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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended March 31, 2000
Commission File No. 1-12362
LIFEPOINT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0539168
(State or other jurisdiction of (IRS Employer
Incorporation organization) I.D. Number)
1205 South Dupont
Ontario, California 91761
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code:
(909) 418-3000
Securities registered pursuant to Section 12 (b) of the Act:
Effective April 19, 2000, Common Stock, $.001 par value
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days: Yes[X] No[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $125,503,300 (based on the closing price of
Registrant's Common Stock on the American Stock Exchange at June 2, 2000, or
$5.375 per share) . This determination of affiliate status is not necessarily
a conclusive determination for other purposes.
As of June 2, 2000, there were 29,820,501 shares of the registrant's Common
Stock and no shares of the Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE The definitive Proxy Statement to be
filed pursuant to Regulation 14A for the fiscal year ended March 31, 2000 is
incorporated herein by reference in Part III, Items 9-12 of Form 10-KSB. The
Proxy Statement will be filed with the Securities and Exchange Commission
within 120 days after the close of the registrant's most recent calendar year.
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PART I
ITEM 1. BUSINESS
Safe Harbor Statement under the Private Litigation Reform Act of 1995
With the exception of historical information, the matters discussed in
this Annual Report on Form 10-KSB include certain forward-looking statements
that involve risks and uncertainties. Among the risks and uncertainties to
which LifePoint, Inc. ("LifePoint" or the "Company") is subject are the risks
that it will not obtain the financing necessary to bridge the gap between the
commencement of marketing and the attainment of profitability, as to which
profitability there can be no assurance as to when and if it will occur; that
it will not secure the additional personnel required first to complete the
product development program and, if that is successful, later to implement
the manufacturing process; that it will not complete the commercialization
on a timely or successful basis and that the costs will be higher than
projected; that, during the period before March 2001 when LifePoint's
management currently believes that its saliva based drugs of abuse and
alcohol testing product will be submitted for United States governmental
approval and marketing to non-medical markets is anticipated to begin,
competitors, with greater financial resources, will have produced and offered
for sale a saliva based competitive product; and that, because of the delays,
the potential market for LifePoint's products will not be as large as currently
anticipated. As a result, the actual results realized by LifePoint could
differ materially from the statements made herein. Stockholders of LifePoint
are cautioned not to place undue reliance on forward-looking statements made
in this Report. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Forward Looking Statements" in Item 6 to
this Report.
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General
Overview
LifePoint, Inc. is a late development stage company designing a unique
product that will provide immediate, on-site diagnostic results without the
need to take blood or urine. LifePoint is focused on the commercialization of
the flow immunosensor technology licensed from the United States Navy (the
"USN"). This patented technology, when used in conjunction with saliva as a
non-invasive test specimen using the Company's proprietary collection
technology, will allow LifePoint to develop a broadly applicable non-invasive,
rapid, on-site diagnostic test system. The LifePoint(tm) test system could be
used for rapid diagnostic testing, for screening, and for therapeutic drug
monitoring in non-medical environments such as the workplace, home health care,
ambulances, pharmacies, and law enforcement. The first product under
development is for the simultaneous detection of drugs of abuse and alcohol.
The market potential for this product is estimated to be $750 million and
growing to over $1 billion by 2002. Marketing to the non-medical markets is
anticipated to begin no earlier than the first quarter of 2001.
History of the Company
The Company was incorporated on October 8, 1992 under the laws of the
State of Delaware, under the name "U.S. Drug Testing Inc.," as a wholly-owned
subsidiary of Substance Abuse Technologies, Inc. ("SAT"), then a public
company and now named Employee Information Services, Inc. The Company's name
was changed to "LifePoint, Inc." on February 25, 1998.
From its inception until October 31, 1997, the Company was under the
control of SAT. On October 29, 1997, SAT sold the controlling stockholder
interest in the Company to Meadow Lane Partners, LLC ("Meadow Lane"), then an
unaffiliated party, for $250,000. On October 31, 1997, two directors of the
Company who were directors of SAT (and one of whom was SAT's Chief Executive
Officer) resigned. On November 4, 1997, Linda H. Masterson, the President
and Chief Executive Officer of the Company, resigned as a director of SAT,
thereby terminating SAT's last relationship with the Company. The Company
has operated as a totally independent company since that time.
The Company has not produced any revenues through March 31, 2000
because its products are still in the developmental stage. The Company is
developing proprietary systems that will generate immediate, diagnostic
results for a broad variety of substances by non-invasively testing saliva.
The first product under development is a test for substance abuse,
specifically the following five commonly used drugs of abuse: cocaine,
opiates (heroin, morphine and codeine), phencyclidine hydrochloride (PCP),
amphetamines (including methamphetamines), and tetrahydrocannabinol (THC,
marijuana) (collectively the "Drugs of Abuse"), and alcohol.
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In January 1992, the USN and SAT signed a ten-year license agreement
(the License Agreement") covering the exclusive use by SAT of the USN's
technology for the five Drugs of Abuse and any other drugs that might be
added to the National Institute of Drug Abuse ("NIDA") list of drugs of abuse.
With the sale of the SAT majority stockholder interest in the Company (see
second preceding paragraph), the license agreement with the USN was transferred
directly to the Company from SAT and a sublicense (the "Sublicense") between
SAT and the Company was canceled.
In April 1999, the Company and the USN completed negotiations for an
expansion of the License Agreement. The new terms expand the field-of-use
from drugs of abuse and anabolic steroids on urine samples to include all
possible diagnostic uses for saliva. The Company is further developing the
USN-developed technology for application in its own proprietary test system.
See the sections "Patents and Technology" and "Material Contracts" under
this caption "Business."
Until the saliva based test system is submitted to the Food and Drug
Administration (the "FDA") and/or marketing has commenced, no revenues from
product sales are likely to be produced. On May 15, 2000 the Company completed
the first fully integrated prototype of the LifePointtm test system. Assuming
subsequent success in the remainder of the commercialization program, the
Company currently expects to submit its six-panel cassette to the FDA, and to
begin selling to non-medical markets, in the first quarter of 2001 at the
earliest, and to begin selling to medical markets after obtaining FDA
clearance. However, there can be no assurance that such submission will
occur by such date or that the final commercial product will be completed by
such date.
The Company will be able to market it in the United States for
non-medical purposes, such as law enforcement agencies' testing and safety
sensitive testing by industrial companies, and in Europe where no FDA clearance
is required prior to product submission to the FDA. The Company will be able
to commence marketing of the product in US medical markets when FDA clearance
is obtained. The Company anticipates such clearance to occur approximately
100 days (based on the current experience of other companies at the FDA) after
submission if such approval is obtained. There can be no assurance as to when
the Company will submit such assay to the FDA, if at all, as to when the FDA
will give its clearance and as to when marketing in either medical or
non-medical markets will commence. Management recognizes that, although FDA
clearance is not required for use of drug testing for non-medical purposes,
such as law enforcement agencies' testing and industrial safety sensitive
testing, FDA clearance of the product will assist the Company's marketing in
the United States to such customers. A definitive marketing plan has not been
finalized or implemented, although preliminary marketing efforts, including
markets research, has been initiated for each target market segment. See the
sections "Governmental Regulation" and "Marketing and Distribution" under
this caption "Business."
Management anticipates that the Company's saliva based drugs of abuse
and alcohol test will be evidentiary in the law enforcement market. However,
management expects that the Company's tests may be performed on a
non-evidentiary basis in the industrial marketplace. If a drug of abuse is
detected in the screening test, the sample may need to be forwarded to a
laboratory, where an expensive confirmatory analysis will be performed.
Usually gas chromatography/mass spectrometry ("GC/MS") is employed for the
confirmatory test. The Company's marketing analysis has indicated a greater
market potential for a saliva sample portable testing instrument for drugs of
abuse by law enforcement agencies, occupational health clinics, hospitals and
other medical facilities than for a urine sample instrument. However, the use
of this product in other potential markets that are testing for drug use over
the last two to five days or "lifestyle testing," such as pre-employment
testing, may be limited with the initial product.
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Currently, to the Company's knowledge, no competitor is offering a
blood-equivalent saliva test, but one U.S. competitor, Avitar, Inc. ("Avitar")
has begun to offer a sample screening test product on an "on site" basis for
four drugs. The Company has evaluated this product and management believes
that the limitations of the technologies used by Avitar will negatively impact
Avitar's ability to sell into the Company's target markets. Management
believes that Avitar's product will not be court defensible in the law
enforcement and industrial markets because it is not instrumented, and not
useful in medical emergencies because the result is not quantitative.
Additionally, this type of technology is less sensitive than the instrumented
system the Company is developing and, management believes, not sensitive
enough to detect certain drugs at levels that are found in saliva. Although
management believes that the Company's product under development is superior
to the one Avitar is marketing, management could be incorrect in its
assessment, Avitar could attempt to modify its product to meet the Company's
criticisms. In either of these events, Avitar's product could significantly
impact the Company's ability to sell its product which it is developing.
In addition, management has been advised that one or more other
companies may have a saliva sample testing product under development,
although the technology they are using is believed to be very different from
that of the Company. There can be no assurance that other competitors will
not begin to offer a saliva sample testing product in the future, whether
before or after the Company completes its research and development. See the
section "Competition" under this caption "Business." There also can be no
assurance that the Company's product will be developed for use in the manner
contemplated in this section.
Need for Financing
As a result of LifePoint being a development stage company and,
accordingly, not deriving revenues from the sales of products and/or services,
the Company has, since obtaining its independence from SAT in October 1997
(see the section "History of the Company" under this caption "Business"),
been dependent on the net proceeds derived from four private placements
pursuant to Regulation D under the Securities Act of 1933, as amended (the
"Securities Act"), to fund its operations. The succeeding three paragraphs
describe the private placements from Fiscal 1999 and 2000.
On July 23, 1998, the Company closed a second private placement as
to the sale of 1,000,000 shares of the Common Stock. On August 26, 1998, the
Company sold an additional 25,000 shares of the Common Stock. This offering of
a minimum of 1,000,000 and a maximum of 5,000,000 shares of the Common Stock
expired by its terms on October 14, 1998 without any additional shares being
sold. The aggregate of 1,025,000 shares was sold at $1.00 per share and the
Company realized $1,025,000 in gross proceeds.
On January 21, 1999, the Company closed a third private placement
as to the sale of 600,000 shares of the Series A 10% Cumulative Convertible
Preferred Stock, $.001 par value (the "Series A Preferred Stock"), at $10.00
per share and the Company realized $6,000,000 in gross proceeds.
On February 29 and March 14, 2000, the Company closed a fourth
private placement as to the sale in the aggregate of 1,840 units at $5,000
per unit, each unit consisting of 2,500 shares of the Common Stock and a
Common Stock purchase warrant expiring February 28 or March 13, 2005 (the
"Investor Warrant") to purchase 2,500 shares of the Common Stock at $3.00
per share. The Investor Warrants may not be exercised prior to
September 14, 2000 and the shares included in the units are restricted
securities for at least one year. The Company realized $9,200,000 in gross
proceeds from this offering.
Management believes that, with the net proceeds from the private
placement described in the preceding paragraph, the Company has sufficient
funds to finish the product development, build a manufacturing facility,
generate field trials and pilot studies, and initiate marketing. Management
estimates that it will take $5.8 million post-prototype to reach the market
with its product. The proceeds from the last private placement should provide
working capital for several quarters post revenue. There can be no assurance
that management's estimate as to the costs and timing will be correct. Any
delays may further increase the Company's costs.
The Company is currently in discussion with three capital leasing
companies to fund the capital equipment required for the manufacture of the
LifePoint(tm) test system. Management anticipates reaching an agreement with
one or more of these firms no later than the third quarter of 2000.
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The Company continues to pursue strategic partnering through the
Venture Merchant Group. Several large pharmaceutical and diagnostic
corporations have expressed their initial interest in partnering with the
Company. Management anticipates that one or more partnering agreements may
be completed prior to the fourth quarter of 2000.
Management has also pursued the possibility of an underwritten
public offering and has received expressions of interest from several
well-known small national and large regional firms. However, to date the
Company has generally not attracted large institutional investors and, unless
this interest in the Common Stock develops, this fact may adversely affect
any future public offering. In addition, there can be no assurance that
stock market conditions later in 2000 or early in 2001 would be receptive
to a public offering by the Company, especially in view of the volatility
in the market generally in 2000. In addition, competitive conditions in the
substance abuse testing industry at that time may make the Company less
attractive to potential public investors. See the section "Competition"
under this caption "Business."
Having successfully consummated four private placements pursuant
to Regulation D under the Securities Act since November 1997, the Company may
seek to raise any additional financing through this method. As with a public
offering, there can be no assurance that potential investors would be
receptive to a private placement by the Company when the Company seeks to
sell additional stock, either because of general stock market conditions or
conditions generally in the substance abuse testing industry.
There can be no assurance that the Company will be successful in
securing additional financing, whether through a capital leasing firm, a
strategic partner, a public offering or a private placement.
If all of the Common Stock purchase warrants (the "Warrants") to
purchase an aggregate of 9,563,063 shares of the Common Stock which were
outstanding on March 31, 2000 were subsequently exercised, the Company would
realize $21,168,517 in gross proceeds. If all of the stock options (the
"Options") pursuant to the LifePoint, Inc. 1997 Stock Option Plan (the
"Stock Option Plan") to purchase an aggregate of 1,538,496 shares outstanding
on March 31, 2000 were subsequently exercised, the Company would realize
$2,253,458 in gross proceeds. However, there can be no certainty as to when
and if any of these securities may be exercised, especially as to the Options
and certain of the warrants which were not all currently exercisable as of
March 31, 2000. Accordingly, management believes that the Company cannot rely
on these exercises as a source of financing.
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Drug Testing Products
(1) Urine Sample Testing. The Company's original product was a Drugs of
Abuse test system, consisting of an instrument and a reusable column that
would test for any or all of five Drugs of Abuse. The life of each column
was expected to be between 50 and 75 tests. FDA clearance was obtained for
the five tests for Drugs of Abuse and the instrument. However, because
additional development work was required before this product could be
marketed, work on this product has been abandoned. As indicated in the
section "History of the Company" under this caption "Business," the Company
is focusing its efforts on the development of the saliva sample testing
product described below.
(2) Saliva Sample Testing. Commercialization is being pursued by the
Company, using the flow immunosensor technology, to test for drugs of
abuse and alcohol from saliva samples and for submission to the FDA for
approval to use saliva as a testing specimen. This product development work
utilizes some of the work done for the Company's urine Drugs of Abuse
testing system. See the section "Government Regulation" under this caption
"Business" for information as to obtaining FDA clearance. Management
anticipates that the earliest that the saliva testing system and drugs assays
for all five Drugs of Abuse and alcohol will be ready for sale to the law
enforcement and industrial markets and for submission to the FDA is in the
first quarter of 2001. There can be no assurance that the Company will meet
such timetable.
(a) Immunosensor Reader. The Company anticipates manufacturing a
small portable reader to be used in conjunction with single-use,
disposable cassettes. When used with the drug assays described below,
the Company expects that this unit will provide the accuracy of a lab
based test system that provides a portable, flexible and non-invasive
detection capability when used with saliva samples. The Company expects
that the assay time will be under five minutes per sample for up to 10
analytes tested simultaneously. There can be, however, no assurance
that the Company will be able to complete the commercialization and
then market this product.
(b) Drug Assays for Immunosensor Analyzer. The Company is developing
disposable assay cartridges for use with its desktop model using
saliva samples. After the sample has been collected, it will be
automatically transferred to an assay cartridge containing up to ten
target analytes (drugs of abuse and alcohol for the first product)
in one panel, read by the instrument, and the results printed. The
disposable cartridge will be thrown away after use, with the waste
self-contained. Assay time is expected to be less than five minutes
per sample. The Company plans to continue its development efforts for
the drug assays concurrently with the instrument. There can be no
assurance that the Company will be able to complete the
commercialization and then market the assay cartridges.
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Manufacturing
LifePoint is building a manufacturing facility in a newly leased
31,000 square foot building. The Company intends to manufacture the
disposable cassettes. However, LifePoint will only perform the final
assembly of the instrument, with sub-assemblies manufactured by OEM suppliers
for LifePoint.
Whenever the Company commences manufacturing, the Company will be
required, in the United States, to follow current Good Manufacturing
Practices ("cGMP") as prescribed by the FDA and to become ISO 9001 certified
for European sales. See the section "Government Regulation" under this
caption "Business." There can be no assurance that the Company will be able
to bring its plant into compliance and/or cause its prospective third party
manufacturers to comply with cGMP. The Company's future dependence on third
parties for the manufacture and supply of product components could have a
material adverse effect on the Company's profit margins and its ability to
deliver its products on a timely and competitive basis.
Marketing and Distribution
The Company has initiated marketing efforts to include lobbying
and pre-marketing efforts to help ensure quick acceptance of the product by
the respective markets. Additionally, LifePoint has demonstrated a marketing
prototype of its first product at trade shows and presented technical data at
scientific meetings and conferences. LifePoint intends to market the system
globally to law enforcement and industrial markets in conjunction with
strategic partners, and to that end is in discussion with several leading
companies in these markets. LifePoint intends to retain the medical
emergency markets for its own direct marketing and sales effort.
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Government Regulation
The Company's first product under development is for the simultaneous
detection of drugs of abuse and alcohol. Once the product is submitted to the
FDA, the Company will market it in the United States for non-medical purposes,
such as law enforcement agencies' testing and safety sensitive testing by
industrial companies, and in Europe where no FDA clearance is required. The
Company will be able to commence marketing of the product in medical markets
in the United States once FDA clearance is obtained. The Company anticipates
such clearance to occur approximately 100 days (based on the current
experience of other companies at the FDA) after submission if such approval
is obtained. There can be no assurance as to when the Company will submit
such assay to the FDA, if at all, as to when the FDA will give its clearance
and as to when marketing in either medical or non-medical markets will
commence. In addition, Management is aware that the FDA is exercising its
enforcement discretion at this time not to regulate Drugs of Abuse testing in
the workplace, the insurance industry, sports settings, and law enforcement.
There can be no assurance that the FDA will continue to exercise such
enforcement discretion. Management recognizes that, although FDA clearance is
not required, at this time, for use of drug testing for non-medical purposes,
such as law enforcement agencies' testing and industrial safety sensitive
testing, FDA clearance of the product will assist the Company's marketing in
the United States to such customers. A definitive marketing plan has not been
finalized or implemented, although preliminary marketing efforts have been
initiated for each target market segment.
The Company's proposed medical screening and diagnostic products
will be subject to significant government regulation in the United States and
other countries. In order to conduct clinical tests, manufacture and market
products for human diagnostic use, the Company must comply with mandatory
procedures and safety standards established by the FDA and the comparable
foreign regulatory agencies. Typically, such standards require that products
be approved by the FDA, or by comparable foreign regulatory agencies, as
appropriate, as safe and as effective for their intended use prior to being
marketed.
The FDA regulates the introduction, manufacturing, labeling, record
keeping and advertising for all medical devices in the United States. There
are two principal methods by which FDA clearance may be obtained to market
medical device products such as the Company's proposed screening and
diagnostic test kits. One method is to seek FDA clearance through a
pre-market notification filing under Section 510(k) ("510(k)") of the Food,
Drug and Cosmetics Act. Applicants under the 510(k) procedure must prove
that the device for which approval is sought is "substantially equivalent" to
devices on the market prior to the Medical Device Amendments of 1976 or
devices approved thereafter pursuant to the 510(k) procedure. In some cases,
data from clinical studies must be included in the 510(k) application. The
review period for a 510(k) application was supposed to be 90 days from the
date of filing the application. However, the FDA has recently been taking
significantly longer in approving other companies' products. Management
believes that approximately 100 days has lately been the time period for
approval.
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If the 510(k) procedure is not available for the Company's product,
then pre-market approval (the "PMA") must be obtained from the FDA. Under the
PMA procedure, the applicant must obtain an Investigational Device Exemption
(the "IDE") before beginning the substantial clinical testing which is
required to determine the safety, efficacy and potential hazards of the
product. Safety and efficacy must be established through extensive clinical
studies, which are conducted after the FDA's acceptance of the IDE
application. On completion of all of the requirements for the IDE and once
the results are evaluated, a PMA application is submitted to the FDA. The
review period under a PMA application is generally 180 days from the date of
filing. However, the application is not automatically deemed cleared if not
rejected during that period. The FDA may grant marketing clearance, request
additional data about the product's safety and efficacy or deny the application
if it determines that the product does not meet the regulatory approval
criteria. In addition, the preparation of a PMA application is significantly
more complex and time consuming than the 510(k) procedure. Also the FDA's
review of a PMA is more extensive than that required for a 510(k) application.
Management firmly believes that the 510K procedure will be used for the
Company's product review.
There can be no assurance that the FDA or any foreign governmental
agency will grant approval for the sale of the Company's products for routine
screening and diagnostic applications or that the length of time the approval
process will require will not be extensive.
The cost associated with the filing of applications with the FDA and
of research and development activities to support such applications, including
clinical trials, can be significant. There can be no assurance that the costs
of the Company's research and development activities will not exceed that
which is budgeted. In addition, there can be no assurance that any of the
Company's proposed products will ever obtain the necessary FDA or foreign
regulatory clearances for commercialization.
In addition, regulations implementing the Clinical Laboratory
Improvement Amendments of 1988 (the "CLIA") promulgated by the United States
Department of Health and Human Services (the "HHS") and the Health Care
Financing Administration on February 28, 1992, which were to become effective
September 1, 1992, require that all employment drug testing, including on-site
testing, be processed by a federally approved laboratory. On August 28, 1992,
the HHS announced that the application of the CLIA to workplace testing would
not go into effect on September 1, 1992 because of comments made on the final
regulations. The comments raised questions about, among other things, whether
bringing employee drug testing under the CLIA might have an unintended
chilling effect on efforts to encourage drug-free workplace programs. As
reported in the January 19, 1993 Federal Register, the final decision on the
regulations will be delayed until further investigation is completed. Such
decision has not been made as of the date hereof.
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The Company believes that these proposed CLIA regulations will not
be made effective because:
(1) the increased costs and burdensome procedures imposed by the CLIA
will significantly reduce the volume of drug tests conducted, which
is in direct conflict with the government's long-standing war on drugs,
(2) workplace testing is forensic in nature (i.e., for the purpose of
determining whether an individual is using illegal drugs) and not for
medical purposes (i.e., to make a health assessment for diagnostic or
treatment purposes) as was the original intent of the CLIA; and
(3) inclusion of employment drug testing may be a direct violation of
the Federal Administrative Procedures Act under Title 5 of the United
States Code and the United States Constitution.
If the regulations are not adopted, on-site drug testing in the workplace will
continue to be exempt from the CLIA. Although the Company can obtain access
to a forensic laboratory, management believes that the consequences of
adoption of the regulations would add to a potential customer's costs and,
accordingly, have a material adverse impact upon the Company's business with
respect to employment testing in the private sector. However, the product
under development is designed in such a way that management believes that
the product will be exempt from CLIA regulation, even if the regulations are
adapted in the current form.
Research and Development
During the fiscal years ended March 31, 2000 ("fiscal 2000") and
1999 ("fiscal 1999"), the Company incurred approximately $2,448,000 and
$1,118,000, respectively, for development of the saliva drug and alcohol
testing technology. From October 8, 1992 (inception) to March 31, 2000, the
Company has spent $9,285,000 on development of the drug testing technology.
See the section "Need for Financing" under this caption "Business" for
information as to the estimated costs to complete the product development.
Patents and Technology
In addition to its rights under the USN patent license (see the
section "History of the Company" and "Material Contracts" under this caption
"Business"), the Company has rights under the following patents:
(1) U.S. Patent No. 5,183,740, "Flow Immunosensor Method and
Apparatus," issued on February 2, 1993;
(2) U.S. Patent No. 5,354,654, "Lyophilized Ligand-Receptor Complexes
for Assay and Sensors" issued on October 11, 1994;
(3) U.S. Patent No. 6,022,326, "Device and Method for Automatic
Collection of Whole Saliva issued on February 8, 2000.
(4) On April 14, 2000, the Company filed a patent application which
includes 52 claims for providing blood equivalent results by
simultaneously testing the pH level in saliva while testing saliva
for levels of various components. Management believes that this
patent will provide broad patent protection for its quantitative,
on-site, diagnostic testing system. The Company is not certain
whether and when this patent may issue.
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The expiration date of the USN patent is February 23, 2010. The terms
of the other patents are 17 years from the respective dates of issuance,
subject to renewal. Termination of the Licensing Agreement for the USN
patent, which would occur only on the Company's default, would end the
Company's rights to develop products under the patent. Termination of the
license would require the Company to make changes to its products that could
further delay development and marketing thereof. For additional information,
see the section "Material Contracts" under this caption "Business."
The patent position of technology firms is highly uncertain and
involves complex legal and factual questions. Competitors have filed
applications for, and in some instances have been issued, patents and may
obtain additional patents and other proprietary rights relating to products
or processes, such as the Company's proposed immunoassay sensor, which may be
competitive with those of the Company. The Company does not currently know
the scope and validity of these patents. Management is not aware of any
patents covering an immunoassay sensor similar to the Company's.
Companies which have or may obtain patents relating to products or
processes competitive with those of the Company could bring legal actions
against the Company claiming damages and seeking to enjoin it from
manufacturing, licensing and marketing the affected product. To date, no
claims have been made against the Company for infringement of any patents.
However, marketing of the Company's products has not begun and claims, if any,
would not likely be asserted until market introduction of such products. If
such a claim was to be made, its defense could be costly and the Company's
business could be adversely affected, even if the Company were to prevail.
No assurance can be given that the Company would be able to prevail in any
such action or that any license required under any such patent would be made
available on acceptable terms.
Process patents have certain disadvantages when compared with product
patents. It is more difficult to detect and prove infringement of process
patents because it is sometimes impossible to ascertain the method by which
any product has been produced. In addition, the value to the Company of
receiving a process patent may be reduced if products that can be derived
from such processes have been patented by others. The patents owned by, or
licensed to, the Company include both process patents and product patents.
The Company maintains a policy of seeking patent protection in the
United States and other countries in connection with certain elements of its
technology when it believes that such protection will benefit the Company.
Lyophilization and saliva aspiration patent applications have been filed in
Canada, certain European countries and Japan. The pH patent has only been
applied for in the United States. The Company has one year to initiate
filings of this patent in other countries.
</PAGE>
<PAGE>
The patent laws of foreign countries may differ from those of the
United States as to the patentability of the Company's products and processes.
Accordingly, the degree of protection afforded by foreign patents, if issued,
may be different from protection afforded under associated United States
patents. There can be no assurance that patents will be obtained either in
the United States or in foreign jurisdictions with respect to the Company's
inventions or that, if issued, the patents will be of substantial protection
or commercial benefit to the Company.
Certain inventions of the Company may prove to be unpatentable or
the Company may conclude that it would be more advisable to retain a
patentable invention as a trade secret. In either case, the Company would
have to rely on trade secrets, proprietary know how and continuing
technological innovation to develop and maintain its competitive position.
All key employees and consultants of the Company have executed, and project
sponsors and manufacturers will be required to execute, agreements to
maintain the confidentiality of the Company's proprietary information to
which they have access. There can be no assurance that these confidentiality
agreements will be honored or will be effective. Manufacturers, project
sponsors and consultants may be engaged in competing research projects
outside the scope of their agreements with the Company. There can be no
assurance that such sponsors and consultants will not develop similar or
superior technology independently. To the extent that such persons apply
technical information independently developed by them to projects undertaken
by the Company, disputes may arise as to the proprietary rights to such
information.
Competition
The Company has not generated any revenues to date because its
products are still in the developmental stage. If the products are developed,
the Company will compete with many of the companies of varying size that
already exist or may be founded in the future. Substantially all of the
current tests available use either urine or blood as a specimen to test for
drugs of abuse or use breath or saliva to test for alcohol.
Avitar recently announced that it had commenced shipping of the
first oral screening test for methamphetamines, cocaine, opiates and
marijuana. The Company has evaluated this product and management believes
that the inherent characteristics of the technologies used in Avitar's
product will limit its ability to sell into the Company's target markets.
Avitar's product is based on a membrance-based immunoassay and visual
interpretation of a color line. This type of technology is less sensitive
than the instrumented system which the Company is developing and, management
believes, not sensitive enough to detect certain drugs at the low levels that
they are found in saliva. Additionally, a subjective, non-instrument result
is not defensible in court, which unfavorably impacts the ability of the
Avitar product to be used by law enforcement agencies for DUI testing or in
the industrial market for post-accident, reasonable suspicion, or random
testing. More importantly, Avitar's product can take up to 17 minutes to
generate a result, which is considered by some potential customers to be too
long for an on-site test. Lastly, in an emergency environment, quantitative
test results are critical to determining not only on what drug a patient is
overdosed, but also to what extent, so that appropriate treatment can be
given to the patient. Although management believes that the Company's
product under development is superior to the one Avitar is marketing,
management could be incorrect in its assessment of the Avitar product and,
even if management is correct in its assessment, Avitar could attempt to
modify its product to meet management's criticisms. In either of these
events, Avitar's product could significantly impact the Company's ability to
sell its product which it is developing.
</PAGE>
<PAGE>
Management is not aware of any products that can currently perform
an on-site test for the NIDA-5 drugs in blood or saliva or that can test
simultaneously for drugs of abuse and alcohol. However, management
recognizes that additional saliva testing products may be developed in the
future.
With respect to testing for the presence of alcohol, the Company
will compete with Intoxmeter, Inc., CMI, INC., Draeger, Inc., LifeLock, Inc.
and other small manufacturers.
Although management is not aware of any current competitors with
respect to simultaneous testing for drugs of abuse and alcohol in saliva,
management anticipates that the Company will face competition from at least
eight major companies that provide urine substance abuse testing products:
(1) enzyme-multiplied immunoassay technique (EMIT) manufactured and
distributed by Syva Company, a division of Dade Behring Inc.;
(2) radioimmunoassay (RIA) manufactured and distributed by Diagnostic
Products Corp. ("DPC") and others; (3) thin layer chromatography (TLC)
manufactured and distributed by Marion Laboratories, Inc. ("Marion");
(4) a fluorescence polarization immunoassay (FPIA) manufactured by Abbott
Laboratories, Inc. ("Abbott"); and (5) other immunoassay tests provided by
Hoffman La Roche, Inc. ("Roche"), Editek, Inc. ("Editek"), Hycor Biomedical,
Inc. ("Hycor"); Princeton Biotech, Inc. ("Princeton"); and BioSite Inc.
("BioSite"). Almost all of these companies (i.e., Syva, Marion, Abbott,
Roche, Editek, Hycor, Princeton and BioSite) have substantially greater
financial resources available to them than does the Company to develop and
to market their products.
Management believes that saliva samples testing is unique in that,
to management's knowledge, no company is currently offering a simultaneous
drug and alcohol detection method using saliva samples as a specimen on an
"on-site" basis. As described in the fourth preceding paragraph, Avitar has
a four-drug screening test on saliva and the Company has been advised that
such a product may be under development by one or more other companies.
Accordingly, there can be no assurance that such a product will not be
offered by a competitor. In addition, even if no such product is developed,
the Company anticipates, as indicated above, competition from other substance
abuse detection methods such as Syva's EMIT, Marion's TLC, Abbott's FPIA
methods, Roche's RIA, and other immunoassay tests provided by Editek, Hycor,
Princeton and BioSite.
The Company's market research to date has indicated a greater market
potential for a saliva sample portable testing instrument for use in detecting
drugs of abuse by law enforcement agencies, industrial companies with safety
sensitive positions, hospitals and other medical facilities than for a urine
sample instrument. However, because of the blood-equivalent, current status
result, the use of this product in other potential markets that require a
longer "lifestyle" result, such as pre-employment testing, may be limited.
If the Company successfully completes the development of its saliva
sample testing method, as to which there can be no assurance, the Company may
not have the financial resources to compete successfully with other companies
that have greater financial resources available to them. In addition, the
Company's delay in bringing a drugs of abuse and alcohol testing product to
market may adversely affect its future marketing efforts because of the name
recognition gained by competitors actively marketing a product during this
interim period.
</PAGE>
<PAGE>
Material Contracts
Copies of the agreements and any amendments thereto hereinafter
mentioned in this section are filed (by incorporation by reference) as
exhibits to this Report and are incorporated herein by this reference.
(a) License and Sublicense Agreements
In January 1992, the USN and SAT signed a ten-year license agreement
(the License Agreement") covering the exclusive use by SAT of the USN's
technology for the five Drugs of Abuse and any other drugs that might be added
to NIDA list of drugs of abuse. The License Agreement initially provided that
the USN would be paid a royalty equal to six percent of the Net Selling Price
(as defined in the License Agreement) for each Royalty-Bearing Product (as
defined in the License Agreement) made, used or sold by SAT or its sublicensees
in the Licensed Territory. The License Agreement provided that the USN shall
approve all sublicenses and, in accordance with such provision, the Sublicense
was approved by the USN on September 24, 1993.
With the sale of SAT's majority-owned position in the Company (see the
section "History of the Company" under this caption "Business"), the USN
agreed to transfer its License Agreement with SAT directly to the Company.
An amendment dated November 12, 1997 to the License Agreement was executed to
modify the up-front $100,000 annual minimum payment so that it would be paid
in several payments over the year during 1998. The amendment also included a
one-time payment of $10,000 in satisfaction of any outstanding debt due to
the USN from SAT. The Company has assumed all of SAT's rights, and undertaken
all of SAT's obligations, under the License Agreement.
In April 1999, the Company and the USN completed negotiations for an
expansion of the License Agreement. The new terms expanded the field-of-use
from drugs of abuse and anabolic steroids on urine samples to include all
possible diagnostic uses for saliva. In addition, the royalty rate has been
reduced to 3% on the technology-related portion of the disposable cassette
sales and 1% on instrument sales from the previous 10% on all LifePoint
product sales. The minimum royalty payment has been reduced to $50,000 in
2001 (anticipated first year of product sales) and $100,000 a year thereafter
versus the previous $100,000 per year. The Company is further developing the
USN-developed technology for application in its own proprietary test system.
See the section "Patents and Technology" under this caption "Business."
(b) CRDA
On April 16, 1992, SAT entered into a 12-month cooperative research
agreement ("CRDA") with the Naval Research Laboratory section of the USN (the
"NRL") to further develop the licensed technology of the "Flow Immunosensor".
Pursuant to an agreement dated as of January 1, 1993 by and between
SAT and the Company, SAT assigned to the Company all of its rights under the
CRDA. The purpose of the CRDA was to develop the prototype instruments based
on the Flow Immunosensor Method and Apparatus Technology. Pursuant to the
CRDA, each party retains title to any patent obtained by such party in the
performance of work under the CRDA. The NRL had the right of first
election to file a patent application in the United States on joint
inventions made in the performance of work under the CRDA. The Company, as
assignee, had the right of first election to file a patent application on
such joint inventions in all other countries.
</PAGE>
<PAGE>
Pursuant to an amendment dated May 1993 to the CRDA, the NRL waived
such right of first election with respect to the lyophilization process for
the freeze-drying of immunoassay chemicals, provided that SAT filed an
approved patent application on such process within three months from the date
of execution of the amendment. The approved patent application was filed on
July 16, 1993 and issued as U.S. Patent No. 5,354,654 "Lyophilized
Ligand-Receptor Complexes for Assays and Sensors" on October 11, 1994. SAT
assigned the patent to the Company. See the section "Patents and Technology"
under this caption "Business."
(c) Management Agreement
From April 1, 1993 until June 30, 1997, the Company paid SAT a
management fee pursuant to successive management agreements for services
performed by SAT on the Company's behalf. Such services included management,
administrative, accounting and other financial services and advice, including,
without limitation, the services then performed by the Treasurer of the
Company (who was also the Treasurer of SAT), for which he was not directly
compensated by the Company; services relating to the Company's financial and
banking relationships; services relating to the preparation of financial
statements, budgets, forecasts and cash flow projections; cash management
advice; and other miscellaneous services and advice. The management fee was
discontinued after June 30, 1997 because no services were being provided
after that date.
Certain Relationships with SAT
From October 1992 until January 1993, SAT conducted the Company's
business operations. Effective January 1, 1993, SAT transferred to the
Company all of its drug testing assets, including cash amounting to $11,626
and hard assets valued at their carrying value of $437,060 and intellectual
property rights associated with the drug testing operations, for 3,500,000
shares of the Common Stock. SAT also granted the Company the Sublicense with
respect to the USN technology.
As of September 30, 1997, SAT owned 76.4% of the outstanding shares
of the Common Stock. From incorporation on October 8, 1992 until October 31,
1997, all directors of the Company were also directors and security holders
of SAT. In addition, during that period executive officers of SAT also
served as executive officers of the Company.
As a result of the sale by SAT to Meadow Lane of the controlling
stockholder interest in the Company and their relationship to SAT, on October
31, 1997, Robert M. Stutman and Michael S. McCord resigned as directors of
the Company, with Mr. Stutman also resigning as its Chairman of the Board.
Messrs. Stutman and McCord were directors of SAT, with Mr. Stutman also
serving as SAT's Chairman of the Board and Chief Executive Officer. At the
same meeting, Jonathan J. Pallin who, as the transferee of Meadow Lane, is
the beneficial owner of 4,039,795 shares of the Common Stock or 13.4% of the
outstanding shares as of May 31, 2000, was elected as the Chairman of the
Board and a director of the Company but has since resigned from both
positions. From October 16, 1997 until March 31, 1999, Mr. Pallin had been
serving as a financial consultant to the Company. In addition, Robert
Muccini resigned as the Vice President, Finance, the Treasurer, the Chief
Financial Officer and the Chief Accounting Officer of the Company because he
held comparable positions with SAT. On April 16, 1999 the Board of Directors
elected Michele A. Clark to succeed Mr. Muccini as Controller and Chief
Accounting Officer. Linda H. Masterson, the President, the Chief Executive
Officer and a director of the Company, resigned on November 4, 1997 as a
director of SAT, thereby severing the final interlocking relationship between
the Company and SAT.
Since October 31, 1997, the Company has sole responsibility for its
administrative and financial operations, with independent directors and
executive officers and no management service arrangements with SAT.
</PAGE>
<PAGE>
Loans from SAT to the Company
SAT had authorized loans to the Company not to exceed $2,000,000.
The loans bore interest at the rate of 8% per annum and were to become due on
the earlier of (1) five business days after the date the SAT proposal for the
then minority stockholders of the Company to consent to a merger of the
Company with and into a wholly-owned subsidiary of SAT (the "LifePoint
Merger") was rejected or (2) the effective date of the LifePoint Merger. On
May 23, 1997, the SAT Board and, on May 26, 1997, the Company's Board
authorized the capitalization of $2,210,250 in indebtedness (including
interest) owed by the Company to SAT as of April 30, 1997, in consideration
of the issuance by the Company to SAT of 1,768,202 shares of the Common Stock.
These shares are included in the 2,075,306 shares described in the succeeding
paragraph. The Boards had also authorized the additional investment by SAT
of $2,500,000 in exchange for 2,000,000 shares of the Common Stock on the
same basis of one share of the Common Stock for each $1.25 of investment. On
May 26, 1997, the Board of Directors of the Company authorized the issuance
of additional shares of the Common Stock to SAT on the basis of a share of
the Common Stock for each $1.25 of indebtedness owed by the Company to SAT.
As a result of SAT's inability to obtain its own financing, SAT notified the
Company in July 1997 that it would cease advances to the Company in August
1997.
Based on SAT's advice that the amount of indebtedness owed by the
Company to SAT was $2,594,133, all of which SAT agreed to treat as a capital
contribution, the Company authorized the issuance to SAT of 2,075,306 shares
of the Common Stock. Such shares were issued as of June 30, 1997 prior to
the sale of the shares of the Common Stock held by SAT to Meadow Lane.
Subsequent to the sale, SAT advised the Company that the amount of
indebtedness was $3,426,994. As such, the forgiveness of the remaining
indebtedness to SAT of $832,861 was reflected as additional paid in capital
as of September 30, 1997.
Recognizing that had SAT incorrectly reported the Company's
indebtedness to SAT, an additional 666,289 shares of the Common Stock would
have been issued to SAT and then sold to Meadow Lane, the Company's Board, on
January 8, 1998, authorized the issuance to Meadow Lane of a Warrant expiring
January 7, 2003 (the "Meadow Lane Warrant") to purchase 666,289 shares of the
Common Stock at $.50 per share. The Board concluded that, as a result of
structuring the transaction in this manner, Meadow Lane would receive what it
thought it was buying, i.e., all of SAT's shares in the Company, and the
Company, not SAT, would receive $383,144 if the Meadow Lane Warrant was
exercised.
Transfer of Assets from SAT to the Company
Included in the indebtedness that was converted to additional paid
in capital as noted above was approximately $345,000 relating to the purchase
by the Company of various fixed assets from SAT at the Rancho Cucamonga,
California premises. Certain of these assets, as well as other assets
already owned by the Company, were not required for the ongoing operations of
the Company and were subsequently sold for gross proceeds of approximately
$126,000.
Employees
As of May 26, 2000, the Company employed 30 permanent employees and
7 temporary employees of whom 32 were directly involved in its research,
development and manufacturing programs. Additional personnel will be
required to complete the development, manufacture and marketing of the
product.
</PAGE>
<PAGE>
ITEM 2. PROPERTIES
The Company maintains its principal executive offices and
manufacturing space in Ontario, California and laboratory facilities in
Rancho Cucamonga, California. The corporate offices and manufacturing
facility, which consist of approximately 31,000 square feet, is leased at
$226,000 per year pursuant to a lease that expires July 31, 2005. The
laboratory facility, which consist of approximately 10,000 square feet, is
leased at $72,000 per year pursuant to a lease that expires March 31, 2002.
ITEM 3. LEGAL MATTERS
The Company is not a party to any material litigation and is not
aware of any pending litigation or contemplated proceedings by any
governmental authority that could have a material adverse effect on the
Company's business, results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
</PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
From June 25, 1998 to April 18, 2000, the Common Stock was reported
on the OTC Bulletin Board of the National Securities Dealers, Inc. ("NASD")
under the symbol "LFPT." On April 19, 2000, the Common Stock began trading
on the American Stock Exchange and the symbol changed to "LFP." The quarterly
high bid and low asked prices as quoted by the NASD's OTC Bulletin Board for
the fiscal years ending 2000 and 1999 are as follows:
Fiscal 2000 Fiscal 1999
Quarter Ended High Low High Low
June 30, $2.00 $0.83 $1.50 $0.50 (1)
September 30, 1.84 0.88 2.75 1.00
December 31, 2.50 1.63 1.75 0.75
March 31, 9.22 2.13 1.69 1.63
__
(1) June 25 to 30, 1998 only.
The foregoing quotations reflected inter-dealer prices, without retail
mark-up, mark-down or commission, and may not have represented actual
transactions.
Holders
As of March 31, 2000, there were 304 holders of record of the Common
Stock and, based upon requests for copies in connection with the 1999 Annual
Meeting of Stockholders, the Company believes that there are approximately
1,600 beneficial owners of the Common Stock.
Dividends
The Board of Directors has not declared any dividends on the Common
Stock and, in view of the continuing losses, and the Company's cash
requirements, the Board has no current intention to pay any such dividends.
</PAGE>
<PAGE>
Sale of Unregistered Securities
During the quarter ended March 31, 2000, the Company sold the
following securities without registering them under the Securities Act:
(1) Private Placement
(a) On February 29, 2000, the Company sold an aggregate of 884 units
(the "Units"), each Unit consisting of 2,500 shares of the Common
Stock and a Common Stock purchase warrant (the "Investor Warrant")
expiring February 28, 2005 to purchase 2,500 shares of the Common
Stock. On March 14, 2000, the Company sold an aggregate of 956 Units
which included Investor Warrants expiring March 13, 2005. As a result
of the two closings of this private placement, the Company issued an
aggregate of 4,600,000 shares of the Common Stock and Investor Warrants
to purchase an aggregate of 4,600,000 shares of the Common Stock.
(b) There were no underwriters for this private placement. The
Company sold the Units to persons or entities who were "accredited
investors" as such term is defined in Rule 501(a) of Regulation D
under the Securities Act.
(c) The Units were offered at $5,000 per Unit, so that the total
offering price was $9,200,000. There were no underwriting discounts
or commissions; however, the Company paid as finders' fees an
aggregate of $604,706 and issued to finders Common Stock purchase
warrants expiring March 13, 2005 (the "Finders' Warrants") similar
in terms to the Investor Warrants (see paragraph "2" below).
(d) The Company claims that the sales were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof and
Rule 506 of Regulation D promulgated thereunder, the sales constituting
a transaction by an issuer not involving any public offering. The
purchasers were all accredited investors, each of whom or which gave
an investment representation.
(e) The Investor Warrants are exercisable, on or after September 14,
2000, at $3.00 per share.
(f) Not applicable.
(2) Finders' Warrants.
(a) As of March 14, 2000, the Company issued Finders' Warrants to
purchase an aggregate of 273,075 shares of the Common Stock.
(b) There were no underwriters for the grants of the Finders' Warrants,
which were granted as finder's fees in connection with the private
placement described in paragraph "1" above to 12 persons and 7
entities.
(c) None of the Finders' Warrants were sold for cash, the consideration
therefor being a finder's fee for obtaining subscriptions in the
private placement described in paragraph "1" above and there were no
underwriting discounts or commissions.
(d) The Company claims that each of the grants of a Finders' Warrant
was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof, each grant constituting a
transaction by an issuer not involving a public offering.
(e) The Finders' Warrants are exercisable, on or after September 14,
2000, at $3.00 per share.
(f) Not applicable.
</PAGE>
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company is a development stage enterprise with no earnings
history. Since its inception, the Company has devoted substantially all of
its resources to research and development and has experienced an ongoing
deficiency in working capital. The Company does not anticipate generating
revenue from product sales until the first quarter of 2001 at the earliest.
There can be no assurance as to when the Company will achieve profitability,
if at all.
Because the Company has not produced any revenues as a result of its
being a development stage company, it has been dependent, since gaining its
independence from SAT in October 1997 (see the section "History of the
Company" in Item 1 to this Report), on the net proceeds derived from four
private placements pursuant to Regulation D under the Securities Act to fund
its operations. The succeeding three paragraphs describe the private placements
from Fiscal 1999 and 2000.
On July 23 and August 26, 1998, the Company closed as to the sales
of an aggregate of 1,025,000 shares of the Common Stock at $1.00 per share
and the Company realized $1,025,000 in gross proceeds. There were no
underwriting discounts or commissions paid related to the private
placement. However, a Warrant expiring December 13, 2003 to purchase 50,000
shares of the Common Stock at $1.08 was granted to an unaffiliated person for
his assistance in completing $500,000 of this offering.
On January 21, 1999, the Company closed as to the sale of 600,000
shares of the Series A Preferred Stock at $10.00 per share and the Company
realized $6,000,000 in gross proceeds. Finders' fees were paid to various
consultants and bankers for their assistance in helping the Company to
complete this private placement consisting of an aggregate of $592,078 in
cash fees and Warrants expiring January 20, 2004 to purchase an aggregate of
404,725 shares of the Common Stock (net of a cancellation) at $2.41 per share.
On February 29 and March 14, 2000, the Company closed as to the sales
at $5,000 per Unit of an aggregate of 1,840 units, each unit consisting of
2,500 shares of the Common Stock and Investor Warrant expiring February 28
or March 13, 2005 to purchase 2,500 shares of Common Stock at $3.00 per share.
The Investor Warrants may not be exercised prior to September 14, 2000 and
the shares included in the Units are restricted securities for at least one
year. The Company realized $9,200,000 in gross proceeds. Finders' fees
were paid to various consultants and bankers for their assistance in helping
the Company to complete this private placement consisting of an aggregate of
$604,706 in cash fees and Finder's Warrants expiring March 13, 2005 to purchase
an aggregate of 273,075 shares of the Common Stock at $3.00 per share.
Management believes that, with the net proceeds from the private
placement described in the preceding paragraph, the Company has sufficient
funds to finish the product development, build a manufacturing facility,
generate field trials and pilot studies, and initiate marketing. Management
estimates that it will take $5.8 million after prototype to reach the market
with its product. The proceeds from the last private placement should provide
working capital for several quarters post revenue. There can be no assurance
that management's estimate as to costs and timing will be correct. Any delays
may further increase the Company's costs.
</PAGE>
<PAGE>
The Company is currently in discussion with three capital leasing
companies to fund the equipment required for the manufacture of the
LifePoint(tm) test system. Management anticipates reaching an agreement with
one or more of these firms not later than the third quarter of 2000.
The Company continues to pursue strategic partnering through the
Venture Merchant Group. Several large pharmaceutical and diagnostic
corporations have expressed initial interest in partnering with the Company.
Management anticipates that one or more partnering agreements may be completed
prior to the fourth quarter of 2000.
Management has also pursued the possibility of an underwritten
public offering and has received expressions of interest from several
well-known small national and large regional firms. However, to date the
Company has generally not attracted large institutional investors and, unless
this interest in the Common Stock develops, this fact may adversely affect
any future public offering. In addition, there can be no assurance that stock
market conditions later in 2000 or early in 2001 would be receptive to a
public offering by the Company, especially in view of the volatility in the
market generally in 2000. In addition, competitive conditions in the
substance abuse testing industry at that time may make the Company less
attractive to potential public investors. See the section "Competition" under
this caption "Business."
Having successfully consummated four private placements pursuant
to Regulation D under the Securities Act since November 1997, the Company may
seek to raise any additional financing through this method. As with a public
offering, there can be no assurance that potential investors would be
receptive to a private placement by the Company when the Company seeks to
sell, either because of general stock market conditions or conditions
generally in the substance abuse testing industry.
There can be no assurance that the Company will be successful in
securing additional financing, whether through a capital leasing firm, a
strategic partner, a public offering or a private placement.
If all of the Warrants to purchase an aggregate of 9,563,063 shares
of the Common Stock which were outstanding on March 31, 2000 were subsequently
exercised, the Company would realize $21,168,517 in gross proceeds. If all of
the Options pursuant to the Stock Option Plan to purchase an aggregate of
1,538,496 shares outstanding on March 31, 2000 were subsequently exercised,
the Company would realize $2,253,458 in gross proceeds. However, there can
be no certainty as to when and if any of these securities may be exercised,
especially as to the Options and certain of the Warrants which were not all
currently exercisable as of March 31, 2000. Accordingly, management believes
that the Company cannot rely on these exercises as a source of financing.
Operating Cash Flows
Net cash used for operations during fiscal 2000 amounted to $3,857,000
as compared to $2,096,000 in fiscal 1999. The cash used by operating
activities in fiscal 2000 increased by $1,761,000 from fiscal 1999,
which was the result of increased staffing and related expenses associated
with the final development phase of the LifePoint(tm) test system. Cash used
in operating activities for fiscal 1999 was reduced by $226,000 from fiscal
1998, which was the result of reduced expenses in fiscal 1999 due to cash
constraints versus normal product development early in fiscal 1998.
Investing Cash Flows
During fiscal 2000 and 1999, net cash used by investing activities
was $105,000 and $24,000, respectively, as a result of purchases of property
and equipment and patent related costs.
Financing Cash Flows
Net cash provided by financing activities amounted to $8,649,000
during fiscal 2000 related to the fourth private placement of units of Common
Stock and Investor Warrants with net proceeds approximating $8,577,000 and
proceeds from the exercise of Warrants and Options of $121,000.
Net cash provided by financing activities amounted to $6,320,000
during fiscal 1999 primarily related to the second private placement of
1,025,000 shares of the Common Stock with net proceeds approximating
$1,019,000 and net proceeds of $5,280,000 from the sale of 600,000 shares of
the Series A Preferred Stock as described above.
Results of Operations
Fiscal 2000 vs. Fiscal 1999
During fiscal 2000, the Company continued as a development stage
enterprise with no revenues. Research and development expenses in fiscal
2000 were $2,448,000 as compared to $1,118,000 in fiscal 1999, or an increase
of $1,330,000 or 119%. The increase in fiscal 2000 was a result of the
Company's transition into the final stages of development. Staffing levels
in product development increased 80% in fiscal 2000 along with related
development expenses. Selling, general and administrative expenses were
$1,518,000 in fiscal 2000 as compared to $1,483,000 in fiscal 1999, or an
increase of $35,000 or 2.4%. As of March 31, 2000, the Company did not
anticipate generating revenues from product sales until the first quarter of
2001 at the earliest. Accordingly, management anticipated that operating
losses would continue for at least a nine-month period.
</PAGE>
<PAGE>
The net loss for fiscal 2000 was $3,950,000 as compared to $2,697,000
for fiscal 1999. The increase of $1,253,000 or 46.5% was primarily the result
of the increase in product development expenses noted above.
From inception on October 8, 1992 to March 31, 2000, the Company
has spent $9,285,000 on research and development and $5,585,000 on general
and administrative expenses. Management fees paid to SAT aggregated an
additional $2,090,000 during such period, although none were paid after
June 30, 1997.
Impact of the Year 2000 Issue
In prior years, the Company discussed the nature and progress of
its plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems at a cost to the Company of less than
$20,000. As a result of those planning and implementation efforts, the
Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes
those systems successfully responded to the Year 2000 date change. The
Company is not aware of any material problems resulting from Year 2000 issues,
either with its products, its internal systems, or the products and services
of third parties. The Company will continue to monitor its mission critical
computer applications and those of its suppliers and vendors throughout the
year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
Inflation
The Company believes that inflation has not had a material effect
on its results of operations.
Forward Looking Statements
This "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains forward-looking statements that are
subject to a number of risks and uncertainties. Among the important factors
that could cause actual results to differ materially from those anticipated
by the statements made above are the following:
As indicated in the section "Liquidity and Cash Resources" under this
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," management estimates an incremental cost of $5,800,000
post prototype to complete the development, manufacture and initial marketing
of a saliva-based drug and alcohol testing product. There can be no assurance
that management's estimate as to costs and timing will be correct. Any
delays may further increase the Company's costs.
As of March 31, 2000, the Company employed 30 permanent employees and
7 temporary employees, of whom 32 were directly involved in its product
development and manufacturing programs. Management estimates that it will
require approximately 32 scientists and engineers to complete this project
and, if the product is successfully developed, approximately 40 persons to
commence manufacturing thereof. There can be no assurance that such personnel
will be available when the Company requires them or that the Company will not
experience turnovers in its personnel.
Also, as indicated in "Business-Competition," management believes
that saliva sample testing is unique in that, to its knowledge, no company is
currently offering a blood-equivalent substance abuse detection method using
saliva samples as a specimen on an "on-site" basis. However, as noted
therein, the Company has been advised that such a product may be under
development by two or more companies and, accordingly, there can be no
assurance that such a product will not be offered by a competitor.
</PAGE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Please see Item 13 of this Report for financial statements and
supplementary data.
ITEM 8. CHANGES IN ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
A definitive Proxy Statement will be filed with the Securities and
Exchange Commission ("the Commission") pursuant to Regulation 14A within 120
days after the close of the Company's most recent calendar year and,
accordingly, Item 9 is incorporated by reference to said definitive Proxy
Statement. The Proxy Statement will include information covering this Item
under the captions "Proposal Two: Election of Directors" and "Management."
ITEM 10. EXECUTIVE COMPENSATION
A definitive Proxy Statement will be filed with the Commission
pursuant to Regulation 14A within 120 days after the close of the Company's
most recent calendar year and, accordingly, Item 10 is incorporated by
reference to said definitive Proxy Statement. The Proxy Statement will
include information covering this Item under the captions "Executive
Compensation" and "Management - Certain Relationships and Related
Transactions."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A definitive Proxy Statement will be filed with the Commission
pursuant to Regulation 14A within 120 days after the close of the Company's
most recent calendar year and, accordingly, Item 11 is incorporated by
reference to said definitive Proxy Statement. The Proxy Statement will
include information covering this Item under the caption "Security Ownership
of Certain Beneficial Owners and "Management."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A definitive Proxy Statement will be filed with the Commission
pursuant to Regulation 14A within 120 days after the close of the Company's
most recent calendar year and, accordingly, Item 12 is incorporated by
reference to said definitive Proxy Statement. The Proxy Statement will
include information covering this Item under the caption "Management -
Certain Relationships and Related Transactions."
</PAGE>
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
The LifePoint financial statements appear in a separate section
of this Annual Report on Form 10-KSB commencing on the pages referenced below:
Report of Ernst & Young LLP F-1
Report of Wolinetz, Gottlieb & Lafazan, P.C. F-2
Balance Sheet as of March 31, 2000 F-3
Statements of Operations for the years ended March 31, 2000,
and 1999 and for the Period from October 8, 1992
(inception) to March 31, 2000 F-4
Statements of Stockholders' Equity for the period
from October 8, 1992 (inception) to March 31, 2000 F-5
Statements of Cash Flows for the years ended March 31, 2000,
and 1999 and for the Period from October 8, 1992
(inception) to March 31, 2000 F-6
Notes to Financial Statements F-8
(2) Financial Statement Schedules
Financial Statement Schedules are omitted as they are not required,
are inapplicable, or the information is included in the financial statement
or notes thereon.
(3) Exhibits
All of the following exhibits designated with a footnote reference
are incorporated herein by reference to a prior registration statement filed
under the Securities Act or a periodic report filed by the Company or SAT
pursuant to Section 13 or 15(d) of the Exchange Act. If no footnote reference
is made, the exhibit is filed with this Report.
</PAGE>
<PAGE>
Exhibit Number Exhibit Title
2(b) Agreement and Plan of Merger dated as of April 23,
1996 by and among SAT, U.S. Drug Acquisition Corp.
and LifePoint.(1)
2(b)(1) Agreement and Plan of Merger dated as of February 17,
1997 by and among SAT, U.S. Drug Acquisition Corp. and
LifePoint.(3)
3(a) Copy of Certificate of Incorporation of LifePoint as
filed in Delaware on October 8, 1992.(2)
3(a)(1) Copy of Amendment to the Certificate of Incorporation
as filed in Delaware on October 13, 1992.(3)
3(a)(2) Copy of Amendment to Certificate of Incorporation filed
in Delaware on February 25, 1998(4)
3(a)(3) Copy of Amendment to Certificate of Incorporation as
filed in Delaware on January 19, 1999. (5)
3(a)(4) Copy of Restated Certificate of Incorporation as filed
in Delaware on April 29, 1999.(10)
3(b) Copy of By-Laws of LifePoint as initially adopted.(3)
3(b)(1) Copy of By-Laws of LifePoint as adopted on February
26, 1999 superseding those filed as Exhibit 3(b)
hereto.(10)
10(a) Copy of License Agreement dated January 24, 1992 by
and between the USN and USAT. (Confidential Treatment
Requested for Exhibit.)(3)
10(a)(1) Copy of Amendment dated March 15, 1994 to License
Agreement filed as Exhibit 10(a) hereto.(1)
10(a)(2) Copy of Amendment dated June 16, 1995 to License
Agreement filed as Exhibit 10(a) hereto.(1)
10(a)(3) Copy of Letter dated May 15, 1995 from the USN to
SAT.(1)
10(a)(4) Copy of Fifth Modification dated November 12, 1997 to
License Agreement filed as Exhibit 10(a) hereto.(4)
10(a)(5) Copy of Partially Exclusive License dated March 12,
1999 between LifePoint and the United States of
America as represented by the Secretary of the Navy.
(10)
10(b) Copy of Assignment dated as of January 1, 1993 between
U.S. Drug and USAT of Licensing Agreement filed as
Exhibit 10(a) hereto.(3)
10(b)(1) Copy of Amended Sublicense Agreement dated September
23, 1993 superseding the Assignment filed as Exhibit
10(b) hereto.(1)
10(b)(2) Copy of Approval dated September 24, 1993 by the USN
of Amended Sublicense Agreement filed as Exhibit 10(b)
hereto.(1)
10(c) Copy of Cooperative Research Agreement (the "CRDA
Agreement") dated April 16, 1992 by and between Naval
Research Laboratory Section, United States Department
of the Navy, and SAT.(3)
10(d) Copy of Management Agreement dated April 1, 1993 by
and between LifePoint and SAT.(3)
10(d)(1) Copy of Amendment dated July 20, 1993 to Management
Services Filed as Exhibit 10(d) hereto.(3)
10(e) Copy of Lease expiring January 31, 1997 by and between
Rancho Cucamonga Business Park (now The Realty Trust)
as landlord and SAT as Tenant(6)
10(e)(1) Copy of Lease Modification Agreement to Lease filed
as Exhibit 10(e) hereto.(7)
10(e)(2) Copy of Sub-Lease Agreement dated as of January 1,
1993 by and between SAT as sub-landlord and LifePoint
as subtenant.(3)
10(e)(3) Copy of Third Amendment dated January 2, 1997 to Lease
filed as Exhibit 10(e), hereto.(8)
10(e)(4) Copy of Fourth Amendment dated November 3, 1997 to
Lease filed as Exhibit 10(e) hereto.(4)
10(e)(5) Copy of Fifth Amendment dated August 18, 1998 to
Lease dated March 18, 1991 by and between Rancho
Cucamonga Business Park (now The Realty Trust) as
landlord and SAT (now LifePoint) as tenant.(5)
10(e)(6) Copy of Sixth Amendment dated March 31, 1999 to Lease
dated March 18, 1991 by and between Rancho Cucamonga
Business Park (now The Realty Trust) as landlord and
SAT (now LifePoint) as tenant.(10)
10(g) Copy of LifePoint's 1994 Stock Option/Stock Issuance
Plan.(9)
10(g)(1) Form of Stock Option expiring October 2, 2004 of
LifePoint.(9)
10(g)(2) Copy of LifePoint's 1997 Stock Option Plan.(4)
10(g)(3) Form of Stock Option used under Plan filed as Exhibit
10(g)(2).(4)
10(i) Copy of Severance Agreement dated as of October 27,
1997 between LifePoint and Linda H. Masterson.(4)
10(k) Copy of Agreement dated December 1, 1998 between
Burrill and Company and LifePoint.(5)
10(l) Commercial Pledge and Security Agreement dated June 2,
1999 between LifePoint and City National Bank (11)
10(m) Lease Agreement dated July 14, 1999 between LifePoint
and FirstCorp (11)
10(n) Copy of Lease expiring July 31, 2005 by and between
Slater Properties as landlord and LifePoint as Tenant
23(a) Consent of Ernst & Young LLP.
23(b) Consent of Wolinetz, Gottlieb and Lafazan, P.C.
__________________
(1) Filed as an exhibit to LifePoint's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996.
(2) Filed as an exhibit to LifePoint's Annual Report on Form 10-K
for the fiscal year ended March 31, 1997.
(3) Filed as an exhibit to LifePoint's Registration Statement on Form SB-2,
File No. 33-61786, and incorporated herein by this reference.
(4) Filed as an exhibit to LifePoint's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998 and incorporated herein
by this reference.
(5) Filed as an exhibit to LifePoint's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998 and incorporated herein by
this reference.
(6) Filed as an exhibit to SAT's Annual on Form 10-K for the fiscal year
ended March 31, 1996 and incorporated herein by this reference.
(7) Filed as an exhibit to LifePoint's Quarterly Report on Form 10-K
for the quarter ended September 30, 1997 and incorporated herein by
this reference.
(8) Filed as an exhibit to SAT's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997 and incorporated herein by this
reference.
(9) Filed as an exhibit to SAT's Registration Statement on Form S-8,
File No. 33-89346.
(10) Filed as an exhibit to LifePoint's Annual Report on Form 10-K for
the fiscal year ended March 31, 1999.
(11) Filed as an exhibit to LifePoint's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999 and incorporated herein by
this reference.
</PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on June 26, 2000.
LIFEPOINT, INC.
(Registrant)
By: /s/ Linda H. Masterson
Linda H. Masterson
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities indicated on June 26, 1999.
Signature Title
/s/ Linda H. Masterson Principal Executive Officer and a
Linda H. Masterson Director
/s/ Michele A. Clark Principal Accounting Officer
Michele A. Clark
/s/ Charles J. Casamento Director
Charles Casamento
/s/ Peter S. Gold Director
Peter S. Gold
/s/ Paul Sandler Director
Paul Sandler
/s/ Stanley Yakatan Director
Stanley Yakatan
</PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors
LifePoint, Inc.
We have audited the accompanying balance sheet of LifePoint, Inc. (a
development stage enterprise) (the Company) as of March 31, 2000, and the
related statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended March 31, 2000 and for the period
October 8, 1992 (inception) through March 31, 2000. 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. The
financial statements for the period October 8, 1992 (inception) through
March 31, 1995 were audited by other auditors whose report dated May 26, 1995
expressed an unqualified opinion on those statements. The financial statements
for the period October 8, 1992 (inception) through March 31, 1995 include total
costs and expenses and a net loss of $4,497,000 and $4,850,000, respectively.
Our opinion on the statements of operations and cash flows for the period
October 8, 1992 (inception) through March 31, 2000, insofar as it relates to
amounts for prior periods through March 31, 1995, is based solely on the
report of other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of LifePoint, Inc. at March 31, 2000, and
the results of its operations and its cash flows for each of the two years in
the period ended March 31, 2000 and the period from October 8, 1992 (inception)
through March 31, 2000, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Riverside, California
May 23, 2000
</PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
LifePoint, Inc.
Rancho Cucamonga, California
We have audited the accompanying statements of operations, stockholders'
(deficit) equity and cash flows for the period from October 8, 1992
(inception) through March 31, 1995 of LifePoint, Inc. (a Development Stage
Enterprise). These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the results of operations and cash flows of LifePoint,
Inc. for period from October 8, 1992 (inception) through March 31, 1995, in
conformity with generally accepted accounting principles.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
May 26, 1995
</PAGE>
<PAGE>
LIFEPOINT, INC.
(a Development Stage Enterprise)
BALANCE SHEET
March 31,
2000
ASSETS
Current assets:
Cash and cash equivalents $ 9,483,624
Prepaid expenses and other current assets 102,633
------------
Total current assets 9,586,257
Property and equipment, net 401,309
Patents and other assets, net 93,830
------------
$ 10,081,396
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 274,902
Accrued expenses 425,481
Capital lease, short-term 101,386
------------
Total current liabilities 801,769
Capital lease, long-term 104,955
------------
906,724
Commitments and contingencies (Note 6)
Stockholders' equity:
Common Stock, $.001 par value;
50,000,000 shares authorized,
29,769,501 shares issued and
outstanding at March 31, 2000 29,769
Additional paid-in capital 29,145,385
Note receivable-stockholder (1,116,875)
Deficit accumulated in the
development stage (18,883,607)
------------
Total stockholders' equity 9,174,672
------------
$ 10,081,396
============
See Accompanying Notes.
</PAGE>
<PAGE>
LIFEPOINT, INC.
(a Development Stage Enterprise)
STATEMENTS OF OPERATIONS
Cumulative From
October 8, 1992
Years Ended March 31 (Inception) to
2000 1999 March 31, 1999
Revenues $ - $ - $ -
Costs and expenses:
Selling, general and
administrative
expenses 1,517,776 1,483,135 5,585,459
Research and development 2,448,484 1,117,786 9,285,371
Depreciation and amortization 99,693 142,387 1,018,772
Interest expense-parent - - 95,790
Management fees-parent - - 2,089,838
------------ ----------- -------------
Total costs and expenses 4,065,953 2,743,308 18,075,230
Loss from operations (4,065,953) (2,743,308) (18,075,230)
------------ ------------ -------------
Other income (expense):
Interest income
(expense), net 116,169 46,595 492,980
Loss on disposal of
property and
equipment - - (212,501)
Loss on sale of marketable
securities - - (627,512)
Interest income-parent - - 102,167
Total other income (expense) 116,169 46,595 (244,866)
------------ ------------ -------------
Net loss $(3,949,784) $(2,696,713) $(18,320,096)
============ ============ =============
Earnings per common share - basic:
Weighted average common
shares outstanding 15,251,400 11,566,684
============ ============
Net loss per common share $ (0.26) $ (0.23)
============ ============
Earnings per common share,
assuming dilution:
Weighted average common
shares outstanding 15,251,400 11,566,684
============ ============
Net loss per common share,
assuming dilution $ (0.26) $ (0.23)
============ ============
See Accompanying Notes.
</PAGE>
<PAGE>
LIFEPOINT, INC.
(a Development Stage Enterprise)
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period October 8, 1992 (Inception) to March 31, 2000
<S> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Additional in the Note
Common Preferred Paid-In Development Receivable
Stock Stock Capital Stage Stockholder Total
----------- --------- ---------- ------------ ----------- -----------
Balance at October 8, 1992 $ - $ - $ - $ - $ - $ -
Issuance of 3,500,000
shares of common
stock for value of assets
transferred from
parent 3,500 - 445,186 - - 448,686
Net loss for the period
ended March 31, 1993 - - - (257,422) - (257,422)
----------- --------- ---------- ------------ ----------- -----------
Balance at April 1, 1993 $ 3,500 $ - $ 445,186 $ (257,422) $ - $ 191,264
Sale of 1,721,900 shares
of common stock in
connection with initial
public offering, net
of offering costs of
$1,510,663 1,722 - 7,097,215 - - 7,098,937
Net loss for the year
ended March 31, 1994 - - - (2,260,292) - (2,260,292)
----------- --------- ---------- ------------ ----------- -----------
Balance at March 31, 1994 $ 5,222 $ - $ 7,542,401 $ (2,517,714) $ - $ 5,029,909
Net loss for the year
ended March 31, 1995 - - - (2,332,217) - (2,332,217)
----------- --------- ---------- ------------ ----------- -----------
Balance at March 31, 1995 $ 5,222 $ - $ 7,542,401 $ (4,849,931) $ - $ 2,697,692
Net loss for the year
ended March 31, 1996 - - - (1,640,805) - (1,640,805)
----------- --------- ---------- ------------ ----------- -----------
Balance at March 31, 1996 $ 5,222 $ - $ 7,542,401 $ (6,490,736) $ - $ 1,056,887
Net loss for the year
ended March 31, 1997 - - - (2,630,573) - (2,630,573)
----------- --------- ---------- ------------ ----------- -----------
Balance at March 31, 1997 $ 5,222 $ - $ 7,542,401 $ (9,121,309) $ - $(1,573,686)
Issuance of 2,075,306
shares of common
stock for forgiveness
of debt by former
parent 2,075 - 3,424,919 - - 3,426,994
Sale of 3,200,000 shares
of common stock
through private
placement offering,
net of offering
costs of $165,187 3,200 - 1,431,613 - - 1,434,813
Net loss for the year
ended March 31, 1998 - - - (2,552,290) - (2,552,290)
----------- --------- ---------- ------------ ----------- -----------
Balance at March 31, 1998 $ 10,497 $ - $ 12,398,933 $(11,673,599) $ - $ 735,831
Sale of 1,025,000 shares
of common stock
through private
placement offering,
net of offering costs
of $5,736 1,025 - 1,018,239 - - 1,019,264
Stock granted and additional
paid-in capital for
consulting services 255 - 203,085 - - 203,340
Sale of 600,000
shares of preferred
stock through private
placement offering,
net of offering costs
of $853,636 - 600 5,145,764 - - 5,146,364
Conversion of 42,275
shares of preferred
stock 846 (42) - (804) - -
Dividend on conversion
of preferred stock 1 - 4,864 (4,865) - -
Exercise of 41,197 stock
options 41 - 20,557 - - 20,598
Net loss for the year
ended March 31, 1999 - - - (2,696,713) - (2,696,713)
----------- --------- ---------- ------------ ----------- -----------
Balance at March 31, 1999 $ 12,665 $ 558 $ 18,791,442 $(14,375,981) $ - $ 4,428,684
Conversion of 557,725
shares of preferred
stock 11,154 (558) - (10,596) - -
Dividend on conversion
of preferred stock 123 - 547,123 (547,246) - -
Exercise of 143,254
stock options 144 - 71,483 - (56,875) 14,752
Exercise of 1,083,000
warrants 1,083 - 1,163,017 - (1,060,000) 104,100
Sale of 4,600,000
shares of common
stock and warrants
through private
placement offering,
net of offering
costs of $623,080 4,600 - 8,572,320 - - 8,576,920
Net loss for the year
ended March 31, 2000 - - - (3,949,784) - (3,949,784)
----------- --------- ------------ ------------ ----------- -----------
Balance at March 31, 2000 $ 29,769 $ - $ 29,145,385 $(18,883,607) $(1,116,875) $ 9,174,672
=========== ========= ============ ============= ============ ===========
</TABLE>
See Accompanying Notes.
</PAGE>
<PAGE>
LIFEPOINT, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
Cumulative From
Years Ended March 31, October 8, 1992
(Inception) to
2000 1999 March 31, 2000
Operating Activities
Net loss $(3,949,784) $(2,696,713) $(18,320,096)
Adjustments to reconcile
net loss to net cash
used by operating
activities:
Depreciation and
amortization 99,693 142,387 1,018,772
Loss on disposal of
property and equipment - - 237,976
Consulting Expense - 361,160 361,160
(Gain) loss on marketable
securities - - 627,512
Amortization of bond
discount - - (4,855)
Changes in operating
assets and liabilities:
Change in prepaid
expenses and other
current assets (66,751) 204,268 21,768
Change in other assets (10,555) (18,130) (33,021)
Change in accounts
payable 43,638 111,687 329,261
Change in accrued
expenses 27,021 (200,795) (90,898)
------------ ------------ -------------
Net cash used by
operating activities (3,856,738) (2,096,136) (15,852,421)
Investing Activities
Sale of marketable
securities - - 3,285,625
Purchase of marketable
securities - - (3,908,281)
Purchases of property
and equipment (90,825) (6,786) (694,388)
Proceeds from sale of
property and
equipment, net - - 80,828
Additional patent costs (13,893) (17,685) (70,817)
------------ ------------ -------------
Net cash used by
investing activities (104,718) (24,471) (1,307,033)
Financing Activities
Sales of common stock 9,200,000 1,025,000 20,446,226
Expenses of common
stock offering (604,706) (5,736) (2,286,292)
Sales of preferred stock - 6,000,000 6,000,000
Expenses of preferred
stock offering (18,374) (720,077) (738,451)
Exercise of stock options 14,752 20,598 35,350
Exercise of warrants 104,100 - 104,100
Payments of loan to parent - - (1,917,057)
Proceeds of loan by parent - - 1,634,762
Proceeds of loan
payable - parent - - 4,715,067
Payment of loan
payable - parent - - (1,299,782)
Proceeds of note
receivable - parent - - -
Proceeds of capital leases - - 101,572
Payments of capital leases (47,124) - (152,417)
Proceeds of brokerage
loan payable - - 2,674,683
Payments of brokerage
loan payable - - (2,674,683)
------------ ------------ -------------
Net cash used by financing
activities 8,648,648 6,319,785 26,643,078
Increase in cash and cash
equivalents 4,687,192 4,199,178 9,483,624
Cash and cash equivalents
at beginning of period 4,796,432 597,254 -
------------ ------------ -------------
Cash and cash equivalents
at end of period $ 9,483,624 $ 4,796,432 $ 9,483,624
============ ============ =============
Supplemental Disclosure of
Cash Information:
Cash paid for interest $ 27,514 $ - $ 219,560
============ ============ =============
Noncash operating activities:
Value of common stock for
consulting services $ - $ 53,340 $ 203,340
============ ============ =============
Noncash investing activities:
Value of assets transferred to
lessor in lieu of payment on
capital leases $ - $ - $ 71,405
============ ============ =============
Noncash financing activities:
Value of common stock issued
and additional paid-in capital
for the transfer of assets
from Parent $ - $ - $ 781,060
============ ============ =============
Value of common stock issued to
Parent and additional paid-in
capital for the forgiveness of
debt $ - $ - $ 3,160,502
============ ============ =============
Value of common stock warrants
issued for consulting services $ - $ 187,500 $ 187,500
============ ============ =============
Value of common stock issued and
additional paid-in capital
issued as dividends on
preferred conversion $ 547,246 $ 4,864 $ 552,110
============ ============ =============
Value of common stock warrants
issued for preferred stock
offering $ - $ 133,559 $ 133,559
============ ============ =============
Value of preferred stock
converted to common stock $ 11,154 $ 846 $ 12,000
============ ============ =============
Value warrants converted to
common stock in exchange
for note $ 1,060,000 $ - $ 1,060,000
============ ============ =============
Value of options converted to
common stock in exchange
for note $ 56,875 $ - $ 56,875
============ ============ =============
See Accompanying Notes.
</PAGE>
<PAGE>
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
LifePoint, Inc. ("LifePoint" or the "Company") is a development stage
company focused on the commercialization of the flow immunosensor technology
licensed from the United States Navy (the "USN"). LifePoint was incorporated
on October 8, 1992 under the laws of the State of Delaware as a wholly-owned
subsidiary of Substance Abuse Technologies, Inc. ("SAT"). On October 29, 1997,
the majority ownership of the Company was transferred from SAT to Meadow Lane
Partners, LLC ("Meadow Lane") an unaffiliated party. The Company is now
completely independent from SAT.
Basis of Presentation
As LifePoint is devoting its efforts to research and the development
of its products and there has been no revenue generated from product sales as
yet, LifePoint's financial statements are presented as statements of a
development stage enterprise.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents and Fair Value of Financial Instruments
LifePoint considers all highly liquid cash investments with an
original maturity of three months or less when purchased to be cash
equivalents. The carrying amount of all cash and cash equivalents
approximates fair value because of the short-term maturity of these
instruments.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the related assets
that range from 5 to 13 years. Expenditures for maintenance and repairs are
charged to expense as incurred whereas major betterments and renewals are
capitalized. Property and equipment under capital leases are included with
property and equipment and amortization of these assets are included in
depreciation expense.
Patents
The cost of patents is being amortized over its expected useful life
of 17 years using the straight-line method. At March 31, 2000 and 1999,
accumulated amortization of patents was approximately $12,000 and $9,000,
respectively.
Research and Development Costs
Research and development costs are expensed as incurred.
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Accounting for Stock-Based Compensation
LifePoint grants stock options for a fixed number of shares to
employees with an exercise price equal to or above the fair value of the
shares at the date of grant. LifePoint accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and accordingly, recognizes no compensation expense for employee stock option
grants. (See Note 4.)
Net Loss per Common Share
Net loss per common share is based upon the weighted average number
of common shares outstanding during the periods reported. Common stock
equivalents have not been included in this calculation because their
inclusion would be anti-dilutive.
Income Taxes
LifePoint accounts for income taxes under SFAS No. 109, Accounting
For Income Taxes. In accordance with SFAS No. 109, deferred tax assets and
liabilities are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled.
2. CONTINUING OPERATIONS
During the period from October 8, 1992 (inception) through March 31,
2000, the Company has realized no revenues and has accumulated losses of
$18,320,096. Recovery of the Company's assets is dependent upon future events,
including completion of the product development program and ultimately
achieving profitable operations. The outcome of these events is
indeterminable.
The Company had established a $500,000 revolving line of credit
agreement ($500,000 available at March 31, 2000) with City National Bank of
Beverly Hills, California. The line of credit was secured by funds and
securities in the Company's SEI Liquidity Management account at City National
Bank. The Company does not plan to renew this note in June 2000 upon
expiration. On July 14, 1999 the Company entered into an equipment lease
financing agreement for $300,000 with FirstCorp of Portland, Oregon which is
discussed further in Note 6.
The Company successfully completed a private placement of units, each
consisting of shares of the Company's Common Stock, $.001 par value (the
"Common Stock") and a Common Stock purchase warrant, in the fiscal year ended
March 31, 2000, with resulting net proceeds of $8,577,000. As a result,
management believes that the Company has sufficient cash on hand at March 31,
2000 to finish the product development, build a manufacturing facility,
generate field trials and pilot studies and initiate marketing. Management
estimates that it will take $5.8 million to reach the market post prototype.
The proceeds from the last private placement, in management's opinion, will
provide working capital for several quarters after the commencement of
marketing. The Company continues to pursue parallel paths to secure additional
funding including strategic partnering and capital leasing companies to help
offset the cash required to establish a manufacturing facility. There can be
no assurance that any of these additional sources of funding will be available
and, in such event, the Company may not be able to complete the development,
manufacturing and marketing of its product on a timely basis.
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3. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
March 31
2000
Furniture, fixtures and equipment $ 601,743
Test equipment 425,768
Leasehold improvements 245,991
-----------
1,273,502
Less: accumulated depreciation 872,193
-----------
$ 401,309
===========
4. STOCKHOLDERS' EQUITY
Series A Preferred Stock
On January 21, 1999, the Company sold 600,000 shares of the Company's
Series A 10% Cumulative Convertible Preferred Stock, $.001 par value (the
"Series A Preferred Stock"), pursuant to a third private placement pursuant
to Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"). Each share was convertible into 20 shares of the Common Stock. Dividends
were cumulative and payable semi-annually at a rate of $1.00 per share. The
dividends were payable in cash or shares of the Common Stock. On March 4,
2000, because the Average Market Price of the Common Stock for a 30-day
period was $4.00 or more, the Company, by notice to the holders, called all
of the then outstanding shares of the Series A Preferred Stock for mandatory
redemption as of March 24, 2000. As of March 31, 2000 there were no shares
of the Series A Preferred Stock or any other series of the Company's Preferred
Stock, $.001 par value, outstanding.
Common Stock
On May 24, 1997, the Board of Directors of LifePoint authorized the
issuance of additional shares of the Common Stock to SAT on the basis of a
share of the Common Stock for each $1.25 of indebtedness of LifePoint to SAT.
Based on SAT's advice that the amount of indebtedness owed by LifePoint to SAT
was approximately $2,594,000, all of which SAT agreed to treat as a capital
contribution, LifePoint authorized the issuance to SAT of 2,075,306 shares of
the Common Stock. As of September 30, 1997, SAT owned 5,575,306 shares of the
Common Stock or 76.4% of the 7,297,206 outstanding shares of the Common Stock.
SAT ceased providing advances to LifePoint in August 1997 as a result of its
inability to secure financing for its own programs. On October 27, 1997, the
controlling stockholder interest in LifePoint was sold to Meadow Lane for
$250,000. LifePoint is now completely independent from SAT.
One of the beneficial owners of the purchaser of the Common Stock
also loaned money to LifePoint to allow LifePoint to recommence product
development. During the fourth quarter of 1997, LifePoint repaid the loans
from the net proceeds of a private placement pursuant to Regulation D under
the Securities Act, which sold 3,200,000 shares of the Common Stock at $.50
per share or an aggregate purchase price of $1,600,000. The net proceeds of
the private placement totaled approximately $1,434,000 after the payment of
capital formation costs of approximately $166,000, including $160,000 in the
form of a finder's fee to Jonathan J. Pallin, who, on October 31, 1997 was
elected Chairman of the Board and a director of LifePoint. These capital
formation costs have been reflected as a reduction in additional paid-in
capital.
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On July 23, 1998, the Company closed in a second private placement as
to the sale of 1,000,000 shares of the Common Stock. On August 26, 1998, the
Company sold an additional 25,000 shares of the Common Stock. This offering of
a minimum of 1,000,000 and a maximum of 5,000,000 shares of the Common Stock
expired by its terms on October 14, 1998 without any additional shares being
sold. The aggregate of 1,025,000 shares was sold at $1.00 per share and the
Company realized $1,025,000 in gross proceeds.
On February 29 and March 14, 2000, the Company closed as to the sale
at $5,000 per unit of an aggregate of 1,840 units, each unit consisting of
2,500 shares of Common Stock and a Common Stock purchase warrant to purchase
2,500 shares of Common Stock at $3.00 per share. The warrants may not be
exercised prior to September 14, 2000 and the shares included in the units
are restricted securities for at least one year. The Company realized
$9,200,000 in gross proceeds. Finders' fees were paid to various consultants
and bankers for their assistance in helping the Company to complete this
private placement consisting of an aggregate of $604,706 in cash fees and
Common Stock purchase warrants expiring March 13, 2005 to purchase an
aggregate of 273,075 shares of the Common Stock at $3.00 per share.
Stock Option/Stock Issuance Plan
On August 14, 1997, the Board of Directors adopted, subject to
stockholder approval, the Company's 1997 Stock Option Plan (the Stock Option
Plan") providing for the granting of Options to purchase up to 1,000,000 shares
of the Common Stock to employees (including officers) and persons who also
serve as directors and consultants of the Company. On June 5, 1998, the
Board increased the number of shares subject to the Stock Option Plan to
2,000,000, again subject to stockholder approval. Stockholder approval was
given on August 13, 1998. The Options may either be incentive stock options
as defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") to be granted to employees or nonqualified stock options to be
granted to employees, directors or consultants.
As of March 31, 2000, Options to purchase an aggregate of 1,538,496
shares of the Common Stock granted to employees including officers, directors
and consultants were outstanding. As of such date, Options to purchase an
aggregate of 184,451 shares of the Common Stock had been exercised and Options
to purchase an aggregate of 121,324 shares of the Common Stock were then
exercisable. Options granted to date under the Stock Option Plan have
generally become exercisable as to one-quarter of the shares subject thereto
on the first anniversary date of the date of grant and as to 1/36th of the
remaining shares on such calendar day each month thereafter for a period of
36 months. Certain Options will become exercisable upon the achievement of
certain goals related to corporate performance and not that of the optionee.
The exercise price per share for incentive stock options under the Code may
not be less than 100% of the fair market value per share of the Common Stock
on the date of grant. For nonqualified stock options, the exercise price per
share may not be less than 85% of such fair market value. No Option may have
a term in excess of ten years. Of the Options outstanding as of March 31,
2000, all were incentive stock options except for Options to purchase an
aggregate of 180,000 shares and the Options had exercise prices ranging from
$.50 - $3.28 per share. The Options had expiration dates ranging from August
13, 2002 to February 21, 2010.
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Incentive Stock Options Non-Statutory Options
Number of Price Range Number of Price Range
Shares Per Share Shares Per Share
Outstanding - April 1, 1995 218,000 $7.00 10,000 $7.00
Canceled (66,000) 7.00 (10,000) 7.00
---------- ---------
Outstanding - March 31, 1996 152,000 7.00 - -
Canceled (152,000) 7.00 - -
---------- ---------
Outstanding - March 31, 1997 - - - -
Granted 950,000 0.50 300,000 1.00-4.00
---------- ---------
Outstanding - March 31, 1998 950,000 0.50 300,000 1.00-4.00
Granted 40,000 0.50-1.34 135,000 0.50
Exercised (41,197) 0.50 (155,000) 1.00
Canceled (274,636) 0.50-1.34 (160,000) 0.50-1.00
---------- ---------
Outstanding - March 31, 1999 674,167 0.50 120,000 0.50
Granted 885,500 1.12-3.28 75,000 1.63-2.83
Exercised (123,254) 0.50 (20,000) 0.50
Canceled (57,917) 0.50-1.81 (15,000) 1.63
---------- ---------
Outstanding - March 31, 2000 1,378,496 0.50-3.28 160,000 0.50 - 2.83
========== =========
Warrants
In connection with its initial public offering in October and November
1993, LifePoint granted to the underwriter, for a nominal fee, Common Stock
purchase warrants to purchase 150,000 shares of the LifePoint Common Stock
at $7.50 per share. These warrants expired on October 13, 1998. LifePoint
granted Common Stock purchase warrants, expiring on various dates through
March 14, 2005, to purchase an aggregate of 8,057,069 shares of the Common
Stock at $1.07 to $3.00 per share during fiscal 2000 and purchase an
aggregate of 1,136,725 shares of the Common Stock at $0.50 to $2.41 per
share during fiscal 1999.
Warrants
Number of Price Range
Shares Per Share
Outstanding - April 1, 1995,
March 31, 1996 and 1997 150,000 $7.50
Granted 1,577,289 0.50 - 1.00
---------
Outstanding - March 31, 1998 1,727,289 0.50 - 7.50
Expired (150,000) 7.50
Granted 1,136,725 0.75 - 2.41
---------
Outstanding - March 31, 1999 2,714,014 0.50 - 2.41
Expired (125,020) 1.15
Exercised (1,083,000) 0.50 - 1.72
Granted 8,057,069 1.07 - 3.00
---------
Outstanding - March 31, 2000 9,563,063 0.50 - 3.00
=========
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A summary of the status of the stock option and warrant grants as of
March 31, 2000 and 1999, and activities during the years ending on those
dates, is presented below:
2000 1999
------------------------ ------------------------
Weighted Weighted
Average Average
Options and Exercise Options and Exercise
Warrants Price Warrants Price
------------------------ ------------------------
Outstanding at
beginning of year 3,508,181 $0.82 2,977,289 $1.09
Granted 9,017,569 2.44 1,311,725 1.31
Canceled (197,937) 1.17 (434,636) 0.72
Exercised (1,226,254) 1.01 (196,197) 0.90
Expired - (150,000) 7.50
---------- ----------
Outstanding at end
of year 11,101,559 2.11 3,508,181 0.82
========== =========
Options and warrants
exercisable at year
end 4,854,887 1.13 2,837,190 0.89
=========== =========
Weighted-average fair
value of options and
warrants granted
during the year $ 1.87 $ 0.82
=========== =========
The following table summarizes information about stock options and
warrants outstanding as of March 31, 2000:
Options and Warrants Options and Warrants
Outstanding Exercisable
Weighted ------------------------------------------------
Average Weighted Weighted
Range of Remaining Options Average Options Average
Exercise Life and Exercise and Exercise
Prices (Years) Warrants Price Warrants Price
$0.50 to $3.28 6.0 11,101,559 $ 2.11 4,854,887 $ 1.13
The Company continues to account for stock-based compensation using
the intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", under which no compensation
cost for stock options is recognized for stock option awards granted at or
above fair market value. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("FAS 123"), established accounting
and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. The Company has elected to remain on
its current method of accounting as described above, and has adopted the
disclosure requirements of FAS 123. Had compensation cost for the Company's
stock option plan been determined based upon the Black-Scholes valuation
methodology, prescribed under FAS 123, the effect on the Company's net loss
and net loss per share, as of March 31, 2000 would remain unchanged.
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5. INCOME TAXES
For income tax purposes, LifePoint has a net operating loss
carryforward at March 31, 2000 of approximately $16,756,000 expiring in 2009
to 2020 if not offset against future federal taxable income. In addition,
LifePoint has a capital loss carryover of approximately $625,000 which expires
in 2001 if not offset against future capital gains.
Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for each
period as a result of the following:
March 31
2000 1999
Computed "expected" tax benefit $ 1,343,000 $ 918,000
Decrease in tax benefit resulting from net
operating loss for which no benefit is
currently available (1,343,000) (918,000)
------------ ----------
$ - $ -
============ ==========
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset are presented below:
March 31
2000 1999
Deferred tax assets:
Net operating loss carryforwards $ 5,828,500 $ 4,354,000
Capital loss carryforwards 212,500 213,600
----------- -----------
6,041,000 4,567,600
Less:
Valuation allowance under SFAS 109 6,041,000 4,567,600
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $6,041,000 valuation allowance at March 31, 2000 is
necessary to reduce the deferred tax assets to the amount that will more
likely than not be realized. The change in the valuation allowance for the
current year is $1,343,000.
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6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
LifePoint has entered into a lease agreement commencing October 1, 1997
and, extended by an amendment, terminating on March 31, 2002, for the research
facilities in Rancho Cucamonga, California. In addition to rent of $72,000 per
year for fiscal years ending March 31, 2000 through March 31, 2002, LifePoint
will pay for real estate taxes and other occupancy costs. Rent expense for the
fiscal years ended March 31, 2000, and 1999 was $72,000, and $69,000,
respectively.
On April 26, 2000 the Company entered into a lease agreement for
administrative offices and manufacturing facility commencing May 1, 2000 and
terminating on July 31, 2005. In addition to rent of $225,948 per year,
LifePoint will pay for real estate taxes and other occupancy costs. The
Company may elect to terminate the lease at the end of four years and has the
right to two 2-year renewal options. The lease also allows for rent abatement
in three of the first twelve months as tenant improvement allowance in addition
to the $30,000 paid by the lessor.
The Company leases certain equipment under noncancelable lease
arrangements. These operating leases expire in various dates through 2002
and maybe renewed for up to 12 months. Furniture, fixtures and equipment
includes $253,466 assets acquired under capital leases as of March 31, 2000.
Approximate minimum lease commitments as of March 31, 2000 are as
follows:
Years ended Capital Operating
March 31 Leases Leases
2001 $ 106,000 $ 244,000
2002 121,000 298,000
2003 23,000 226,000
2004 - 226,000
2005 - 226,000
Thereafter - -
---------- ----------
Total minimum lease
payments $ 250,000 $1,220,000
Amount representing
interest (44,000)
----------
Present value of net
minimum lease
payments $ 206,000
Less current portion 101,000
----------
Long-term portion $ 105,000
==========
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Significant Contracts
Effective January 1, 1993, LifePoint entered into a sub-license
agreement with SAT in which LifePoint sublicensed all of SAT's rights under a
license agreement with the USN (the License Agreement).
SAT and the USN on January 24, 1992 had entered into a ten-year
agreement granting SAT a partial exclusive patent license to products for
drug testing in the United States and certain foreign countries. In June 1995,
SAT's License Agreement with the USN was renegotiated and amended to provide
for minimum royalties of $100,000 per year commencing October 1, 1995 and
terminating September 30, 2005. Additional royalties will be paid pursuant to
a schedule based upon sales of products. LifePoint was a sub-licensee under
this agreement from SAT and, accordingly, had an obligation to SAT for the
royalty payments required by the License Agreement. Royalties expensed under
the License Agreement by LifePoint were $40,000, $100,000 and $50,000 for the
years ended March 31, 1998, 1997 and 1996, respectively. No amounts were paid
or due for the fiscal year ended March 31, 1999.
With the sale of SAT's majority-owned position in LifePoint, the USN
also agreed to transfer its License Agreement with SAT directly to LifePoint.
An amendment dated November 12, 1997 was executed to modify the up-front
$100,000 annual minimum payment to be paid in several payments over the year;
it also included a onetime payment of $10,000 for any outstanding debt due to
the USN from SAT. LifePoint has assumed all of SAT's rights and undertaken all
of SAT's obligations under the License Agreement.
In April 1999, the Company and the USN completed negotiations for an
expansion of the License Agreement. The new terms expand the field-of-use
from drugs of abuse and anabolic steroids on urine samples to include all
possible diagnostic uses for saliva and urine. In addition, the royalty rate
has been reduced to 3% on the technology-related portion of the disposable
cassette sales and 1% on instrument sales from the previous 10% on all
LifePoint product sales. The minimum royalty payment has been reduced to
$50,000 in 2001 (anticipated first year of product sales) and $100,000 a year
thereafter versus the previous $100,000 per year. The Company is further
developing the USN-developed technology for application in its own proprietary
test system.
7. INTERCOMPANY ALLOCATIONS
LifePoint was originally obligated to pay a fixed annual management
fee of $420,000 plus three percent of its gross revenues to SAT, its former
parent. In addition, the Company was allocated overhead expenses such as rent,
utilities, etc. based on estimated usage. In March of 1997, the Management
Agreement was again amended to provide for a percentage of time and services
agreement whereby the costs of certain SAT employees and facilities were
allocated to LifePoint based on a percentage of usage. As the activity of
LifePoint had been increasing, there had been a tremendous increase in time
required by SAT employees and expanded use of leased space to satisfy
LifePoint's needs. The services provided to LifePoint by SAT pursuant to the
Management Agreement included management, administrative, accounting and other
financial services and advice, including, without limitation, the services then
performed by the Treasurer of LifePoint (who was also the Treasurer of SAT),
for which he was not directly compensated by LifePoint; services relating to
LifePoint's financial and banking relationships; services relating to the
preparation of financial statements, budgets, forecasts and cash flow
projections; cash management advice; and other miscellaneous services and
advice. LifePoint paid $410,000 for the year ended March 31, 1998 in
management fees. The management fee was discontinued after June 30, 1997
because no services were being provided after that date.
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LIFEPOINT, INC.
ANNUAL REPORT ON FORM 10-K FOR
FISCAL YEAR ENDED MARCH 31, 1999
EXHIBITS FILED WITH REPORT
Exhibit
Number Exhibit
10(n) Copy of Lease expiring July 31, 2005 by and between Slater
Properties, as landlord, and LifePoint, as tenant.
23(a) Consent of Ernst & Young LLP
23(b) Consent of Wolinetz, Gottlieb and Lafazan, P.C.
