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, 2000 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
NATUREWELL, INC. (formerly LA JOLLA DIAGNOSTICS, INC.
-----------------------------------------------------
[Name of small business issuer in its charter]
California 94-2901715
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7855 Ivanhoe Avenue, Suite 322, La Jolla, California 92037
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(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
$91,929.
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, 2000 was $3,209,589.
The number of shares of the Common Stock of the registrant
outstanding as of June 30, 2000 was 23,983,069.
Documents incorporated by reference and parts of Form 10-KSB
into which incorporated: _____.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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<PAGE>
PART 1
ITEM 1. BUSINESS
La Jolla Diagnostics, Inc., which has changed its name to NatureWell, Inc.,
(the "Company"), is a California Corporation (OTC Bulletin Board, Symbol LAJD).
It is engaged in the development of healthcare and diagnostic products. The
Company is now in a state of transition.
Through its subsidiary DiagnosTech, Inc. the Company has finished work on its
most significant diagnostic product, a unique rapid diagnostic test for active
Tuberculosis. In March 2000 the company licensed this TB product to Meridian
Diagnostics, Inc. for worldwide marketing and distribution. Sales are
scheduled to begin in October 2000.
Tuberculosis, including drug resistant strains has expanding to pandemic
proportions through out the world. Approximately a third of the world
population, is infected and/or has been exposed to the bacteria which causes
TB. The problem is differentiating between those with active TB and those who
have been exposed but no longer have an active infection. The Company's
product identifies active TB quickly accurately, and inexpensively.
Having completed its most important diagnostic project, the Company changed its
name from La Jolla Diagnostics, Inc. to NatureWell, Inc. and is now focusing on
the mass marketing of its unique nutraceutical and homeopathic products, which
are formulated using proprietary technology. The development of the two most
promising: MigraSpray(tm) and AllerSpray(tm), was completed this year. The
Company now feels that it is making significant recent progress in developing
mass marketing, and distribution channels for these products.
In addition, NatureWell / La Jolla Diagnostics plans to begin market its FDA
approved NatureWell Contact Lenses in October 2000. Don Brucker CEO of the
Company was a pioneer in the development of the modern soft contact lens, and
is personally heading up, what will be a family of NatureWell contact lens
products.
The Company's corporate headquarters are located at 7855 Ivanhoe Avenue,
Suite 322, La Jolla, California 92037.
PRODUCT SUMMARY
---------------
* RAPID DIAGNOSTIC TEST FOR THE DETECTION OF TUBERCULOSIS being marketed by
Meridian Diagnostics, Inc. (NASDAQ: KITS)
* MIGRASPRAY(tm) gives fast relief from migraine and other types of
headaches without side effects. This homeopathic herbal preparation is a
convenient, economical and fast acting sublingual spray.
* ALLERSPRAY(tm) provides fast relief for allergy symptoms without
drowsiness, dry mouth or other side effects. This homeopathic combination
has all natural ingredients provided as a convenient, economical, fast-
acting sublingual spray.
* LIVING WATER EYE LOTION(tm) is specially formulated to enhance eye
comfort by irrigating, flushing and cleansing without interfering with
natural functions.
* OPTOPET(tm) EYE WASH is for cleansing the eyes of dogs and cats to remove
mucous which causes fur stains beneath the eyes (a major problem in
certain breeds).
* NATUREWELL(tm) CONTRACT LENSES is a disposable lens made of a new FDA
approved material which the Company believes has advantages over other
materials now used.
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<PAGE>
PRODUCT DETAILS
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RAPID DIAGNOSTIC TEST FOR THE DETECTION OF TUBERCULOSIS
-------------------------------------------------------
DiagnosTech, Inc. has developed a rapid diagnostic test for the detection of
active tuberculosis. The test utilizes a combination of three highly
specialized Mycobacterium tuberculosis antigens that react with serum from
persons having active TB, in just three minutes. This ability of the test to
distinguish TB infection from "active" disease makes it ideal for helping
medical professionals select the appropriate therapy.
Tuberculosis is the most common infectious disease in the world, affecting more
than 2 billion people. TB is responsible for 3 million deaths per year and is
the number one cause of death from infectious disease. Exposure to TB usually
comes through the inhalation of droplets from an infected person. The global
migration of infected persons, and the prevalence of people whose immune system
have been weakened, have contributed to a sharp rise in infected populations
and a more rapid and serious progression to the active disease state. Once
diagnosed, persons with active TB can be contained and treated using
pharmaceutical compounds.
MIGRASPRAY(tm)
--------------
MigraSpray(tm) is a homeopathic solution containing the herb feverfew.
The exact formulation, created by NatureWell, is unique and proprietary.
In addition, NatureWell uses a proprietary process that enhances both the
bio-effectiveness and bio-availability of the solution in MigraSpray.
Feverfew, an herb used in MigraSpray(tm), has a long history of use for
relieving various conditions, including the symptoms associated with migraines
and other headaches. In fact, the use of feverfew has been shown in two
double-bling, placebo-controlled trials to reduce both the severity and
frequency of migraines (1)(2). MigraSpray(tm) is designed to be sprayed under
the tongue before being swallowed. This sublingual method of administration
promotes excellent and rapid absorption.
Most individuals find that a single administration is sufficient, though for
some a second administration shortly after the initial dose is beneficial. The
shelf life of MigraSpray(tm) is 2 years. A bottle will last the average user
approximately 3 months, depending on the frequency of use.
* Contains: 20 cc
* Indication: For relief of headaches.
* Directions: Administer 10 full sprays under tongue and hold for
at least thirty seconds before swallowing. Repeat
initial dose after 5 minutes as required. For
prevention, use 3 sprays under tongue, once daily.
Use as needed or as directed by physician.
* Contents: Distilled water, vegetable glycerin, proprietary
homeopathic herbal blend: Feverfew, Goldenseal,
Dandelion and Polyporus (all 3.5x) with potassium
sorbate added as preservative.
_____________________________________________________________________
(1) Murphy. JJ Lancet 1988 Jul 23:2(8604)): 189-92
(2) Johnson. ES British Medical Journal 1985 Aug 31.291 (6495) 569-73
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<PAGE>
ALLERSPRAY(tm)
--------------
AllerSpray(tm) is a homeopathic solution of various herbs and amino acids.
The exact formulation, created by NatureWell, is unique and proprietary.
In addition, NatureWell uses a proprietary process that enhances both the
bio-effectiveness and the bio-availability of the solution in AllerSpray(tm).
Several of the herbs and amino acids used in AllerSpray, such as Dandelion and
Histidine, have a long history of use for relieving symptoms associated with
allergies.
AllerSpray(tm) is designed to be sprayed under the tongue before being
swallowed. This Sublingual method of administration promotes excellent and
rapid absorption. Most individuals find that twice daily use is sufficient.
The shelf life of AllerSpray(tm) is 2 years. A bottle will last the average
user approximately 1 month with daily use.
* Contains: 30 cc
* Indication: For relief of allergy symptoms.
* Directions: Administer 3 full sprays under tongue and hold for
at least thirty seconds before swallowing.
Use twice daily as needed or as directed by a physician.
Complete symptom control may require more frequent
dosing during the first several days of use.
* Contents: A homepathic solution of distilled water, vegetable
glycerin, proprietary herbal blend: Eyebright,
Dandelion, Ginger, Matico, Coptis, proprietary amino
acid blend: Histidine, Pure Form 20 Blend, Aspartic
Acid, Serine, Proline, Arginine (all 4x) and Potassium
Sorbate.
LIVING WATER EYE LOTION
-----------------------
Living Water Eye Lotion(tm) is an eye wash or irrigating solution, used for
cleansing the eye and to help relieve discomfort, burning, stinging, and
itching due to dryness, air pollutants, allergens, chlorinated water and
other irritants.
Living Water Eye Lotion(tm) is formulated using a proprietary technology which
enhances its effectiveness.
Living Water Eye Lotion(tm), is different than:
"Eye lubricants," "Artificial Tears," and "Contact Lens Lubricants,"
which contain ingredients to increase fluid viscosity in
an attempt to relieve eye dryness or re-wet contact lenses.
Viscous solutions can further irritate the eyes.
"Eye redness relievers," which contain vasoconstrictors
that are associated with "rebound" effects (more redness)
frequent use of which can cause additional problems.
Many products which should not be used with contact lenses.
Living Water Eye Lotion(tm) is specially formulated to enhance eye comfort by
irrigating, flushing and cleansing, while not interfering with natural
functions. It is used by people with irritated or dry eyes, it can be used by
people who normally wear contact lenses. The shelf life of Living Water Eye
Lotion(tm) is 2 years. A bottle will last the average user 2 to 3 months.
* Contains: 15 ml
* FDA approved use: For cleaning the eye to help relieve
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<PAGE>
NATUREWELL(tm) CONTACT LENS
---------------------------
The NatureWell Contact Lens is a disposable daily wear soft lens made from a
new, FDA approved, non-ionic material. Because of its characteristics, which
enhance its durability and soil resistance, it can be recommended for one month
use, as opposed to most disposable lenses which are recommended for replacement
every 2 weeks.
The lens, with a blue handling tint, has a thin lens profile with an edge
designed to promote better tear exchange and corneal health. It is ideally
suited for dry eyes, summer air conditioning, winter central heating and low
humidity environments.
SALES AND MARKETING
-------------------
THE INTERNET
The company has two web sites; LAJD.com, which is being phased out, and
NatureWell.com, a site which was developed over the past year, and which has
been a major disappointment. Though the Company believes its concept of
offering information and communications, as a health portal with no advertising
with the exception of a store for the Company's superior health care products
is very sound, the present graphics, organization, and site formatting are
deficient. The Company is now working with a new group to redo the site and
refocus its content.
With the exception of its use in facilitating the sale and distribution of the
NatureWell(tm) Contact Lens, the Company is not relying on the NatureWell.com
website to be a significant component of the expected strong increase of
product sales for at least the first half of the coming year.
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<PAGE>
RAPID DIAGNOSTIC TEST FOR THE DETECTION OF TUBERCULOSIS
-------------------------------------------------------
The World Health Organization (WHO) estimates that one billion TB tests will be
performed this year. The Company believes that its unique test developed by
its subsidiary DiagnosTech, Inc., and licensed exclusively to Meridian
Diagnostics, Inc., should begin to capture a significant portion of the market
in a relatively short period of time.
The indications for the use of the test for tuberculosis are living in or
travel from most third world countries, and certain developed countries, a
known exposure to the disease and high risk physical conditions.
The product is being marketed by Meridian though its global network of
distributors. The first distribution, is scheduled to be made in Latin America
in October 2000, with the European market being targeted next.
The Company, through its subsidiary DiagnosTech, will receive an eight percent
royalty on the net sales of the product made by Meridian. The Company will
also receive additional cash bonuses if certain sales figures are attained.
HEALTHCARE PRODUCTS
-------------------
NatureWell, Inc. (LAJD), (formerly La Jolla Diagnostics, Inc.) develops,
manufactures and markets, unique proprietary healthcare products, chief among
which are MigraSpray(tm) and AllerSpray(tm). Each of these is an extremely
effective, all-natural treatment for their respective conditions. Each is
provided as a sublingual spray. AllerSpray(tm) generally relieves all allergy
symptoms within minutes of use, without drowsiness. MigraSpray(tm) is also
effective within minutes. The NatureWell(tm) products are proprietary,
high-margin products that will primarily be sold in traditional retail outlets.
Over-the-counter migraine medications account for sales of approximately
$4 billion per year in the US. Over-the-counter allergy medications account
for approximately $6 billion per year in the US, with well over 50% of all
Americans purchasing at least one allergy product per year.
The Company, is planning a major sales and marketing campaign for its new
consumer health products, from which they expect to see substantial results by
the fourth quarter of 2000. The primary aspect of this campaign focuses on
gaining access to consumers via the places they continue to spend the majority
of their dollars - traditional retail outlets. As such, the Company is adding
to its sales and marketing representation to place the products in large retail
outlets.
NATUREWELL(tm) CONTACT LENSES
-----------------------------
The advantages of the NatureWell(tm) Contact Lens daily wear soft lens made
from a new, FDA approved, non-ionic material, include an enhanced durability
and soil resistance. It can be recommended for one month use, as opposed to
most disposable lenses which are recommended for replacement every 2 weeks,
which gives the lens both a convenience and economic advantage.
NatureWell(tm) Contact Lenses and future ancillary products are being marketed
exclusively in cooperation with contact lens fitters. Initially, trail lens
sets will be given to a small selected group of fitters, primarily optometrist
and ophthalmologists, in specific geographic areas, who will, after an eye
examination, order NatureWell(tm) Lenses for patients.
The fitter will then have the option to supply the replacement lenses directly
to the patient or have the patient order lenses through the NatureWell.com web
site using a unique PIN # supplied to the patient by the fitter.
After the lens introduction, marketing efforts will then be expanded both
nationally and internationally, emphasizing both the advantages of the
NatureWell(tm) lens and the Company's effort to cooperate with the fitter.
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PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for the Company's products, processes and know-how is
important to the Company's business. Thus, the Company plans to aggressively
prosecute and defend its proprietary technology. The Company intends to file
patent applications, where appropriate, to protect technology, inventions and
improvements that are considered important to the development of its business.
The Company also relies upon trade secrets, know-how, continuing technological
innovation and licensing opportunities to develop and maintain its competitive
position.
The Company's patent for the use of Feverfew with its technology has been
allowed and should be issued shortly.
The Company has also has exclusive license agreements for proprietary
technologies to produce and market healthcare 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, 2000, the Company had five employees and utilized the services
of consultants, 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.
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ITEM 2. PROPERTY
The corporate headquarters of the Company are located at 7855 Ivanhoe Avenue,
Suite 322, La Jolla, California 92037. The facilities are approximately 3,000
square feet and are leased at approximately $3,800 per month. The Company has
a lease through May 2002.
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 September 30, 2000, 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.
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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, 2000 and 1999, the Company had current assets of $873,409 and
$1,027,745 including cash of $28,765 and $208,555, respectfully.
At June 30, 2000, current assets also included inventory valued at $800,447.
Total assets were $1,368,956 and $2,872,994. Total assets included $0 and
$1,240,000 in non-current inventory at June 30, 2000 and 1999 respectively.
Total sales for the years ended June 30, 2000 and 1999 were $91,929 and
$71,033, respectively, for each period.
Costs and expenses for the twelve months ended June 30, 2000 and 1999 were
$1,562,118 and $683,119 resulting in a loss from operations for the period of
$ 1,470,189 and $612,086,respectively. Costs and expenses included consulting
services of $ 700,619 and $84,645, and research and development expense of
$64,564 and $16,767.
Selling and administrative expenses included; $219,898 and $213,050 salaries,
$58,938 and $44,009 rent, 32,455 and $12,300 legal and accounting fees, $1,283
and $1075 advertising, and 375,775 and $181,244 in miscellaneous other
expenses for the years ended June 30, 2000 and 1999 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.
The Company believes a 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.
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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,
and contact lenses expands.
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, 2000 AND 1999
On a consolidated basis, the Company had sales totaling $91,929 for the year
ended June 30, 2000, compared with $71,033 in sales for the Company for the
same period ending June 30, 1999.
The Company experienced a net loss of $2,089,119 for the twelve-month period
ended June 30, 2000, compared with a net loss of $1,621,848 for the same period
ended June 30, 1999. 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."
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ITEM 8. FINANCIAL STATEMENTS
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 12
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 2000 and 1999 13
Consolidated Statements of Operations for the years ended
June 30, 2000 and 1999, and cumulative totals for
development stage operations from December 3, 1993 (date
of recommencement) through June 30, 2000 14
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended June 30, 2000, 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 15
Consolidated Statements of Cash Flows for the years ended
June 30, 2000 and 1999, and cumulative totals for
development stage operations from December 3, 1993 (date of
recommencement) through June 30, 2000 16
Notes to Consolidated Financial Statements 17
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
NatureWell, Inc.
(Formerly La Jolla Diagnostics, Inc. and Subsidiaries):
We have audited the accompanying consolidated balance sheets of NatureWell,
Inc. (formerly La Jolla Diagnostics, Inc.) (a California corporation) and its
subsidiaries as of June 30, 2000 and 1999 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, 2000 and 1999, 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 O 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 O.
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 11, 2000
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</TABLE>
<TABLE>
NATUREWELL, INC. AND SUBSIDIARIES
(FORMERLY LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND 1999
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 28,765 $ 208,555
Accounts receivable 31,106 207
Advances to officer 6,428 6,670
Inventory - current portion (Note F) 800,447 786,353
Prepaid expenses 6,663 25,960
----------- -----------
TOTAL CURRENT ASSETS 873,409 1,027,745
Property and equipment, net 15,345 87,829
Inventory (Note F) - 1,240,000
Scientific technology 476,431 512,830
Other assets 3,771 4,590
----------- -----------
$ 1,368,956 $ 2,872,994
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 199,994 $ 237,214
Accrued expenses 88,850 27,892
Customer deposits 663 663
Lease obligations,
current portion (Note I) 734 1,418
Loans payable (Note H) 116,016 91,841
----------- -----------
TOTAL CURRENT LIABILITIES 406,257 359,028
----------- -----------
LONG-TERM LIABILITIES:
Lease obligation,
non-current portion (Note I) - 616
Convertible debentures (Note N) 571,000 -
Minority interest 321,348 1,227,937
----------- -----------
TOTAL LONG-TERM LIABILITIES 892,348 1,228,553
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, no par value
(50,000,000 shares authorized,
23,983,069 and 20,338,219 shares
issued & outstanding, respectively) 14,233,321 13,302,264
Less stock subscriptions receivable (95,000) -
Additional paid-in capital 869,247 831,247
Preferred stock, no par value (5,000,000
shares authorized, no shares issued) - -
Retained deficit $8,526,698 and
$6,437,579 deficit accumulated during
development stage begun December 3, 1993,
respectively)(Note B) (14,937,217) (12,848,098)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 70,351 1,285,413
----------- -----------
$ 1,368,956 $ 2,872,994
=========== ===========
<FN>
See Accountants' report and notes to consolidated financial statements.
</TABLE>
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<TABLE>
NATUREWELL, INC. AND SUBSIDIARIES
(FORMERLY LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 2000 AND 1999, AND CUMULATIVE TOTALS FOR DEVELOPMENT
STAGE OPERATIONS FROM DECEMBER 3, 1993
(DATE OF RECOMMENCEMENT) THROUGH JUNE 30, 2000
<CAPTION>
Development
Stage Ended
June 30, June 30, June 30,
2000 1999 2000
(Note B)
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES (Note L) $ 91,929 $ 71,033 $ 691,785
COSTS AND EXPENSES:
Cost of products sold 40,899 34,867 448,660
Selling and administrative expenses 688,349 490,499 2,624,622
Research and development 64,564 16,767 742,762
Consulting services 700,619 84,645 2,109,055
Depreciation and amortization 67,687 56,341 160,030
----------- ----------- -----------
TOTAL COSTS & EXPENSES 1,562,118 683,119 6,085,129
----------- ----------- -----------
LOSS FROM OPERATIONS (1,470,189) (612,086) (5,393,344)
OTHER INCOME (EXPENSES)
Interest income 1,461 - 102,688
Interest expense (65,351) (6,351) (138,160)
Commissions convertible debentures (168,505) - (168,505)
Write-down of inventory (1,229,165) (950,542) (3,863,375)
Write-down of notes/
interest receivable - - (507,548)
Gain/loss on disposal
of assets (39,964) (202,329) (242,293)
Minority interest 886,594 152,660 1,703,839
----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (614,930) (1,006,562) (3,113,354)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (2,085,119) (1,618,648) (8,506,698)
PROVISION FOR INCOME TAXES (Note J) 4,000 3,200 20,000
----------- ----------- -----------
NET LOSS (Note B) $(2,089,119) $(1,621,848) $(8,526,698)
=========== =========== ===========
BASIC AND FULLY DILUTED
LOSS PER SHARE (Note G) $ (0.10) $ (0.10) $ (0.80)
----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 20,849,191 16,399,397 10,631,268
=========== =========== ===========
<FN>
See Accountants' report and notes to consolidated financial statements.
</TABLE>
- 14 -
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<PAGE>
<TABLE>
NATUREWELL, INC. AND SUBSIDIARIES
(FORMERLY LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) FOR THE YEARS ENDED JUNE 30, 2000, 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
<CAPTION>
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
Conversion of common stock
Warrants 1,136,600 405,882 - - 405,882
Less stock subscription receivable - (95,000) - - (95,000)
Issuance of stock for services 2,217,500 479,775 - - 479,775
Issuance of warrants for
Services - - 38,000 - 38,000
Issuance of stock for cash 290,750 70,000 - - 70,000
Syndication costs - (24,600) - - (24,600)
Net loss incurred during
Development stage operations - - - (2,089,119) (2,089,119)
---------- ----------- -------- ------------ ---------
BALANCE, JUNE 30, 2000 23,983,069 $14,138,321 $869,247 $(14,937,217) $ 70,351
========== =========== ======== ============ =========
<FN>
See Accountants' report and notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
NATUREWELL, INC. AND SUBSIDIARIES
(FORMERLY LA JOLLA DIAGNOSTICS, INC. AND SUBSIDIARIES)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999, AND CUMULATIVE TOTALS
FOR DEVELOPMENT STAGE OPERATIONS FROM DECEMBER 3, 1993
(DATE OF RECOMMENCEMENT) THROUGH JUNE 30, 2000
<CAPTION>
Development
Stage Ended
June 30, June 30, June 30,
2000 1999 2000
(Note B)
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,089,119) $(1,621,848) $(8,526,698)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 67,687 56,341 160,030
Write-down interest and note receivable - - 507,548
Write-down of inventory 1,229,165 950,542 3,863,375
Minority interest (886,594) (152,660) (828,799)
Issuance of stock for services and warrants 517,775 127,934 1,347,721
(Gain)/Loss on property and equipment 39,964 - 39,686
Equipment traded for services 5,801 - 5,801
Loss on Antisera Partnership - 203,540 203,540
Changes in assets and liabilities:
(Increase)/decrease in inventories (3,259) (3,254) (29,038)
(Increase)/decrease in accounts receivable (30,899) 3,528 (29,046)
(Increase)/decrease in prepaid expenses 19,297 (3,523) (8,723)
(Increase)/decrease in advances to officer 242 (44) (6,428)
(Increase)/decrease in other assets 819 - (6,649)
Increase/(decrease) in accounts payable
and accrued expenses 70,820 (105,699) 254,252
Increase/(decrease) in customer deposits - (2,649) 663
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,058,301) (547,792) (3,052,765)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment (4,567) (21,776) (80,333)
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 (4,567) (46,776) (155,764)
----------- ----------- -----------
NET CARRIED FORWARD (1,062,868) (594,568) (3,208,529)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 380,882 3,000 1,325,867
Syndication costs (24,600) (41,250) (134,603)
Proceeds from sale of minority interest
stock, net (20,000) 808,588 1,029,300
Payments on related party debt - - (40,152)
Payments on capital lease obligations (1,300) (1,128) (11,142)
Proceeds from convertible debentures 571,000 - 571,000
Proceeds from notes payable - 47,000 444,021
Payment on notes payable (22,904) (14,394) (47,048)
Proceeds from minority interest
in partnership - - 100,000
--------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 883,078 801,816 3,237,243
--------- ---------- ----------
NET INCREASE(DECREASE) IN CASH (179,790) 207,248 28,714
CASH AT BEGINNING OF PERIOD 208,555 1,307 51
----------- ----------- ----------
CASH AT END OF PERIOD $ 28,765 $ 208,555 $ 28,765
=========== =========== ==========
</TABLE>
<TABLE>
SUPPLEMENTAL DISCLOSURES:
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Cash paid for:
Interest paid 5,598 6,783
Income taxes paid 4,000 5,075
Non-cash activities:
Stock issued for notes and payables - 45,168
Stock issued for services
and syndication costs 479,775 135,334
Warrants issued for services 38,000 -
Accounts payable converted to note payable 47,079 -
Stock issued in exchange for NMI stock - 11,000
Stock issued for business acquisition - 760,313
<FN>
See Accountants' report and notes to consolidated financial statements.
</TABLE>
- 16 -
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<PAGE>
NATUREWELL, INC. AND SUBSIDIARIES
(FORMERLY 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:
NatureWell, Inc., a California corporation ("NWI" 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. In October, 2000 the Company changed
its name to NatureWell, Inc. The Company has two wholly-owned subsidiaries,
Unified Technologies, Inc. (UTI) and Chemical Dependency Healthcare of
California, Inc. (CDHC) and a 55 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 using the accrual method of accounting to prepare and
present financial statements, which conforms 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 $56,571 and
$55,501 for the years ended June 30, 2000 and 1999, respectively.
- 17 -
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<PAGE>
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. Given future
scientific advancements, it is at least reasonably possible that amortization
may be accelerated in the near term due to changes in the estimated useful
life.
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.
ADVERTISING COSTS
Advertising costs ($1,283 and $1,075 in 2000 and 1999, respectively) are
charged to operations when incurred.
NEW ACCOUNTING PRONOUNCEMENTS:
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS No. 138 amends SFAS No. 133 and
addresses certain difficulties in the implementation of SFAS No. 133. Both
statements are effective January 1, 2001. The adoption of these statements are
not expected to have a significant effect on the financial position or results
of operations of the Company.
Segment Reporting
SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information, establishes standards for disclosure about operating segments in
annual financial statements and selected information in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS 131 took effect
December 15, 1997. The adoption of SFAS No. 131 did not have a significant
impact on the Company's financial statements.
- 18 -
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<PAGE>
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires that all components of comprehensive income, including
net income, be reported in the financial statements in the period in which they
are recognized. Comprehensive income is defined as the change in equity during
a period from transactions and other events and circumstances from non-owner
sources. Net income and other comprehensive income, including foreign currency
translation adjustments, and unrealized gains and losses on investments, shall
be reported, net of their related tax effect, to arrive at comprehensive
income. The Company did not have any components of other comprehensive income
during the years ended June 30, 2000 and 1999.
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:
<TABLE>
Retained deficit as of June 30, 2000 and 1999 consists of the following:
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Deficit accumulated during
the development stage $ (8,526,698) $ (6,437,579)
Deficit accumulated prior to
the development stage (6,410,519) (6,410,519)
------------ ------------
$(14,937,217) $(12,848,098)
============ ============
</TABLE>
- 19 -
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<PAGE>
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.
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.
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<PAGE>
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.) then 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 operating 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.
F. Inventory
<TABLE>
Inventory as of June 30, 2000 and 1999 is comprised of the following:
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Antisera at original value $ 4,150,579 $ 4,150,579
Less Valuation reserve (3,375,579) (2,600,579)
------------ ------------
Antisera products,
net of reserve 775,000 1,550,000
Diagnostic test products -- 472,665
Healthcare products 25,447 3,688
------------ ------------
$ 800,447 $2,026,353
============ ============
</TABLE>
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<PAGE>
Effective March 2000, the Company, through its subsidiary DTI, entered into a
contract with Meridian to license its tuberculosis diagnostics test for $25,000
and future royalties. The Company will receive an eight percent royalty on the
net sales of the product sold by Meridian. The Company will also receive
additional cash bonuses if certain sales figures are attained. Because the
Company no longer plans to produce and market the diagnostics test itself, the
Company wrote off the $454,165 balance of its diagnostics inventory during the
year ended June 30, 2000.
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 ended
June 30, 1999 of $950,542.
In connection with the decision to license its diagnostic product, the Company
also decided that the marketing of antisera products no longer fits into the
Company's long-range plans. The Company has decided to sell its inventory of
antisera products on a wholesale clearance basis rather than by utilizing
company resources to market them. Consequently, Management again evaluated its
inventory and wrote down the value by $775,000 effective June 30, 2000. No
estimate can be made of the range of additional loss that is possible should
the plan be unsuccessful. Therefore, it is reasonably possible that
Management's valuation could change in the near term.
Because the Company in the past expected to liquidate the antisera inventory
over a 5 year period, 20% had been classified as current and 80% as long term
during 1999.
G. Basic And Fully Diluted Loss Per Common Share:
Effective November 30, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"), which
replaced the presentation of "primary" and "fully-diluted" earnings (loss) per
common share required under previously promulgated accounting standards with
the presentation of "basic" and "diluted" earnings (loss) per common share.
Basic earnings (loss) per common share is calculated by dividing net income or
loss by the weighted average number of common shares outstanding during the
period. The calculation of diluted earnings (loss) per common share is similar
to that of basic earnings (loss) per common share, except that the numerator
and denominator are adjusted to reflect the decrease in earnings per share or
the increase in loss per share that could occur if securities or other
contracts to issue common stock, such as stock options and convertible notes,
were exercised or converted into common stock that then shared in the Company's
earnings or loss.
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<PAGE>
The Company was required to compute primary and diluted loss per share amounts
for 2000 and 1999 pursuant to SFAS 128. Since the Company and its subsidiaries
had losses applicable to common stock in 2000 and 1999, the assumed effects of
the exercise of outstanding warrants and stock options were anti-dilutive and,
accordingly, dilutive per share amounts have not been presented in the
accompanying consolidated statements of operations.
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.
H. Loans Payable:
<TABLE>
Loans Payable as of June 30, 2000 and 1999 consist of the following:
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
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. 31,000 30,250
Loan payable to unrelated parties,
unsecured, with annual interest of 18%,
due on demand. 41,615 -
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. 29,060 47,250
Loan payable to related party, unsecured,
with no annual interest, due upon demand. 7,000 7,000
---------- ----------
$ 116,016 $ 91,841
========== ==========
</TABLE>
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<PAGE>
I. Leases:
The Company leases its office facilities under an operating lease that expires
on March 31, 2002. The Company base rent under the lease is $3,771 per month.
Office rental expense was $58,938 and $44,009 for 2000 and 1999 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, 2000 are as follows:
<TABLE>
Capital Operating
Year Ending June 30, Lease Lease
-------------------- ------- ---------
<S> <C> <C>
2001 767 45,252
2002 -- 34,299
------- ---------
Total Minimum Lease Payments 767 79,551
Less amount representing interest (33)
------- ---------
Present value of minimum lease payments 734
Less current portion (734)
-------
Long-term portion $ -
=======
</TABLE>
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<PAGE>
J. Income Taxes:
The provision for income taxes for the years ended June 30, 2000 and 1999
consists solely of the $800 minimum California franchise tax due for the
Company and its subsidiaries.
<TABLE>
Provision for income taxes is summarized as follows:
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Current income taxes $4,000 $3,200
Deferred income taxes - -
------ ------
Provision for income taxes $4,000 $3,200
====== ======
</TABLE>
<TABLE>
The Company's total deferred tax asset as of June 30, 2000 is as follows:
<S> <C>
Net operating loss carry-forwards $1,802,000
Accumulated inventory adjustments 678,000
----------
Total 2,480,000
Valuation allowance (2,480,000)
----------
Net deferred tax asset $ -
==========
</TABLE>
As of June 30, 2000, the Company had net operating loss carry-forwards totaling
approximately $5,307,000 for federal and $5,304,000 for state, before any
limitations. The carryforwards expire through 2020 for federal and 2005 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 is subject to limitations.
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<PAGE>
K. Warrants and Options:
Warrants and options outstanding as of June 30, 2000 and 1999 consists of
972,200 and 3,602,350, 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 $405,882 and $3,000 were
exercised during the years ended June 30, 2000 and June 30, 1999, respectively.
<TABLE>
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:
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Domestic market $ 78,047 $ 61,968
Foreign market 13,882 9,065
---------- ----------
$ 91,929 $ 71,033
========== ==========
</TABLE>
M. Related Party Transactions:
For the years ended June 30, 2000 and June 30, 1999 various shareholders and
directors provided consulting and research and development activities and were
compensated with S-8 Common Stock issuance, warrants and S-8 stock options.
This compensation amounted to $143,000 and $420,000 for the years ended June
30, 2000 and 1999, respectively. For the year ended June 30, 1999 $312,000
pertained to shares of DTI issued to officers and directors as compensation for
their efforts to form DTI.
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<PAGE>
N. Convertible Debentures:
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. $571,000 has been raised in total under the offering. Commissions
totaling $168,505 have been spent in order to raise this capital. As of the
date of this report none of the debentures have been converted into DTI common
stock. The debentures accrue interest of 7 percent per year and mature on
June 30, 2004.
O. 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 and has
abandoned the remainder of the diagnostic inventory. In addition, the Company
had negative cash flows from operations of $(1,153,301) for the year ended
June 30, 2000. 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 is
expecting significant future royalty earnings from the Meridian contract as a
result of their marketing of the tuberculosis diagnostics tests around the
world. 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 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 its
success in the above endeavors to obtain additional sources of capital, and
attain sufficient growth in their customer 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.
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<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
<TABLE>
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:
<CAPTION>
Name Age Position
--------------- --- -----------------------
<S> <C> <C>
Donald Brucker 67 President, and
Chief Executive Officer
Thomas V. Cajka 47 Director
Greg Caton 44 Director
Timothy J. Connor 42 Director
</TABLE>
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.
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.
GREG CATON
Mr. Caton serves as director. He was the initial founder of Nutrition for
Life (NASDAQ: NFLI) which ultimately became a $100 million revenue company.
After leaving Nutrition for Life he founded Lumen Foods in 1986
(www.soybean.com) which today manufactures the best-selling 'vegetarian meat'
snack on the North American continent, Stonewall's Jerquee. He is the author
of, "The Lumen Book" (1986), an interdisciplinary work on vegetarianism and
the role of meat analogs, and over 40,000 copies in print. Mr. Caton has been
a speaker on the emerging importance of soy protein for over 10 years and was a
keynote speaker at the international Soyfoods Conference in Mexico City
in 1997.
TIMOTHY J. CONNOR
Mr. Connor serves as director. Mr. Conner comes from the financial investment
banking business and was a registered financial representative with Financial
Services Corp, (Pershing, Inc.). Mr. Conner was also instrumental in
implementing success of several private and publicly held companies.
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.
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<PAGE>
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, 2000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Annual Compensation Long-term Compensation
Principal ----------------------------- -------------------------------
Position Fiscal Salary Bonus Other Stock Warrants Founders
Year Awards Stock DTI
------------------ ------ ------- ----- ----- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald Brucker, 2000 $96,000 $0 $0 1,000,000 0 0
President, and 1999 $96,000 $0 $0 0 0 500,000
Chief Executive 1998 $96,000 $0 $0 0 0 0
Officer 1997 $96,000 $0 $0 0 0 0
1996 $96,000 $0 $0 0 0 0
Stephen C. Roberts 2000 $96,000 $0 $0 0 0 0
1999 $46,000 $0 $0 0 0 500,000
</TABLE>
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.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
<TABLE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of Common Stock, as of June 30, 2000 (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.
<CAPTION>
Name and Address Amount Percent
------------------------ --------- -------
<S> <C> <C>
Stephen Roberts
6542 Regency Lane #204
Eden Prairie, MN 55344 2,750,000 11%
Donald Brucker (1)
2838 Caminito Turnberry
La Jolla, CA 92037 2,454,332 10%
Kenneth Brucker, as Trustee (2)
of the A.K. Trust
1800 Fort Stockton Dr.
San Diego, CA 92103 2,253,132 9%
Tom V. Cajka (3)
3330 Second Avenue
San Diego, CA 92103 300,000 0%
--------- ---
All directors and executive officers
as a group (three individuals) 5,303,132 22%
========= ===
<FN>
NOTES:
1. Includes 2,253,132 shares owned of record by the A.K. Trust
of which Mr. Brucker is a beneficiary.
2. Held as Trustee only, Kenneth Brucker disclaims any beneficial
ownership.
3. Includes 200,000 shares subject to Performance Warrants.
</TABLE>
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<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13(a). EXHIBITS
None.
ITEM 13(b). REPORTS ON FORM 8-K
None.
- 31 -
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<PAGE>
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, 2000 LA JOLLA DIAGNOSTICS, INC.
By: /S/ DON BRUCKER
----------------
Don Brucker,
President and
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, 2000
------------------- Chief Executive Officer
Don Brucker
/S/ THOMAS V. CAJKA
-------------------
Thomas V. Cajka Director October 12, 2000
/S/ GREG CATON
-----------------
Greg Caton Director October 12, 2000
/S/ TIM CONNOR
-----------------
Tim Connor Director October 12, 2000
- 32 -
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<PAGE>
