses for the years ended June 30,
1996 and 1995 are due to the Company's increase in research and development,
sales, and financial and reporting responsibilities. Selling and administrative
expenses included; $113,993 and $72,842 salaries, $45,564 and $30,703 rent,
$123,479 and $60,669 legal and accounting fees, $15,158 and $25,500 advertising,
and $175,580 and $(7,046) in miscellaneous other expenses (for the year ended
June 30, 1995 miscellaneous other expenses included a $30,000 credit received
from CDHC's previous officers commensurate with the Company's reverse merger),
respectively.
Valuation of Antisera Inventory
The Company believes an active market exists for its antisera inventory. The
level of sales of the antisera inventory is directly dependent on marketing
efforts. An aggressive marketing campaign could result in a rapid turnover of
the inventory at favorable prices. As the Company emerges from its development
stage, management intends to focus more on marketing and sales of the antisera
inventory.
Since the Company became active in April 1995, sales of antisera have totaled
$3,344. The profit realized upon these sales, after direct costs, was $1,098
resulting in a gross margin of 32 percent. The antisera was not marketed by the
Company's predecessor, Unified, which acquired the inventory on June 8, 1994.
Material Uncertainties Affecting Liquidity and Value of Antisera Inventory
In addition to the factors which might affect the value of the antisera
inventory discussed in "Risk Factors," above, there are other factors which
might affect the value of the antisera inventory.
The Company's ability to increase sales of antisera depends heavily on the
success of its marketing strategy, which includes, among other things,
advertising in research journals and directly mailing brochures listing the
Company's inventory and sale prices to research facilities. There can be no
assurance that potential consumers of antisera will commit to purchase the
Company's inventory at the Company's current list prices. A price reduction
could result in a negative adjustment to the value of the antisera inventory.
Competition in the area of antisera sales could also have a significant impact
on the value of the antisera. The Company is competing against approximately 500
other marketers of immunologic and biologic reagents, including some of the
largest healthcare companies in the United States. While increases in biological
research have increased the demand for antisera, there could also be an increase
in the number of antisera providers hoping to serve the growing market. If the
supply of antisera outpaces the increased demand, the value of the inventory
could drop. Similarly, declines in biological research due to funding
deficiencies or other causes beyond the control of the Company could result in
decreased demands and lower inventory values. Further, innovations in research
techniques could lessen demand for antisera or reduce production costs, either
of which could negatively impact the value of the inventory.
17
<PAGE> 18
Summary of Prior Product Research and Development
The Company plans to conduct significant research and development in several
areas over the next twelve months. Expenditures on research and development will
depend upon the financial resources available to the Company. Research and
development expense recorded for the period July 1, 1994 to June 30, 1995 was
$443,017, most of which were services performed by related parties and recorded
as related party payables.
Antisera Associates
The Company has a 75 percent interest in Antisera Associates, Ltd., which was
formed on December 21, 1994. Antisera Associates, Ltd. was formed to market,
sell and distribute the antisera inventory.
The partnership was formed when the Company sold $1,000,000 of antisera
inventory to Sogery Trust, an unrelated entity, for $100,000 in cash and a note
for $900,000. Following the sale, the Company contributed its remaining
$3,142,784 of antisera inventory for its 75 percent interest, and Sogery Trust
contributed its $1,000,000 of inventory for a 25 percent interest in the
partnership.
The minority interest has been accounted for under the "parent company theory"
in the consolidated balance sheet. Under this approach, the minority interest is
not considered part of stockholders' equity, and is disclosed in the
consolidated balance sheet between the liability section and the stockholders'
equity section..
Expected Purchases or Sales of Plant and Significant Equipment
The Company does not expect to purchase and/or sell any significant equipment
during the next twelve months.
Expected Changes in Number of Employees
The Company plans to add additional employees over the next twelve months as its
research and development effort increases, and its sales of solutions,
diagnostic kits and miscellaneous products expand. Four people are expected to
be added in sales, marketing and administrative, four estimated in the
laboratory for both research and development projects and the production of
antisera, and one to handle regulatory matters. In addition, consultants and
part-time or temporary employees may be used on specific projects.
18
<PAGE> 19
RESULTS OF OPERATIONS
As discussed above, the Company did not engage in significant business prior to
April 17, 1995. On that day, the Company acquired Unified, a small development
stage business.
Fiscal Years Ended June 30, 1996 and 1995
On a consolidated basis, the Company had sales totaling $143,977 for the year
ended June 30, 1996, compared with $131,091 in sales for the Company for the
same period ending June 30, 1995. The increase in sales resulted from increased
sales of contact lenses and eye solutions.
The Company experienced a net loss of $454,479 for the twelve-month period ended
June 30, 1996, compared with a net loss of $1,119,064 for the same period ended
June 30, 1995. The increase in losses is principally attributable to increased
expenditures related to research ($82,951 for the twelve-month period ended June
30, 1996) and consulting fees ($105,808 for the twelve-month period ended June
30, 1996). See "Plan of Operation -Financial Resources," above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through private placements of
common stock, issuing warrants to acquire stock in exchange for services
rendered for the benefit of the Company, and to a lesser degree, sales. Based on
its current operating plans, capital expenditures necessary to support the
further development and marketing of the Company's products through July 1997
are expected to exceed cash generated from operations. The Company anticipates,
however, that the proceeds from private placements of stock and exercise of
warrants, together with existing capital and revenues from product sales will be
sufficient to finance its operations and working capital requirements for at
least twelve months. See "Plan of Operation -- Financial Resources."
19
<PAGE> 20
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants 21
Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1995 22
Consolidated Statements of Operations for the years ended June 30, 1996 23
and 1995, and cumulative totals for development stage operations from
December 3, 1993 (date of recommencement) through June 30, 1996
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for 24
the years ended June 30, 1996 and 1995, for the period December 3, 1993
(date of recommencement) through June 30, 1994, and for the period July
1, 1993 through December 2, 1993
Consolidated Statements of Cash Flows for the years ended June 30, 1996 25
and 1995, and cumulative totals for development stage operations from
December 3, 1993 (date of recommencement) through June 30, 1996
Notes to Consolidated Financial Statements 26-34
</TABLE>
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of La Jolla
Diagnostics, Inc. (a California corporation) and subsidiaries (Note A) as of
June 30, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years ended June 30,
1996 and 1995, and cumulative totals for development stage operations from
December 3, 1993 (date of recommencement) through June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of La Jolla
Diagnostics, Inc. and subsidiaries as of June 30, 1996 and 1995, and the results
of operations and their cash flows for the years ended June 30, 1996 and 1995,
and cumulative totals for development stage operations from December 3, 1993
(date of recommencement) through June 30, 1996 in conformity with generally
accepted accounting principles.
Harlan & Boettger
San Diego, California
October 3, 1996
21
<PAGE> 22
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 28,083 $ 20,358
Accounts receivable 1,729 29,115
Advances to officer 1,156 5,659
Interest receivable 100,648 33,286
------------ ------------
TOTAL CURRENT ASSETS 131,616 88,418
INVENTORY (Note E) 4,151,885 4,154,181
PROPERTY & EQUIPMENT, net 43,248 13,889
NOTE RECEIVABLE (Note D) 900,000 900,000
OTHER ASSETS 13,819 68,109
------------ ------------
$ 5,240,568 $ 5,224,597
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 178,528 $ 104,063
Accrued expenses 37,385 5,995
Lease obligations, current portion (Note H) 2,836 2,136
Loans payable (Note G) 99,279 42,341
------------ ------------
TOTAL CURRENT LIABILITIES 318,028 154,535
LEASE OBLIGATION, non-current portion (Note H) 8,928 6,354
MINORITY INTEREST 791,992 804,481
STOCKHOLDERS' EQUITY:
Common stock, no par value (10,000,000 shares authorized,
7,576,175 and 6,342,894 shares issued & outstanding, respectively) 11,304,740 10,919,115
Additional paid-in capital (Note N) 831,247 900,000
Preferred stock, no par value (5,000,000 shares authorized, no
shares issued) -- --
Retained deficit ($1,603,848 and $1,149,369 deficit accumulated
during development stage begun December 3, 1993, respectively)
(Note B)
(8,014,367) (7,559,888)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,121,620 4,259,227
------------ ------------
$ 5,240,568 $ 5,224,597
============ ============
</TABLE>
22
<PAGE> 23
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 1996 AND 1995, AND CUMULATIVE TOTALS FOR DEVELOPMENT
STAGE OPERATIONS FROM DECEMBER 3, 1993
(DATE OF RECOMMENCEMENT) THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
DEVELOPMENT
STAGE ENDED
JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996
----------- ----------- -----------
(NOTE B)
<S> <C> <C> <C>
NET SALES (Note M) $ 143,977 $ 131,091 $ 281,399
COSTS AND EXPENSES:
Cost of products sold 106,080 87,195 195,687
Selling and administrative expenses 359,781 182,668 549,965
Research and development 82,951 443,017 525,968
Consulting services 105,808 760,533 866,341
Depreciation and amortization 7,860 1,471 9,479
----------- ----------- -----------
TOTAL COSTS & EXPENSES 662,480 1,474,884 2,147,440
----------- ----------- -----------
LOSS FROM OPERATIONS (518,503) (1,343,793) (1,866,041)
OTHER INCOME AND EXPENSES:
Interest income 67,361 33,286 100,647
Interest expense (13,427) (1,676) (15,103)
Minority interest 12,490 195,519 183,049
----------- ----------- -----------
TOTAL OTHER INCOME & EXPENSES 66,424 227,129 268,593
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (452,079) (1,116,664) (1,597,448)
PROVISION FOR INCOME TAXES (Note I) 2,400 2,400 6,400
----------- ----------- -----------
NET LOSS (Note B) $ (454,479) $(1,119,064) $(1,603,848)
=========== =========== ===========
NET LOSS PER COMMON SHARE (Note F) $ (0.07) $ (0.19) $ (0.28)
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 6,678,171 5,810,227 5,766,482
=========== =========== ===========
</TABLE>
23
<PAGE> 24
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE
YEARS ENDED JUNE 30, 1996 AND 1995, FOR THE PERIOD DECEMBER 3, 1993 (DATE OF
RECOMMENCEMENT) THROUGH JUNE 30, 1994, AND FOR THE PERIOD JULY 1, 1993
THROUGH DECEMBER 2, 1993
<TABLE>
<CAPTION> TOTAL
STOCKHOLDERS'
COMMON STOCK ADDITIONAL EQUITY
PAID-IN RETAINED ------
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 611,644 $ 6,370,919 $ -- $(6,408,367) $ (37,448)
Net loss incurred prior to
development stage operations -- -- -- (2,152) (2,152)
--------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 2, 1993 611,644 6,370,919 -- (6,410,519) (39,600)
Issuance of stock for cash 4,205,780 8,412 -- -- 8,412
Issuance of stock for
inventory (Note D) 532,970 4,142,784 -- -- 4,142,784
Net loss incurred during
development stage operations -- -- -- (30,305) (30,305)
--------- ----------- --------- ----------- -----------
BALANCE, JUNE 30, 1994 5,350,394 10,522,115 -- (6,440,824) 4,081,291
Issuance of stock in private
placement 590,500 236,200 -- -- 236,200
Issuance of stock for services 402,000 160,800 -- -- 160,800
Additional paid-in capital
from non-cash related party
transaction (Note N) -- -- 900,000 -- 900,000
Net loss incurred during
development stage operations -- -- -- (1,119,064) (1,119,064)
--------- ----------- --------- ----------- -----------
BALANCE, JUNE 30, 1995 6,342,894 10,919,115 900,000 (7,559,888) 4,259,227
Conversion of common stock
warrants 695,781 220,625 -- -- 220,625
Issuance of stock for services 225,000 40,000 -- -- 40,000
Issuance of stock in private
placement 312,500 125,000 -- -- 125,000
Deferred offering costs -- -- (68,753) -- (68,753)
Net loss incurred during
development stage operations -- -- -- (454,479) (454,479)
--------- ----------- --------- ----------- -----------
BALANCE, JUNE 30, 1996 7,576,175 $11,304,740 $ 831,247 $(8,014,367) $ 4,121,620
========= =========== ========= =========== ===========
</TABLE>
24
<PAGE> 25
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1996 AND
1995, AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OPERATIONS FROM
DECEMBER 3, 1993 (DATE OF RECOMMENCEMENT) THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
DEVELOPMENT
JUNE 30, JUNE 30, STAGE ENDED
1996 1995 JUNE 30, 1996
---- ---- -------------
(NOTE B)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (454,479) $(1,119,064) $(1,603,848)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 7,860 1,471 9,479
Minority interest (12,489) 704,481 691,992
Issuance of stock for services 40,000 160,800 200,800
Additional paid-in capital from non-cash related party
transaction (Note N) -- 900,000 900,000
Changes in assets and liabilities:
(Increase)/decrease in inventories 2,296 (5,510) (9,101)
(Increase)/decrease in accounts receivable 27,386 (29,115) (1,729)
Increase in other assets (15,123) (67,015) (83,147)
Increase in interest receivable (67,362) (33,286) (100,648)
Increase in notes receivable -- (900,000) (900,000)
Increase in accounts payable and accrued expenses 105,883 94,646 213,762
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (366,028) (292,592) (686,620)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (31,209) (5,308) (36,840)
Advances (to)/from officer 4,503 (4,759) (256)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (26,706) (10,067) (37,096)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 345,625 236,200 590,237
Payments on related party debt -- (42,481) (38,901)
Payments on capital lease obligations (2,076) (791) (2,867)
Proceeds from notes payable, net 56,910 29,969 99,279
Proceeds from minority interest in partnership -- 100,000 100,000
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES
400,459 322,897 747,748
----------- ----------- -----------
NET INCREASE IN CASH 7,725 20,238 28,032
CASH AT BEGINNING OF PERIOD 20,358 120 51
----------- ----------- -----------
CASH AT END OF PERIOD $ 28,083 $ 20,358 $ 28,083
=========== =========== ===========
</TABLE>
25
<PAGE> 26
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF CONSOLIDATION:
La Jolla Diagnostics, Inc., a California corporation (the "Company")
was incorporated on April 26, 1983 as Women's Health Centers of
America, Inc. On February 8, 1990, the Company acquired Chemical
Dependency Healthcare of California, Inc. and changed its name to
Chemical Dependency Healthcare, Inc. On April 17, 1995, the Company
acquired Unified Technologies, Inc. and changed its name to La Jolla
Diagnostics, Inc. The Company has two wholly-owned subsidiaries,
Unified Technologies, Inc. (UTI) and Chemical Dependency Healthcare of
California, Inc. (CDHC) and a 75 percent ownership interest in Antisera
Associates, Limited, a California limited partnership. The Company is
still considered a development stage business (see Note B).
The consolidated financial statements include the accounts of La Jolla
Diagnostics, Inc. and its subsidiaries. Minority interest represents
the minority partner's share of the equity in Antisera Associates,
Limited. All significant intercompany transactions and balances have
been eliminated in consolidation.
BASIS OF ACCOUNTING:
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles.
INVENTORY:
Inventory consists of medical and healthcare products, and the antisera
products. The inventory is valued at the lower of cost or market. Cost
is determined under the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost. Maintenance, repairs and
minor renewals are expensed as incurred. When property and equipment
are retired or otherwise disposed, the related cost and accumulated
depreciation are eliminated and any gain or loss on disposition is
reflected in income or expense. Depreciation is provided principally on
the straight-line method over the estimated useful lives of the assets
of five years. Property and equipment is shown net of accumulated
depreciation of $8,223 and $1,023 for the years ended June 30, 1996 and
1995, respectively.
26
<PAGE> 27
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
OTHER ASSETS:
Other assets consist of deferred offering costs, organizational costs
net of accumulated amortization of $1,140 and $480, respectively, and
deposits.
Deferred offering costs include the costs associated with the proposed
initial public offering of $58,152 through June 30, 1995. During the
year ended June 30, 1996, $68,753 of these costs related to the initial
public offering were netted against the gross proceeds received from
the public offering.
INCOME TAXES:
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of
various assets for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes also
are recognized for net operating losses that are available to offset
future taxable income and tax credits that are available to offset
future federal income taxes.
USE OF ESTIMATES:
The preparation of the Company's financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the financial statement date and the reported
amounts of revenue and expenses during the reporting period. Due to
uncertainties inherent in the estimation process, it is reasonably
possible that actual results could differ from these estimates.
B. DEVELOPMENT STAGE BUSINESS:
The Company is a development stage business engaged in the development
and sale of medical products. The Company researches, develops,
manufactures and markets various healthcare products and provides
certain laboratory services. The consolidated financial statements
reflect activity primarily related to identifying suitable products for
sale and efforts devoted to financing and carrying on administrative
functions. The Company has recommenced its operations, however,
revenues generated to date have been primarily related to the sale of
ancillary products to foreign markets.
27
<PAGE> 28
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
B. DEVELOPMENT STAGE BUSINESS: (CONTINUED)
Development stage operations for the Company began upon the
incorporation of UTI on December 3, 1993. Prior to this date, the
Company was inactive and had no material operations. The following
information details the deficit accumulated during the development
stage and the related losses:
Retained deficit as of June 30, 1996 and 1995 consists of the
following:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Deficit accumulated during the
development stage $(1,603,848) $(1,149,369)
Deficit accumulated prior to the
development stage (6,410,519) (6,410,519)
----------- -----------
$(8,014,367) $(7,559,888)
=========== ===========
</TABLE>
The Company has restated common stock to reflect the reverse stock
split as a result of the merger (Note F). For the years ended June 30,
1996, 1995 and 1994, changes in stockholders' equity (deficit) reflect
activity incurred during the development stage period.
C. ACQUISITIONS:
On April 17, 1995, Chemical Dependency Healthcare of California, Inc.
(CDHC) acquired 100 percent of the outstanding stock of UTI by issuing
4,938,750 shares of its no par value common stock in exchange for
9,877,500 shares of UTI common stock. This stock exchange resulted in
UTI shareholders receiving one share of CDHC common stock for every two
shares of UTI common stock held. The business combination has been
accounted for under the pooling of interests method. Effective April
17, 1995, the Company changed its name from Chemical Dependency
Healthcare of California, Inc. to La Jolla Diagnostics, Inc.
(Note A).
Under the pooling of interests method, UTI's results of operations have
been included in the consolidated results of operations since the date
of its inception, December 3, 1993, and the assets and liabilities of
the separate companies have been combined and are recorded at their
historical cost based amounts. Since CDHC was inactive and had no
assets or operations for any reported periods prior to the merger, the
consolidated results of operations consist solely of UTI's operations
prior to the date of combination and the basis of accounting used by
UTI has continued and accordingly, no adjustments were necessary to
change to different accounting methods. The operations subsequent to
the merger relate to the continuing development stage activities, which
relate primarily to the development and sale of medical healthcare
products (Note B).
28
<PAGE> 29
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
C. ACQUISITIONS: (CONTINUED)
In July 1994, UTI merged with Pathfinder Holding Corporation
(Pathfinder), a Nevada publicly-held shell corporation, in which
Pathfinder was to be the surviving entity. However, after the merger
was completed, certain unintentional misrepresentations concerning the
SEC registration status of Pathfinder's stock were discovered,
resulting in an agreement among the parties to rescind the merger.
Accordingly, on February 10, 1995, the merger was rescinded and all the
assets and liabilities of the Company existing prior to the merger, as
well as all assets acquired and obligations created after the merger
were transferred to UTI. In exchange for the recision and the rights to
the name Pathfinder Holding Corporation, the Company issued warrants to
purchase an aggregate of 678,300 shares of the Company's common stock
at an exercise price of the greater of $1.00 or 50 percent of the
average trading price for the five days prior to exercise.
D. FORMATION OF ANTISERA ASSOCIATES, LTD.
On December 21, 1994, the Company sold $1,000,000 of antisera inventory
to Sogery Trust , an unrelated entity, for $100,000 in cash and a note
receivable of $900,000 secured by the inventory. Following the sale,
the Company and Sogery Trust formed Antisera Associates, Ltd., whereby
the Company contributed $3,142,784 of antisera inventory for a 75
percent interest and Sogery Trust contributed its $1,000,000 of
inventory for a 25 percent interest in the partnership.
The $900,000 note receivable from Sogery Trust bears interest at 7
percent annual rate with principal payments of $112,500, $270,703,
$322,998 and $193,799 due in fiscal years 1996, 1997, 1998 and 1999,
respectively. As of the financial statement date no receipts of
principal and interest have been received by the Company.
The antisera was purchased by UTI on June 8, 1994 from a private family
trust in bulk form for total consideration valued at $4,142,784
consisting of 532,970 shares of the Company's common stock (with an
effective share price of $7.77 per share), along with warrants to
purchase an additional 60,000 shares at $0.20 per share (after giving
effect for the 1 for 2 shares of UTI stock exchanged in the UTI
merger). During the time period subsequent to the exchange of the
Company's common stock for the antisera inventory, the Company had
numerous cash sales of common stock. These shares sold through a
private placement, the average share value approximated $0.40 per
share.
29
<PAGE> 30
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
E. INVENTORY:
Inventory as of June 30, 1996 and 1995 is comprised of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Antisera products $4,140,579 $4,142,784
Healthcare products 11,306 11,397
---------- ----------
$4,151,885 $4,154,181
========== ==========
</TABLE>
F. NET LOSS PER COMMON SHARE:
Net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period.
For the years ended June 30, 1996 and 1995, the Company's common stock
equivalents were antidilutive, and therefore, were not included in the
computation of net loss per common share. The per share computations
reflect the effect of a 10 for 1 reverse stock split that occurred on
April 14, 1995 and a 2 for 1 stock exchange between the Company and UTI
on April 17, 1995.
G. LOANS PAYABLE:
Loans Payable as of June 30, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Loans payable to unrelated parties
unsecured, with annual interest of 10
percent, due on demand $64,279 $ 7,341
Loan payable to a group of foreign
investors, unsecured, with annual
interest of 8 percent, due on demand 35,000 35,000
------- -------
$99,279 $42,341
======= =======
</TABLE>
30
<PAGE> 31
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
H. CAPITAL LEASE OBLIGATION:
The Company leases computer and equipment under a capital lease. The
economic substance of these capital lease agreements is that the
Company is financing the acquisition over a sixty month period. The
capital leases are reflected in the Company's assets & liabilities. The
following is an analysis of the book value of the leased assets
included in property and equipment:
<TABLE>
<S> <C>
Cost $14,631
Accumulated Depreciation (2,576)
-------
$12,055
=======
</TABLE>
The following is a schedule by year of the future minimum lease
payments under the above capital leases, together with the present
value of the net minimum lease payments:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1997 $4,800
1998 5,246
1999 2,550
2000 3,066
2001 640
------
16,302
Amount representing interest 4,538
------
Present value of net minimum lease payment 11,764
Less current portion
(2,836)
------
$8,928
======
</TABLE>
I. INCOME TAXES:
The provision for income taxes for the years ended June 30, 1996 and
1995 consists solely of the $800 minimum California franchise taxes for
the Company and its wholly-owned subsidiaries.
Provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
Current income taxes $2,400 $2,400
Deferred income taxes -- --
------ ------
Provision for income taxes $2,400 $2,400
====== ======
</TABLE>
31
<PAGE> 32
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
I. INCOME TAXES: (CONTINUED)
The Company's total deferred tax asset as of June 30, 1996 is as
follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $1,504,536
Valuation allowance 1,504,536
----------
Net deferred tax asset $ --
==========
</TABLE>
As of June 30, 1996, the Company had net operating loss carryforwards,
before any limitations which expire as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, FEDERAL STATE
------- -----
<S> <C> <C>
1997 $ -- $ 820,000
1998 200,000 4,000
1999 849,000 16,000
2000 720,000 79,500
2001 1,080,000 190,045
2002 1,130,000 --
2003 634,000 --
2004 145,000 --
2005 1,270,000 --
2006 180,000 --
2007 190,000 --
2008 8,000 --
2009 32,000 --
2010 159,000 --
2011 380,090 --
---------- ----------
$6,977,090 $1,109,545
========== ==========
</TABLE>
The realization of any future income tax benefits from the utilization
of net operating losses has been determined to be limited. Federal and
state tax laws provide that when a more than 50 percent change in
ownership of a company occurs within a three-year period, the net
operating loss is limited. The net operating loss carryforwards have
been limited to approximately $15,000 per year until expiration. Losses
generated after the merger will not be limited by any change that
resulted from the merger.
32
<PAGE> 33
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
J. WARRANTS:
Warrants outstanding as of June 30, 1996 and 1995 consists of 2,670,566
and 3,226,650, nonredeemable warrants to purchase shares of common
stock of the Company, which are exercisable into 1 share of common
stock each at various prices ranging from $0.20 to $1.00 per share. The
warrants were issued for certain transactions and performances of
services and expire five years after the date of issuance. Warrants in
the amount of $220,625 have been exercised during the year ended June
30, 1996.
K. PRIVATE PLACEMENT:
From July 1994 through June 1995, the Company sold 590,500 shares of
common stock and 100,000 warrants in a private placement offering, for
total proceeds of $236,200. From July 1995 through August 1995, the
Company sold 312,500 shares of common stock in a private placement
offering, for total proceeds of $125,000. No private offering costs
were incurred with these private placements other than de minimis
general and administrative expenses.
L. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and income taxes for the years ended June 30,
1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Interest $3,300 $1,063
====== ======
Income taxes $2,400 $2,400
====== ======
</TABLE>
During 1996 and 1995, the Company entered into various agreements with
certain individuals and businesses whereby it issued common stock in
exchange for services performed by them. In connection with this, for
the years ended June 30, 1996 and 1995, the Company issued 225,000 and
402,000 shares of common stock for total consideration of $40,000 and
$160,800, respectively. Also during 1995, the Company sold inventory to
Sogery Trust, a partner in Antisera Associates, Ltd., for $1,000,000.
The Company received $100,000 in cash and a note receivable for
$900,000 (Note D).
33
<PAGE> 34
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
M. EXPORT SALES:
The Company's operations consist of sales of products to domestic and
foreign markets. Although the Company is a development stage business
and product sales have just commenced, the breakdown of sales between
markets is as follows for the years ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Domestic market $ 20,330 $ 37,256
Foreign market (Russia) 123,647 93,835
-------- --------
$143,977 $131,091
======== ========
</TABLE>
N. RELATED PARTY TRANSACTIONS:
During the year ended June 30, 1995, various shareholders and directors
of the Company provided consulting and research and development
activities related to the formation and recommencement of business
activities.
In connection with these services, the Company recognized research and
development and consulting expenses of $427,591 and $472,409,
respectively. As of June 30, 1995, the Company and the various related
individuals agreed to eliminate the amounts due to these related
parties, and accordingly, the Company recorded a $900,000 increase to
additional paid-in capital. No gain was recorded since the
extinguishment of debt was between related parties and reflected as a
capital transaction.
In conjunction with the elimination of the debt to the related parties,
the Company issued 900,000 nonredeemable warrants to the
above-mentioned shareholders and directors of the Company. The warrants
are exercisable at $0.50 per warrant, with each warrant exercisable
into one share of common stock. There was no entry made to record the
warrants issued since the exercise price on the date of issuance was
greater than the fair market value of the stock.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
34
<PAGE> 35
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and current position(s) of each director and executive officer of
the Company are as set forth below:
NAME AGE POSITION
---- --- --------
Donald Brucker 63 President, Chief Executive Officer, Chief
Financial Officer and Director
Robert Hamburger 73 Secretary and Director
Stanley Heyman 51 Director
Richard O'Connor 50 Director and Consultant
Donald Brucker
Donald Brucker serves as a director and as the Company's Chief Executive Officer
and Chief Financial Officer. He is responsible for business development,
marketing and FDA regulatory affairs. The Company will be recruiting a Chief
Financial Officer, but until an appropriate person can be hired, Mr. Brucker's
responsibilities will also include financial and accounting matters. Mr. Brucker
has been in the medical products business for over 30 years. He was a founder
and the Chief Executive Officer of Continuous Curve Contact Lenses, Inc., at one
time, the second largest manufacturer of contact lens products. Continuous Curve
was recognized as an innovator in introducing new series of FDA-approved contact
lenses. As Chief Executive Officer of Continuous Curve, Mr. Brucker administered
their public offering in 1977 and its sale to Revlon in 1981 for a value in
excess of $100,000,000. Following the acquisition, Mr. Brucker became President
of Revlon Vision Care. From 1981 to 1982, Mr. Brucker served as Chief Executive
Officer of Immunetech Pharmaceuticals (now known as Dura Pharmaceuticals).
From 1982 to 1989, Mr. Brucker served as a consultant for several healthcare and
medical device companies. From 1989 to 1993, Mr. Brucker was Chief Executive
Officer of Ariel Life Systems, the former maker of a computerized exercise
system. On June 24, 1994, Ariel filed a bankruptcy petition. As a result of
losses suffered by Mr. Brucker in connection with his investment in Ariel, on
February 3, 1994 Mr. Brucker personally filed a bankruptcy petition.
35
<PAGE> 36
Robert N. Hamburger, M.D.
Dr. Hamburger serves as a director and as the Company's medical laboratory
director with responsibility for all clinical assays which are reported. Dr.
Hamburger reviews the quality and accuracy of all clinical diagnostic laboratory
results before they are reported to clinicians. Since July 1, 1990, Dr.
Hamburger has been a Professor Emeritus at USCD School of Medicine, where from
1970 to 1990 he was Chairman of the Pediatric Allergy and Immunology Division.
Dr. Hamburger has published over 200 articles, is the holder of three patents,
and has achieved national and international recognition for his research in
immunology.
Stanley V. Heyman
Mr. Heyman is the President of Heyman & Associates, Inc., Certified Public
Accountants, which was founded in 1994. From 1990 to 1994, Mr. Heyman was a
partner of Eisenberg & Heyman, and from 1984 through 1990, he was a partner in
the San Diego office of Coopers & Lybrand, practicing in the tax department.
Richard O'Connor
Dr. O'Connor is Chief of the Department of Asthma, Allergy and Clinical
Immunology for Sharp Rees-Stealy at San Diego, California, and as the Director
of the Department of Clinical Research, he has supervised more than 150
pharmaceutical clinical trials.
Dr. O'Connor is a Clinical Professor of Pediatrics at UCSD School of Medicine
and has published nearly on hundred articles in the field of Immunology an
Allergy. He is the former Laboratory Director of the Immunology and Allergy
Laboratory for the Department of Pediatrics at UCSD.
All members of the Board of Directors are elected to serve until their
respective successors have been elected and qualified or until their earlier
death, resignation or removal in the manner specified in the Company's by-laws.
The Board of Directors has a Compensation Committee, currently comprised of
Messrs. Hamburger, Heyman and O'Connor, and an Audit Committee, currently
comprised of Messrs. Hamburger, Heyman and O'Connor. The Compensation Committee
makes recommendations concerning salaries and bonuses for executive officers of
the Company. The Audit Committee reviews the results and scope of the audits and
other services provided by the Company's independent auditors.
The Directors of the Company intend to use reasonable efforts to expand the
Board to six or seven directors and appoint to the Company's Board of Directors
one or more outside directors before the end of 1996.
36
<PAGE> 37
PROMOTERS, CONSULTANTS, ADVISERS AND FOUNDERS
The following individuals have performed and are expected to continue providing
services to the Company as consultants and advisers. These individuals have
devoted varying amounts of time, but are also engaged in other business
activities not related to the Company. The amount of time individuals may devote
to the Company will depend upon their availability, the success of the projects
they work on, and the directions the Company chooses to devote its resources.
Except as noted below, advisors have been compensated by issuing warrants to
purchase Common Stock of the Company. See "Stock Awards and performance
Warrants."
Robert R. Buchner
Mr. Buchner is responsible for all aspects of research and development for the
molecular diagnostic products, including selection of DNA sequences, managing
the production and quality assurance of probes and primers, developing DPR-based
assays, and supervising the validation of the clinical trials of each assay kit.
He will also manage the performance of all assays which are offered for service
to generate revenue while the FDA approval process is in progress. Mr. Buchner
intends to devote substantially all of his efforts to the business of the
Company. Mr. Buchner is also a scientist for the Scripps Research Institute at
La Jolla, California, where he evaluates molecular biological products and
techniques for research applications. He has held this position since 1992. Mr.
Buchner has also been a staff scientist with Stratagene Cloning Systems since
1991. Mr. Buchner was the founding laboratory manager for the Presbyterian
Cancer Center in Philadelphia, Pennsylvania and was a former research associate
for both Immunetech Pharmaceuticals and Xitel Corporation in San Diego,
California. Mr. Buchner devotes approximately twenty hours per week to the
Company and receives compensation of $2,000 per month.
Robert Ziccardi, Ph.D.
Dr. Ziccardi is a protein chemist with the Scripps Research Institute and is
working with the Company in the area of antibody purification. Dr. Ziccardi
received his Ph.D. in biochemistry from the University of California at Los
Angeles and is an adjunct professor of chemistry at Palomar College. Dr.
Ziccardi is currently devoting substantially full-time to the Company and is
being compensated at the rate of $50,000 per year.
Vic Braden
Mr. Braden is advising the Company in regards to the marketing of the
Electronica-2, a product which he is endorsing. Mr. Braden is a nationally-known
educator of tennis and other sports. Among his many activities, he is Director
of the Vic Braden Tennis College, the Vice Braden Ski College, and Instruction
Editor of Tennis Magazine. He has been featured in numerous magazines, including
Sports Illustrated, Business Week, and Time. Mr. Braden will be compensated
based upon sales of the Electronica-2 product.
37
<PAGE> 38
Edward Morgan, Ph.D.
Dr. Morgan is the Company's senior consultant for immunology and advises the
Company regarding immunological procedures. A graduate of the University of
California in Berkeley with a Ph.D. in immunology, Dr. Morgan has been a member
of the Department of Immunology, Scripps Clinic and Research Foundation in La
Jolla, California since 1978. Dr. Morgan also has had experience working in
industry with Immunetech Pharmaceuticals and Tanabe Research Laboratories.
Grigory P. Vorobiev, M.D, Ph.D.
Dr. Vorobiev is a liaison between the Company and various scientific and medical
institutions in the former Soviet Union. Dr. Vorobiev is an Honor Physician of
Russia, and is Chairman of the Medical Division for the National Athletic Team
in Russia.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE CASH COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the most recent four fiscal years, the cash
compensation paid by the Company, as well as all other compensation paid or
accrued for those years to the Chief Executive Officer and the Company's other
executive officers as of June 30, 1996.
Summary Compensation Table:
<TABLE>
<CAPTION>
Name and Fiscal Year Annual Compensation Long-term Compensation
Principal
Position Salary Bonus Other Stock Awards Warrants
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald Brucker, 1996 $96,000 $0 $0 0 0
President, CEO, -----------------------------------------------------------------------------------
CFO
1995 $49,604 $0 $0 1,361,972 190,000
-----------------------------------------------------------------------------------
1994 $ 0 $0 $0 0 0
-----------------------------------------------------------------------------------
1993 $ 0 $0 $0 0 0
-----------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 39
STOCK AWARDS AND PERFORMANCE WARRANTS
As of the date of the Unified acquisition (April 17, 1995), each of the
following executive officers, directors, consultants, advisers, promoters and
founders was issued Common Stock and granted a Common Stock performance warrant
(collectively, the "Performance Warrants") by the Company to purchase the number
of shares of Common Stock at any time prior to April 17, 2000 at the prices as
set forth in the table below. The Common Stock and Performance Warrants were
earned when issued and granted. The Company has entered into Stock Restriction
Agreements with certain of the persons listed below. Pursuant to the Stock
Restriction Agreement, the Common Stock may not be transferred without the
consent of the Company for a period of two years, and thereafter shall be
subject to the resale restrictions as set forth in Paragraph (e)(1) of Rule 144
of the Rules and Regulations of the Securities and Exchange Commission. Further,
pursuant to the Stock Restriction Agreement, such Common Stock is subject to
forfeiture in the event the Shareholder is no longer affiliated with the Company
as an officer, director, consultant or adviser upon payment by the Company to
such Shareholder of the sum of $0.01 per share. The Performance Warrants are
nontransferable and under the terms of certain Stock Restriction Agreements
expire unless exercised by the warrant holder within 30 days after such holder
is no longer affiliated with the Company as an officer, director, consultant or
adviser.
The following table sets forth certain information concerning the Stock Awards
and Performance Warrants at June 30, 1995:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Name Common Stock Value of Common Number of Shares of Value of Unexercised
Awarded Stock Awards(1) Stock Underlying In-the-Money
Performance Performance Warrants
Warrants as of June ($) as of June 30,
30, 1995 1995(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert Blanchard 75,000 $30,000 -- --
Robert Hamburger -- -- 20,000 $5,000
All other executive 75,000 $30,000 20,000 $5,000
officers, promoters,
consultants and
advisers as a group
NOTES:
1. Warrants at an exercise price of $0.50 per share.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION OF DIRECTORS
No director of the Company receives any cash compensation for his service as a
director. Common Stock and Performance Warrants granted to directors are listed
above. All directors are entitled to be reimbursed for travel and other expenses
incurred while attending meetings of the Board of Directors.
EMPLOYMENT CONTRACTS
The Company has no employment contracts.
39
<PAGE> 40
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of Common Stock as of September 1, 1996 (assuming the exercise of
options and warrants exercisable within 60 days of the date hereof) by: (i) each
person known to the Company to beneficially own more than 5 percent of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each of the Company's executive officers named in the Summary Compensation Table
above, and (iv) all directors and officers of the Company as a group. Unless
otherwise indicated below, the persons and entities named in the table have sole
voting and sole investment power with respect to all the shares beneficially
owned, subject to community property laws, where applicable. Percentage
ownership assumes all warrants and options of listed person exercised and all
other warrants and options unexercised.
<TABLE>
<CAPTION>
Name and Address Amount Percent
- ----------------------------------------------------------------------
<S> <C> <C>
Donald Brucker(1) 1,551,972.5 24
2838 Caminito Turnberry
La Jolla, CA 92037
- ----------------------------------------------------------------------
Kenneth Brucker, as Trustee(2) 1,361,972.5 21
of the A.K. Trust
1706 Torrence Street
San Diego, CA 92103
- ----------------------------------------------------------------------
Robert Buchner(3) 967,295 15
713 N. Daisy Street
Escondido, CA 92027
- ----------------------------------------------------------------------
Robert Hamburger, M.D.(4) 770,010 12
9485 La Jolla Shores
La Jolla, CA 92037-1149
- ----------------------------------------------------------------------
Richard O'Connor(5) 740,000 11
Sharp Rees-Stealy
2001 4th Avenue
San Diego, CA 92101
- ----------------------------------------------------------------------
Andrei Vorobiev(6) 740,000 11
921 Coast Blvd., South #1
La Jolla, CA 92037
- ----------------------------------------------------------------------
Jennifer Lee Plummer(7) 592,970 9
9998 Muffin Court
San Diego, CA 92129
- ----------------------------------------------------------------------
All directors and executive officers 2,766,982.5 41
as a group (four individuals)
</TABLE>
40
<PAGE> 41
NOTES:
1. Includes 1,361,972.5 shares owned of record by the A.K. Trust of which Mr.
Brucker is a beneficiary and 190,000 shares subject to a Performance
Warrant.
2. Held as Trustee only, Kenneth Brucker disclaims any beneficial ownership.
3. Includes 150,000 shares subject to Performance Warrants.
4. Includes 25,000 shares held by the Hamburger Family Trust, of which Dr.
Hamburger is a trustee and beneficiary, 100,000 shares subject to a
Performance Warrant, and 5,000 shares subject to a Warrant received by Dr.
Hamburger in connection with the acquisition of 25,000 shares of Common
Stock by the Hamburger Family Trust pursuant to a private placement.
5. Includes 100,000 shares subject to Performance Warrants.
6. Includes 60,000 shares subject to Performance Warrants.
7. Includes 60,000 shares subject to Performance Warrants, and 532,970 shares
held as Trustee of the Plummer Family Trust, of which she is also a
beneficiary.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS RELATED TO UNIFIED ACQUISITION
In connection with the Unified acquisition (on April 17, 1995), the Company
issued shares of Common Stock and granted warrants to acquire shares at various
exercise prices. The Common Stock issued and Warrants granted to such persons
are set forth on the tables under "MANAGEMENT -- Stock Awards and Performance
Warrants."
OTHER TRANSACTIONS
The Company, also from time to time, retains the services of Heyman &
Associates, Inc., of which Stanley V. Heyman is a principal. Mr. Heyman is a
director of the Company. The Company has compensated various of its officers,
directors and promoters with stock awards and warrants. See under "MANAGEMENT --
Stock Awards and Performance Warrants."
ITEM 13(a). EXHIBITS
1. Corporation's proxy statement incorporated by reference.
ITEM 13(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter of
fiscal year ended June 30, 1996.
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: October 14, 1996 LA JOLLA DIAGNOSTICS, INC.
By: /s/ DON BRUCKER
__________________________________
Don Brucker
President, Chief Executive Officer
In accordance with the Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Title Date
<S> <C> <C>
/s/ DON BRUCKER
__________________________ Director, President, Chief Executive October 14, 1996
Don Brucker Officer and Chief Financial Officer
(Principal Executive Officer, Principal
Financial Officer and Controller)
/s/ ROBERT HAMBURGER, M.D.
__________________________ Director October 14, 1996
Robert Hamburger, M.D.
/s/ STANLEY V. HEYMAN
__________________________ Director October 14, 1996
Stanley V. Heyman
/s/ RICHARD O'CONNOR, M.D.
__________________________ Director and Secretary October 14, 1996
Richard O'Connor, M.D.
</TABLE>
42
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 28083
<SECURITIES> 0
<RECEIVABLES> 901729
<ALLOWANCES> 0
<INVENTORY> 4151885
<CURRENT-ASSETS> 131616
<PP&E> 43248
<DEPRECIATION> 0
<TOTAL-ASSETS> 5240568
<CURRENT-LIABILITIES> 318028
<BONDS> 0
0
0
<COMMON> 11304740
<OTHER-SE> 831247
<TOTAL-LIABILITY-AND-EQUITY> 5240568
<SALES> 143977
<TOTAL-REVENUES> 223828
<CGS> 106080
<TOTAL-COSTS> 662480
<OTHER-EXPENSES> 13427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (452079)
<INCOME-TAX> 2400
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (454479)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
