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, 1998 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]
California 94-2901715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7777 Fay Avenue, Suite 160, La Jolla, California 92037
(Address of principal executive office) (Zip Code)
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
$73,800.
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,
1998 was $1,199,086.
The number of shares of the Common Stock of the registrant
outstanding as of June 30, 1998 was 12,068,986.
Documents incorporated by reference and parts of Form 10-KSB
into which incorporated: _____.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
PART 1
ITEM 1. BUSINESS
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.
On September 16, 1998, the Company, through a newly formed
subsidiary, DiagnosTech, Inc. (DTI), 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. 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 to be acquired by La Jolla Diagnostics, Inc. include
a rapid diagnostic test for HIV I and II, H. Pilori, and
Hepatitis B.
In addition, DiagnosTech acquired the management team of ATS,
Stephen C. Roberts, M.D., and G. Bruce Whitfield, J.D.
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 changed its name to La Jolla Diagnostics, Inc. The
Company currently has four subsidiaries, Unified Technologies,
Inc., Antisera Associates, Ltd., Nasal Mist, Inc. (formed August
6, 1997) 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 is located at 7777 Fay
Avenue, Suite 160, La Jolla, California 92037.
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), and other regulatory agencies.
LA JOLLA DIAGNOSTICS, INC.
HEALTHCARE PRODUCTS DIAGNOSTIC PRODUCTS
Living Water Eye Lotion(TM) * Antisera Reagents*
Feverfew Nasal Mist(TM) * Heart Attack Predictor
OptoPet Eye Wash(TM) * DiagnosTech Rapid Diagnostic
Tests (see full disclosure)
MigraSpray(TM) *
Prescription Eye Drops
Allergy Products
Drug Delivery Systems
* Now being marketed.
HEALTHCARE & NUTRACEUTICAL PRODUCTS
OPHTHALMIC & NASAL SOLUTIONS
One of the Company's founders, Don Brucker, was a pioneer in the
development of soft contact lenses and other ophthalmic
products. By using his know-how and reputation, the Company has
negotiated for exclusive access to a proprietary technology for
the special preparation of healthcare and nutraceutical
solutions. These solutions are prepared with a patented (U.S.
Patent Number 5711950) clustered water technology which the
Company feels gives them significant advantages over competitive
products. The Company has a license for the exclusive worldwide
use of this technology for all eye and nasal solutions, plus
other rights.
This clustered water remains chemically identical with
unprocessed water, however, when exposed to active biological
molecules, the clusters form polywater complexes which take on
the structural and electronic "signature" of biomolecules, a
process which may enhance the biological effectiveness of the
solution. These solutions include:
FEVERFEW NASAL MIST(TM) (currently being marketed)
Feverfew Nasal MistTM, a patent-pending moisturizing nasal spray
containing the herb feverfew. The Company is investigating the
possibility of adding further indications for its use beyond
that as a moisturizer, including its use for symptomatic relief
of migraine, menstrual and hangover headaches. The product has
been shown at several professional conventions and has been
favorably commented on by many health care practitioners. It is
now marketed by a large distributor under private label.
Several other companies, both foreign and domestic, are in
negotiation to market the products.
The suggested domestic retail price of the Feverfew Nasal MistTM
is currently $29.95 per spray bottle. The length of time a
bottle will last will depend upon its frequency of use and will
vary from approximately one month (for those who may choose to
use the product prophylactically on a frequent basis) to several
months for those who use it as needed. The product will also be
marketed under the name, Hi-Altitude Nasal Spray(TM), which will
be sold at sporting goods stores, ski resorts, airports, and
other locations that cater to people who are exposed to the
rigors of high altitude, which includes altitude sickness.
MIGRASPRAY(TM) (currently being marketed along with Feverfew)
MigraSpray(TM), a sublingual oral spray, very similar to Feverfew
Nasal Mist, which can be promoted for the treatment of migraine
headaches because it is classified as a nutraceutical.
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 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). 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 LotionTM is specially formulated to enhance eye
comfort by irrigating, flushing and cleansing without
interfering with natural functions.
The product has generally exceeded the expectations of those who
have tried it.
OPTOPET EYE WASH(TM) (currently being marketed)
OptoPet Eye Wash(TM) 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).
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 LotionTM. The properties of
Living Water Eye LotionTM 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
LotionTM type of solution may allow the use of a smaller
concentration of pilocarpine, and diminish 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 to that of Living Water Eye LotionTM, and is designed
to enhance eye comfort.
ALLERGY PRODUCTS
The Company is developing proprietary products which will use
the clustered water technology.
OTHER OPHTHALMIC SOLUTIONS
Several compounds, such as steroids, antibiotics and
antioxidants using Living Water Eye LotionTM type of solution as
a vehicle are being studied by the Company. As with Pilocarpine
LWTM, the use of a clustered water type solution may offer
certain advantages to the user.
OTHER HEALTHCARE AND NUTRACEUTICALS
The company is developing and intends to market other nasal
sprays, sublingual sprays and other nutraceuticals.
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.
DIAGNOSTIC PRODUCTS
The Diagnostic Division, through its subsidiary, DiagnosTech is
developing and marketing clinical diagnostic products using
immunologic and molecular biologic technologies. The product
line now consists of nine 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 saliva 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.
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.
THE MARKET FOR HEALTHCARE AND NUTRACEUTICALS
FEVERFEW NASAL MIST TM
The Company feels that the market for moisturizing nasal sprays,
which do not contain vasoconstriction (decongestant) agents
and/or antihistamines with their attendant side effects, is
growing and will continue to grow along with an overall national
trend toward natural and alternative medicine.
Besides its use as a moisturizing nasal spray, the Company
intends to pursue the possibility of adding an indication for
the use of Feverfew Nasal Mist(TM) for aiding in the alleviation
of the symptoms of migraine headaches, menstrual headaches and
hangover headaches, all which are thought to be caused by the
dilation of cerebral blood vessels. Many people suffering from
migraines, and most health care practitioners who treat migraine
headaches are familiar with the herb feverfew. In addition, the
symptoms of some menstrual headaches have a similar etiology as
migraine headaches, which greatly enlarges the potential market.
The product has been endorsed and mentioned in print by leading
alternative healthcare practitioners.
At the present time, all the products which are indicated to
have some efficacy in the treatment of migraine headache
symptoms are sold with a prescription; however, the FDA recently
allowed the indication for migraine of the OTC product,
Excedrin. If the FDA follows the suggestion of its advisory
panel, which it usually does, it might set a precedent in
regards to Feverfew Nasal Mist(TM) .
Feverfew (Tanacetum parthenium), an herb which has been used for
centuries as a folk remedy, is commonly recommended as an aid in
relieving the symptoms of migraine headaches without side
effects. Recent international clinical studies continue to give
promising results. Traditionally, feverfew is taken orally,
either in capsule or liquid solution form.
Migraine headaches are believed to be caused by dilation of the
blood vessels of the skull and the scalp. Feverfew is said to
be an anti-inflammatory and reduces blood vessel spasms.
More than 20 million people in the United States suffer from
migraines, according to the National Headache Foundation, most
often striking those between the ages of 25 and 45. Three out
of four diagnosed cases are women. The frequency and severity
of migraines varies greatly among individuals. The worldwide
market for migraine remedies is estimated to be in the
neighborhood of $4 billion per year.
Twenty percent of migraine patients experience a pre-headache
visual aura which may include sparkling lights, blind spots and
vibrating patterns called scintillating scotoma.
Eighty-seven percent of migraine patients sometimes suffer from
nausea and fifty-six percent vomit on occasion. Other symptoms
include blurred vision, diarrhea, and increased sensitivity to
light, sound and smell.
Patients search for the perfect medicine and are frequently
shocked to find there isn't one. What may work for one person
may be useless or actually make the symptoms worse for another.
Most medicines have side effects. Migraine sufferers are forced
to settle for what works best, while trying to avoid things
which may trigger an attack. "Triggers" vary from individual to
individual, and range from chocolate chip cookies to changes in
atmospheric pressure to stressful situations.
Menstrual headaches are common, and usually are treated by OTC
headache products, such as aspirin or Tylenol, or specialized
menstrual products, such as Midol. Feverfew Nasal Mist(TM) could be an effective
and economical treatment.
MIGRASPRAY
MigraSpray is a sublingual version of Feverfew Nasal Mist.
Because it is classified as a nutraceutical, the fact that
Feverfew is used as a treatment for migraine headaches may be
promoted. A book on natural treatments for the symptoms of
migraine headaches by Douglas Hunt, M.D., entitled Migraine
Killers, has recently been published. The primary product
featured in Dr. Hunt's book (who has authored several books on
alternative medicine) is MigraSpray.
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,
and Pharmacia Ophthalmic.
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. The product is now being carried in two of the
leading alternative health medicine catalogs.
OPTOPET EYE WASH(TM)
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. The product is being introduced to pet
owners, pet stores and veterinarians through a public relations
campaign in pet magazines and the general press. In addition,
the Company is negotiating with a major veterinary products
company to private label the product and distribute.
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 to the Company's Living
Water Eye Lotion(TM), it should be well accepted by both patients
and ophthalmologists 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 LWTM is suitable for use on a standard prophylactic
basis for a period of weeks or months on a post-PRK patient.
OTHER OPHTHALMIC SOLUTIONS
The properties of Living Water Eye LotionTM 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.
THE MARKET FOR DIAGNOSTIC PRODUCTS
THE MARKET FOR DIAGNOSTECH'S PRODUCTS
The following table sets forth the Company's abbreviated
assessment of the indications and total potential market size
for several of its products.
<TABLE>
<S> <C> <C> <C>
TEST FOR: TUBERCULOSIS H. PYLORI HIV (AIDS) PREGNANCY HEPATITIS B
Indication Third World; Peptic ulcers; High risk pts.; Suspected High risk pts.;
known exposure; gastritis; screening; pregnancy screening;
high risk pts. acid reflux exposure exposure
Domestic
Total Patients 3,000,000/year 3,000,000/year 1,000,000/year 10,000,000/year 10,000,000/year
Projected Price $10.00/test $5.00/test $3.00/test $3.00/test $2.00/test
Total Market $30,000,000 $15,000,000 $3,000,000 $30,000,000 $20,000,000
International
Total Patients 200,000,000/year 3,000,000/year 100,000,000/year 100,000,000/year 100,000,000/year
Projected Price $5.00/test $3.00/test $2.00/test $1.00/test $1.00/test
Total Market $1,000,000,000 $9,000,000 $200,000,000 $100,000,000 $100,000,000
TOTAL $1,030,000,000 $24,000,000 $203,000,000 $130,000,000 $120,000,000
</TABLE>
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 by
DiagnosTech 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.
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.
MYOCARDIAL INFARCTION 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.
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,
premarket 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 premarketing application
(PMA) for a new type of diagnostic product or a premarket
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.
Many product solutions do not require FDA pre-clearance if they
fall into certain OTC or nutraceutical 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.
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, but has filed two patent
applications one on its Myocardial Infarction Predictor and one
on its Feverfew Nasal MistTM. In addition, an application has
been filed on DiagnosTech's rapid test for TB.
The Company has an exclusive license agreement to market eye and
nasal products plus other rights from the developer and founder
of a patented clustered water process (U.S. Patent Number
5711950).
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.
HUMAN RESOURCES
As of June 30, 1998, the Company had three employees and
utilized the services of five part-time personnel or independent
contractors, engaged in research, development and manufacturing,
customer service and general administration. The Company's
research and development staff is 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.
In addition, on September 16, 1998, the top management of
DiagnosTech, Stephen Roberts, M.D. and Bruce Whitfield, joined
the Company.
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 1,400 square feet and are leased at
approximately $2,500 per month. The Company has a
month-to-month lease and is currently looking at larger quarters.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
At October 9, 1998, 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 Ophthalmic Division
and the Diagnostic Division.
PLAN OF OPERATIONS
FINANCIAL RESOURCES
At June 30, 1998 and 1997, the Company had current assets of
$48,835 and $79,011 including cash of $1,307 and $13,275,
respectfully. Total assets were $3,042,597 and $3,133,677
including inventory valued at $2,481,641 and $2,483,890,
respectively.
Total sales for the years ended June 30, 1998 and 1997 were
$73,800 and $173,624, respectively, for each period.
Costs and expenses for the twelve months ended June 30, 1998 and
1997 were $785,732 and $906,719 resulting in a loss from
operations for the period of $711,932 and $733,095,respectively.
Costs and expenses included consulting services of $191,338 and
$266,112, and research and development expense of $54,525 and
$80,938, 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."
The increase in selling and administrative expenses for the
years ended June 30, 1998 and 1997 are due to the Company's
increase in sales and financial and reporting responsibilities.
Selling and administrative expenses included; $127,745 and
$110,265 salaries, $40,287 and $49,611 rent, $41,469 and $54,612
legal and accounting fees, $15,102 and $6,511 advertising, and
$256,772 and $193,434 in miscellaneous other expenses.
VALUATION OF ANTISERA INVENTORY
The Company has made the decision to sell its inventory of
antisera products via a close-out sale because it has been
determined that the marketing of antisera products no longer
fits into the Company's long-range plans. The Company intends
to concentrate on proprietary diagnostic products and consumer
healthcare products.
In the past, the Company marketed its inventory of antisera on a
limited basis by placing ads in journals stressing the high
quality of the products, along with discount prices. The
initial response to the ads, that is people and institutions
requesting catalogs, was commensurate with the marketing effort,
but follow-ups with actual orders was not.
After investigation, the Company has come to the conclusion that
the discount offered of 10 to 20 percent below standard market
prices was not sufficient to entice users of antisera away from
their customary suppliers, so marketing was suspended.
Now that the Company has made the decision to close out its
antisera inventory, it feels confident that a more vigorous
discounting of antisera prices, along with aggressive
advertising in leading journals, stressing that the demand for a
product determines the price, will result in a sale of a
significant portion of the inventory in a relatively short
period of time.
The proposed 40 percent discount off the Company's present
catalog discount prices will result in an average discount of 50
percent or more off the industry standard.
During the prior year the Company booked a reserve for inventory
of approximately 40 percent to reflect estimates of the
close-out sale. Additionally, the associated Note Receivable
was written down by $406,900 and the associated Interest
Receivable of $100,648 was written down.
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.
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 close-out
prices.
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. Several people are expected to be added in
sales, marketing, administrative and to handle regulatory
matters, as well as in the laboratory for both research and
development projects and the processing of antisera. In
addition, consultants and part-time or temporary employees may
be used on specific projects.
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. Since
that time, the Company has been developing products and expects
its first significant sales in the coming fiscal year.
FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
On a consolidated basis, the Company had sales totaling $73,800
for the year ended June 30, 1998, compared with $173,624 in
sales for the Company for the same period ending June 30, 1997.
The decrease in sales resulted from decreased sales of contact
lenses.
The Company experienced a net loss of $695,787 for the
twelve-month period ended June 30, 1998, compared with a net
loss of $2,516,095 for the same period ended June 30, 1997. The
decrease in losses is partially attributable to the previously
discussed antisera inventory write down, a write down of the
note receivable on antisera inventory and interest on the note
receivable. See "Plan of Operation -- Financial Resources."
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. The Company anticipates
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."
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 18
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 1998 and 1997 19-20
Consolidated Statements of Operations for the years ended
June 30, 1998 and 1997, and cumulative totals for
development stage operations from December 3, 1993 (date
of recommencement) through June 30, 1998 21
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended June 30, 1998, 1997, 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 22-23
Consolidated Statements of Cash Flows for the years ended
June 30, 1998 and 1997, and cumulative totals for
development stage operations from December 3, 1993 (date of
recommencement) through June 30, 1998 24-25
Notes to Consolidated Financial Statements 26-35
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 sheet of
La Jolla Diagnostics, Inc. (a California corporation) and its
subsidiaries as of June 30, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows
for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audit. The consolidated financial statements of La Jolla
Diagnostics, Inc. as of June 30 1997, were audited by other
auditors whose report dated October 9, 1997 included an
explanatory paragraph describing conditions that raised
substantial doubt about the Company's ability to continue as a
going concern.
Except as discussed in the following paragraph, we conducted our
audit 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 audit
provides a reasonable basis for our opinion.
We were unable to confirm or observe antisera inventory which
was held by a third party and valued at $292,784 at June 30,
1998. We were also unable to satisfy ourselves about the
existence of the inventory through alternative procedures.
(Note E)
In our opinion, except for the effects of such adjustments, if
any, as might have been determined to be necessary had we been
able to confirm the inventory referred to in the preceding
paragraph, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of La Jolla Diagnostics, Inc. and its subsidiaries as
of June 30, 1998, and the results of its operations and cash
flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note M to the financial statements, the Company has
suffered recurring losses from operations that raise substantial
doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note M. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Logan Throop & Co., LLP
San Diego, California
October 7, 1998
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997
ASSETS 1998 1997
CURRENT ASSETS:
Cash $ 1,307 $ 13,275
Accounts receivable 3,735 9,953
Advances to officer 6,626 8,487
Inventory: Healthcare Products 14,730 26,979
Prepaid expenses 22,437 20,317
--------- ---------
TOTAL CURRENT ASSETS 48,835 79,011
INVENTORY (Note E) 2,466,911 2,456,911
PROPERTY & EQUIPMENT, net 30,970 45,820
NOTE RECEIVABLE (Note D) 493,100 493,100
OTHER ASSETS 2,781 58,835
--------- ---------
$3,042,590 $3,133,677
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 335,959 $ 282,226
Accrued expenses 24,658 34,490
Customer deposits 663 40,418
Lease obligations,
current portion (Note H) 1,119 2,408
Loans payable (Note G) 114,591 293,216
---------- ---------
TOTAL CURRENT LIABILITIES 476,990 652,758
LEASE OBLIGATION,
non-current portion (Note H) 2,042 5,240
MINORITY INTEREST 555,069 358,650
See accountants' report and notes to consolidated financial statements.
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (con't)
AS OF JUNE 30, 1998 AND 1997
STOCKHOLDERS' EQUITY: 1998 1997
Common stock, no par value
(50,000,000 shares authorized,
12,068,986 and 9,137,534 shares
issued & outstanding, respectively) 12,403,499 11,816,245
Additional paid-in capital 831,247 831,247
Preferred stock, no par value (5,000,000
shares authorized, no shares issued) -- --
Retained deficit ($4,815,731 and
$4,119,944 deficit accumulated during
development stage begun December 3, 1993,
respectively)(Note B) (11,226,250) (10,530,463)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,008,496 2,117,029
---------- ----------
$3,042,597 $3,133,677
========= =========
See accountants' report and notes to consolidated financial statements.
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 1998 AND 1997, AND CUMULATIVE TOTALS FOR DEVELOPMENT
STAGE OPERATIONS FROM DECEMBER 3, 1993
(DATE OF RECOMMENCEMENT) THROUGH JUNE 30, 1998
Development
Stage Ended
June 30, June 30, June 30,
1998 1997 1998
(Note B)
NET SALES (Note K) $ 73,800 $ 173,624 $ 528,823
COSTS AND EXPENSES:
Cost of products sold 45,255 131,952 372,894
Selling and administrative expenses 481,375 414,433 1,445,774
Research and development 54,525 80,938 661,431
Consulting services 191,338 266,112 1,323,791
Depreciation and amortization 13,239 13,284 36,002
--------- --------- ---------
TOTAL COSTS & EXPENSES 785,732 906,719 3,839,892
--------- --------- ---------
LOSS FROM OPERATIONS (711,932) (733,095) (3,311,069)
OTHER INCOME (EXPENSES)
Interest income -- 579 101,227
Interest expense (28,049) (23,305) (66,458)
Minority interest 48,194 433,342 664,585
Write-down of Inventory -- (1,683,668) (1,683,668)
Write-down of Notes/
Interest Receivable -- (507,548) (507,548)
--------- --------- ---------
TOTAL OTHER INCOME (EXPENSE) 20,145 (1,780,600) (1,491,862)
--------- --------- ---------
LOSS BEFORE INCOME TAXES (691,787) (2,513,695) (4,802,931)
PROVISION FOR INCOME TAXES (Note I) 4,000 2,400 12,800
--------- --------- ---------
NET LOSS (Note B) $ (695,787) $(2,516,095) $(4,815,731)
======= ========== =========
PRIMARY AND FULLY DILUTED
LOSS PER SHARE (Note F) $(0.07) $(0.33) $(0.82)
--------- --------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,685,391 7,720,196 5,852,580
========== ========== ==========
See accountants' report and notes to consolidated financial statements.
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) FOR THE YEARS ENDED JUNE 30, 1998, 1997, 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>
Total
Common Stock Additional Stockholders'
Paid-in Retained Equity
Shares Amount Capital (Deficit) (Deficit)
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 580,951 $6,370,919 $ -- $(6,408,367) $ (37,448)
Net loss incurred prior to
development stage operations -- -- -- (2,152) (2,152)
--------- ---------- -------- ----------- ---------
BALANCE, DECEMBER 2, 1993 580,951 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 E) 532,970 4,142,784 -- -- 4,142,784
Net loss incurred during
development stage operations -- -- -- (30,305) (30,305)
--------- ---------- -------- ----------- ---------
BALANCE, JUNE 30, 1994 5,319,701 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 -- -- 900,000 -- 900,000
Net loss incurred during
development stage operations -- -- -- (1,119,064) (1,119,064)
--------- ---------- -------- ----------- ---------
BALANCE, JUNE 30, 1995 6,312,201 10,919,115 900,000 (7,559,888) 4,259,227
Conversion of common stock
warrants 459,781 220,625 -- -- 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 $7,309,482 $11,304,740 $831,247 $(8,014,367) $4,121,620
Conversion of common stock
warrants 489,916 141,818 -- -- 141,818
Issuance of stock for cash 370,000 135,430 -- -- 135,430
Issuance of stock for services 968,136 234,257 -- -- 234,257
Net loss incurred during
development stage operations -- -- -- (2,516,096) (2,516,096)
--------- ---------- -------- ----------- ---------
BALANCE, JUNE 30, 1997 9,137,534 11,816,245 831,247 (10,530,463) 2,117,029
Conversion of common stock
warrants 50,000 10,000 -- -- 10,000
Issuance of stock for cash 231,525 64,500 -- -- 64,500
Issuance of stock for services
and notes payable 2,649,927 512,754 -- -- 512,754
Net loss incurred during
development stage operations -- -- -- (695,787) (695,787)
BALANCE, JUNE 30, 1998 $12,068,986 $12,403,499 $831,247 ($11,226,250) $2,008,496
========== ========== ======= ========== =========
</TABLE>
See accountants' report and notes to consolidated financial statements.
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997, AND CUMULATIVE
TOTALS FOR DEVELOPMENT STAGE OPERATIONS FROM DECEMBER 3, 1993
(DATE OF RECOMMENCEMENT) THROUGH JUNE 30, 1998
<TABLE>
Development
Stage Ended
June 30, June 30, June 30,
1998 1997 1998
(Note B)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(695,787) $(2,516,096) $(4,815,731)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 13,239 13,284 36,002
Write-down interest and note receivable -- 507,548 507,548
Write-down of inventory -- 1,683,668 1,683,668
Minority interest (48,194) (433,342) 210,456
Issuance of stock for services 266,955 234,257 702,012
(Gain)/Loss on property and equipment (482) 204 (278)
Changes in assets and liabilities:
(Increase)/decrease in inventories 2,249 (15,673) (22,525)
(Increase)/decrease in accounts receivable 8,278 (8,224) (1,675)
(Increase)/decrease in prepaid expenses (4,180) -- (24,497)
(Increase)/decrease in advances to officer 1,861 (7,331) (6,626)
(Increase)/decrease in accrued interest -- -- (100,648)
(Increase)/decrease in other assets 3,250 (13,812) (4,819)
Increase/(decrease) in accounts payable
and accrued expenses 73,063 100,802 389,779
Increase/(decrease) in customer deposits (39,755) 40,418 663
--------- ---------- -----------
NET CASH USED IN OPERATING ACTIVITIES (419,503) (414,297) (1,446,671)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment -- (17,150) (53,990)
Payments for Nasal Mist, Inc. investments -- (52,181) (52,181)
Proceeds from sale of property and equipment -- 1,750 1,750
--------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES -- (67,581) (104,421)
--------- ---------- -----------
NET CARRIED FORWARD (419,503) (481,878) (1,551,092)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 74,500 277,248 941,985
Proceeds from sale of minority interest
stock, net 240,712 -- 240,712
Deferred offering costs -- -- (68,753)
Payments on related party debt -- -- (40,152)
Payments on capital lease obligations (1,732) (4,115) (8,715)
Proceeds from notes payable 103,805 193,937 397,021
Payment on notes payable (9,750) -- (9,750)
Proceeds from minority interest
in partnership -- -- 100,000
--------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 407,535 467,070 1,552,348
--------- ---------- -----------
NET INCREASE(DECREASE) IN CASH (11,968) (14,808) 1,256
CASH AT BEGINNING OF PERIOD 13,275 28,083 51
--------- ---------- -----------
CASH AT END OF PERIOD $ 1,307 $ 13,275 $ 1,307
========= ========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest paid 4,349 8,807
Income taxes paid 1,600 2,400
Noncash activities:
Stock issued for notes and payables 245,799 --
Stock issued for services 266,955 234,257
Minority stock issued for notes payable 55,000 --
</TABLE>
See accountants' report and notes to consolidated financial statements.
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 ("LAJD" or 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, Ltd. (AAL), a California limited partnership as well
as a 52 percent ownership interest in Nasal Mist, Inc. (NMI), a
California corporation. The Company is still considered a
development stage enterprise (see Note B).
PRINCIPLES OF CONSOLIDATION:
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 AAL and
minority shareholder's interest in NMI. 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 $30,584 and $19,634 for the years ended June 30, 1998 and
1997, respectively.
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. Actual results could differ from those
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.
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 prior to the
development stage:
Retained deficit as of June 30, 1998 and 1997 consists of the
following:
1998 1997
Deficit accumulated during
the development stage $(4,815,731) $(4,119,944)
Deficit accumulated prior
to the development stage (6,410,519) (6,410,519)
--------- ---------
$(11,226,250) $(10,530,463)
========== ==========
C. Acquisitions:
On April 17, 1995, the Company 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 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).
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 Subsidiaries
ANTISERA ASSOCIATE, 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 original note receivable from Sogery Trust bears interest at
7 percent annual rate and calls for principal payments due in
fiscal years 1996, 1997, 1998 and 1999. However, by mutual
agreement no payments have been made to date. Per the
partnership agreement, if the Company is unable to sell the
inventory due to lack of marketability or reduction in value,
then the outstanding balance on the promissory note will be
reduced as appropriate to reflect any corresponding reduction in
value. (See Note E.) The partnership is scheduled to terminate
in December of 1998.
NASAL MIST, INC.
During August 1997, the Company formed Nasal Mist, Inc. (NMI), a
subsidiary organized for the production and marketing of herbal
nasal sprays. NMI raised approximately $269,000 for a 48
percent equity interest. The proceeds are to be used to fund
NMI's internal operation costs and to apply to the development
of markets for the product. In exchange for that funding, LAJD
has granted NMI a license and the right to receive from LAJD and
its successors-in-interest, an amount equal to 10% of the net
sales, less commissions and discounts of nasal sprays sold by
LAJD and its successors-in-interest.
E. Inventory
The antisera inventory was purchased by UTI on June 8, 1994 from
a private family trust in bulk form for total consideration
valued at $4,142,784. Payment was in the form 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). The
transaction was valued based upon independent appraisals of the
antisera inventory, as that value was deemed to be more readily
determinable than the stock and warrants issued. Subsequent to
the exchange common stock sold through a private placement issue
averaged approximately $0.40 per share.
As described in Note D, $1,000,000 of the inventory was sold at
cost and recontributed in exchange for a 25 percent interest in
Antisera Associates, Ltd.
During the year ended June 30, 1997, the Company wrote down the
inventory by approximately 40% ($1,683,668) and began preparing
for the implementation of a close-out sale marketing campaign.
In addition, the related note due from the Sogery Trust was also
reduced to $493,100 by a $406,900 valuation reserve and interest
receivable of $100,648 was written off. Management has
estimated that the antisera inventory can be sold for at least
its recorded net value and it is reasonably possible that those
values could change in the near future.
Inventory as of June 30, 1998 and 1997 is comprised of the
following:
1998 1997
Antisera at original value $4,150,579 $4,140,579
Less reserve (1,683,668) (1,683,668)
--------- ---------
Antisera products,
net of reserve 2,466,911 2,456,911
Healthcare products 14,730 26,979
--------- ---------
$2,481,641 $2,483,890
========= =========
At June 30, 1998 antisera inventory valued at $292,784 was
stored by a principal stockholder and former employee.
Management is confident that the inventory is safe and hopes to
establish contact with the former employee in the near future.
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, 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. 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.
The Company has restated common stock to reflect the reverse
stock split as a result of the merger. For the years ended June
30, 1994 through 1998, changes in stockholders' equity (deficit)
reflect activity incurred during the development stage period.
G. Loans Payable:
Loans Payable as of June 30, 1998 and 1997 consist of the
following:
1998 1997
Loans payable to unrelated parties, unsecured,
with annual interest of 10 percent, due on demand. $ 7,341 $ 7,341
Loan payable to a group of foreign investors,
unsecured, with annual interest of 8 percent,
due on demand. 31,000 32,125
Loans payable to unrelated parties, unsecured,
with annual interest of 10 percent, due August 1997,
note holders have option to convert at $1.00/share
into shares of common stock of Nasal Mist, Inc. -- 26,700
Loans payable to unrelated parties, unsecured, with
annual interest of 12 percent, due at various dates
through January 1998, note holders have the option to
convert at $.20/share into shares of common stock of
the Company. 30,000 227,050
Loan payable to a director, unsecured, with annual
interest rate of 10 percent, due June 30, 1999, note
holder has warrants attached with an exercise price
of $0.20 per common share. 7,250 --
Loan payable to unrelated party, secured by
inventory with prepaid interest of $2,000 and
interest payments of $2,750 due and payable
July 27, 1998. 19,000 --
Loan payable to unrelated party, unsecured, with
annual interest of 7%, due December 1998. 20,000 --
------- -------
$114,591 $293,216
======= =======
H. Capital Lease Obligation:
The Company leases equipment under a capital lease. The Company
is financing the acquisition over a sixty month period. The
capital lease is reflected in the Company's assets &
liabilities. The following is an analysis of the book value of
the leased asset included in property and equipment:
Cost $ 5,350
Accumulated Depreciation (2,675)
-------
$ 2,675
=======
The following is a schedule by year of the future minimum lease
payments under the above capital lease, together with the
present value of the net minimum lease payments:
Year ending June 30
1999 1,534
2000 1,534
2001 767
-----
3,835
Amount representing interest (674)
-----
Present value of net minimum lease payment 3,161
Less current portion (1,119)
-----
$2,042
=====
I. Income Taxes:
The provision for income taxes for the years ended June 30, 1998
and 1997 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:
June 30, 1998 June 30, 1997
Current income taxes $4,000 $2,400
Deferred income taxes -- --
----- -----
Provision for income taxes $4,000 $2,400
===== =====
The Company's total deferred tax asset as of June 30, 1998 is as
follows:
Net operating loss carryforwards $381,000
Valuation allowance (381,000)
-------
Net deferred tax asset $ --
=======
As of June 30, 1998, the Company had net operating loss
carryforwards totaling approximately $10,000,000 for federal and
$1,892,000, before any limitations, which expire through 2013
for federal and 2003 for state.
However, the realization of any future income tax benefits from
the utilization of net operating losses is limited. Federal and
state tax laws provide that when more than 50 percent ownership
changes within a three-year period, the net operating loss that
can be used each year is limited. Therefore, the net operating
loss carryforwards available have been limited to approximately
$15,000 per year until they expire. Losses totaling $3,602,000
federal and $1,801,000 state generated after the merger will not
be limited by any change that resulted from the previous merger.
J. Warrants and Options:
Warrants and options outstanding as of June 30, 1998 and 1997
consists of 3,277,350 and 2,991,350, nonredeemable warrants and
options 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 in connection with certain transactions and performance
of services and expire five years after the date of issuance.
The options were issued for certain transactions and performance
of services and expire at various times from three to eight
years. Warrants in the amount of $10,000 and $141,818 have been
exercised during the years ended June 30, 1998 and June 30,
1997, respectively.
K. Export Sales:
The Company's operations consist of sales of products to
domestic and foreign markets. As of June 30, 1998 the Company
had unshipped orders for products totaling $663. There were
$40,418 in unshipped orders as of June 30, 1997. Although the
Company is a development stage enterprise and product sales have
commenced, the breakdown of sales between foreign and domestic
markets is as follows for the years ended June 30, 1998 and 1997:
1998 1997
Domestic market $52,154 $ 24,209
Foreign market (Russia) 21,646 149,415
------ -------
$73,800 $173,624
====== =======
L. Related Party Transactions:
For the years ended June 30, 1998 and June 30, 1997 various
shareholders and directors provided consulting and research and
development activities and were compensated with S-8 Common
Stock issuances and S-8 stock options. This compensation
amounted to $17,750 and $5,000 for the years ending June 30,
1998 and 1997, respectively.
M. Going Concern:
As shown in the accompanying Financial Statements, the Company
has incurred recurring losses from operations. As of June 30,
1998, current liabilities exceed current assets by approximately
($428,000) The Company has also been unsuccessful in marketing
or selling significant amounts of the antisera inventory. In
addition, the Company had negative cash flows from operations of
$419,500 for the year ended June 30, 1998. These factors, as
well as the uncertainty regarding the Company's ability to
continue to raise capital through the sale of equity securities,
create an uncertainty as to the Company's ability to continue as
a going concern.
Management feels confident that the above problems are being
solved. The Company is currently negotiating a merger (Note N)
and plans to establish a new subsidiary designed to market and
process the sale of its antisera inventory. It intends to
close-out its inventory of antisera (various reagents which
contain antibodies against immunoglobulins) by reducing its
current sale prices in order to concentrate on the development
of its proprietary diagnostic products, and the marketing and
development of its ophthalmic solutions, and nasal sprays. The
Company expects the continued close-out sale of antisera will
create significant revenues and provide cash for working capital
over the next three to five years.
M. Going Concern (continued):
The Company has numerous products that are in various stages of
development and a few products are being actively marketed with
limited revenues.
The Company is also trying to raise capital through the exercise
of outstanding options and warrants through a private placement
to provide capital for the introduction of Feverfew Nasal Mist
and other nasal sprays the Company intends to develop.
The ability of the Company to continue as a going concern is
dependent upon their success in the above endeavors to obtain
additional sources of capital, and attain sufficient growth in
their user base to enable them to achieve future profitability.
The accompanying financial statements do not include any
adjustments that might be necessary should the Company be unable
to continue as a going concern.
N. Subsequent Event:
In September 1998, the Company entered into negotiations to
acquire AmTech Scientific, Inc. (ATS), a diagnostic company.
The Company will establish a subsidiary and capitalize it with
6,000,000 of the Company's shares and the antisera inventory.
The subsidiary will then acquire the stock of ATS in exchange
for the 6,000,000 shares and a certain number of the
subsidiaries shares. The assets and liabilities of ATS will
then be merged into the new subsidiary. The acquisition is
expected to be accounted for as a pooling-of-interests.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Registrant dismissed the accounting firm of Harlan &
Boettger, LLP, CPA on August 11, 1998. There were no
disagreements with Harlan & Boettger, LLP, CPA on any matter of
accounting principles or practice, financial statement
disclosure or auditing scope or procedure from April 17, 1995
(date of first engagement) and through the period from the date
of the last audited financial statements to September 25, 1998.
The registrant has engaged the accounting firm of Logan, Throop
& Co., LLP, CPA on August 25, 1998 as the principal accountant
to audit the Registrants' most recent fiscal years and any
subsequent interim period.
PART III
ITEM 10. 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 64 President, Chief Executive Officer,
Chief Financial Officer and Director
Robert N. Hamburger, M.D. 74 Director
Greg S. Campbell 50 Director and Consultant
Robert A. Rist 51 Director
Thomas V. Cajka 45 Director
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.
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.
GREGORY S. CAMPBELL
Mr. Campbell (Board Member), who most recently served as
executive vice president of Coldwell Banker Corporation, Mission
Viejo, where he directed operations for Coldwell Banker
Residential Affiliates, Coldwell Banker Residential Brokerage,
Guardian Title & Escrow, Corporate Marketing, Education and Real
Estate and The Home Mortgage Network Joint Venture. Coldwell
Banker is a national residential real estate company with more
than 2,500 offices and 56,000 sales associates.
Prior to joining Coldwell Banker, Mr. Campbell served as senior
vice president of asset management for Homart Development, Co.,
a Sears-owned national regional shopping center and office
building developer. He also held senior positions at a number
of leading nationwide real estate consulting, management and
brokerage firms. Mr. Campbell is a Wheaton College graduate
with a degree in business and economics.
ROBERT A. RIST
Mr. Rist began his career in marketing and management, including
responsibility for the entire marketing effort for menswear for
Sears Roebuck (a $1.5 billion annual revenue business), where he
subsequently became a corporate officer and General Manager of
its subsidiary, Sears Roebuck de Mexico.
Later Mr. Rist joined Coldwell Banker Corporation to help
organize their overall marketing effort. He ended his career at
Coldwell Banker as President and CEO, Coldwell Banker
Residential Affiliates in 1996, when he and his partners sold
the company.
Mr. Rist has served on the Board of Directors of the National
Association of Realtors, The International Franchise
Association, and also as Chairman of the Real Estate National
Networks.
For the past five years, Mr. Rist has been a Trustee for the
Burnham Institute (formerly the La Jolla Cancer Research
Institute), which is one of the ten Basic Science Cancer Centers
in the nation, as designated by the National Cancer Institute.
THOMAS V. CAJKA
Thomas V. Cajka graduated from San Diego State University in
1978 with a B.A. in Business Administration/Accounting and
became a Certified Public Accountant. He began his career in
the entertainment industry at the well-known firms of Gelfand,
Rennert & Feldman, and later with Breslauer, Jacobson & Rutman
working in business management where he advised top-rated
entertainers in their financial and business affairs.
In 1986, Mr. Cajka joint The Michael Mann Company that brought
such award-winning television shows as Miami Vice, Crime Story
and Drug Wars to worldwide viewers and the feature films
entitled The Keep and Manhunter. As producer and executive in
charge of production, Mr. Cajka coordinated all activities of
the film and television projects from budget preparation to
negotiation of contracts, to the hiring of both above- and
below-the-line personnel. He also organized post-production
activities and supervised the business affairs of the company.
Since 1990, Mr. Cajka has consulted and worked with independent
production companies and producers in both the areas of domestic
and international film and distribution. Some of his other
accomplishments include the supervision of production,
accounting and finance on Robert Redford's Oscar-nominated A
River Runs Through It and Dark Wind. Mr. Cajka provided
production and corporate accounting for High Five
Entertainment's productions of the nationally syndicated
television shows The Road, The Root's of Country and At the
Ryman for TNN.
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 and Brucker, and an Audit
Committee, currently comprised of Messrs. Hamburger, Cajka and
Brucker. 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 seven directors and appoint to the Company's
Board of Directors one more outside director before the end of
fiscal year 1999.
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, 1998.
SUMMARY COMPENSATION TABLE
Name and Annual Compensation Long-term Compensation
Principal
Position Fiscal Year Salary Bonus Other Stock Awards Warrants
Donald Brucker, 1998 $96,000 $0 $0 0 0
President, CEO, 1997 $96,000 $0 $0 0 0
CFO 1996 $96,000 $0 $0 0 0
1995 $49,604 $0 $0 1,361,972 190,000
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.
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.
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 30, 1998
(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.
Name and Address Amount Percent
Greg Campbell (1)
24591 Del Prado, Suite 201
Dana Point, CA 92629-3802 1,540,082 12
Donald Brucker (2)
2838 Caminito Turnberry
La Jolla, CA 92037 1,453,832 12
Kenneth Brucker, as Trustee (3)
of the A.K. Trust
1782 D St.,Apt. 63
Hayward, CA 94541 1,263,832 10
Robert Buchner (4)
713 N. Daisy Street
Escondido, CA 92027 897,295 7
Robert Hamburger, M.D. (5)
9485 La Jolla Shores
La Jolla, CA 92037-1149 785,100 6
Andrei Vorobiev (6
921 Coast Blvd., South #1
La Jolla, CA 92037 740,010 6
Richard O'Connor (7)
Sharp Rees-Stealy
2001 4th Avenue
San Diego, CA 92101 739,610 6
Robert A. Rist (8)
322 Boca Del Canon
San Clemente, CA 92672 200,000 2
Tom V. Cajka
3330 Second Avenue
San Diego, CA 92103 100,000 1
All directors and executive officers
as a group (five individuals) 4,079,014 32
NOTES:
1. Includes 402,500 shares subject to Performance Warrants.
2. Includes 1,263,832 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.
3. Held as Trustee only, Kenneth Brucker disclaims any beneficial
ownership.
4. Includes 150,000 shares subject to Performance Warrants.
5. Includes 105,000 shares subject to Performance Warrants.
6. Includes 100,000 shares subject to Performance Warrants.
7. Includes 100,000 shares subject to Performance Warrants.
8. Includes 200,000 shares subject to Performance Warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13(a). EXHIBITS
None.
ITEM 13(b). REPORTS ON FORM 8-K
Form 8-K filed September 29, 1998 is incorporated by reference.
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 9, 1998 LA JOLLA DIAGNOSTICS, INC.
By: /S/ DON BRUCKER
Don Brucker
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.
Title Date
/S/ DON BRUCKER Director, Chief Executive October 9, 1998
Don Brucker Officer and Chief Financial Officer
(Principal Executive Officer,
Principal Financial Officer and
Controller)
/S/ ROBERT N. HAMBURGER
Robert Hamburger, M.D. Director October 9, 1998
/S/ GREGORY S. CAMPBELL
Gregory S. Campbell Director October 9, 1998
/S/ ROBERT A. RIST
Robert A. Rist Director October 9, 1998
/S/ THOMAS V. CAJKA
Thomas V. Cajka Director October 9, 1998
