U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 33-93132
La Jolla Diagnostics, Inc.
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(Exact name of small business issuer as specified in its charter)
California 94-2901715
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(State or other jurisdiction (IRS Employer
of incorporation or organization) identification No.)
7777 Fay Avenue, Suite 160, La Jolla, California 92037
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(Address of principal executive offices and zip code)
(619) 454-6790
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(Issuer's telephone number)
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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of October 31, 1998,
La Jolla Diagnostics, Inc. had 12,787,475 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 SEPTEMBER 30, 1998
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of September 30, 1998
(unaudited) and June 30, 1998 3
Condensed Consolidated Statements of Operations for the Three
Months Ended September 30, 1998 and 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1998 and 1997 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6 - 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 13
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 - Exhibit 17.2 14
SIGNATURES 15
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND JUNE 30, 1998
(A Development Stage Company)
September 30, 1998 June 30, 1998
(Unaudited)
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ASSETS
CURRENT ASSETS
Cash $ 80,669 $ 1,307
Accounts receivable 25,768 3,735
Advances to officer, net 6,737 6,626
Inventory - Healthcare products 505,154 14,730
Prepaid expenses 15,803 22,437
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TOTAL CURRENT ASSETS 634,131 48,835
INVENTORY, Antisera products 2,466,911 2,466,911
PROPERTY & EQUIPMENT, net 87,826 30,970
NOTE RECEIVABLE 493,100 493,100
OTHER ASSETS 193,409 2,781
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$ 3,875,377 $ 3,042,597
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 288,981 $ 335,959
Accrued expenses 31,436 24,658
Lease obligations, current portion 1,149 1,119
Loans payable 172,932 114,591
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TOTAL CURRENT LIABILITIES 494,498 476,990
LEASE OBLIGATIONS, non current portion 1,745 2,042
MINORITY INTEREST 672,740 555,069
STOCKHOLDERS' EQUITY
Common stock, no par value (50,000,000
shares authorized; 12,487,475 and
12,068,986 shares issued and outstanding,
respectively) 13,216,883 12,403,499
Additional paid-in capital 831,247 831,247
Preferred stock, no par value (5,000,000
shares authorized, none issued) -- --
Retained deficit (11,341,736) (11,226,250)
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TOTAL STOCKHOLDERS' EQUITY 2,706,194 2,008,496
$ 3,875,377 $ 3,042,597
The accompanying notes are an integral part of these financial statements.
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(A Development Stage Company)
For the three months ended
September 30,
1998 1997
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NET SALES $ 43,947 $ 30,673
OPERATING EXPENSES
Cost of products sold 11,409 21,463
Selling and administrative expenses 94,838 103,746
Research and development 10,169 17,927
Consulting services 39,075 23,388
Depreciation and amortization 3,309 3,504
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TOTAL OPERATING EXPENSES 158,800 170,029
LOSS FROM OPERATIONS (114,853) (139,356)
OTHER INCOME (EXPENSES)
Interest expense (12,263) (6,891)
Minority interest 11,630 18,080
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TOTAL OTHER INCOME (EXPENSES) (633) 11,189
LOSS BEFORE INCOME TAXES (115,486) (128,166)
PROVISION FOR INCOME TAXES -- --
NET LOSS $ (115,486) $ (128,166)
NET LOSS PER COMMON SHARE $ (0.01) $ (0.01)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,208,482 9,137,534
The accompanying notes are an integral part of these financial statements.
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(A Development Stage Company)
For the three months ended
September 30,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (115,486) $ (128,166)
Adjustments to reconcile loss to net
cash used in operating activities
Depreciation and amortization 12,263 3,339
Minority interest 117,670 (42,767)
Issuance of stock for services 63,384 --
Changes in assets and liabilities
(Increase) decrease in inventories 1,576 (528)
(Increase) decrease in accounts receivable (10,033) (175)
(Increase) decrease in other assets (7,112) 57,742
Increase (decrease) in liabilities (40,863) (19,715)
NET CASH USED IN OPERATING ACTIVITIES 21,399 (130,270)
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances (to)/from shareholder, net (111) 2,212
Capital expenditures for property and
equipment -- 2,273
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NET CASH USED FOR INVESTING ACTIVITIES (111) 4,485
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 91,682
Proceeds from notes payable, net 58,341 27,674
Payments on capital lease obligations (267) (3,195)
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NET CASH PROVIDED BY FINANCING ACTIVITIES: 58,074 116,161
NET INCREASE (DECREASE) IN CASH 79,362 (9,624)
CASH AT BEGINNING OF PERIOD 1,307 13,275
CASH AT END OF PERIOD $ 80,669 $ 3,651
The accompanying notes are an integral part of these financial statements.
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LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A Development Stage Company)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed 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 are 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, 1998. The results of operations for
the three month period ended September 30, 1998 are not necessarily indicative
of the operating results for the year ended June 30, 1999. 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, 1998.
B. INVENTORIES:
Inventories as of September 30, 1998 and June 30, 1998 are comprised of
the following:
September 30, 1998 June 30, 1998
unaudited
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Antisera at original value $ 4,150,579 $ 4,150,579
Less reserve (1,683,668) (1,683,668)
Antisera products, net 2,466,911 2,466,911
Healthcare products 13,154 14,730
Diagnostic products 492,000 --
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$ 2,972,065 $ 2,481,641
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C. 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 three
month periods ended September 30, 1998 and 1997, the Company's common stock
equivalents were antidilutive and, therefore, were not included in the
computation of net loss per common share.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings per Share," (SFAS 128) which is required to be adopted on
September 30, 1998. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
not expected to result in any change in primary earnings per share for the
three month periods ended September 30, 1998 and 1997. The impact of
SFAS No. 128 on the calculation of fully diluted earnings per share for these
periods is expected not to be material.
D. RELATED PARTY TRANSACTIONS:
During the three months ended September 30, 1998 and 1997, various shareholders
and directors of the Company provided consulting and research and development
activities related to the business activities and products of the company.
In connection with these services, during the three months ended
September 30, 1998 and 1997, the Company recognized research and development of
$10,169 and $17,927 and consulting expenses of $39,075 and $23,388,
respectively.
E. SUPPLEMENTAL CASH FLOW INFORMATION:
Interest and Income Taxes Paid
Cash paid for interest and income taxes for the three months
ended September 30, 1998 and 1997 (unaudited) were as follows:
September 30,
1998 1997
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Interest $ 3,275 $ 208
Income taxes $ -- $ --
F. USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimated and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-QSB contains forward-looking statement that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
FORWARD-LOOKING INFORMATION - GENERAL
This report contains a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates", "believes", "expects", "intends", "plans", "may", "future", and
similar expressions identify forward-looking statements. Readers are cautioned
to consider the risk factors described above and in the Company's Annual Report
on Form10-KSB for the year ended June 30, 1998, and not to place undue reliance
on the forward-looking statements contained herein, which speak only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that may arise
after the date hereof.
Additionally, these statements are based on certain assumptions that may prove
to be erroneous and are subject to certain risks including, but not limited to,
the Company's ability to introduce new products, the concentration of the
Company's current products, technological change and increased competition in
the industry, the Company's ability to manage its growth, its limited
protection of technology and trademarks, the Company's dependence on limited
suppliers, representatives, distributors, and its dependence on certain key
personnel within the Company. Accordingly, actual results may differ, possibly
materially, from the predictions contained herein.
LIQUIDITY AND CAPITAL RESOURCES
La Jolla Diagnostics, Inc. (the "Company"), a California corporation (OTC
Bulletin Board, Symbol LAJD) is a healthcare, nutraceutical and diagnostic
products company. The Company has two divisions, a Healthcare Products
Division, using proprietary technology, and a Diagnostic Division, primarily
concerned with the development and marketing of clinical diagnostic products
using immunological and molecular biological technologies.
The Company, in the past, has financed operations primarily through the private
placement of common stock, issuance of convertible debt, warrant conversions,
issuing warrants to acquire stock in exchange for services rendered and to a
lesser degree from product sales. Based on its current operating plans, cash
generated from projected sales (particularly the recently introduced Feverfew
Nasal Mist) is expected to generate the necessary capital to support further
development of the Company's products through June of 1999. The Company
anticipates that the proceeds from conventional private placements of stock,
issuance of convertible debt and exercise of warrants and options will continue
to enhance working capital.
On September 16, 1998, the Company, through a newly formed subsidiary,
DiagnosTech, Inc., purchased the assets and technologies of AmTech Scientific,
Inc. (ATS), a privately held diagnostic company. These assets include a
proprietary, patent pending diagnostic test for active tuberculosis (TB). The
accuracy and efficacy of the TB test has been confirmed in three separate
clinical trials, and is currently approved for sale and distribution in several
countries with approvals pending in others. Additionally, a Japanese
pharmaceutical company, having completed internal testing, is in the process of
registering the product with the Japanese Ministry of Health.
Other assets acquired by La Jolla Diagnostics include a rapid diagnostic test
for HIV I and II, H. Pilori, and Hepatitis B. Additionly, DiagnosTech added
the management team of ATS, Stephen C. Roberts, M.D., and G. Bruce Whitfield,
J.D.
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RESULTS OF OPERATIONS.
Generally. The Company believes that with its business objectives in place and
proper funding, the Company should be able to meet its future expansion plans.
Management has implemented a variety of procedures and marketing efforts which
may enhance revenues and reduce costs for the Company. The Company has begun
efforts to promote its products through a distribution system which uses
outside sales representatives and other marketing efforts.
For the Three Months ended September 30, 1998 and 1997
For the three months ended
September 30,
1998 1997
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Revenues $ 43,947 $ 30,673
Cost of products sold (11,409) (21,463)
Other operating expenses (147,399) (148,565)
Loss from operations (114,853) (139,315)
Net loss $ (115,486) $ (128,166)
The Company experienced a net loss of $115,486 for the three month period
ending September 30, 1998, compared with a net loss of $128,166 for the same
period ending September 30, 1997. On a consolidated basis, the Company had
sales totaling $43,947 for the three months ended September 30, 1998, compared
with $30,673 in sales for the Company for the same period ending September 30,
1997. Cost of product sales and operating expenses for the three months
ended September 30, 1998 were $158,800 compared to $170,028 for the three
months ended September 30, 1997. The decrease in costs of products sold and
operating expenses of $11,228 is a direct result of the use of efficient
distribution process with larger orders in its efforts to cut costs when
applicable.
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FINANCIAL RESOURCES
At September 30, 1998, the Company had current assets of $633,931 which
includes inventory of $13,159 healthcare products, $492,000 diagnostic products
and $15,803 in prepaid expenses.
The $2,466,911 in antisera inventory was valued by several independent
unrelated parties (brokers) as of June 1994 to be in excess of $4.1 million on
a bulk sale basis. The valuation was substantiated by an independent research
scientist as of June 1995 and 1996. During June 1997, the carrying value of
the antisera was marked down by approximately 40% to facilitate the close out
sale of the product by the Company.
The antisera inventory consists of antibody reagents used in clinical
diagnostic laboratories that analyze serum for immunoglobulin profiles. The
antisera is kept frozen and is believed to have a shelf life in excess of
twenty years.
DIAGNOSTECH, INC.
On September 16, 1998, the Company acquired the assets of AmTech Scientific,
Inc. (ATS), a diagnostic company, by establishing a subsidiary, DiagnosTech,
Inc. DiagnosTech, Inc. is capitalized by 6,000,000 shares of La Jolla
Diagnostics, Inc.'s common stock, the Company's antisera inventory and other
diagnostic technologies. The acquisition is to be accounted for as a pooling-
of-interests.
RESEARCH AND DEVELOPMENT
The Company conducts research and development in four areas. The Company
maintains an active research and development program in the areas of ophthalmic
products, nasal sprays, nutraceuticals, and products for the symptomatic relief
of allergies, and immuno/molecular diagnostics using a network of consultants
in 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 Healthcare Products and diagnostic products through DiagnosTech, the
Company's subsidiary.
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HEATHCARE PRODUCTS
The Healthcare Products Division is largely based on products using a patented
(U.S. Patent Number 5711950) Microcluster Template Induction Process which
produces a unique clustered water product (trademarked ClusterWaterTM). This
liquid crystalline structure remains chemically identical with unprocessed
water, however, when exposed to active biological molecules, the liquid
crystalline structure forms new polywater complexes which take on the
structural and electronic "signature" of biomolecules, a process which enhances
the effectiveness of the solution. The Company feels this technology, which
can be used with a broad array of compounds, has significant advantages because
it increases the bioavailability of formulations. Products being marketed or
under development using ClusterWaterTM include:
FEVERFEW NASAL MIST (TM) (CURRENTLY BEING MARKETED)
Feverfew Nasal MistTM is being marketed by La Jolla Diagnostics, Inc. as a
moisturizing nasal spray. It uses the same clustered water borate buffering
system as the company's enthusiastically received Living Water Eye LotionTM.
Feverfew Nasal MistTM is designed to avoid interference with natural functions,
as it moistens, soothes and clears the nasal passages.
The Company intends to investigate the possibility that its patent pending
moisturizing nasal spray, Feverfew Nasal Mist, may also be effective in aiding
in the alleviation of the symptoms of migraine, menstrual and hangover
headaches. If the results of the investigation are promising, (and there can
be no assurance that they will be) the Company intends to pursue the regulatory
processes necessary to add an indication to its labeling for the product's use
with migraines.
The Company has applied for a patent on the product, which was introduced to
the market during April 1997 and thus far is being extremely well-received.
Leading alternative medicine doctors have endorsed the product, and quantities
are beginning to be shipped to distributors.
MIGRASPRAY (TM) (CURRENTLY BEING MARKETED)
MigraSprayTM , a saline solution containing the herb feverfew, is designed to
be sprayed under the tongue. This sublingual method of administration promotes
excellent absorption.
Feverfew is the common name for Tanacetum parthenium, a flowering plant related
to the chrysanthemum, whose leaves have been used for centuries in herbal
remedies for the treatment of various conditions, including migraine headaches.
MigraSprayTM can be promoted for the treatment of migraine headaches because it
is classified as a nutraceutical.
OTHER NASAL SPRAYS
The Company is investigating other nasal spray possibilities using the
clustered water technology, including a product for the symptomatic relief of
allergies.
LIVING WATER EYE LOTION (TM) (CURRENTLY BEING MARKETED)
Living Water Eye LotionTM 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 clustered water 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).
Living Water Eye LotionTM is specially formulated to enhance eye comfort by
irrigating, flushing and cleansing without interfering with natural functions.
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;
and eye drops, which contain antihistamines to treat allergy symptoms.
The product has been marketed for more than a year and has generally exceeded
the expectations of those who have tried it.
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OPTOPET EYE WASH (TM) (CURRENTLY BEING MARKETED)
OptoPet Eye WashTM is for cleansing the eyes of dogs and cats and removing
mucous which causes fur stains beneath the eyes (a major problem in certain
breeds).
The product has been introduced to pet stores and veterinarians through a
public relations campaign in pet magazines and the general press. The initial
response to publicity has been encouraging.
OTHER OPHTHALMIC PRODUCTS
The Company is developing additional eye solutions using the ClusterWater
technology, including a product for the symptomatic relief of allergies and the
treatment of glaucoma.
DRUG DELIVERY LICENSING
The Company is in contact with major pharmaceutical companies in regards to the
licensing of the clustered water process as a more efficient drug delivery
system for ophthalmic, nasal, injectables, parenterals and oral medications.
Results of recent meetings have been encouraging.
DIAGNOSTECH, INC.
DiagnosTech, Inc., is developing and marketing clinical diagnostic products
using immunologic and molecular biologic technologies. The product line now
consists of eight self-contained, rapid, point-of-care diagnostics:
A rapid test for active M. tuberculosis (TB) disease.
A rapid serum/plasma test for HIV I and II (AIDS) infection.
A rapid whole blood test for HIV I and II (AIDS) infection.
A rapid test for H. pylori infection (the causative agent in
over 90% of ulcers).
A rapid test for hepatitis B (hepatitis B surface antigen: HBsAg)
A rapid pregnancy test.
A rapid test for Trypanasoa cruzi infection (Chagas disease: a
common and often fatal parasitic infection endemic to many parts
of South and Central America).
A rapid test for Toxoplasma gondii infection (Toxoplasmosis: a
common opportunistic infection among AIDS patients).
The Company believes each of these diagnostic products to be uniquely
advantageous secondary to certain proprietary technology, know-how, and
formulations employed by the Company, and that the TB test in particular has no
equivalent in the marketplace. Each test requires only a very small sample of
patient blood, serum, urine, or saliva, as the case may be. Each test gives an
accurate result in 1 to 5 minutes. These tests can easily be performed by any
healthcare worker, semi-skilled technician, or by the patients themselves.
They are extremely rugged, require no refrigeration, and have a shelf life of
12 to 18 months. No special equipment is required to perform any test. Each
test addresses a large and growing market both domestically and
internationally.
Each of the diagnostic tests manufactured and marketed represent state-of-the-
art technology in that they are rapid, accurate, easy-to-use, and inexpensive.
These characteristics make the products ideal for both the U.S. and overseas
markets. Changes in the economics of medicine increasingly favor products that
can be employed economically and effectively at the point-of-care. Outside of
the industrialized world, citizens of emerging economies seek access to
healthcare as a high priority. Tests that address significant medical needs,
are available at a modest price, and require no special instrumentation, are in
high demand.
<Page 12>
ANTISERA
The Company has transferred its antisera inventory to DiagnosTech. It consists
of high quality, highly purified antibodies which are needed for basic research
and clinical immunological assays. The primary users of these antisera
products include universities and other research facilities, clinical
diagnostic laboratories, hospitals and clinics, where certain antibody reagents
are used in large volumes. DiagnosTech is in a position to market it
aggressively.
MYOCARDIAL INFARCTION PREDICTOR
The Company has filed 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. The technology was turned over
to DiagnosTech for development of the final diagnostic kit for marketing.
<Page 13>
EXHIBIT 17.2
OTHER
On October 7, 1998, the Company announced that Stephen C. Roberts, M.D., and
Bruce Whitfield, J.D., have joined its Board of Directors.
<Page 14>
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: November 23, 1998 LA JOLLA DIAGNOSTICS, INC.
By: /s/ Don Brucker
--------------------------
Don Brucker
President, Chief Executive Officer
and Chief Financial Officer
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