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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from_______________ to______________
Commission file number 33-93132
La Jolla Diagnostics, Inc.
-----------------------------------------------------------------------
(Exact name of small business registrant as specified in its character)
California 94-2901715
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7777 Fay Avenue, Suite 160, La Jolla, California 92037
-------------------------------------------------------
(Address of principal executive offices)
(619) 454-6790
-------------------------------
(Registrant's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: Yes X No
As of February 12, 1997, La Jolla Diagnostics, Inc. had 8,770,148 shares
outstanding of the registrant's common stock, no par value.
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED DECEMBER 31, 1996
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited):
Consolidated Balance Sheets at December 31, 1996
(unaudited) and June 30, 1996 3
Statements of Operations for the Six Months Ended
December 31, 1996 and 1995 (unaudited) 4
Statements of Operations for the Three Months Ended 5
December 31, 1996 and 1995 (unaudited)
Statements of Cash Flows for the Six Months Ended
December 31, 1996 and 1995 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7 - 8
Item 2 Managements' Discussion and Analysis of Financial
Condition and Results of Operations 9 - 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings - None
Item 2 Changes in Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Security Holders - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K - None
SIGNATURES 17
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, 1996
(UNAUDITED) JUNE 30, 1996
----------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ -- $ 28,083
Accounts receivable 1,999 1,729
Advances to officer, net 5,814 1,156
Interest receivable 135,976 100,648
--------------- ---------------
TOTAL CURRENT ASSETS 143,789 131,616
INVENTORY 4,169,898 4,151,885
PROPERTY & EQUIPMENT, NET 52,471 43,248
NOTE RECEIVABLE 900,000 900,000
OTHER ASSETS 72,022 13,819
--------------- ---------------
$ 5,338,180 $ 5,240,568
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 234,840 $ 178,528
Accrued expenses 23,065 37,385
Lease obligations, current portion 3,552 2,836
Loans payable 190,715 99,279
--------------- ---------------
TOTAL CURRENT LIABILITIES 452,172 318,028
LEASE OBLIGATIONS, NON CURRENT PORTION 6,893 8,928
MINORITY INTEREST 786,190 791,992
STOCKHOLDERS' EQUITY
Common stock, no par value (10,000,000 shares authorized;
7,775,148 and 7,576,175 shares issued and outstanding,
respectively) 11,496,559 11,304,740
Additional paid-in capital 831,247 831,247
Preferred stock, no par value (5,000,000 shares
authorized, no shares issued) -- --
Retained deficit (8,234,881) (8,014,367)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 4,092,925 4,121,620
--------------- ---------------
$ 5,338,180 $ 5,240,568
=============== ===============
</TABLE>
See accompanying notes to financial statements
3
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
FOR THE 6 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------------------------------------
<S> <C> <C>
NET SALES 70,949 $ 80,492
COSTS AND EXPENSES
Cost of products sold 56,399 59,966
Selling and administrative expenses 171,943 174,677
Research and development 40,770 43,237
Consulting services 47,180 28,434
Depreciation and amortization 6,234 2,382
--------------- ---------------
TOTAL COSTS AND EXPENSES 322,526 308,696
--------------- ---------------
LOSS FROM OPERATIONS (251,577) (228,204)
OTHER INCOME (EXPENSES)
Interest income 35,906 33,286
Interest expense (8,245) (988)
Minority interest 5,802 6,293
--------------- ---------------
TOTAL OTHER INCOME (EXPENSES) 33,463 38,591
--------------- ---------------
LOSS BEFORE INCOME TAXES (218,114) (189,613)
PROVISION FOR INCOME TAXES 2,400 2,400
--------------- ---------------
NET LOSS $ (220,514) $ (192,013)
=============== ===============
NET LOSS PER COMMON SHARE $ (0.03) $ (0.03)
=============== ===============
AVERAGE COMMON SHARES OUTSTANDING 7,826,175 6,655,394
=============== ===============
</TABLE>
See accompanying notes to financial statements
4
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
FOR THE 3 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
--------------- ---------------
<S> <C> <C>
NET SALES $ 37,782 $ 59,544
COSTS AND EXPENSES
Cost of products sold 28,672 41,867
Selling and administrative expenses 113,661 75,431
Research and development 21,090 19,850
Consulting services 32,328 8,239
Depreciation and amortization 3,495 1,471
--------------- ---------------
TOTAL COSTS AND EXPENSES 199,246 146,858
--------------- ---------------
LOSS FROM OPERATIONS (161,464) (87,314)
OTHER INCOME (EXPENSES)
Interest income 18,395 16,643
Interest expense (6,697) (474)
Minority interest 2,948 2,980
--------------- ---------------
TOTAL OTHER INCOME (EXPENSES) 20,448 19,149
--------------- ---------------
LOSS BEFORE INCOME TAXES (141,016) (68,165)
PROVISION FOR INCOME TAXES -- --
--------------- ---------------
NET LOSS $ (141,016) $ (68,165)
=============== ===============
NET LOSS PER COMMON SHARE $ (0.02) $ (0.01)
=============== ===============
AVERAGE COMMON SHARES OUTSTANDING 8,076,175 6,655,394
=============== ===============
</TABLE>
See accompanying notes to financial statements
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (UNAUDITED)
(DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
FOR THE 3 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (220,514) $ (191,994)
Adjustments to reconcile loss to net cash used in
operating activities
Depreciation and amortization 6,234 2,382
Minority interest (5,802) (6,292)
Changes in assets and liabilities
(Increase) decrease in inventories (18,013) (1,834)
(Increase) decrease in accounts receivable (270) 27,406
(Increase) decrease in other assets (58,533) (36,635)
(Increase) decrease in interest receivable (35,328) (33,286)
Increase (decrease) in accounts payable and
accrued expenses 41,922 80,866
--------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (290,234) (159,387)
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances (to)/from shareholder, net (4,658) 10,509
Capital expenditures for property and equipment (15,127) (10,830)
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (19,785) (321)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 191,819 125,000
Proceeds from notes payable 100,000 22,185
Payments on notes payable (8,564) --
Payments on capital lease obligations (1,319) (1,422)
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 281,936 145,763
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (28,083) (13,945)
CASH AT BEGINNING OF PERIOD 28,083 20,358
--------------- ---------------
CASH AT END OF PERIOD $ 0 $ 6,413
=============== ===============
</TABLE>
See accompanying notes to financial statement
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DEVELOPMENT STAGE ENTERPRISE)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements and
related notes have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission for Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting
of a normal recurring nature considered necessary for a fair
presentation, have been included. It is suggested that these financial
statements be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-KSB
for the year ended June 30, 1996. The results of operations for the
three month and six month periods ended December 31, 1996 are not
necessarily indicative of the operating results for the year ended June
30, 1997. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-KSB for the fiscal year June 30, 1996.
Reclassifications
Certain December 31, 1995 balances have been reclassified to conform to
the December 31, 1996 consolidated financial statement presentation.
B. INVENTORIES:
Inventory as of December 31, 1996 and June 30, 1996 is comprised of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
---------------- ----------------
Unaudited
<S> <C> <C>
Antisera products $ 4,140,431 $ 4,140,579
Healthcare products 29,467 11,306
---------------- ----------------
$ 4,169,898 $ 4,151,885
================ ================
</TABLE>
C. 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 three month and six month periods ended December 31,
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.
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DEVELOPMENT STAGE COMPANY)
D. RELATED PARTY TRANSACTIONS:
During the three months and six months ended December 31, 1996 and
1995, various shareholders and directors of the Company provided
consulting and research and development activities related to the
recommencement of business activities and products.
In connection with these services, during the six months ended
December 31, 1996 the Company recognized research and development and
consulting expenses of $40,770 and $47,180, respectively.
E. SUPPLEMENTAL CASH FLOW INFORMATION:
Interest and Income Taxes Paid
Cash paid for interest and income taxes for the six months ended
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Interest $ 6,245 $ 988
=============== ===============
Income taxes $ 1,600 $ 2,400
=============== ===============
</TABLE>
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ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through private placements of
common stock, issuance of convertible debt instruments, warrant conversions,
issuing warrants to acquire stock in exchange for services rendered for the
benefit of the Company, and to a lesser degree from product sales. Based on
its current operating plans, capital expenditures necessary to support the
further development and marketing of the Company's products through July of
1997 are expected to exceed the cash generated from its operations. The
Company anticipates, however, that the proceeds from conventional private
placements of stock, issuance of convertible debt instruments and the exercise
of warrants and options (of which $91,819 of common stock warrants were
converted into common stock during the six months ended December 31, 1996),
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.
RESULTS OF OPERATIONS.
GENERALLY. Management believes that its business plan objectives were fully
implemented during fiscal year 1996. The Company further believes that with
its business objectives in place and proper funding, the Company will meet its
future expansion plans. Management has also implemented a variety of
procedures and marketing efforts which will enhance revenues and reduce costs
for the Company's operations. The Company has engaged in efforts to promote
its products through a distribution system through the use of outside sales
representatives.
The Company has not engaged in any significant business prior to April 17,
1995. On that day, the Company acquired Unified, a small development stage
business and the Company recommenced operations.
<TABLE>
<CAPTION>
COMPARISON OF RESULTS
- ---------------------------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
-----------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 70,949 $ 80,492
-----------------------------------------------------------------------------
Cost of sales 56,399 59,966
-----------------------------------------------------------------------------
Operating expenses 266,127 308,696
-----------------------------------------------------------------------------
Loss from operations 251,577 (228,204)
-----------------------------------------------------------------------------
Net loss $ (220,514) $ (192,013)
-----------------------------------------------------------------------------
</TABLE>
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995.
On a consolidated basis, the Company had sales totaling $70,949 for the six
months ended December 31, 1996, compared with $80,492 in sales for the Company
for the same period ending December 31, 1995. The decrease in sales for the
six months ended December 31, 1996 resulted from the decrease in orders of
contact lenses, which were partially offset by sales of eyecare products and
other healthcare related
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products. The Company is just beginning to sell products nationally and
believes that over the next six months sales of products are expected to
increase substantially and enable the Company to effect its general business
plans and to properly market its products for further growth of products sales.
The Company experienced a net loss of $220,514 for the six month period ending
December 31, 1996, compared with a net loss of $192,013 for the same period
ending December 31, 1995. The increase in loss is attributable to expenditures
for general operations being held constant, however the Company increased its
expenditures for research and development of its products and marketing
expenses related to the sale of its products. Operational expenses indclude
the following; research and development costs of $41,770, consulting fees of
$46,180, and salaries of $55,123 for the six month period ending December 31,
1996, versus the $43,237, $12,018 and $59,865 that were incurred for the six
months ended December 31, 1995, respectively.
Operating expenses for the six months ended December 31, 1996 were $266,127
resulting in a loss from operations for the period of $251,577 compared to
costs and expenses for the six months ended December 31, 1995 of $308,696.
Costs and expenses included consulting fees of $46,180 and research and
development expense of $41,770, substantially most of which was for services
performed by the directors, officers and advisors. The decrease in operating
expenses for the six months ended December 31, 1996 are due to the Company's
efforts to ramp up sales without excessive expenditures related to general
operations. Selling and administrative expenses included approximately $25,600
in rent expense, and $20,000 in legal and accounting fees. The Company is
continuing to market its health care products aggressively.
<TABLE>
<CAPTION>
COMPARISON OF RESULTS
- ------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 37,782 $ 59,544
--------------------------------------------------------------------------------------------
Cost of sales 28,672 41,867
--------------------------------------------------------------------------------------------
Operating expenses 170,574 144,458
--------------------------------------------------------------------------------------------
Loss from operations (161,464) (84,914)
--------------------------------------------------------------------------------------------
Net loss $ (141,016) $ (68,165)
--------------------------------------------------------------------------------------------
</TABLE>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995.
On a consolidated basis, the Company had sales totaling $37,782 for the three
months ended December 31, 1996, compared with $59,544 in sales for the Company
(including the results of Unified) for the same period ending December 31,
1995. The decrease in sales for the three months ended December 31, 1996
resulted from the decrease in orders of contact lenses, which were partially
offset by sales of eyecare products and other healthcare related products.
The Company experienced a net loss of $141,016 for the three month period
ending December 31, 1996, compared with a net loss of $68,165 for the same
period ending December 31, 1995. The increase in loss is attributable to
expenditures for general operations being held constant, marketing expenses
related to the sale of its products. Operational expenses indclude the
following; which includes research and
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development costs of $21,090, consulting fees of $25,111, and salaries of
$27,854 for the three month period ending December 31, 1996.
Operating expenses for the six months ended December 31, 1996 were $170,574
resulting in a loss from operations for the period of $161,464 compared to
costs and expenses for the three months ended December 31, 1995 of $144,458.
Costs and expenses included consulting fees of $25,111 and research and
development expense of $21,090 substantially most of which was for services
performed by the directors, officers and advisors. The decrease in selling and
administrative expenses for the six months ended December 31, 1996 are due to
the Company's efforts to ramp up sales without excessive expenditures related
to marketing. Selling and administrative expenses included approximately
$7,778 in rent expense, and $16,532 in legal and accounting fees. The Company
is aggressively marketing its health care products.
FINANCIAL RESOURCES
At December 31, 1996, the Company had current assets of $143,789 and inventory
of $4,169,898 ($4,150,431 of which constituted the inventory of antisera). The
antisera inventory was the result of 15 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
(not considering the value of the warrants also given to the Trust). As a
result of the issuance of Common Stock at $.40 per share in private placements,
the merger, losses, and shares issued to other founders for product rights,
services and know-how, the book value per share at December 31, 1996 was $.68
per share representing considerable dilution compared to the $7.77 per share
value paid 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.
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 December 31, 1996, antisera sales
were approximately $4,500. The net increase in
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inventory of $18,013 at December 31, 1996 and 1995, respectively, relates to
the Company's inventory levels of its Electronica-2 muscle relaxer and Living
Water(TM) and Ophthalmic Solutions, which are maintained at a fairly constant
inventory level of approximately $10,000 to $15,000. The Company during the
three month period ended December 31, 1996 added approximately $20,000 in new
inventory for increased levels of stock, which consisted of $10,000 in antisera
and $10,000 in Living Water(TM).
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 no such loss has been necessary because the market
as defined in ARB 43, Chapter 4, Statement 6, has not dropped below cost.
In addition, the Company has added several types of antisera called anti-human
opioid receptor antibodies, also the Company will be using two types of
antisera in preparation of its diagnostic kits, which it intends to market in
the near future.
The Company during October of 1996 received debt financing and equity infusion
in the amount of $200,000 from an unrelated party at the time. These
transactions were negotiated in a manner to occur as an arms length
transaction. This unrelated party susequent to December 31, 1996, became a
director of the Company.
The Company issued restricted stock of 200,000 shares in exchange for the
receipt of $100,000. These shares are not freely trading and are not subject
to registration rights. Furthermore, the Company issued an 8% convertible debt
instrument in exchange for the receipt of an additional $100,000. The debt
instrument is convertible into shares of common stock at $1.00 per share. The
shares subject to the convertible debt are restricted and are not subject to
registration rights.
RESEARCH AND DEVELOPMENT.
The Company is conducting research and development in four areas. Expenditures
on research and development will depend upon the financial resources of the
Company. Research and development expense recorded for the six month period
ended December 31, 1996 was approximately $59,000.
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.
The research and development activities being performed by the Company are
designed to discover and screen potential consumer health care and diagnostic
products. Activities underway at the present time include the following for
the Ophthalmic and Diagnostic Divisions.
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:
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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
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.
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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.
NASAL SPRAY
LWNASAL MIST(TM), a saline nasal spray, also using clustered water technology,
which is designed to moisten, soothe and clear the nasal and sinus passages
without the side effects of antihistamines and decongestants is expected to be
a synergistic marketing addition to the LIVING WATER EYE LOTION(TM) line of
products.
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.
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.
14
<PAGE> 15
The Company has added three unique anti-human opioid receptor antibodies to its
line of Antisera Products, making them available commercially for the first
time. In addition the Company will be using two types of Antisera in
preparation of its diagnostic tests for colon cancer, and heart attack
predictor.
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.
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.
15
<PAGE> 16
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.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: February 12, 1997 LA JOLLA DIAGNOSTICS, INC.
By: /s/ Don Brucker
--------------------------------------
Don Brucker
President, Chief Executive Officer
and Chief Financial Officer
17
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