LA JOLLA DIAGNOSTICS INC (LAJD)
Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-QSB contains forward-looking statement that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements.
FORWARD-LOOKING INFORMATION - GENERAL
This report contains a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "anticipates", "believes", "expects", "intends", "plans", "may", "future", and similar expressions identify forward-looking statements. Readers are cautioned to consider the risk factors described above and in the Company's Annual Report on Form10-KSB for the year ended June 30, 1998, and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise after the date hereof.
Additionally, these statements are based on certain assumptions that may prove to be erroneous and are subject to certain risks including, but not limited to, the Company's ability to introduce new products, the concentration of the Company's current products, technological change and increased competition in the industry, the Company's ability to manage its growth, its limited protection of technology and trademarks, the Company's dependence on limited suppliers, representatives, distributors, and its dependence on certain key personnel within the Company. Accordingly, actual results may differ, possibly materially, from the predictions contained herein.
LIQUIDITY AND CAPITAL RESOURCES
La Jolla Diagnostics, Inc. (the "Company"), a California corporation (OTC Bulletin Board, Symbol LAJD) is a healthcare, nutraceutical and diagnostic products company. The Company has two divisions, a Healthcare Products Division, using proprietary technology, and a Diagnostic Division, primarily concerned with the development and marketing of clinical diagnostic products using immunological and molecular biological technologies.
The Company, in the past, has financed operations primarily through the private placement of common stock, issuance of convertible debt, warrant conversions, issuing warrants to acquire stock in exchange for services rendered and to a lesser degree from product sales. Based on its current operating plans, cash generated from projected sales (particularly the recently introduced Feverfew Nasal Mist) is expected to generate the necessary capital to support further development of the Company's products through June of 1999. The Company anticipates that the proceeds from conventional private placements of stock, issuance of convertible debt and exercise of warrants and options will continue to enhance working capital.
On September 16, 1998, the Company, through a newly formed subsidiary, DiagnosTech, Inc., purchased the assets and technologies of AmTech Scientific, Inc. (ATS), a privately held diagnostic company. These assets include a proprietary, patent pending diagnostic test for active tuberculosis (TB). The accuracy and efficacy of the TB test has been confirmed in three separate clinical trials, and is currently approved for sale and distribution in several countries with approvals pending in others. Additionally, a Japanese pharmaceutical company, having completed internal testing, is in the process of registering the product with the Japanese Ministry of Health.
Other assets acquired by La Jolla Diagnostics include a rapid diagnostic test for HIV I and II, H. Pilori, and Hepatitis B. Additionly, DiagnosTech added the management team of ATS, Stephen C. Roberts, M.D., and G. Bruce Whitfield,
J.D.
RESULTS OF OPERATIONS.
Generally. The Company believes that with its business objectives in place and proper funding, the Company should be able to meet its future expansion plans. Management has implemented a variety of procedures and marketing efforts which may enhance revenues and reduce costs for the Company. The Company has begun efforts to promote its products through a distribution system which uses outside sales representatives and other marketing efforts.
For the Three Months ended September 30, 1998 and 1997
For the three months ended
September 30,
1998 1997
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Revenues $ 43,947 $ 30,673
Cost of products sold (11,409) (21,463)
Other operating expenses (147,399) (148,565)
Loss from operations (114,853) (139,315)
Net loss $ (115,486) $ (128,166)
The Company experienced a net loss of $115,486 for the three month period ending September 30, 1998, compared with a net loss of $128,166 for the same period ending September 30, 1997. On a consolidated basis, the Company had sales totaling $43,947 for the three months ended September 30, 1998, compared with $30,673 in sales for the Company for the same period ending September 30, 1997. Cost of product sales and operating expenses for the three months ended September 30, 1998 were $158,800 compared to $170,028 for the three months ended September 30, 1997. The decrease in costs of products sold and operating expenses of $11,228 is a direct result of the use of efficient distribution process with larger orders in its efforts to cut costs when applicable.
FINANCIAL RESOURCES
At September 30, 1998, the Company had current assets of $633,931 which includes inventory of $13,159 healthcare products, $492,000 diagnostic products and $15,803 in prepaid expenses.
The $2,466,911 in antisera inventory was valued by several independent unrelated parties (brokers) as of June 1994 to be in excess of $4.1 million on a bulk sale basis. The valuation was substantiated by an independent research scientist as of June 1995 and 1996. During June 1997, the carrying value of the antisera was marked down by approximately 40% to facilitate the close out sale of the product by the Company.
The antisera inventory consists of antibody reagents used in clinical diagnostic laboratories that analyze serum for immunoglobulin profiles. The antisera is kept frozen and is believed to have a shelf life in excess of twenty years.
DIAGNOSTECH, INC.
On September 16, 1998, the Company acquired the assets of AmTech Scientific, Inc. (ATS), a diagnostic company, by establishing a subsidiary, DiagnosTech, Inc. DiagnosTech, Inc. is capitalized by 6,000,000 shares of La Jolla Diagnostics, Inc.'s common stock, the Company's antisera inventory and other diagnostic technologies. The acquisition is to be accounted for as a pooling- of-interests.
RESEARCH AND DEVELOPMENT
The Company conducts research and development in four areas. The Company maintains an active research and development program in the areas of ophthalmic products, nasal sprays, nutraceuticals, and products for the symptomatic relief of allergies, and immuno/molecular diagnostics using a network of consultants in addition to its internal staff and facilities.
The research and development activities being performed by the Company are designed to discover and screen potential consumer health care and diagnostic products. Activities underway at the present time include the following for the Healthcare Products and diagnostic products through DiagnosTech, the Company's subsidiary.
HEATHCARE PRODUCTS
The Healthcare Products Division is largely based on products using a patented (U.S. Patent Number 5711950) Microcluster Template Induction Process which produces a unique clustered water product (trademarked ClusterWaterTM). This liquid crystalline structure remains chemically identical with unprocessed water, however, when exposed to active biological molecules, the liquid crystalline structure forms new polywater complexes which take on the structural and electronic "signature" of biomolecules, a process which enhances the effectiveness of the solution. The Company feels this technology, which can be used with a broad array of compounds, has significant advantages because it increases the bioavailability of formulations. Products being marketed or under development using ClusterWaterTM include:
FEVERFEW NASAL MIST (TM) (CURRENTLY BEING MARKETED)
Feverfew Nasal MistTM is being marketed by La Jolla Diagnostics, Inc. as a moisturizing nasal spray. It uses the same clustered water borate buffering system as the company's enthusiastically received Living Water Eye LotionTM. Feverfew Nasal MistTM is designed to avoid interference with natural functions, as it moistens, soothes and clears the nasal passages.
The Company intends to investigate the possibility that its patent pending moisturizing nasal spray, Feverfew Nasal Mist, may also be effective in aiding in the alleviation of the symptoms of migraine, menstrual and hangover headaches. If the results of the investigation are promising, (and there can be no assurance that they will be) the Company intends to pursue the regulatory processes necessary to add an indication to its labeling for the product's use with migraines.
The Company has applied for a patent on the product, which was introduced to the market during April 1997 and thus far is being extremely well-received. Leading alternative medicine doctors have endorsed the product, and quantities are beginning to be shipped to distributors.
MIGRASPRAY (TM) (CURRENTLY BEING MARKETED)
MigraSprayTM , a saline solution containing the herb feverfew, is designed to be sprayed under the tongue. This sublingual method of administration promotes excellent absorption.
Feverfew is the common name for Tanacetum parthenium, a flowering plant related to the chrysanthemum, whose leaves have been used for centuries in herbal remedies for the treatment of various conditions, including migraine headaches.
MigraSprayTM can be promoted for the treatment of migraine headaches because it is classified as a nutraceutical.
OTHER NASAL SPRAYS
The Company is investigating other nasal spray possibilities using the clustered water technology, including a product for the symptomatic relief of allergies.
LIVING WATER EYE LOTION (TM) (CURRENTLY BEING MARKETED)
Living Water Eye LotionTM is an eye wash or irrigating solution, used in cleansing the eye to help relieve irritation, burning, stinging, and itching due to loose foreign material, air pollutants (smog or pollen), or chlorinated water. The solution is a specially clustered water borate buffered, sterile isotonic aqueous solution containing sodium chloride. It is preserved with a mild preservative, 0.1% sorbic acid and disodium EDTA (ingredients commonly used in solutions for sensitive eyes).
Living Water Eye LotionTM is specially formulated to enhance eye comfort by irrigating, flushing and cleansing without interfering with natural functions. In contrast with "eye lubricants," "Artificial Tears," and "Lens Lubricants," which contain ingredients which increase fluid viscosity in an attempt to relieve eye dryness or re-wet contact lenses; "eye redness relievers," which contain vasoconstrictors which can cause eye problems when used too frequently; and eye drops, which contain antihistamines to treat allergy symptoms.
The product has been marketed for more than a year and has generally exceeded the expectations of those who have tried it.
OPTOPET EYE WASH (TM) (CURRENTLY BEING MARKETED)
OptoPet Eye WashTM is for cleansing the eyes of dogs and cats and removing mucous which causes fur stains beneath the eyes (a major problem in certain breeds).
The product has been introduced to pet stores and veterinarians through a public relations campaign in pet magazines and the general press. The initial response to publicity has been encouraging.
OTHER OPHTHALMIC PRODUCTS
The Company is developing additional eye solutions using the ClusterWater technology, including a product for the symptomatic relief of allergies and the treatment of glaucoma.
DRUG DELIVERY LICENSING
The Company is in contact with major pharmaceutical companies in regards to the licensing of the clustered water process as a more efficient drug delivery system for ophthalmic, nasal, injectables, parenterals and oral medications. Results of recent meetings have been encouraging.
DIAGNOSTECH, INC.
DiagnosTech, Inc., is developing and marketing clinical diagnostic products using immunologic and molecular biologic technologies. The product line now consists of eight self-contained, rapid, point-of-care diagnostics:
A rapid test for active M. tuberculosis (TB) disease.
A rapid serum/plasma test for HIV I and II (AIDS) infection.
A rapid whole blood test for HIV I and II (AIDS) infection.
A rapid test for H. pylori infection (the causative agent in over 90% of ulcers).
A rapid test for hepatitis B (hepatitis B surface antigen: HBsAg)
A rapid pregnancy test.
A rapid test for Trypanasoa cruzi infection (Chagas disease: a common and often fatal parasitic infection endemic to many parts of South and Central America).
A rapid test for Toxoplasma gondii infection (Toxoplasmosis: a common opportunistic infection among AIDS patients).
The Company believes each of these diagnostic products to be uniquely advantageous secondary to certain proprietary technology, know-how, and formulations employed by the Company, and that the TB test in particular has no equivalent in the marketplace. Each test requires only a very small sample of patient blood, serum, urine, or saliva, as the case may be. Each test gives an accurate result in 1 to 5 minutes. These tests can easily be performed by any healthcare worker, semi-skilled technician, or by the patients themselves. They are extremely rugged, require no refrigeration, and have a shelf life of 12 to 18 months. No special equipment is required to perform any test. Each test addresses a large and growing market both domestically and internationally.
Each of the diagnostic tests manufactured and marketed represent state-of-the- art technology in that they are rapid, accurate, easy-to-use, and inexpensive. These characteristics make the products ideal for both the U.S. and overseas markets. Changes in the economics of medicine increasingly favor products that can be employed economically and effectively at the point-of-care. Outside of the industrialized world, citizens of emerging economies seek access to healthcare as a high priority. Tests that address significant medical needs, are available at a modest price, and require no special instrumentation, are in high demand.
ANTISERA
The Company has transferred its antisera inventory to DiagnosTech. It consists of high quality, highly purified antibodies which are needed for basic research and clinical immunological assays. The primary users of these antisera products include universities and other research facilities, clinical diagnostic laboratories, hospitals and clinics, where certain antibody reagents are used in large volumes. DiagnosTech is in a position to market it aggressively.
MYOCARDIAL INFARCTION PREDICTOR
The Company has filed for patent application on a novel method of identifying risk factors for myocardial infarction among a certain subset of mature people. The company intends to market an inexpensive test which would be used for screening purposes. Those with this risk factor are several times more likely to experience morbidity or mortality from a condition which may be ameliorated by changes in living conditions and life style. The technology was turned over to DiagnosTech for development of the final diagnostic kit for marketing.
EXHIBIT 17.2
OTHER
On October 7, 1998, the Company announced that Stephen C. Roberts, M.D., and Bruce Whitfield, J.D., have joined its Board of Directors.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 23, 1998 LA JOLLA DIAGNOSTICS, INC.
By: /s/ Don Brucker
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Don Brucker
President, Chief Executive Officer
and Chief Financial Officer |
