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, 1999 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.)
1020 Prospect St, Suite 210, La Jolla, California 92037
(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (800)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
$71,033.
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,
1999 was $1,961,783.
The number of shares of the Common Stock of the registrant
outstanding as of June 30, 1999 was 20,338,219.
Documents incorporated by reference and parts of Form 10-KSB
into which incorporated: _____.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE 1>
PART 1
ITEM 1. BUSINESS
La Jolla Diagnostics, Inc. (the "Company"), a California corporation (OTC
Bulletin Board, Symbol LAJD) is focused on developing and marketing of
healthcare, and diagnostic products. The Company, using proprietary
technology, has developed and begun to market eye drops, nasal sprays and
nutraceutical products. Its subsidiary, DiagnosTech, Inc. (DTI) was formed on
September 16, 1998 to purchase the assets and technologies of AmTech
Scientific, Inc. (ATS), a privately held diagnostic company. The assets
included a proprietary, rapid diagnostic test for active tuberculosis, a rapid
diagnostic test for HIV I and II, and several other rapid diagnostic tests.
Prior to April 17, 1995, the Company while named Chemical Dependency
Healthcare, Inc. had not engaged in any significant business activities since
December 31, 1991. As of April 17, 1995, the Company acquired Unified
Technologies, Inc. ("Unified"). The Company utilizes the business, scientific
and technical expertise of Unified to continue in developing its ongoing
business operations. On April 17, 1995, following the acquisition of Unified,
the Company changed its name to La Jolla Diagnostics, Inc. (LAJD). The Company
currently has four subsidiaries: DiagnosTech, Inc. (formed on September 16,
1998), Unified Technologies, Inc., 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 are located at 1020 Prospect Street, Suite
210, La Jolla, California 92037.
The Company's management and scientific consultants have extensive expertise in
a wide variety of healthcare areas, including basic science, clinical
investigation, product development and regulatory approval with the Food and
Drug Administration (FDA), and other regulatory agencies.
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| LA JOLLA DIAGNOSTICS, INC. |
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| HEALTHCARE PRODUCTS | DIAGNOSTIC PRODUCTS |
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| Living Water Eye Lotion(TM) | Rapid Diagnostic tests |
| | (HIV and TB) |
| | |
| Feverfew Nasal Mist(TM) | Rapid Diagnostic tests (other) |
| | |
| MigraSpray (with Feverfew)(TM) | Myocardial Infarction |
| | Predictor |
| | |
| Allergy Products | Antisera Closeout Sale |
| | |
| OptoPet Eye Wash(TM) * | |
| | |
| | |
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<PAGE 2>
HEALTHCARE & NUTRACEUTICAL PRODUCTS
Over the past year the Company has begun working with improving new proprietary
technologies used in the formulation of its health care products. The thrust
of these technologies are to maximize product biological effectiveness and
stability. These technological changes are being used with all the Company's
healthcare products including Living Water Eye Lotion and patent pending
Feverfew Nasal Mist, both of which were extremely well received as previously
formulated.
The company is now in the process of re-introducing an expanded product line
with improved stability and new packaging.
FEVERFEW NASAL MIST(TM) (currently being marketed)
Feverfew Nasal Mist(TM), 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.
The suggested domestic retail price of the Feverfew Nasal Mist(TM) 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 may 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)
MigraSpray(TM), a sublingual oral spray, very similar to Feverfew Nasal Mist,
which can be mentioned for possible use with migraine headaches because it is
classified as a nutritional supplement.
LIVING WATER EYE LOTION(TM) (currently being marketed)
Living Water Eye Lotion(TM) is an eye wash or irrigating solution, used in
cleansing the eye to help relieve irritation, burning, stinging, and itching
due to loose foreign material, air pollutants (smog or pollen), or chlorinated
water.
The solution is a borate buffered, sterile isotonic aqueous solution containing
sodium chloride. It is preserved with a mild preservative, 0.1% sorbic acid
and disodium EDTA (ingredients commonly used in solutions for sensitive eyes).
In contrast with:
"Eye lubricants," "Artificial Tears," and "Lens Lubricants,"
which contain ingredients which increase fluid viscosity in
an attempt to relieve eye dryness or re-wet contact lenses.
"Eye redness relievers," which contain vasoconstrictors
which can cause eye problems when used too frequently.
Eye drops, which contain antihistamines to treat allergy
symptoms.
Living Water Eye Lotion(TM) is specially formulated to enhance eye comfort by
irrigating, flushing and cleansing without interfering with natural functions.
The product has 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).
OTHER HEALTHCARE AND NUTRACEUTICALS
The company is developing and other nasal sprays, sublingual sprays and other
nutraceuticals.
<PAGE 3>
DIAGNOSTIC PRODUCTS
La Jolla Diagnostics' subsidiary, DiagnosTech, Inc. is developing and marketing
clinical diagnostic products using immunologic and molecular biologic
technologies.
RAPID DIAGNOSTIC PRODUCTS
DiagnosTech has a line of products that 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
DiagnosTech is also marketing an antisera which was transferred to if from La
Jolla Diagnostics. The inventory consists of high quality, 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
La Jolla Diagnostics has been working on a novel method of identifying risk
factors for myocardial infarction among a certain subset of mature people.
This product has been transferred to DiagnosTech to market as 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.
<PAGE 4>
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.
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.
<PAGE 5>
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, was published last year. 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 of 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 United 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.
OTHER OPHTHALMIC SOLUTIONS
The properties of Living Water Eye Lotion(TM) would benefit many other types of
ophthalmic solutions, and while the volume of use of many of these solutions is
not great because they are usually not used chronically, they may make
profitable niche markets of several million dollars each.
<PAGE 6>
THE MARKET FOR DIAGNOSTIC PRODUCTS
MARKET
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> <C> <C>
Test For: TUBERCULOSIS H. PYLORI HIV (AIDS) PREGNANCY HEPATITIS B
- -----------------------------------------------------------------------------------------
Indication Third World; Peptic High Risk Suspected High Risk
Known Ulcers; Points; Pregnancy Points;
Exposure; Gastritis; Screening; Screening;
High Risk Pts. Acid Reflux Exposure Exposure
- -----------------------------------------------------------------------------------------
DOMESTIC
Total Patients
(per year) 3,000,000 3,000,000 1,000,000 10,000,000 10,000,000
Projected Price
(per test) $10.00 $5.00 $3.00 $5.00 $2.00
Total Market $30,000,000 $15,000,000 $3,000,000 $50,000,000 $20,000,000
- -----------------------------------------------------------------------------------------
INTERNATIONAL
Total Patients
(per year) 200,000,000 3,000,000 100,000,000 100,000,000 100,000,000
Projected Price
(per test) $5.00 $3.00 $2.00 $1.00 $1.00
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 $150,000,000 $120,000,000
- -----------------------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
DiagnosTech must continually focus on sales and marketing. The products listed
above are complete. However, as the medical marketplace is highly regulated,
both domestically and internationally, obtaining the approvals necessary is
part of and prerequisite to selling.
The Company's research and manufacturing facility has now been approved,
subsequent to a FDA inspection, as conforming to GMP standards. This approval
allows DiagnosTech to obtain the export certificates required to legally export
its medical devices from the United States (a separate export certificate is
issued for each shipment.) In effect, there are no domestic barriers to the
exportation of any product.
Each product must also be approved for sale in the country of destination.
Foreign regulatory approval is highly individualized among nations, often
complex, and sometimes lengthy. Registration is generally the responsibility
of the Company's agent as knowledgeable of specific procedures and
requirements.
The Company's policy is not to grant exclusivity in any territory until the
distributor has shown concrete performance by obtaining regulatory approval and
generating sales. Exceptions to this policy are considered only when (i) the
distributor in question is judged extremely credible and capable by past
performance, and (ii) exclusivity is only maintained by substantial performance
within a relatively short time frame. DiagnosTech will not have distributors
who do not perform.
Regardless of product quality or market size, the ultimate value of any company
is determined by its ability to generate sales and net income. DiagnosTech is
committed to maximizing shareholder value through financial performance.
<PAGE 7>
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.
The Company is in the initial stages of preparing to submit data to the FDA as
a prerequisite for marketing its TB test in the United States.
Products such as Living Water Eye Lotion and Feverfew Nasal Mist do not require
FDA pre-clearance as they fall into the category of an OTC (over the counter)
product. The Company may search for a pharmaceutical company to enter into a
joint venture for the development of products requiring full FDA (NDA) 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.
<PAGE 8>
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 one patent application on file
for its Feverfew Nasal Mist(TM).
The Company has exclusive license agreements for two proprietary technologies
to produce and market Eye and Nasal Solutions.
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 a court of competent jurisdiction, if issued,
would hold patents, valid. 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, 1999, the Company had six employees and utilized the services of
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.
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.
<PAGE 9>
ITEM 2. PROPERTY
The corporate headquarters of the Company are located at 1020 Prospect Street,
Suite 210, La Jolla, California 92037. The facilities are approximately 2,000
square feet and are leased at approximately $3,200 per month. The Company has
a lease through May 2000.
In addition the Company's subsidiary DiagnosTech has office space at: 12631
East Imperial Highway #B-202, Santa Fe Springs, CA 90670 at approximately
$1,200 and 6542 Regency Lane #204, Eden Praire, MN 55344 at approximately
$660. DiagnosTech also stores equipment and rents laboratory space from a
manufacturing consultant, ImmunoChemistry on a per incident basis.
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 12, 1999, 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.
<PAGE 10>
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, 1999 and 1998, the Company had current assets of $1,027,745 and
$48,835 including cash of $208,555 and $1,307, respectfully. At June 30, 1999,
current assets also included inventory valued at $786,353,. Total assets were
$2,872,994 and $3,042,597. Total assets included $1,240,000 and $2,466,911 in
non-current inventory at June 30, 1999 and 1998 respectively.
Total sales for the years ended June 30, 1999 and 1998 were $71,033 and
$73,800, respectively, for each period.
Costs and expenses for the twelve months ended June 30, 1999 and 1998 were
$683,119 and $785,732 resulting in a loss from operations for the period of
$612,086 and $711,932,respectively. Costs and expenses included consulting
services of $84,645 and $191,338, and research and development expense of
$16,767 and $54,525, 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."
Selling and administrative expenses included; $213,050 and $127,745 salaries,
$44,009 and $40,287 rent, $12,300 and $41,469 legal and accounting fees, $1075
and $15,102 advertising, and $181,244 and $256,772 in miscellaneous other
expenses for the years ended June 30, 1999 and 1998 respectively.
VALUATION OF ANTISERA INVENTORY
The Company has made the decision to sell its inventory of antisera products
via a closeout 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 closeout 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.
The antisera inventory value has been greatly discounted. Prior to the
inventory transfer to DiagnosTech, the Company carried a value of $4,150,579
less reserve of 28%. The inventory has been restated to reflect the discounted
closeout sale, as described in Note F to the financial statements.
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.
<PAGE 11>
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 closeout prices.
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, 1999 AND 1998
On a consolidated basis, the Company had sales totaling $71,033 for the year
ended June 30, 1999, compared with $73,800 in sales for the Company for the
same period ending June 30, 1998.
The Company experienced a net loss of $1,621,848 for the twelve-month period
ended June 30, 1999, compared with a net loss of $695,787 for the same period
ended June 30, 1998. The increase in loss is attributable to the previously
discussed antisera inventory write-down. 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."
<PAGE 12>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 13
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 1999 and 1998 14
Consolidated Statements of Operations for the years ended
June 30, 1999 and 1998, and cumulative totals for
development stage operations from December 3, 1993 (date
of recommencement) through June 30, 1999 15
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended June 30, 1999, 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 16
Consolidated Statements of Cash Flows for the years ended
June 30, 1999 and 1998, and cumulative totals for
development stage operations from December 3, 1993 (date of
recommencement) through June 30, 1999 17
Notes to Consolidated Financial Statements 18-24
<PAGE 13>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
La Jolla Diagnostics, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of La Jolla
Diagnostics, Inc. (a California corporation) and its subsidiaries as of June
30, 1999 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of La Jolla
Diagnostics, Inc. and its subsidiaries as of June 30, 1999 and 1998, and the
results of its operations and cash flows for the years 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 N 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 N. 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 12, 1999
<PAGE 14>
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND 1998
ASSETS 1999 1998
CURRENT ASSETS:
Cash $ 208,555 $ 1,307
Accounts receivable 207 3,735
Advances to officer 6,670 6,626
Inventory - current portion 786,353 14,730
Prepaid expenses 25,960 22,437
---------- ----------
TOTAL CURRENT ASSETS 1,027,745 48,835
Property and equipment, net 87,829 30,970
Inventory 1,240,000 2,466,911
Note receivable (Note D) - 493,100
Scientific technology 512,830 -
Other assets 4,590 2,781
---------- ----------
$2,872,994 $3,042,597
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 237,214 $ 335,959
Accrued expenses 27,892 24,658
Customer deposits 663 663
Lease obligations,
current portion (Note I) 1,418 1,119
Loans payable (Note H) 91,841 114,591
---------- ----------
TOTAL CURRENT LIABILITIES 359,028 476,990
---------- ----------
LONG TERM LIABILITIES:
Lease obligation,
non-current portion (Note I) 616 2,042
Minority interest 1,227,937 555,069
---------- ----------
TOTAL LONG TERM LIABILITIES 1,228,553 557,111
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, no par value (50,000,000
shares authorized, 20,338,219 and
12,068,986 shares issued & outstanding,
respectively) 13,302,264 12,403,499
Additional paid-in capital 831,247 831,247
Preferred stock, no par value (5,000,000
shares authorized, no shares issued) - -
Retained deficit ($6,437,579 and
$4,815,731 deficit accumulated during
development stage begun December 3, 1993,
respectively)(Note B) (12,848,098) (11,226,250)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,285,413 2,008,496
---------- ----------
$2,872,994 $3,042,597
========== ==========
See Accountants' report and notes to consolidated financial statements.
<PAGE 15>
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 1999 AND 1998, AND CUMULATIVE TOTALS FOR DEVELOPMENT
STAGE OPERATIONS FROM DECEMBER 3, 1993
(DATE OF RECOMMENCEMENT) THROUGH JUNE 30, 1999
Development
Stage Ended
June 30, June 30, June 30,
1999 1998 1999
(Note B)
NET SALES (Note L) $ 71,033 $ 73,800 $ 599,856
COSTS AND EXPENSES:
Cost of products sold 34,867 45,255 407,761
Selling and administrative expenses 490,499 481,375 1,936,273
Research and development 16,767 54,525 678,198
Consulting services 84,645 191,338 1,408,436
Depreciation and amortization 56,341 13,239 92,343
--------- --------- ----------
TOTAL COSTS & EXPENSES 683,119 785,732 4,523,011
--------- --------- ----------
LOSS FROM OPERATIONS (612,086) (711,932) (3,923,155)
OTHER INCOME (EXPENSES)
Interest income - - 101,227
Interest expense (6,351) (28,049) (72,809)
Minority interest 152,660 48,194 817,245
Write-down of inventory (950,542) - (2,634,210)
Write-down of notes/
interest receivable - - (507,548)
Gain/loss on disposal
of assets (202,329) - (202,329)
--------- --------- ----------
TOTAL OTHER INCOME (EXPENSE) (1,006,562) 20,145 (2,498,424)
--------- --------- ----------
LOSS BEFORE INCOME TAXES (1,618,648) (691,787) (6,421,579)
PROVISION FOR INCOME TAXES (Note J) 3,200 4,000 16,800
--------- --------- ----------
NET LOSS (Note B) $(1,621,848) $ (695,787) $(6,437,579)
========= ========= ==========
PRIMARY AND FULLY DILUTED
LOSS PER SHARE (Note G) $(0.10) $(0.07) $(0.83)
--------- --------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,399,397 10,685,391 7,770,183
========== ========== ==========
See Accountants' report and notes to consolidated financial statements.
<PAGE 16>
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) FOR THE YEARS ENDED JUNE 30, 1999, 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 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
Conversion of common stock
Warrants 300,000 3,000 - - 3,000
Issuance of stock for services 1,535,053 127,934 - - 127,934
Issuance of stock for
notes payables 251,680 45,168 - - 45,168
Issuance of stock for
Subsidiary 6,082,500 760,313 - - 760,313
Issuance of stock in exchange
For Nasal Mist stock 100,000 11,000 - - 11,000
Syndication costs (48,650) - - (48,650)
Net loss incurred during
Development stage operations - - - (1,621,848) (1,621,848)
--------- ---------- -------- ----------- ---------
BALANCE, JUNE 30, 1999 20,338,219 $13,302,264 831,247 ($12,848,098) 1,285,413
========== ========== ======== =========== =========
</TABLE>
See Accountants' report and notes to consolidated financial statements.
<PAGE 17>
LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998, AND CUMULATIVE TOTALS
FOR DEVELOPMENT STAGE OPERATIONS FROM DECEMBER 3, 1993
(DATE OF RECOMMENCEMENT) THROUGH JUNE 30, 1999
<TABLE>
Development
Stage Ended
June 30, June 30, June 30,
1999 1998 1999
(Note B)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,621,848) $(695,787) $(6,437,579)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 56,341 13,239 92,343
Write-down interest and note receivable - - 507,548
Write-down of inventory 950,542 - 2,634,210
Minority interest (152,660) (48,194) 57,796
Issuance of stock for services 127,934 266,955 829,946
(Gain)/Loss on property and equipment - (482) (278)
Loss on Antisera Partnership 203,540 - 203,540
Changes in assets and liabilities:
(Increase)/decrease in inventories (3,254) 2,249 (25,779)
(Increase)/decrease in accounts receivable 3,528 8,278 1,853
(Increase)/decrease in prepaid expenses (3,523) (4,180) (28,020)
(Increase)/decrease in advances to officer (44) 1,861 (6,670)
(Increase)/decrease in accrued interest - - (100,648)
(Increase)/decrease in other assets - 3,250 (4,819)
Increase/(decrease) in accounts payable
and accrued expenses (105,699) 73,063 284,080
Increase/(decrease) in customer deposits (2,649) (39,755) (1,986)
--------- ---------- -----------
NET CASH USED IN OPERATING ACTIVITIES (547,792) (419,503) (1,994,463)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment (21,776) - (75,766)
Payments for Nasal Mist, Inc. investments - - (52,181)
Proceeds from sale of property and equipment - - 1,750
Buyout minority interest in
Antisera Partnership (25,000) - (25,000)
--------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (46,776) - (151,197
--------- ---------- ----------
NET CARRIED FORWARD (594,568) (419,503) (2,145,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3,000 74,500 944,985
Syndication costs (41,250) - (41,250)
Proceeds from sale of minority interest
stock, net 808,588 240,712 1,049,300
Deferred offering costs - - (68,753)
Payments on related party debt - - (40,152)
Payments on capital lease obligations (1,128) (1,732) (9,843)
Proceeds from notes payable 47,000 103,805 444,021
Payment on notes payable (14,394) (9,750) (24,144)
Proceeds from minority interest
in partnership - - 100,000
--------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 801,816 407,535 2,354,164
--------- ---------- ----------
NET INCREASE(DECREASE) IN CASH 207,248 (11,968) 208,504
CASH AT BEGINNING OF PERIOD 1,307 13,275 51
--------- ---------- ----------
CASH AT END OF PERIOD $ 208,555 $ 1,307 $ 208,555
========= ========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES:
June 30, 1999 June 30, 1998
Cash paid for:
Interest paid 6,783 4,349
Income taxes paid 5,075 1,600
Non-cash activities:
Stock issued for notes and payables 45,168 245,799
Stock issued for services
and syndication costs 135,334 266,955
Minority stock issued for notes payable - 55,000
Stock issued in exchange for NMI stock 11,000 -
Stock issued for business acquisition 760,313 -
See Accountants' report and notes to consolidated financial statements.
<PAGE 18>
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. In August 1998, the Company acquired
the assets and technology of AmTech Scientific, Inc. (ATS) in order to form a
new subsidiary named DiagnosTech, Inc. The Company has two wholly-owned
subsidiaries, Unified Technologies, Inc. (UTI) and Chemical Dependency
Healthcare of California, Inc. (CDHC) and a 56 percent ownership interest in
DiagnosTech, Inc. (DTI) a California corporation as well as a 63 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 shareholder's interest in DTI and 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 antisera products.
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 generally three to five years.
Property and equipment is shown net of accumulated depreciation of $55,501 and
$30,584 for the years ended June 30, 1999 and 1998, respectively.
SCIENTIFIC TECHNOLOGY:
Scientific technology is recorded at cost and amortization is provided on the
straight-line method over the estimated useful life. Scientific technology is
continually evaluated by management to determine if the carrying value will be
realized based upon the estimated discounted cash flow expected from the asset.
Additional amortization is recognized in the period a decline in value is
identified. Currently the amortization period is 15 years.
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. A valuation allowance is
provided against deferred tax assets, where realization is uncertain.
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.
<PAGE 19>
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, 1999 and 1998 consists of the following:
1999 1998
Deficit accumulated during
the development stage $(6,437,579) $(4,815,731)
Deficit accumulated prior to
the development stage (6,410,519) (6,410,519)
--------- ---------
$(12,848,098) $(11,226,250)
========== ==========
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 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 interest method. Effective April 17, 1995, the Company changed its name to
La Jolla Diagnostics, Inc. (Note A).
Under the pooling of interest method, UTI's results of operations have been
included in the consolidated results of operations since inception, December 3,
1993, and the assets and liabilities of the separate companies have been
combined and were recorded at their historical cost. 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 accounting
methods. Operations subsequent to the merger relate to the continuing
development stage activities, which relate 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 Securities and Exchange
Commission 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 rescission 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.
<PAGE 20>
D. Dissolution of Subsidiary
ANTISERA ASSOCIATES, LTD.
On June 4, 1999, the Company dissolved its subsidiary Antisera Associates, Ltd.
The Company paid the minority owner, Sogery Trust, $25,000 in consideration,
which relinquished the antisera inventory contributed, a note receivable of
$900,000 to La Jolla Diagnostics, and 25 percent partnership interest in the
Antisera Associates, Ltd. to La Jolla Diagnostics.
The Partnership had been formed on December 21, 1994 when 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 this 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 the Sogery Trust contributed $1,000,000 of inventory for a
25 percent interest.
The note receivable from Sogery Trust had been written down to $493,100 in
prior years due to decreases in the inventory valuations (as described in Note
F). Per mutual agreement between the parties no payments were ever made on
this note.
E. Formation of Subsidiaries
DIAGNOSTECH, INC.
In September 1998, the Company incorporated a new subsidiary named DiagnosTech,
Inc. DTI was formed to develop and market clinical diagnostic products using
immunologic and molecular biologic technologies to be purchased from AmTech
Scientific, Inc. (ATS). The antisera inventory (previously held by Antisera
Associates Ltd.) now valued at $1,550,000 was transferred to DTI from LAJD in
exchange for a promissory note of $500,000, 5,000,000 shares of DTI, and a
royalty agreement whereby LAJD receives 50% of gross profits made from the sale
of antisera inventory. LAJD capitalized DTI with 6,082,500 shares of LAJD. DTI,
in turn, used these shares and 1,500,000 shares of DTI to acquire inventory,
equipment and scientific technology from ATS in total valued at $1,072,313.
This transaction is accounted for as a purchase. DTI raised $1,020,000 through
a private placement increasing minority equity interest to 44 percent. The
proceeds were used to fund DTI's internal operation costs and to market the
test products internationally.
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 $311,000 through a private placement for a 37 percent equity
interest. The proceeds were used to fund NMI's internal operating costs and
the development of markets for the products. Pursuant to the private
placement, LAJD 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.
<PAGE 21>
F. Inventory
Inventory as of June 30, 1999 and 1998 is comprised of the following:
1999 1998
Antisera at original value $4,150,579 $4,150,579
Less Valuation reserve (2,600,579) (1,683,668)
--------- ---------
Antisera products,
net of reserve 1,550,000 2,466,911
Diagnostic test products 472,665 -
Healthcare products 3,688 14,730
--------- ---------
$2,026,353 $2,481,641
========= =========
Upon dissolution of the Antisera partnership, La Jolla Diagnostics contributed
the remaining antisera inventory to DTI. Prior to the transfer the inventory
was written down by a valuation reserve of $2,600,579 of which $916,911 was
established for the year ended June 30, 1999. Inventory stored by a principal
stockholder valued at $292,784 was included in the valuation reserve
established during the year. The Company also wrote off some of its diagnostic
and healthcare products resulting in a total write off for the year of
$950,542.
Because the Company expects to liquidate the antisera inventory within 5 years
20% has been classified as current and 80% as long term.
G. 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, 1999 and 1998, 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.
<PAGE 22>
H. Loans Payable:
Loans Payable as of June 30, 1999 and 1998 consist of the following:
1999 1998
Loans payable to shareholder,
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. 30,250 31,000
Loan payable to unrelated parties,
unsecured, with annual interest of 12%,
due at various dates through January 1998
note holders have option to convert at
$1.00/share into shares of common stock
of Nasal Mist, Inc. - 30,000
Loan payable to shareholder, unsecured,
with annual interest rate of 10 percent,
note holder has warrants attached with an
exercise price of $0.20 per common share. 47,250 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
Loan payable to related party, unsecured,
with no annual interest, due upon demand. 7,000 -
------- -------
$ 91,841 $114,591
======= =======
I. Leases:
The Company leases its office facilities under an operating lease that expires
on May 31, 2000. The Company base rent under the lease is $3,220 per month.
Office rental expense was $44,009 and $40,287 for 1999 and 1998 respectively.
The Company also has a capital lease for equipment. The capital lease is
included in capitalized equipment in the amount of $5,350 and is depreciated
over five years.
The future minimum lease payments together with the present value of the net
minimum lease payments under the capital lease at June 30, 1999 are as follows:
Capital Operating
Year Ending June 30, Lease Lease
2000 1,534 35,240
2001 767 -
----- ------
Total Minimum Lease Payments 2,301 35,240
Less Amount representing interest (267)
-----
Present value of minimum lease payments 2,034
Less current portion (1,418)
-----
Long-term portion $ 616
=====
<PAGE 23>
J. Income Taxes:
The provision for income taxes for the years ended June 30, 1999 and 1998
consists solely of the $800 minimum California franchise tax due for the
Company and its subsidiaries.
Provision for income taxes is summarized as follows:
June 30, 1999 June 30, 1998
Current income taxes $3,200 $4,000
Deferred income taxes - -
----- -----
Provision for income taxes $3,200 $4,000
===== =====
The Company's total deferred tax asset as of June 30, 1999 is as follows:
Net operating loss carry-forwards $933,000
Valuation allowance (933,000)
-------
Net deferred tax asset $ -
=======
As of June 30, 1999, the Company had net operating loss carry-forwards totaling
approximately $10,770,000 for federal and $3,498,300 for state, before any
limitations. The carryforwards expire through 2014 for federal and 2004 for
state.
The realization of any future income tax benefits from the utilization of net
operating losses may be limited. Federal and state tax laws provide that when
a more than 50 percent ownership change occurs within a three-year period, the
net operating loss that can be used each year is limited. Therefore, the net
operating loss carry-forward available has been limited to approximately
$15,000 per year until they expire. Losses totaling $5,220,000 federal and
$3,420,000 state generated after the merger, are not limited.
K. Warrants and Options:
Warrants and options outstanding as of June 30, 1999 and 1998 consists of
3,408,150 and 3,277,350, non-redeemable 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 $0.01 to $1.00 per share. 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 $3,000 and $10,000 and
were exercised during the years ended June 30, 1999 and June 30, 1998,
respectively.
<PAGE 24>
L. Export Sales:
The Company's operations consist of sales of products to domestic and foreign
markets. Although the Company is considered a development stage enterprise,
product sales have commenced. The breakdown of sales between foreign and
domestic markets is as follows:
1999 1998
Domestic market $ 61,968 $ 52,154
Foreign market 9,065 21,646
------- -------
$ 71,033 $ 73,800
======= =======
M. Related Party Transactions:
For the years ended June 30, 1999 and June 30, 1998 various shareholders and
directors provided consulting and research and development activities and were
compensated with S-8 Common Stock issuance's and S-8 stock options. This
compensation amounted to $420,000 and $17,750 for the years ending June 30,
1999 and 1998, respectively. $312,000 of this amount pertained to shares of DTI
issued to officers and directors as compensation for their efforts to form DTI.
N. Going Concern:
As shown in the accompanying Financial Statements, the Company has incurred
recurring losses from operations. 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 $(589,042) for
the year ended June 30, 1999. 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 believes that the above problems are being solved. The Company
established DTI designed to market and process the sale of its antisera
inventory. It intends to closeout its inventory of antisera (various reagents
which contain antibodies against immunoglobulins) by reducing its current sale
price 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 closeout sale of antisera will
create significant revenues and provide cash for working capital over the next
three to five years.
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 continues to raise capital through the exercise of outstanding
options, warrants and private placements.
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.
O. Subsequent Event:
On May 12, 1999, DTI engaged in a private placement offering $12,000,000 of
convertible debentures. In July, 1999, this offering was changed to 400 units
at $4,000,000. Each unit of convertible debenture is convertible at $1.25 a
share. $414,000 has been raised subsequent to June 30, 1999. Syndication costs
totaling $124,654 have been spent in order to raise this capital. As of the
date of these financial statements none of the debentures have been converted
into DTI common stock.
<PAGE 25>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and current position(s) of each director and executive officer of
the Company are as set forth below:
Name Age Position
Donald Brucker 66 President, and Chief Executive
Officer
Stephan C. Roberts 40 Vice President, and Director
Bruce Whitfield 37 Vice President, and Director
Robert A. Rist 53 Director
Thomas V. Cajka 47 Director
DONALD BRUCKER, O.D.
Dr. Brucker is a founder of the Company and currently serves as President,
Chief Executive Officer and Chairman. Dr. Brucker has over 30 years experience
in the medical products business. 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 then the company's sale four years later to Revlon
for more than $100,000,000. Following the acquisition, Dr. Brucker became
President of Revlon Vision Care. From 1981 to 1982, Mr. Brucker served as
Chief Executive Officer of Immunotech Pharmaceuticals (now known as Dura
Pharmaceuticals). From 1982 to 1989 Dr. Brucker served as consultant for
several healthcare and medical device companies. Dr. Brucker was instrumental
in obtaining one of the first HIV diagnostic FDA approvals.
STEPHEN C. ROBERTS, M.D.
Dr. Roberts is a founder of the Company and currently serves as Vice President
and Director. Prior to founding the Company, from 1995 through 1997, he was a
Principal of Maven Securities, Inc. in Minneapolis, Minnesota. Prior to this,
from 1993 to 1995, he was self-employed and primarily managed real estate. In
1991, he was self-employed doing business as Talon and Associates, a consulting
firm specializing in market evaluation and planning for medical device
companies. Dr. Roberts received his Bachelor of Arts degree in 1985 from St.
Olaf College in Northfield, Minnesota where he majored in chemistry and
biology. He graduated from the University of Minnesota Medical School in 1991
and completed his medical internship at Bergen Pines County Hospital, an
affiliate of the University of Medicine and Dentistry of New Jersey at Paramus,
New Jersey.
BRUCE WHITFIELD, J.D.
Mr. Whitfield is a founder of the Company and currently serves as Vice
President and Director. Prior to joining the Company, from 1990 to 1998, Mr.
Whitfield was a founder and is a partner of the law firm of Debenon and
Whitfield. He specializes in the practice of business transactional law and
litigation. Mr. Whitfield has previously participated in the formation and
development of several successful ventures including United Staffing Solutions
and Bixel Financial, where in each case he continues presently as a board
member. Mr. Whitfield is also currently serves on the board of the Los
Angeles Free Clinic and the Bresee Foundation.
ROBERT A. RIST
Mr. Rist serves as director. Before joining the board he had held a variety of
positions in marketing and management. He previously headed 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. Mr. Rist later joined Coldwell
Banker where, in 1996, he became President and CEO, Coldwell Banker Residential
Affiliates. For the past five years he 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
Mr. Cajka serves as director. He graduated from San Diego State University in
1978 with a B.A. in Business Administration and Accounting and became a
Certified Public accountant. He began his career in the entertainment industry
at the well-known firm of Gelfand, Rennert & Feldman and later moved to
Breslauer, Jacobson & Rutman. Mr. Cajka worked in business management where he
advised top-rated entertainers in their financial and business affairs. In
1986 Mr Cajka joined The Michael Mann Company. As producer and executive in
charge of production, Mr. Cajka supervised the business affairs of the company
and coordinated all activities of the film and television projects from budget
preparation to negotiation of contracts to hiring.
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.
<PAGE 26>
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, 1999.
SUMMARY COMPENSATION TABLE
Name and Annual Compensation Long-term Compensation
Principal
Position Fiscal Salary Bonus Other Stock Warrants Founders
Year Awards Stock DTI
Donald Brucker, 1999 $96,000 $0 $0 0 0 500,000
President, and 1998 $96,000 $0 $0 0 0 0
Chief Executive 1997 $96,000 $0 $0 0 0 0
Officer 1996 $96,000 $0 $0 0 0 0
1995 $49,604 $0 $0 1,361,972 190,000 0
Stephen C. Roberts, 1999 $46,000 $0 $0 0 0 500,000
Vice President
Bruce Whitfield, 1999 $49,000 $0 $0 0 0 250,000
Vice President
STOCK AWARDS AND PERFORMANCE WARRANTS
As of the date of the Unified acquisition (April 17, 1995), each of the
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.
<PAGE 27>
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, 1999 (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
Stephan Roberts
6542 Regency Lane #204
Eden Prairie, MN 55344 2,750,000 14
Donald Brucker (1)
2838 Caminito Turnberry
La Jolla, CA 92037 1,465,032 7
Kenneth Brucker, as Trustee (2)
of the A.K. Trust
1782 D St.,Apt. 63
Hayward, CA 94541 1,263,832 6
Bruce Whitfield
12631 E. Imperial Hwy B202
Santa Fe Springs, CA 90670 1,055,000 5
Robert Buchner (3)
713 N. Daisy Street
Escondido, CA 92027 932,395 5
Robert A. Rist (4)
322 Boca Del Canon
San Clemente, CA 92672 300,000 1
Tom V. Cajka
3330 Second Avenue
San Diego, CA 92103 100,000 0
All directors and executive officers
as a group (five individuals) 5,670,032 28
NOTES:
1. Includes 1,263,832 shares owned of record by the A.K. Trust
of which Mr. Brucker is a beneficiary and 200,700 shares
subject to a Performance Warrant.
2. Held as Trustee only, Kenneth Brucker disclaims any beneficial
ownership.
3. Includes 150,000 shares subject to Performance Warrants.
4. Includes 200,000 shares subject to Performance Warrants.
<PAGE 28>
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 12, 1999 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 President, Director, October 12, 1999
Don Brucker Chief Executive Officer
/S/ STEPHAN ROBERTS
Stephan Roberts, M.D. Vice President, Director October 12, 1999
/S/ BRUCE WHITFIELD
Bruce Whitfield Vice President, Director October 12, 1999
/S/ ROBERT A. RIST
Robert A. Rist Director October 12, 1999
/S/ THOMAS V. CAJKA
Thomas V. Cajka Director October 12, 1999
<TABLE> <S> <C>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 208,555
<SECURITIES> 0
<RECEIVABLES> 207
<ALLOWANCES> 0
<INVENTORY> 2,026,353
<CURRENT-ASSETS> 1,027,745
<PP&E> 87,829
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<TOTAL-ASSETS> 2,872,994
<CURRENT-LIABILITIES> 359,028
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0
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<COMMON> 13,302,264
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<TOTAL-LIABILITY-AND-EQUITY> 2,872,994
<SALES> 71,033
<TOTAL-REVENUES> 71,033
<CGS> 34,867
<TOTAL-COSTS> 683,119
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