UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER ____________________________
LIFESTREAM TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 82-0487965
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 LINDEN STREET, SUITE 302, FORT COLLINS, COLORADO 80524
(Address of principal executive offices)
(970) 416-9966
(Registrant's telephone number, including area code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, PAR VALUE OF $0.001
TITLE OF CLASS
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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 is not contained in this form, and no disclosure will be
contained, to the best of 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. [ ]
State issuer's revenues for its most recent fiscal year. $9,610.00
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the closing price of $1.28 at which the
common equity was sold, as of March 31, 1999 was $11,714,000.
The number of shares outstanding of the registrant's common stock as of March
31, 1999 was 11,124,576.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III Information will appear in the Registrant's Proxy Statement in
connection with its 1999 Annual Meeting of Stockholders. Such information will
be incorporated by reference as of the date of the filing of such Proxy
Statement.
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LIFESTREAM TECHNOLOGIES, INC.
FORM 10-KSB INDEX
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
<TABLE>
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INDEX
PART I
<S> <C>
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 9
Item 6. Management's Discussion and Analysis or Plan of Operation 11
Item 7. Financial Statements F-1 to F-33
Item 8. Change in and Disagreements with Accountants or Accounting
and Financial Disclosures 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 15
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial Owners and Management 15
Item 12. Certain Relationships and Related Transactions 15
Item 13. Exhibits, List and Reports on Form 8-K 16
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Signatures
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PART I
Item 1. Description of Business.
This Annual Report on Form 10-KSB, including the information incorporated by
reference herein, includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All of the statements contained in this Annual Report on Form 10-KSB,
other than statements of historical fact, should be considered forward looking
statements, including, but not limited to, those concerning the Company's
strategies, objectives and plans for expansion of its operations, products and
services and growth in demand for the Lifestream TechnologiesTM Cholesterol
Monitor. There can be no assurance that these expectations will prove to have
been correct. Certain important factors that could cause actual results to
differ materially from the Company's expectations (the "Cautionary Statements")
are disclosed in this Annual Report on Form 10-KSB. All subsequent written and
oral forward looking statements by or attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by such
Cautionary Statements. Investors are cautioned not to place undue reliance on
these forward looking statements, which speak only as of the date hereof and are
not intended to give any assurance as to future results. The Company undertakes
no obligation to publicly release any revisions to these forward looking
statements to reflect events or reflect the occurrence of unanticipated events.
Overview
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Lifestream Technologies, Inc. (the "Company" or "Lifestream"), which was
formerly Utah Coal and Chemicals Corporation, is a Nevada corporation,
reorganized on February 11, 1994 and has as its current address 201 Linden
Street, Suite 302, Fort Collins, Colorado 80524. Lifestream is a development
stage enterprise, having reported limited revenues in fiscal 1998. Lifestream
was formed to develop, manufacture and market a line of health diagnostic
instruments to domestic and international markets. Lifestream's initial product
offering is the Lifestream TechnologiesTM Cholesterol Monitor (the "cholesterol
monitor") (formerly marketed as the CholestronTM Pro II), a hand held instrument
that measures total cholesterol levels in the blood with medical laboratory
accuracy in approximately three minutes. It is used in conjunction with a
disposable dry-chemistry test strip.
Lifestream's professional-use cholesterol monitor measures total cholesterol
levels to aid in the detection of persons who may be at risk for coronary heart
disease and in the management of patients undergoing therapy with lipid lowering
drugs. Initially, the Company will focus its marketing efforts on domestic and
international pharmacists offering on-site testing to their customers and to
pharmaceutical companies who sell cholesterol lowering drugs. There are
approximately 200,000 pharmacists in the United States, working in more than
52,000 pharmacies located in drug stores, food stores and mass merchants.
Because of the identification of the pharmacy as a convenient place where
consumers can easily access healthcare, the pharmacy market has been identified
by the Company as a new market for cholesterol screening for adults in the
United States.
The Company believes its inexpensive, quantitative and timely approach to
screening and monitoring high cholesterol will set the Lifestream cholesterol
monitor apart from competing devises. The Company expects competition from
several companies, including those using "single use" cholesterol test strips
for screening purposes and those using an instrument/strip for monitoring and
diagnostics. The Company believes that no competitor to date has introduced a
quantitative monitoring product into the U.S. over-the-counter or retail market,
or met the Company's price range for a quantitative monitor for the professional
market.
Additionally, the Company believes the Lifestream cholesterol monitor offers
important educational features absent in many competing technologies. Using the
keypad, the user is able to enter risk factors associated with heart health. The
monitor uses these factors to calculate the patient's risk of a cardiac event
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over periods of five and ten years. By changing parameters, a patient can learn
how his or her "cardiac age" will improve by changing certain habits, such as
quitting smoking or beginning to exercise. The medical record card ("smart
card"), which holds up to 75 bytes of information, can be used in conjunction
with the monitor. The smart card contains a patient's cholesterol readings and
other risk factors downloaded from the Lifestream monitor. This information can
be transferred to the physician's office computer via the smart card to provide
a record detailing the total cholesterol test results for that particular
patient.
The Company is conducting product research and development to introduce a
medical data storage and transmission system compatible with Lifestream's
cholesterol monitor. Through an input/output port, the instrument would have the
ability to download patient information (cholesterol readings and other risk
factors) using a serial cable or using the Lifestream smart card. This
information combined with content from a secure website can then be transferred
to the computer of a healthcare professional to print a report.
Once this system is developed, a healthcare professional will be able to access
Lifestream's secured intranet program (being created jointly with Secured
Interactive Technologies Inc., a health information software company and
affiliate of Lifestream ("SITI")). Using this program, the healthcare
professional will be able to merge the patient information with the latest
health research to create a "Personal Health Evaluation Program" for each
patient. This personalized program will be able to be printed and reviewed with
the patient by the healthcare professional and continually updated to provide a
state-of-the-art tool to monitor a patient's health.
Corporate Formation:
- --------------------
Lifestream Development Partners ("LDP") was organized in 1989 as a general
partnership for the purpose of developing the Cholestron lipid monitor device.
The primary purpose of the original partnership was to engage in product
chemistry research and development, purchase production and exclusive
distribution rights to certain technology and to engage in various pre-marketing
and pre-production programs. During this first phase of research and development
and technology acquisition, LDP was capitalized for $2,500,000 by the three
investors.
For the second phase of business, the principals of the LDP organized Lifestream
Diagnostics, Inc. ("Lifestream Diagnostics"), as a Nevada corporation on June 1,
1992. On August 7, 1992, LDP transferred its net assets, consisting primarily of
purchased patent rights to the dry strip chemistry, to Lifestream Diagnostics in
exchange for 3,327,000 shares of the Company's common stock.
On February 11, 1994, Lifestream Diagnostics entered into a plan of
reorganization whereby Lifestream Diagnostics executed an exchange agreement
with Utah Coal & Chemical ("UTCC"), pursuant to which Lifestream Diagnostic
became a subsidiary corporation of UTCC. Prior to the acquisition of Lifestream
Diagnostics by UTCC, there were 3,295,650 shares of common stock issued and
outstanding that were owned by 685 registered shareholders of UTCC. The
3,295,650 shares were reverse split on a basis of 4 to 1, resulting in 823,913
shares outstanding at the time of acquisition. Lifestream Diagnostics was
acquired in exchange for the issuance of 4,200,000 shares of restricted common
stock. On a post acquisition basis, the total outstanding shares were 5,023,913.
Simultaneously, UTCC changed its name to Lifestream Technologies, Inc., and
Lifestream Diagnostics became a subsidiary of the Company.
Industry Overview and Product Technology Summary:
- -------------------------------------------------
The American Heart Association estimates half of American adults (97 million
people) have blood cholesterol high enough to warrant medical attention.
Coronary Heart Disease ("CHD") affects approximately 1.25 million Americans
annually and accounts for 500,000 deaths, consuming over $100 billion in health
care and related costs each year. The ongoing Framingham Heart Disease
Epidemiological Study (the "Framingham Study") which began in 1948, tracks more
than 5,000 adults to identify the major risk factors associated with CHD. The
Framingham Study has identified high cholesterol as a major risk factor for CHD
and has proved that adults with lower cholesterol levels live longer.
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Because of the recognized medical importance of managing cholesterol and
preventing CHD, the National Cholesterol Education Program ("NCEP") was formed
to educate consumers and professionals about the importance of knowing an
individual's cholesterol level and establishing guidelines for the detection,
evaluation and treatment of high cholesterol in adults. To detect cholesterol
risk and aid in therapy compliance, the NCEP recommends a whole blood total
cholesterol test at least once every five years, and if cholesterol levels are
categorized as high risk, testing is recommended once every three months.
Traditionally, cholesterol testing has been done using bench top analyzers.
Cholesterol testing using these analyzers has required large samples of whole
blood for use in separating the red blood cells from serum/plasma and produces
results in 24 to 48 hours. The separation of blood cells is vital to assure
proper color change during cholesterol testing. In addition, these machines
require exact amounts of whole blood to be used in the test. Although some bench
top analyzers are now using chemistry/strip technology, they continue to require
relatively large amounts of whole blood. Such machines cost can be in excess of
$2,000. Further, the analyzers using the chemistry/strip technology can take a
minimum of four to five minutes to determine results, in addition to the time
required for blood drawing and centrifugation.
Based on the characteristics of existing devices for cholesterol testing, the
Company believes that there is a large need in the professional market for
affordable, timely and convenient on-site testing. Further, the Company believes
that the Lifestream cholesterol monitor can be a cost-effective instrument that
enhances compliance with regular cholesterol screening and can provide
inexpensive, ongoing testing to aid in monitoring of cholesterol treatment
programs.
The Lifestream cholesterol monitor is relatively small having dimensions of 6.5"
x 4.5" x 2" and an approximate weight of one pound. The hand-held monitor
utilizes test strips that are inserted into the monitor's optics and a single
blood drop is placed on the strip. The "user friendly" instrument incorporates a
keypad which is used to turn on the instrument, recalibrate it by use of a code
which is unique to each batch of chemistry strips and to enter information
relating to the eight risk factors identified as indicators of heart health.
There is also an easy-to-read, quantitative liquid crystal display ("LCD") on
the face of the instrument on which test results are displayed.
Lifestream's technology is differentiated from current cholesterol measuring
technology by dry chemistry, in vitro diagnostics resulting from a single finger
stick drop of blood that measures cholesterol levels in the blood with medical
laboratory accuracy. The quantitative cholesterol result is obtained in three
minutes and does not require an exact amount of whole blood. The structure of
the technology consists of a multi-layer test strip manufactured by Roche
Diagnostics GmbH (formerly Boehringer Mannheim GmbH) ("Roche"). The strip uses a
chroma-graphic reaction with lipoprotein to produce a color change in direct
proportion to the quantity of total cholesterol in the blood sample. The
resulting color change is "read" by the instrument's photometry system and then
converted electronically to a quantitative cholesterol digital read-out, which
is displayed on the LCD screen of the instrument. The Lifestream cholesterol
monitor meets NCEP guidelines for precision is testing. The cholesterol monitor
also includes a cardiac risk calculator, allowing the professional operator to
determine the cardiac condition of the patient based on eight different cardiac
risk factors, including gender, age and total cholesterol among others, as
determined by the Framingham Study.
To perform a cholesterol test on the Lifestream monitor, the operator sticks the
finger, using a reusable lance device, equipped with a disposable lancet. Then a
drop of blood is placed on the dry chemical strip which has been inserted into
an opening of the optical head on the face of the unit. In approximately three
minutes the cholesterol level (which is actually the milligrams of cholesterol
per deciliter of blood) is displayed on the screen. The Company believes that
there is no other CLIA-waived, hand-held, quantitative system on the market
today that is easier to use, more accurate and quicker in obtaining results than
the Lifestream monitor. The Company has set the initial retail price under $300
compared to more than $2,000 for available bench top analyzers.
If the introduction of the Lifestream monitor system is successful, the Company
will proceed with development of follow-on tests which may include glucose,
high-density lipoprotein ("HDL"), and the triglycerides (or amount of fat) in
the sample, as well as the calculation of low density lipoprotein ("LDL").
Status of Publicly Announced Product Development:
- -------------------------------------------------
There are two primary components to the Lifestream cholesterol monitor: the
monitor and the disposable test strips. The Company is currently manufacturing
the professional-use, handheld monitor in its leased production facility located
in Post Falls, Idaho.
The Company leased this 6,500 square foot facility in June 1998.
The test strip and in vitro diagnostic optic hardware required for the
cholesterol monitor are manufactured by Roche. After the test strips are
produced by Roche, the packaged test strips are shipped to the Company's
production facility for final quality assurance inspection and packaging with
the monitor for shipment to customers. Lifestream signed a license and
manufacturing supply agreement with Roche in November 1997, pursuant to which
Roche agreed to license and supply the test strips and optic hardware to the
Company for an initial term of five years. By entering into this agreement, the
Company is able to use its capital in the manufacture and marketing of the
cholesterol monitor rather than production of its own patented chemistry.
However, Lifestream is still able to pursue the commercialization of its own
chemistry, if required or if the Company intends to pursue the enhancement of
its device to include the ability to read HDL cholesterol, triglycerides and
glucose, and such additional testing would require chemistry different from that
used in the Roche manufactured test strips. Currently, the agreement with Roche
constitutes the Company's sole source of supply to the test strips and optic
hardware used in the cholesterol monitor. The inability of the Company to meet
its supply needs through its agreement with Roche or its inability to replace
Roche as a source for components of the cholesterol monitor would have a
material adverse effect on the ability of the Company to manufacture its
product.
Competition:
- ------------
Because of the potential size of the market for quick, inexpensive, and portable
methods of cholesterol testing, there are several companies, both established
and new, working on products competitive to the Lifestream cholesterol monitor.
Some of these companies have substantially greater financial resources than
Lifestream. The substantial majority of diagnostic tests used by physicians and
other health care providers who comprise the professional-use market are
currently performed by clinical and hospital laboratories. In order to achieve
broad market acceptance for the Lifestream cholesterol monitor, the Company will
be required to demonstrate that the Lifestream cholesterol monitor is an
attractive alternative to more expensive and time consuming bench top analyzers,
as well as clinical and hospital laboratories. Competition can be separated into
two groups, those firms pursuing single-use cholesterol screening tests and
those developing an instrument/strip diagnostic/monitoring instrument-based
tests. A summary of what is known by the Company about potential competitors in
both groups is listed below:
Consumer Market Disposable Testing - Single Use
- -----------------------------------------------
Several companies have introduced or are working on disposable cholesterol
testing cards or instruments. These are very basic tests where the user takes a
blood sample, drops it on the test card and visually compares the resulting
color change or color movement (similar to a thermometer) of the sample to a
color chart. These tests require user interpretation and are semi-quantitative
which are not usually acceptable standards for the professional market. For
these types of tests, specific accuracy is not available, cholesterol counts are
given in ranges (e.g. 150-200) and the additional issues of user color blindness
or printing accuracy of the color chart must be considered. The Company feels
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that these tests will not provide competition for the segment of the marketplace
which is interested in more accurate cholesterol level testing and maintenance.
Instrument/Disposable Strip - Multiple Use Instruments
- ------------------------------------------------------
Companies currently selling products in this market segment are focused
primarily on the professional market. The barriers to entering the consumer
market have been, and continue to be, the cost of the instrument and the fact
that, for most of these instruments, a large and exact quantity of blood is
required for the test. Companies having a significant presence in the
professional market for diagnostic screening and therapeutic monitoring, such as
Abbott Laboratories, Clinical Diagnostic Systems, a division of Johnson &
Johnson, Cholestec Corporation and Boehringer Mannheim GmbH, a subsidiary of
Roche Holdings Ltd., have developed or are developing analyzers designed for
preventive care testing. These competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organizations than the Company. However, the
Company believes that it currently has a competitive advantage due to the design
and cardiac risk factor analysis capabilities of the Lifestream cholesterol
monitor as a hand-held, quantitative, affordable and regulatory-approved
instrument.
There can be no assurance that the Lifestream cholesterol monitor will be able
to compete with these other analyzers and testing devices or that the Company's
competitors will not succeed in obtaining further government approvals or in
developing or marketing technologies or products that are more commercially
attractive than the Company's current or future products.
Patents and Proprietary Instruments:
- ------------------------------------
The Company has applied for six patents covering various technologies. One
patent, issued August 4, 1992, covers the invention of the direct measurement of
HDL cholesterol with dry chemistry strips. The remaining five patent
applications are pending and relate to varying aspects of the Lifestream
cholesterol monitor.
The medical products industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and any such
litigation could result in substantial loss or diversion of Company revenues and
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that pending
patent applications filed by the Company will be approved or that the Company's
issued or pending patents will not be challenged or circumvented by competitors.
The Company believes that its future success will depend primarily upon the
technical expertise, creative skills and management abilities of its officers,
directors and key employees, as well as on patent ownership.
Distribution and Marketing:
- ---------------------------
The Lifestream cholesterol monitor will be the first product commercially
introduced by the Company. The Company has selected and qualified its initial
sources of supply of key components, including the test strips and optic
hardware from Roche, however, there are no assurances that the Company will be
able to manufacture the cholesterol monitor in compliance with regulatory
requirements, in sufficient quantities, with appropriate quality and at
acceptable costs. At present the Company's manufacturing capabilities are
supported by Good Manufacturing Guidelines ("GMP") standard operating procedures
and factory work instructions as well as an ISO-9001 based quality system. The
Company has not had its initial ISO 9001 registration visit and it cannot assure
ISO certification will be obtained. Although the company's manufacturing
facility has produced serial production under GMP control in limited quantities,
the Company has not made the transition to large quantity production.
While certain members of the Company's management have relevant marketing
experience, Lifestream has no experience marketing its product directly to end
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users. The Company intends to use third party medical product distributors to
market to alternate care sites. In the event that the Company does not enter
into third party distribution agreements for its products, significant
additional capital expenditures and management resources will be required to
develop and expand its direct sales force. While the Company has identified
potential domestic distributors, no formal distribution contracts have been
executed. There can be no assurance that the Company will be able to establish
such a sales force or enter into such third party distribution agreements to
gain market acceptance for its products.
Governmental Regulation:
- ------------------------
The Company's products are governed under the regulation of the United States
Food and Drug Administration ("FDA"). Prior to any marketing of devices, the
Company must first obtain pre-clearance from the FDA, either through the
notification ("510(k) Notification") process or the pre-market approval
application ("PMA") process.
In April 1998, the Company completed clinical studies for the Lifestream
cholesterol monitor. Upon completion of the clinical studies, the Company filed
a 510(k) Notification with the FDA. On October 1, 1998, Lifestream's cholesterol
monitor was granted marketing clearance as a professional-use, point-of-care in
vitro diagnostic device for the measurement of total cholesterol in fingerstick
whole blood samples by the FDA. Subsequently, Lifestream is developing
additional instrument and system functionality including expanded health risk
assessments and the ability to access the internet for secure data storage, data
analysis and reports. The Company is in the process of submitting additional
material and is preparing a supplementary filing to the FDA for these new
features and functions. These new features will not be able to be incorporated
into the cholesterol monitor until they have received approval by the FDA.
On February 24, 1999, the Centers for Disease Control and Prevention ("CDC")
granted a waiver from the requirements of the Clinical Lab Improvement
Amendments of 1988 ("CLIA") to the Lifestream cholesterol monitor. The
CLIA-waiver is granted by the CDC to products that meet strict ease-of-use,
accuracy and precision guidelines. The significance of the CLIA-waiver is that
it will allow Lifestream to market its product to healthcare professionals in
medical clinics, hospitals, pharmacies and other settings without meeting
extensive CDC regulatory requirements.
The Company plans to develop and market an over the counter home-use personal
cholesterol monitor. The personal monitor will be marketed to patients with high
cholesterol levels who need to monitor their progress on a cholesterol-reducing
program or those individuals who are health conscious and concerned about their
cholesterol levels. However, the Company must first complete clinical studies
for a consumer-oriented instrument and then file a 510(k) Notification with the
FDA. The Company has reviewed it's over the counter clinical trial protocol with
the FDA and is preparing to start the clinical trials. The Company anticipates
filing a 510(k) Notification after the successful completion of clinical trials.
Clinical trials will require the Company to raise additional capital. Lifestream
is positioned to start its clinical studies for this over the counter home-use
personal cholesterol monitor upon receipt of an appropriate level of third party
funding. There is no assurance that the Company will receive an appropriate
level of funding or that it can successfully complete these clinical studies or
subsequently receive FDA approval for a consumer instrument.
In general, the Company intends to develop and market tests that will require no
more than 510(k) Notification clearance. However, if the Company cannot
establish that a proposed technology is substantially equivalent to a legally
marketed device, the Company will be required to seek pre-market approval of the
proposed test cassette from the FDA through the submission of a PMA application.
If a future product were to require submission of a PMA application, regulatory
approval of such product would involve a much longer and more costly process
than a 510(k) Notification clearance. A PMA application generally must be
supported by extensive data, including laboratory, pre-clinical and clinical
data to demonstrate safety and efficacy, as well as a complete description of
the device and its components and a detailed description of the methods,
facilities and controls used to manufacture the device. In addition, the PMA
submission must include the proposed labeling, advertising literature and
training methods. The Company does not believe that its products under
development will require the submission of a PMA application.
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All products manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation by the
FDA and certain state agencies, including record keeping requirements and
reporting of adverse experience with the use of the device. In addition,
labeling and promotional activities are subject to scrutiny by the FDA.
Research and Development Activities:
- ------------------------------------
During the years ended December 31, 1998 and 1997, the Company has expended
funds on research and development activities of approximately $304,000 and
$107,000, respectively. In addition, a significant portion of all other
operating expense amounts incurred were indirectly related to product
development. It is expected that the Company will continue to expend significant
amounts for research and development for the foreseeable future periods.
Company Employees:
- ------------------
As of December 31, 1998, the Company has 22 total employees of which 18 are full
time employees. The Company anticipates that it will continue to modify the
number of employees as the demand on manufacturing operations changes, although
this may not be the case.
Item 2. Properties.
In May 1998, the Company leased a production facility of approximately 6,500
square feet located in Post Falls, Idaho. Additionally, the Company leased a
2,400 square foot office space in Ft. Collins, Colorado in June 1998. This
office space is being used as the primary location for administrative and
executive functions (marketing, sales, accounting, and human resources) for the
Company. As a result, the Company has transferred all administrative and
executive operations, from Sandpoint, Idaho, to this new office. The Company's
office lease in Sandpoint, Idaho was assumed by other parties at minimal cost to
the Company.
The Company does not currently make any investments in real estate or interests
in real estate, including real estate mortgages or securities issued by persons
primarily engaged in real estate activities, and the Company does not intend to
make such investments in the future.
Item 3. Legal Proceedings.
No matters for inclusion herein.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters for inclusion herein.
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PART II.
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock trades in the OTC bulletin board market (OTC
BB:LFST). The following table shows the quarterly high and low bid prices for
1997 and 1998 as reported by the National Quotations Bureau Incorporated. These
prices reflect inter-dealer quotations without adjustments for retail markup,
markdown or commission, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Year Period High Low
---- ------ ---- ---
<S> <C> <C> <C>
1997 First Quarter $1.03 $ .43
Second Quarter $ .81 $ .43
Third Quarter $1.06 $ .35
Fourth Quarter $1.59 $ .59
1998 First Quarter $1.00 $ .50
Second Quarter $6.13 $0.94
Third Quarter $4.38 $2.50
Fourth Quarter $4.38 $1.59
</TABLE>
At March 31, 1999 there were approximately 738 holders of record of the
Company's Common Stock.
The Company has never and has no intentions at this time to declare dividends on
its common stock. The Company presently intends to retain future earnings, if
any, to finance the expansion of its business. The future dividend policy will
depend on the Company's earnings, capital requirements, expansion plans,
financial condition and other relevant factors.
Recent Sales of Unregistered Securities
In March 1998, the Company received $250,000 cash from the issuance of a
convertible promissory note for payment of services rendered to the Company from
a third party. This note converts to shares of the Company's Common Stock at any
time prior to maturity at a per share rate of $1.25. In addition, as an
inducement to execute the promissory note, the Company issued 125,000 shares of
the Company's Common Stock to the creditor.
In May 1998, the Company sold 1,560,372 shares of the Company's Common Stock at
a price of $1.25 per share in a private offering to accredited investors in
reliance on Rule 506 of Regulation D, promulgated pursuant to the Securities Act
of 1933, as amended (the "1933 Act").
In December 1998, the Company received a total of $225,000 cash pursuant to the
issuance of three separate convertible notes. The notes, which mature two years
from the date of grant, accrue interest at prime plus 2% (9.75% at December 31,
1998) and a re convertible at anytime into shares of the Company's Common Stock
at a per share rate of $2.50. In connection with the debt, the Company issued
33,750 shares of its Common Stock to the noteholders as an inducement to execute
the notes.
In January 1998, the Company sold 35,683 and 125,000 shares of Common Stock at a
price of $0.75 and $1.00 per share, respectively in a private placement of
securities.
In May 1998 and September 1998, the Company issued 12,500 and 15,000 shares of
Common Stock, respectively, to employees for services rendered to the Company
valued at $12,500 and $18,750, respectively.
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In June 1998 and July 1998, the Company sold 89,000 shares of Common Stock to
certain employees at a price of $1.25 per share and issued 89,000 shares of
Common Stock for future services in connection with the execution of employment
agreements by such employees.
In June 1998, the Company issued 155,045, 26,020 and 200,000 shares of the
Common Stock for conversion of short-term debt at a price of $0.75, $1.00 and
$1.25 per share, respectively.
In 1998, the Company issued 53,413, 34,176, 53,000 and 10,000 shares of Common
Stock for services provided to the Company by third parties at prices ranging
from $0.75 to $2.00 per share.
The Company issued 20,000 and 14,210 shares of Common Stock for services
provided to the Company by third parties at a price of $0.75 in January 1997 and
September 1997, respectively.
In September 1997, the Company issued 8,318 shares of the Common Stock for
repayment of debt at $0.75 price per share.
In December 1997, the Company sold 261,333 shares of the Company's Common Stock
at a price of $0.75 per share in a private offering to accredited investors in
reliance on Rule 506 of Regulation D, promulgated pursuant to the 1933 Act.
10
<PAGE>
Item 6. Plan of Operation
The following Plan of Operation contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth elsewhere in this document.
The Company plans to market the Lifestream cholesterol monitor to healthcare
professionals. The healthcare professionals are expected to use the instrument
to detect and monitor patients with cholesterol concerns.
During the twelve months ending December 31, 1999, the Company also intends to
conduct product research and development to introduce a medical data storage and
transmission system compatible with Lifestream's cholesterol instrument. Through
an input/output port, the instrument would have the ability to download patient
information (cholesterol readings and other risk factors) using a serial cable
or using a Lifestream smart card. This information, along with a secure website,
can then be transferred to the computer of a healthcare professional to print a
health evaluation report.
Once this system is developed, a healthcare professional will be able to access
Lifestream's secured intranet program being created jointly with SITI. The
healthcare professional will be able to merge the patient information with the
latest health research to create a "Personal Health Evaluation Program" for each
patient. This personalized program will be able to be printed and reviewed with
the patient by the healthcare professional and continually updated to provide a
state-of-the-art tool to encourage behavioral change. The Company has entered
into negotiations to merge with SITI. SITI is a development stage company with a
primary focus on developing internet-related secured transmission technology.
The Company believes that this technology would enhance its own product through
the ability to transmit information contained within the smartcard
electronically to the cardholder's healthcare provider. Although the Company's
intent is to complete the merger during 1999 through a stock-for-stock
transaction, there can be no assurances that the Company will be successful in
its efforts.
The Company has been in the development stage since its inception. The Company
has had no recurring source of revenue, has incurred operating loses since
inception and at December 31, 1998, had a working capital deficiency. As of
December 31, 1998, Lifestream had an accumulated deficit of approximately $5.5
million.
The development and marketing of medical devices and related products is capital
intensive. The Company has funded operations to date through private equity and
debt financing arrangements. The Company has utilized these funds to develop
products, establish marketing and sales operations and support initial
production of the Company's products. As of December 31, 1998, the Company had a
working capital deficit of $302,000 and requires additional funding in order to
continue as a going concern.
Subsequent to December 31, 1998, the Company has obtained approximately $900,000
in debt and equity financing. If the Company is unable to obtain additional
funding on a timely basis, there would be substantial doubt about the Company's
ability to continue as a going concern. Additionally, substantial funding from
third parties will also need to be raised in order to successfully manufacture,
market and distribute the Company's products over the course of the twelve-month
period ending December 31, 1999. Due to the capital restraints on the Company
since December 31, 1998, Lifestream has reduced administrative costs by
restructuring employee salaries to include payments in the form of Company
Common Stock instead of cash.
11
<PAGE>
Operating Expenses:
Operating expenses include those costs incurred to bring the Company's product
to market relative to both research and development and general administration.
Operating expenses increased to $3,046,000 for the year ended December, 1998
from $538,000 for the year ended December 31, 1997. The increase of $2,504,000
was primarily due to an increase in professional expenses, salary costs and
research and development as the Company accelerated its efforts to bring the
Lifestream cholesterol monitor to market. These increases resulted from the
opening of a production facility in Post Falls, Idaho and an administrative
office in Ft. Collins, Colorado. Salary and rent expense increased in order to
staff and maintain these new facilities. In addition, the Company incurred
certain costs to prepare a number of Lifestream cholesterol monitor units
necessary for a preproduction run. Finally, the Company has employed certain
individuals in order to begin marketing the Lifestream cholesterol monitor and
to create consumer product awareness.
Other Expenses and Income:
Other expenses and income includes those costs incurred relative to interest
earned, interest paid, financing costs, and for other miscellaneous
non-operating matters. For the year ended December 31, 1998, other expense, net
was $80,000 as compared to $22,000 for the year ended December 31, 1997. This
increase of $58,000 in other expense was primarily attributable to the
increasing base in debt for which interest and financing costs were accrued.
Net Loss:
Primarily as a result of the foregoing factors, the Company's net loss was
$3,122,000 for the year ended December 31, 1998 and $560,000 for the year ended
December 31, 1997. This represents an increase in the loss for the same period
of $2,562,000.
Financial Condition:
During the year ended December 31, 1998, the Company used cash in operating
activities of $1,983,000 as compared to $235,000 for the year ended December 31,
1997. This increase of $1,748,000 was primarily due to the increase in the net
loss for the period. As of December 31, 1998, the Company had a balance of
$92,000 in cash and cash equivalents. The Company has historically financed its
operations through funds raised through the offering of its common stock and
issuance of debt securities.
As of December 31, 1998, Lifestream had no recurring source of revenue, had
incurred losses since its inception and had a working capital deficiency.
Primarily as a result of these factors, the Company's independent certified
public accountants included an explanatory paragraph in their report on the
Company's 1998 consolidated financial statements which expressed substantial
doubt about the Company's ability to continue as a going concern. Management of
the Company believes the ability of the Company to continue as a going concern
and achieve profitability is highly dependent upon numerous factors including,
but not limited to: the Company's ability to directly market and distribute its
products in North America; successful completion of the Company's regulatory
approval process; and the ability to provide the product at a cost efficient
price and quantity. Due to the uncertainty of these factors, it is difficult to
reliably predict when such profitability may occur, if at all.
Year 2000 Compliance:
Management has initiated a company-wide program to prepare its financial,
manufacturing, and other critical systems and applications for the year 2000.
12
<PAGE>
The focus of the program is to identify affected systems, develop a plan to
correct those systems in the most effective manner and then implement and
monitor the plan. The program also includes communications with the Company's
significant suppliers and customers to determine the extent to which the Company
is vulnerable to any failures by them to address the Year 2000 issue. As part of
a program developed by the FDA Center for Devices and Radiological Health, the
Lifestream cholesterol monitor was certified in June of 1998 to be Year 2000
compliant. The Company is responsive to the Year 2000 compliance mandate from
the FDA. As of December 31, 1998, the Company had not expended material amounts
related to the Year 2000 issue because the majority of its systems have been
purchased from vendors that have certified that their systems are Year 2000
compliant. Although the Company's Year 2000 program is in various stages of
completion, the Company anticipates it will have all modifications and
replacements in place before the end of 1999. However, at this time, the Company
is not able to determine the estimated impact on the operations of the Company
should it or one of its suppliers or customers be unable to successfully address
the Year 2000 issue.
New Accounting Pronouncements
- -----------------------------
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging g instrument, the gain or loss is recognized as income in the period of
change. SFAS 133 is effective for all fiscal quarters if fiscal years beginning
after June 15, 1999. Based on its current and planned future activities relative
to derivative instruments, the Company believes that the adoption of SFAS 133 on
January 1, 2000 will not have a significant effect on its financial statements.
In June 1998 the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5
("SOP 98-5"), Reporting on the Costs of Start-up Activities. SOP 98-5 requires
all start-up and organizational costs to be expensed as incurred. It also
requires all remaining historically capitalized amounts of these costs existing
at the date of adoption to be expensed and reported as the cumulative effect of
a change in accounting principle. SOP 98-5 is effective for all fiscal years
beginning after December 31, 1998. The Company believes that the adoption of SOP
98-5 on January 1, 2000 will not have a significant effect on its financial
statements.
Item 7. Financial Statements.
The Company's consolidated financial statements and notes thereto appear
beginning on page F-1 of this Form 10-KSB Annual Report.
13
<PAGE>
Item 8. Change In and Disagreements with Accountants on Accounting and
Financial Disclosure
On November 15, 1997, the Company dismissed the accounting firm of Terrence J.
Dunne, CPA ("Mr. Dunne") as the Company's independent accountant. The Board of
Director's decision to change independent accounting firms was the result of a
mutually agreeable decision between the Company and Mr. Dunne which resulted in
Mr. Dunne submitting a resignation letter to the Company, that was received on
November 15, 1997. The Company solicited a formal proposal from BDO Seidman, LLP
("BDO") due to BDO's reputation and expertise in the medical products
manufacturing industry.
During the two most recent fiscal years and the subsequent interim period prior
to December 5, 1997, there have been no disagreements with Mr. Dunne on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure or any reportable events. Mr. Dunne's report on the
consolidated financial statements of the Company for the fiscal years prior to
1997 contained an explanatory paragraph relative to a going concern uncertainty.
There were no limitations on the scope of the opinion or on the work performed.
The Company provided the above disclosure to Mr. Dunne, and requested that he
furnish the Company with a letter addressed to the Securities and Exchange
Commission (the "SEC") stating whether he agreed with the above statements. Mr.
Dunne in his letter dated May 4, 1998, stated that he did in fact agree with the
statements made herein.
The Company engaged BDO effective December 5, 1997. During the years ended
December 31, 1997 and 1996, the Company did not consult with BDO regarding: (i)
the application of accounting principles to a specified transaction; (ii) the
type of opinion that might be rendered on the Company's financial statements; or
(iii) any matter that was the subject of a disagreement with the Company's
former accountant or a reportable event (as contemplated by Item 304 of
Regulation S-B)
The Company provided BDO with a copy of the 8-K, and requested that BDO review
such report before it was filed with the SEC and gave BDO the opportunity to
furnish the Company with a letter addressed to the SEC containing any new
information, clarification or statement as to whether they agreed with the
statements made by the Company regarding the Company's relationship with BDO.
14
<PAGE>
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Information in response to this item will appear in the Company's definitive
Proxy Statement distributed in connection with its 1999 Annual Meeting of
Stockholders. Such Proxy Statement will be filed with the SEC pursuant to
Regulation 14A and will be incorporated by reference as of the date of such
filing.
Item 10. Executive Compensation.
Information in response to this item will appear in the Company's definitive
Proxy Statement distributed in connection with its 1999 Annual Meeting of
Stockholders. Such Proxy Statement will be filed with the SEC pursuant to
Regulation 14A and will be incorporated by reference as of the date of such
filing.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information in response to this item will appear in the Company's definitive
Proxy Statement distributed in connection with its 1999 Annual Meeting of
Stockholders. Such Proxy Statement will be filed with the SEC pursuant to
Regulation 14A and will be incorporated by reference as of the date of such
filing.
Item 12. Certain Relationships and Related Transactions.
The chairman of the Company, Christopher Maus, has received various cash
advances which were formalized into a note receivable on December 31, 1995. The
note bears interest at 8% per annum until paid and is due on demand. The note
receivable balance, including accrued interest, at December 31, 1998 and 1997,
respectively, was $97,090 and $79,104.
The Company entered into an employment agreement in September 1998 with Gerald
Tschikof, the former Chief Executive Officer and President of the Company,
pursuant to which the Company loaned Mr. Tschikof $25,000 for the purchase of
20,000 shares of Company Common Stock. The loan has a term of 48 months.
During 1998, the Company advanced funds totaling $91,282 to SITI. Advances under
the note accrue interest at a rate of 8% and have no stated maturity date.
Interest accrued on the note totaled $2,334 at December 31, 1998. During 1998,
the Company paid certain direct expenses and shared certain facilities and
resources with SITI. As of December 31, 1998, approximately $195,800 was owed by
SITI to the Company as the agreed-upon estimate of the fair value of the
benefits received.
15
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits are listed in the Exhibit Index on page 20 of this
Form 10-KSB, which is incorporated herein by reference.
(b) Reports on Form 8-K. No reports on Form 8-K were filed for the
quarter ended December 31, 1998.
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
LIFESTREAM TECHNOLOGIES, INC.
BY: /s/ Christopher Maus
-------------------------------------------------
Chief Executive Officer and Chairman of the Board
DATE: April 15, 1999
BY: /s/ Criss Sakala
-------------------------------------------------
Criss Sakala, Secretary and Treasurer
DATE: April 15, 1999
<PAGE>
Lifestream Technologies, Inc.
and Subsidiary
(A Development
Stage Company)
Consolidated financial Statements
Years Ended December 31, 1998 and 1997
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Contents
Reports of Independent Certified Public Accountants 3
Consolidated Financial Statements:
Balance Sheets 4
Statements of Loss 5
Statements of Changes in Stockholders' Equity 6-17
Statements of Cash Flows 18-19
Summary of Accounting Policies 20-23
Notes to Consolidated Financial Statements 24-33
2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors of
Lifestream Technologies, Inc.
Fort Collins, Colorado
We have audited the accompanying consolidated balance sheets of Lifestream
Technologies, Inc. (a development stage company), as of December 31, 1998 and
1997, and the related consolidated statements of loss, changes in stockholders'
equity and cash flows for the years then ended. We have also audited the
consolidated statements of loss, stockholders' equity and cash flows for the
period from inception (August 7, 1992) through December 31, 1998, except that we
did not audit these statements for the period from inception (August 7, 1992)
through December 31, 1996; those statements were audited by another auditor
whose report, dated August 20, 1997, expressed an unqualified opinion on those
statements. 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 consolidated 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, based on our audits and the report of another auditor, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Lifestream
Technologies, Inc. as of December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the years then ended and for
the period from inception (August 7, 1992) through December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has no recurring source of
revenue, has incurred losses since inception and, at December 31, 1998, has
negative working capital. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BDO Seidman, LLP
Spokane, Washington
March 29, 1999 except for Note 14,
which is as of April 9, 1999
3
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 1)
Current assets:
Cash $ 91,555 $ 6,160
Accounts receivable 247 --
Inventories (Note 2) 129,140 30,802
Prepaid expenses 2,152 2,068
- -------------------------------------------------------------------------------------------------
Total current assets 223,094 39,030
- -------------------------------------------------------------------------------------------------
Equipment and leasehold improvements, net (Note 3) 486,795 23,754
- -------------------------------------------------------------------------------------------------
Other assets:
Patent and license rights, net of accumulated
amortization of $617,795
and $493,103 (Note 5) 1,499,070 1,623,762
Note receivable, officer (Note 4) 97,090 79,104
Note receivable, related company (Note 4) 289,416 --
Deferred financing costs (Note 7) 59,738 --
Other 8,515 1,500
- -------------------------------------------------------------------------------------------------
Total other assets 1,953,829 1,704,366
- -------------------------------------------------------------------------------------------------
Total assets $2,663,718 $1,767,150
=================================================================================================
4
</TABLE>
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 367,763 $ 216,918
Accrued wages and payroll taxes 112,931 --
Interest payable 1,442 20,371
Current maturities of note payable (Note 6) 36,330 --
Current maturities of capital lease obligation (Note 10) 6,580 --
Related party payable (Note 8) -- 12,435
Notes payable (Note 6) -- 41,144
- -------------------------------------------------------------------------------------------------
Total current liabilities 525,046 290,868
- -------------------------------------------------------------------------------------------------
Notes payable, less current maturities (Note 6) 127,220 --
Capital lease obligation, less current maturities (Note 10) 18,492 --
Convertible debt (Note 7) 225,000 100,000
- -------------------------------------------------------------------------------------------------
Total liabilities 895,758 390,868
- -------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 6, 7, 9, 10, 12, 13 and 14)
Stockholders' equity (Notes 9, 13 and 14):
Preferred stock, $.001 par value; 5,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock, $.001 par value; 50,000,000 shares
authorized; 11,077,326 and 8,041,500 shares issued
and outstanding 11,077 8,041
Additional paid-in capital 7,895,968 3,773,536
Unearned stock compensation (610,442) --
Stock subscription receivable (1,230) --
Deficit accumulated during the development stage (5,527,413) (2,405,295)
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 1,767,960 1,376,282
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,663,718 $ 1,767,150
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
5
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Loss
<TABLE>
<CAPTION>
Cumulative
Amounts
from Date
of Inception
(August 7, 1992)
through Year Ended December 31,
December 31, ---------------------------------
1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 9,610 $ 9,610 $ --
Cost of sales 6,167 6,167 --
- ----------------------------------------------------------------------------------------------------------------
Gross profit 3,443 3,443 --
Operating expenses:
Depreciation and amortization 735,303 223,898 130,781
Professional fees 1,416,131 516,808 95,527
Travel 377,966 166,806 45,430
Research and development 520,993 304,432 106,999
Salaries and wages -- stock (Note 12) 481,878 475,202 6,676
Salaries and wages -- cash 922,030 714,280 100,000
Selling, general and administrative 983,650 644,295 52,261
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 5,437,951 3,045,721 537,674
- ----------------------------------------------------------------------------------------------------------------
Loss from operations (5,434,508) (3,042,278) (537,674)
- ----------------------------------------------------------------------------------------------------------------
Other (expense) income
Interest income 49,280 32,596 5,532
Interest expense (151,580) (112,436) (15,067)
Other, net 9,395 -- (12,634)
- ----------------------------------------------------------------------------------------------------------------
Total other expense (92,905) (79,840) (22,169)
- ----------------------------------------------------------------------------------------------------------------
Net loss $ (5,527,413) $ (3,122,118) $ (559,843)
- ----------------------------------------------------------------------------------------------------------------
Net loss per share -- Basic and diluted $ (0.32) $ (0.07)
- ----------------------------------------------------------------------------------------------------------------
Weighted average number of shares -- Basic and diluted 9,812,680 7,831,675
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
6
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- --------------------------------------------------------------------------------------------------------------------------------
Common stock issued for net assets of
prior entity at $0.21 per share (Note 5) 3,327,000 $ 3,327 $ 703,538 $ -- $ --
Common stock issued for cash at $0.83
per share 42,000 42 34,958 -- --
Net loss -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1992 3,369,000 3,369 738,496 -- --
Common stock issued for cash at $0.83
per share 24,000 24 19,976 -- --
Common stock issued for services at
$0.83 per share 18,000 18 14,982 -- --
Common stock issued for cash at $2.97
per share 33,708 34 99,966 -- --
Exercise of stock options 150,000 150 -- -- --
Deficit
Accumulated
During the
Development
Stage Total
- -----------------------------------------------------------------------------
<S> <C> <C>
Common stock issued for net assets of
prior entity at $0.21 per share (Note 5) $ -- $ 706,865
Common stock issued for cash at $0.83
per share -- 35,000
Net loss (41,113) (41,113)
- -----------------------------------------------------------------------------
Balances as of December 31, 1992 (41,113) 700,752
Common stock issued for cash at $0.83
per share -- 20,000
Common stock issued for services at
$0.83 per share -- 15,000
Common stock issued for cash at $2.97
per share -- 100,000
Exercise of stock options -- 150
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
7
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common stock issued for services at
$2.97 per share 2,360 2 7,007 -- --
Common stock issued for cash at $3.00
per share 1,666 2 4,998 -- --
Common stock issued for patent rights
at $3.00 per share (Note 5) 470,000 470 1,409,530 -- --
Common stock issued for services at
$.54 per share 130,000 130 70,120 -- --
Common stock issued for services at
$.19 per share 1,266 1 245 -- --
Adjustments of outstanding shares of
common stock after reverse acquisition 823,913 823 (823) -- --
Net loss -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- --------------------------------------------------------------------------------
<S> <C> <C>
Common stock issued for services at
$2.97 per share -- 7,009
Common stock issued for cash at $3.00
per share -- 5,000
Common stock issued for patent rights
at $3.00 per share (Note 5) -- 1,410,000
Common stock issued for services at
$.54 per share -- 70,250
Common stock issued for services at
$.19 per share -- 246
Adjustments of outstanding shares of
common stock after reverse acquisition -- --
Net loss (146,335) (146,335)
- -------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
8
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1993 5,023,913 5,023 2,364,497 -- --
Common stock issued as a correction of
prior issue 25 -- 25 -- --
Common stock issued for cash at $.36
per share 280,000 280 99,865 -- --
Net loss -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1994
(Note 12) 5,303,938 5,303 2,464,387 -- --
Common stock issued for services at
$.25 per share 289,500 290 72,085 -- --
Common stock issued for cash at $.25
per share 290,000 290 72,211 -- --
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- ------------------------------------------------------------------------------
<S> <C> <C>
Balances as of December 31, 1993 (187,448) 2,182,072
Common stock issued as a correction of
prior issue -- 25
Common stock issued for cash at $.36
per share -- 100,145
Net loss (248,200) (248,200)
- ------------------------------------------------------------------------------
Balances as of December 31, 1994 (Note
12) (435,648) 2,034,042
Common stock issued for services at
$.25 per share -- 72,375
Common stock issued for cash at $.25
per share -- 72,501
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
9
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common stock issued for cash at $1.00
per share 5,000 5 4,995 -- --
Common stock issued for reduction of
debt at $.50 per share (Note 5) 100,000 100 49,900 -- --
Exercise of stock options 286,500 286 6,493 -- --
Compensatory stock options issued -- -- 51,375 -- --
Net loss -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1995 6,274,938 6,274 2,721,446 -- --
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- ---------------------------------------------------------------------------
<S> <C> <C>
Common stock issued for cash at $1.00
per share -- 5,000
Common stock issued for reduction of
debt at $.50 per share (Note 5) -- 50,000
Exercise of stock options -- 6,779
Compensatory stock options issued -- 51,375
Net loss (657,840) (657,840)
- ---------------------------------------------------------------------------
Balances as of December 31, 1995 (1,093,488) 1,634,232
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
10
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common stock issued for services at
$.50 per share 26,350 26 13,149 -- --
Common stock issued for services at
$.60 per share 390,000 390 233,610 -- --
Common stock issued for services at
$.75 per share 12,263 12 9,185 -- --
Common stock issued for reduction of
debt and accrued interest at $.75 per
share 182,710 183 136,850 -- --
Common stock issued for cash at $.50
per share 50,000 50 24,950 -- --
Common stock issued for cash at $.75
per share 27,333 27 20,472 -- --
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- -------------------------------------------------------------------------------------
<S> <C> <C>
Common stock issued for services at
$.50 per share -- 13,175
Common stock issued for services at
$.60 per share -- 234,000
Common stock issued for services at
$.75 per share -- 9,197
Common stock issued for reduction of
debt and accrued interest at $.75 per
share -- 137,033
Common stock issued for cash at $.50
per share -- 25,000
Common stock issued for cash at $.75
per share -- 20,499
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
11
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common stock issued for reduction of
account payable at $.48 per share 130,000 130 62,570 -- --
Common stock issued for reduction of
account payable at $.50 per share 21,413 22 10,685 -- --
Common stock issued for reduction of
account payable at $.75 per share 22,632 23 16,951 -- --
Exercise of stock options (Note 12) 250,000 250 31,000 -- --
Contributed services (Note 12) -- -- 83,000 -- --
Compensatory stock options issued (Note
6) -- -- 51,500 -- --
Net loss -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1996 7,387,639 7,387 3,415,368 -- --
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- ---------------------------------------------------------------------------
<S> <C> <C>
Common stock issued for reduction of
account payable at $.48 per share -- 62,700
Common stock issued for reduction of
account payable at $.50 per share -- 10,707
Common stock issued for reduction of
account payable at $.75 per share -- 16,974
Exercise of stock options (Note 12) -- 31,250
Contributed services (Note 12) -- 83,000
Compensatory stock options issued (Note
6) -- 51,500
Net loss (751,964) (751,964)
- ----------------------------------------------------------------------------
Balances as of December 31, 1996 (1,845,452) 1,577,303
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
12
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Exercise of stock options 250,000 250 -- -- --
Common stock issued for services at
$.75 per share 34,210 34 25,624 -- --
Common stock issued for cash at $.75
per share 261,333 262 195,738 -- --
Common stock issued for repayment of
debt and accrued interest at $.75 per
share (Note 5) 8,318 8 6,230 -- --
Exercise of stock options 100,000 100 23,900 -- --
Compensatory stock options issued -- -- 6,676 -- --
Contributed services -- -- 100,000 -- --
Net loss -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- --------------------------------------------------------------------------
<S> <C> <C>
Exercise of stock options -- 250
Common stock issued for services at
$.75 per share -- 25,658
Common stock issued for cash at $.75
per share -- 196,000
Common stock issued for repayment of
debt and accrued interest at $.75 per
share (Note 5) -- 6,238
Exercise of stock options -- 24,000
Compensatory stock options issued -- 6,676
Contributed services -- 100,000
Net loss (559,843) (559,843)
- ---------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
13
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1997 8,041,500 8,041 3,773,536 -- --
Exercise of stock options 326,867 327 46,454 -- --
Common stock issued for services at
$0.75 per share 53,413 53 53,976 -- --
Common stock issued for services at
$1.00 per share 34,176 34 54,643 -- --
Common stock issued for services at
$1.25 per share 53,000 53 66,197 -- --
Common stock issued for services at
$2.00 per share 10,000 10 19,990 -- --
Common stock issued to directors for
services at $2.23 per share 32,000 32 71,218 -- --
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- ----------------------------------------------------------------------------
<S> <C> <C>
Balances as of December 31, 1997 (2,405,295) 1,376,282
Exercise of stock options -- 46,781
Common stock issued for services at
$0.75 per share -- 54,029
Common stock issued for services at
$1.00 per share -- 54,677
Common stock issued for services at
$1.25 per share -- 66,250
Common stock issued for services at
$2.00 per share -- 20,000
Common stock issued to directors for
services at $2.23 per share -- 71,250
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
14
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common stock issued to directors for
services at $3.35 per share 60,000 60 201,540 -- --
Common stock issued for cash at $0.75
per share 35,683 36 26,728 -- --
Common stock issued for cash at $1.00
per share 125,000 125 124,875 -- --
Common stock issued for cash at $1.25
per share 1,560,372 1,560 1,948,905 -- --
Common stock issued for cash and
matching employee purchase at $4.12 per
share 178,000 178 732,410 -- --
Common stock issued for cash and
matching employee purchase at $1.00 per
share 12,500 13 12,487 -- --
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- --------------------------------------------------------------------------
<S> <C> <C>
Common stock issued to directors for
services at $3.35 per share -- 201,600
Common stock issued for cash at $0.75
per share -- 26,764
Common stock issued for cash at $1.00
per share -- 125,000
Common stock issued for cash at $1.25
per share -- 1,950,465
Common stock issued for cash and
matching employee purchase at $4.12 per
share -- 732,588
Common stock issued for cash and
matching employee purchase at $1.00 per
share -- 12,500
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
15
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common stock issued as compensation at
$2.50 per share 15,000 15 37,485 -- --
Common stock issued with convertible
debt at $1.25 per share (Note 7) 125,000 125 156,125 -- --
Common stock issued on conversion of
debt at $0.75 per share 155,045 155 116,129 -- --
Common stock issued on conversion of
debt at $1.00 per share (Note 7) 26,020 26 25,994 -- --
Common stock issued on conversion of
debt at $1.25 per share (Note 7) 200,000 200 249,800 -- --
Common stock issued with convertible
debt at $0.56 per share 33,750 34 59,704 -- --
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- ---------------------------------------------------------------------------
<S> <C> <C>
Common stock issued as compensation at
$2.50 per share -- 37,500
Common stock issued with convertible
debt at $1.25 per share (Note 7) -- 156,250
Common stock issued on conversion of
debt at $0.75 per share -- 116,284
Common stock issued on conversion of
debt at $1.00 per share (Note 7) -- 26,020
Common stock issued on conversion of
debt at $1.25 per share (Note 7) -- 250,000
Common stock issued with convertible
debt at $0.56 per share -- 59,738
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
16
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stock Unearned
Common Stock Paid-in Subscription Stock
Shares Amount Capital Receivable Compensation
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unearned compensation, net of
amortization of $163,308 -- -- -- -- (610,442)
Compensatory stock options issued -- -- 117,772 -- --
Stock subscription receivable -- -- -- (1,230) --
Net loss -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1998 11,077,326 $ 11,077 $ 7,895,968 $ (1,230) $ (610,442)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- -----------------------------------------------------------------------------
<S> <C> <C>
Unearned compensation, net of
amortization of $163,308 -- (610,442)
Compensatory stock options issued -- 117,772
Stock subscription receivable -- (1,230)
Net loss (3,122,118) (3,122,118)
- -----------------------------------------------------------------------------
Balances as of December 31, 1998 $ (5,527,413) $ 1,767,960
- -----------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
17
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
Date of
Inception
(August 7, 1992)
through Year Ended December 31,
December 31, -------------------------
1998 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(5,527,413) (3,122,118) (559,843)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 735,303 223,898 130,781
Issuance of common stock for services 914,716 467,806 25,658
Stock issued with debt 215,988 215,988 --
Issuance of compensatory stock
options for services 213,960 104,409 6,676
Contributed services 183,000 -- 100,000
Changes in assets and liabilities:
Accounts receivable (247) (247) --
Inventories (129,140) (98,338) 4,929
Prepaid expenses (2,152) (84) 24,932
Other (8,515) (7,015) 9,206
Accounts payable 458,144 138,410 7,576
Other current liabilities 122,644 94,002 15,367
- -----------------------------------------------------------------------------------------
Net cash used in operating activities (2,823,712) (1,983,289) (234,718)
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (355,155) (313,099) (13,705)
Advance to related party company (289,416) (289,416) --
Advances to officer (97,090) (17,986) (20,896)
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (741,661) (620,501) (34,601)
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
18
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
Date of
Inception
(August 7, 1992)
through Year Ended December 31,
December 31, -------------------------
1998 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of convertible debt 600,000 500,000 50,000
Proceeds from exercise of stock options 109,210 46,781 24,250
Payments on capital lease obligations (2,520) (2,520) --
Payments on note payable (8,006) (8,006) --
Proceeds from notes payable 226,144 -- --
Proceeds from sale of common stock 2,732,100 2,152,930 196,000
- -----------------------------------------------------------------------------------------
Net cash provided by financing activities 3,656,928 2,689,185 270,250
- -----------------------------------------------------------------------------------------
Net increase in cash 91,555 85,395 931
Cash at beginning of period -- 6,160 5,229
- -----------------------------------------------------------------------------------------
Cash at end of period $ 91,555 $ 91,555 $ 6,160
- -----------------------------------------------------------------------------------------
Supplemental schedule of non-cash investing
and financing activities:
Issuance of common stock in exchange for:
Patent and distribution rights $ 2,116,865 $ -- $ --
Reduction of note payable 226,144 41,144 5,000
Reduction of accrued interest 8,271 -- 1,238
Reduction of accounts payable 90,381 -- --
Conversion of debt 375,000 375,000 --
Note payable for leasehold improvements 249,148 249,148 --
Deferred financing costs 59,738 59,738 --
- -----------------------------------------------------------------------------------------
Supplemental schedule of cash activities:
Interest paid in cash $ 3,128 $ 3,128 $ --
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial statements.
19
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Nature of Business Lifestream Technologies, Inc. ("Lifestream Technologies"
or "the Company") is a development stage enterprise
which holds exclusive manufacturing and marketing rights
in the United States for the Cholestron, a hand held
instrument that measures cholesterol levels as well as
other components in blood. The Company was incorporated
pursuant to the laws of the state of Nevada in June
1992.
Basis The consolidated financial statements include
of Presentation the operations of the Company and its wholly
owned subsidiary, Lifestream Diagnostics, Inc. All
intercompany accounts and transactions have been
eliminated.
Cash Equivalents For financial reporting purposes, the Company considers
all highly liquid investments purchased with an original
maturity of three months or less to be a cash
equivalent. Financial instruments which potentially
subject the Company to a concentration of credit risk
consist of cash and cash equivalents. Cash and cash
equivalents consist of funds deposited with various high
credit quality financial institutions.
Inventories Inventories consists of supplies, component parts and
assembled devices. Inventories are stated at the lower
of cost (first-in, first-out method) or market.
Equipment Equipment and leasehold improvements are recorded at
and Leasehold cost. Depreciation and amortization are provided using
Improvements the straight-line method over the useful lives or lease
term of the respective assets. Major additions and
betterments are capitalized. Upon retirement or
disposal, the cost and related accumulated depreciation
or amortization are removed from the accounts and any
gain or loss is reflected in operations.
Patent The costs associated with acquiring patented technology
have been capitalized and are being charged to expense
using the straight line method of amortization over
seventeen years, the estimated useful life of the
patent. Management of the Company reviews the carrying
20
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Summary of Accounting Policies
- --------------------------------------------------------------------------------
value of its intangible assets on a regular basis.
Estimated undiscounted future cash flows from the
intangible assets are compared with the current carrying
value. Reductions to the carrying value are recorded to
the extent the net book value of the property exceeds
the estimate of future discounted cash flows.
Income Taxes Income taxes are provided based on the liability method
of accounting pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under this approach, deferred income
taxes are recorded to reflect the tax consequences on
future years of differences between the tax basis of
assets and liabilities and their financial reporting
amounts at each year end. A valuation allowance is
recorded against deferred tax assets if management does
not believe the Company has met the "more likely than
not" standard imposed by SFAS 109 to allow recognition
of such an asset.
Research and Research and development costs are charged to expense as
Development incurred.
Estimates The preparation of financial statements in conformity
with generally accepted accounting principles 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
dates of the financial statements and the reported
amounts of revenues and expenses during the reporting
periods. Actual results could differ from those
estimates.
Fair Value of The carrying amounts reported in the consolidated
Financial balance sheets as of December 31, 1998 and 1997 for cash
Instruments equivalents, accounts payable and accrued expenses
approximate fair value because of the immediate or
short-term maturity of these financial instruments. The
fair value of the notes receivable from an officer and a
related company cannot be determined. The fair value of
long-term debt, capital lease obligations and notes
payable approximates carrying value as the stated or
discounted rates of the debt reflect recent market
conditions.
21
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Stock Based SFAS No. 123, "Accounting for Stock-Based Compensation,"
Compensation encourages, but does not require, companies to record
compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue
to account for stock-based compensation using the
intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations and to
furnish the pro forma disclosures required under SFAS
No. 123, if material. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date
of the grant over the amount an employee must pay to
acquire the stock.
Net Loss Per Share Basic earnings per share ("EPS") is computed as net
income divided by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from common
shares issuable through stock options, warrants and
other convertible securities. As the Company's stock
options, which cover 981,665 and 591,745 shares of the
Company's common stock at December 31, 1998 and 1997,
are antidilutive for all periods presented only basic
EPS is presented. These securities could potentially
dilute future EPS calculations.
New Accounting In June 1998 the Financial Accounting Standards
Pronouncements Board issued Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133
requires companies to recognize all derivative contracts
as either assets or liabilities in the balance sheet and
to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of
gain or loss recognition on the hedging derivative with
the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to
the hedged risk, or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized as income in the period of change. SFAS No.
133 is effective for all fiscal quarters if fiscal years
beginning after June 15, 1999. Based on its current and
22
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Summary of Accounting Policies
- --------------------------------------------------------------------------------
and planned future activities relative to derivative
instruments, the Company believes that the adoption of
SFAS No. 133 on January 1, 2000 will not have a
significant effect on its financial statements.
In June 1998 the Accounting Standards Executive
Committee of the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP
98-5"), Reporting on the Costs of Start-up Activities.
SOP 98-5 requires all start-up and organizational costs
to be expensed as incurred. It also requires all
remaining historically capitalized amounts of these
costs existing at the date of adoption to be expensed
and reported as the cumulative effect of a change in
accounting principle. SOP 98-5 is effective for all
fiscal years beginning after December 31, 1998. The
Company believes that the adoption of SOP 98-5 on
January 1, 2000 will not have a significant effect on
its financial statements.
23
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Development Stage The Company has been in the development stage since its
Operations and inception. The Company has had no recurring source of
Going Concern revenue, has incurred operating losses since inception
and, at December 31, 1998, has a working capital
deficiency. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
The financial statements do not include any adjustments
that may be necessary if the Company is unable to
continue as a going concern.
Management of the Company has undertaken certain actions
to address these conditions. These actions include
seeking new sources of capital or funding to allow the
Company to commence production of its products.
Subsequent to year end, the Company obtained bridge
financing loans of $365,000 from two companies to meet
short term cash needs for up to 90 days from the date of
the promissory note. As of March 29, 1999, the Company
has been successful in raising approximately $585,000
through the sale of convertible debt. See Note 7.
Additionally, the Company obtained a Clinical Laboratory
Improvement Amendment waiver in February 1999, which
management believes will enable the Company to bring its
product to market during 1999. The Company is currently
pursuing a private placement of shares of the Company's
common stock to obtain the funds necessary to finance
the business until a product revenue stream can be
developed. There can be no assurances that the Company
will be successful in executing its plans.
2. Inventories Inventories consist of the following:
December 31, 1998 1997
---------------------------------------
Raw materials $118,803 $ 30,802
Work in process 6,594 --
Finished goods 3,743 --
---------------------------------------
Total inventories $129,140 $ 30,802
=======================================
24
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. Equipment and Property and equipment consists of the following:
Leasehold
Improvements
December 31, 1998 1997
--------------------------------------------------------
Office and data processing
equipment $314,445 $ 35,146
Vehicles 33,800 --
Leasehold improvements 256,058 6,910
--------------------------------------------------------
604,303 42,056
Less accumulated depreciation 117,508 18,302
--------------------------------------------------------
Property and equipment, net $486,795 $ 23,754
========================================================
4. Notes Receivable The Company's Chairman has received various cash
advances pursuant to terms of an unsecured promissory
note. Advances under the note, which accrue interest at
8% and have no stated maturity date, totaled $97,090 and
$79,104 at December 31, 1998 and 1997.
During 1998, the Company advanced funds totaling $91,282
to a company affiliated through common ownership.
Advances under the note accrue interest at a rate of 8%
and have no stated maturity date. Interest accrued on
the note totaled $2,334 at December 31, 1998. During
1998, the company paid certain direct expenses and
shared certain facilities and resources with this
related party company. As of December 31, 1998,
approximately $195,800 was owed to the Company as the
agreed-upon estimate of the fair value of the benefits
received. See Note 13. As repayment is not expected
during 1999, the entire balance is classified as
noncurrent.
5. Intangible Assets In 1992, the Company acquired all of the assets and
liabilities of a related party in exchange for 3,327,000
shares of the Company's common stock. The net assets
acquired, which were recorded on the Company's books at
the historical
25
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
cost basis of the partnership, by the Company primarily
included license and distribution rights which had been
previously acquired by the related party from an
unrelated company. In 1993, the Company acquired the
patents and technology from this same unrelated company
to complete the asset acquisition. The patent and
technology were acquired through the issuance of 470,000
shares of common stock, valued at $1,410,000. The patent
and related assets relate to a dry chemistry process
used to measure cholesterol levels in blood samples.
6. Notes Payable Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
-------------------------------------------------------------------
<S> <C> <C>
Note payable to a corporation (1) $163,550 $ --
Note payable to an individual (2) -- 6,000
Note payable to a corporation (3) -- 35,144
-------------------------------------------------------------------
Total notes payable $163,550 $ 41,144
Less current maturities 36,330 --
-------------------------------------------------------------------
Notes payable, less current maturities $127,220 $ 41,144
===================================================================
Scheduled principal maturities of the note payable at
December 31, 1998 in each of the next five years is as
follows:
Year ending December 31, Amount
-------------------------------------------------------------------
1999 $ 36,330
2000 36,330
2001 36,330
2002 36,330
2003 18,230
-------------------------------------------------------------------
$ 163,550
===================================================================
</TABLE>
26
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) During May 1998, the Company executed a note payable for
certain costs incurred in connection with leasehold
improvements which were a prerequisite to the Company
signing an operating lease for office and production
space located in Post Falls, Washington. See Note 10.
The note is payable in monthly installments of $3,028
and bears interest at an annual increasing rate of the
greater of 5% or the annual increase in the United
States Consumer Price Index.
(2) During the year ended December 31, 1995, the Company
borrowed $6,000 from an individual pursuant to terms of
an unsecured promissory note. The note had a stated
interest rate of prime plus two percent. The holder was
also granted warrants to purchase 24,000 shares of the
Company's common stock at a per share price of $.001.
The promissory note was paid in full and retired during
1998.
(3) During the years ended December 31, 1994 and 1993,
the Company was advanced $75,000 from a corporation.
During the year ended December 31, 1995, the Company
retired $50,000 of this obligation through the issuance
of 100,000 shares of its common stock. The remaining
$25,000, together with accrued interest of $10,144 was
converted into an unsecured promissory note bearing
interest at 8%. The promissory note was paid in full and
retired during 1998.
7. Convertible Debt In January 1998, the Company received $25,000 from a
shareholder of the Company pursuant to terms of an
unsecured convertible promissory note. This note was
convertible into shares of the Company's common stock at
any time prior to maturity at a per share rate of $1.00,
which approximated the then-fair value of the Company's
common stock. During 1998, the note, and accrued
interest thereon of $1,020, was converted into 26,020
shares of Company's common stock.
In March 1998, the Company received $250,000 from the
issuance of a convertible promissory note. This note
contained terms which allowed
27
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
the note holder to convert the debt to shares of the
Company's common stock at any time prior to maturity at
a per share rate of $1.25 which amount approximated the
then-fair value of the stock. In addition, as an
inducement to execute the promissory note, the Company
issued 125,000 shares of the Company's common stock to
the creditor. The issuance of these shares was recorded
by the Company as a deferred financing cost of $156,250.
During 1998, the Company converted into shares of the
Company's common stock the amount outstanding, including
accrued interest, and retired the debt.
In December 1998, the Company received a total of
$225,000 pursuant to the terms of three separate
convertible notes. The notes, which mature two years
from the date of grant, accrue interest at prime plus 2%
(9.75% at December 31, 1998) and are convertible at
anytime into shares of the Company's common stock at a
per share rate of $2.50, which approximated the
then-fair value of the stock. In connection with the
debt, the Company issued 33,750 shares of its common
stock to the note holders. The stock was valued at
approximately $60,000 and is included as debt issuance
costs at December 31, 1998.
During each of the years ended December 31, 1997 and
1996, the Company received $50,000 pursuant to the terms
of two convertible promissory notes. The unsecured
promissory notes, together with accrued interest thereon
of $16,284 were converted to shares of the Company's
common stock during 1998, at a per share rate of $0.75.
In January and February of 1999, the Company executed
bridge financing promissory notes with two companies in
the amounts of $115,000 and $250,000, respectively.
These promissory notes bear an interest rate of 10% and
mature 30 days from the date of issuance. In addition,
as partial consideration for the notes, the Company
issued 12,500 shares of
28
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
the Company's common stock to the lending companies.
At the Company's option, the maturity date of the note
can be extended for two additional 30-day periods. As
consideration for each extension, the Company must issue
12,500 shares of the Company's common stock. The
$250,000 note is secured by a stock pledge by the
Company's Chairman.
In March 1999, pursuant to a private offering of
convertible debt, the Company received a total of
$585,000. The convertible debt bears interest at prime
plus 2% and matures two years from the date of grant.
The debt is convertible, at the option of the debt
holders, to shares of the Company's common stock at a
rate of $2.50 per share. In connection with the debt,
the Company issued 87,750 shares of the Company's common
stock to the convertible debt holders which have been
recorded at fair value as a deferred financing cost.
This deferred financing cost will be amortized to
expense over the life of the debt.
In connection with this offering of convertible debt,
the Company granted an additional provision to the
original debt agreement, which states that the value of
the shares of common stock received at the date of grant
will remain evergreen at $3.50 per share for a period of
one year. This evergreen treatment will be accomplished
by the Company issuing additional shares to the debt
holder at the end of the one year period sufficient in
quantity so that the total number of shares multiplied
by the then current market price will equal a value
based on the original number of shares issued.
8. Related Party At December 31, 1997, the Company had an amount payable
Payable to an entity affiliated through common ownership of
$12,435, which was paid in full during 1998.
9. Stock Options The Company has an Employee Stock Option Plan (the
"Plan") which provides for the grant of options to
purchase shares of the Company's common stock at
exercise prices determined by the Board of Directors. As
of December 31, 1998, 1,800,000 options originally made
available under the Plan, remain available for grant.
The Company grants from time to time stock options to
directors, vendors and others to
29
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
purchase shares of the Company's common stock at
exercise prices as determined by the chief executive
officer and approved by the Board of Directors. These
options are granted as payment of services or as an
inducement to provide the Company funds to further
develop the product.
The fair value of option grants is estimated on the date
of grant utilizing the Black-Scholes option pricing
model with the following weighted average assumptions
for grants in 1998 and 1997, respectively: expected life
of option of four years, expected volatility of 40%,
risk-free interest rate of 6% and a dividend yield of
0%.
The following table summarizes the stock option activity
since inception:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
--------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at January 1, 1997 971,834 $ 0.11
Granted 95,745 0.37
Expired (125,834) (0.11)
Exercised (350,000) (0.07)
--------------------------------------------------------------------------------
Options outstanding at December 31, 1997 591,745 0.19
Granted 831,665 2.04
Expired (114,878) (0.21)
Exercised (326,867) (0.14)
--------------------------------------------------------------------------------
Options outstanding at December 31, 1998 981,665 $ 1.76
================================================================================
</TABLE>
The per share fair value at the date of grant
30
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
of the options granted was approximately $1.56 and $0.07
during the years ended December 31, 1998 and 1997.
The following table summarizes information about
outstanding options at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (YRS) Price Exercisable Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.20-$0.25 150,000 3.18 $ 0.23 150,000 $ 0.23
$1.00-$1.25 521,665 5.52 1.25 342,915 1.25
$2.00-$2.25 110,000 1.68 2.23 100,000 2.25
$3.00 100,000 1.38 3.00 - -
$5.00 100,000 1.38 5.00 - -
--------------------------------------------------------------------------------
981,665 4.82 $ 1.76 592,915 $ 1.16
================================================================================
</TABLE>
10. Lease Commitments The Company leases a vehicle under capital lease that
expires in 2002.
The Company leases its office space and certain
equipment pursuant to the terms of various operating
leases expiring through 2000.
Future minimum lease payments required under these lease
agreements are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Lease Leases
---------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ 9,011 $ 26,256
2000 9,011 31,122
2001 9,011 32,339
2002 2,964 33,555
2003 - 14,193
--------------------------------------
Total lease payments 29,997 $ 137,465
=============
Less imputed interest 4,925
---------------------------------------------------------
Capital Operating
Year Ending Lease Leases
---------------------------------------------------------------------------------
Present value of net minimum
lease payments 25,072
Less current maturities 6,580
---------------------------------------------------------
Total long-term capital lease
obligation $ 18,492
=========================================================
</TABLE>
31
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The capital lease is collateralized by fixed assets
having a book value of $33,800 at December 31, 1998.
Rent expense for the years ended December 31, 1998 and
1997 was $41,832 and $10,284.
11. Income Taxes At December 31, 1998 and 1997, the Company had deferred
tax assets of approximately $2,092,000 and $870,000
principally arising from net operating loss
carryforwards for income tax purposes. As management of
the Company cannot determine that it is more likely than
not that the Company will realize the benefit of the
deferred tax asset, a valuation allowance equal to the
deferred tax asset has been established at both December
31, 1998 and 1997.
At December 31, 1998, the Company has net operating loss
carryforwards totaling approximately $5,195,000 which
expire in the years 2005 through 2018.
12. Commitments and The Company entered into an employment agreement in
Contingencies March 1996 with its president. This agreement was
terminated as a result of the president's resignation
during 1998. The agreement specified an annual salary of
$100,000, and provided for six months of severance pay
in the event this individual left the employment of the
Company. The officer had elected to forego payments for
services provided in 1997 and 1996. Compensation due to
the officer under this agreement in 1997 and 1996 of
$100,000 and $83,000 was expensed and has been reflected
as contributed services in the Company's financial
statements.
32
<PAGE>
Lifestream Technologies, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
13. Proposed Merger In June 1998, the Board of Directors of the Company
authorized management to begin discussion and
negotiation for the potential purchase or merger of a
company affiliated through common ownership.
Negotiations are still in process and there can be no
assurances that the Company will be successful in its
attempt to acquire the related company.
14. Subsequent Events On April 9, 1999, the Company's chief executive officer
resigned. As a part of his severance agreement the
Company offered him an option to purchase 40,000 shares
with a per share exercise price of $1.25. In addition,
the Company offered to issue 10,000 shares of the
Company's common stock and accelerate the vesting period
for 15,000 options, which were a part of 25,000 options
originally granted to him in 1998 with a five year
period of vesting. The remaining 10,000 options would
then be cancelled.
On April 9, 1999, the Company executed employment
agreements with substantially all of its employees. The
employment agreements contain terms, which specify a
reduced salary for a 90 day period and grant the
employees options to purchase 92,600 shares of the
Company's common stock at a per share price of $1.25. At
conclusion of this 90 day period, employees who remain
in the employment of the Company will receive a cash
bonus based on a percentage of the employee's annualized
salary, totaling, in aggregate approximately $75,000. If
the Company cannot pay the bonus, then the employees
would be entitled to receive options to purchase, in
aggregate, 74,000 shares of the Company's common stock
at a per share price of $1.25. Finally, the employment
agreement contains terms, which, at the option of the
Company, permit the Company to buy back any shares of
stock acquired by the employee upon initial employment.
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
<S> <C>
3.1 Articles of Incorporation of Lifestream Technologies, Inc., dated April 6, 1979.1
3.2 Amended Articles of Incorporation of Lifestream Technologies, Inc., dated February 11, 1994.1
3.3 By-laws of Lifestream Technologies, Inc.1
10.1 Exchange Agreement and Plan of Reorganization dated February 11, 1994.1
10.2 Lease between Jacklin Land Company Limited Partnership and Lifestream Diagnostics, Inc., a wholly-owned subsidiary of
Lifestream Technologies, Inc. dated as of May 19, 1998.2
10.3 Employment Agreement between Criss Sakala and Lifestream Technologies, Inc dated as of June 25, 1998.2
10.4 License and Supply Agreement between Lifestream Diagnostics, Inc. and Boehringer Mannheim GmbH.3
16.1 Letter on Change in Certifying Accountant.4
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
- --------
1 Filed as an Exhibit to the Company's Form 10-SB on December 26, 1996 and
incorporated herein by reference.
2 Filed as an Exhibit to the Company's Form 10-QSB on August 14, 1998 and
incorporated herein by reference.
3 To be filed by amendment.
4 Filed as an exhibit to the Company's Form 8-K on May 15, 1998 and incorporated
herein by reference.
Lifestream Diagnostics, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statement of the Company for the year ended December 31, 1998, and
should be read in conjunction with, and is qualified in its entirety by, such
audited financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 91,555
<SECURITIES> 0
<RECEIVABLES> 247
<ALLOWANCES> 0
<INVENTORY> 129,140
<CURRENT-ASSETS> 223,904
<PP&E> 604,303
<DEPRECIATION> 117,508
<TOTAL-ASSETS> 2,663,718
<CURRENT-LIABILITIES> 525,046
<BONDS> 0
0
0
<COMMON> 11,077
<OTHER-SE> 7,895,968
<TOTAL-LIABILITY-AND-EQUITY> 2,663,718
<SALES> 9,610
<TOTAL-REVENUES> 9,610
<CGS> 6,167
<TOTAL-COSTS> 6,167
<OTHER-EXPENSES> 3,045,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,436
<INCOME-PRETAX> 3,122,118
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,122,118)
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
