<PAGE> 1
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 2000
FILE NO. 333-72663
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SECURITIES AND EXCHANGE COMMISSION FILE
WASHINGTON, DC 20549
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POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LIFEPOINT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2835 33-0539168
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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10400 TRADEMARK STREET
RANCHO CUCAMONGA, CA 91730
(909) 466-8047
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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MS. LINDA H. MASTERSON
LIFEPOINT, INC.
10400 TRADEMARK STREET
RANCHO CUCAMONGA, CA 91730
(909) 466-8047
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
ROBERT W. BEREND, ESQ.
WACHTEL & MASYR, LLP
110 EAST 59TH STREET
NEW YORK, NY 10022
(212) 909-9602
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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12,494,275 SHARES
LIFEPOINT, INC.
COMMON STOCK
LifePoint, Inc. ("we" or the "Company") is in the late stages of developing
its first product, a device using a person's saliva to test on-site, without
having to take a sample to a laboratory, for the presence in his or her body of
(1) drugs of abuse, such as cocaine, heroin and marijuana, and (2) alcohol. We
expect to begin marketing this product not earlier than the fourth quarter of
2000.
We are not offering for sale any securities pursuant to this prospectus.
Instead, the stockholders of the Company named in the list beginning on page 60
of this prospectus will be selling:
- 8,547,500 shares of our Common Stock when and if most of them convert
their shares of our Series A 10% Cumulative Convertible Preferred Stock
outstanding as of December 3, 1999.
- 466,116 shares of our Common Stock which is our current estimate as to
the shares which may be issued to these stockholders as dividends on the
Preferred Stock during the next 26 months after December 3, 1999.
- 2,441,597 shares which have already been issued to certain of these
stockholders upon their conversions of the Preferred Stock on or before
December 3, 1999.
- 32,357 shares which have already been issued to the foregoing
stockholders as dividends.
- 919,705 shares of our Common Stock when and if certain others of these
stockholders exercise their Common Stock purchase warrants previously
received from us.
- 87,000 shares which have already been issued to two stockholders upon
exercise of warrants.
All of the selling stockholders will be selling, from time to time,
pursuant to this prospectus, their shares of the Common Stock at the prices
quoted for the Common Stock in the over-the-counter market. Our Common Stock is
currently reported on the NASD's OTC Bulletin Board under the symbol: LFPT. On
January 11, 2000, the high bid and low asked prices as so reported were $2.72
and $2.56, respectively, per share. The selling stockholders may also attempt to
sell their shares in isolated transactions, at negotiated prices, with
institutional or other investors. There will be no underwriter's discounts or
commissions except for the charges to a selling stockholder for sales through a
broker-dealer. All net proceeds from a sale will go to the selling stockholder
and none to the Company.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This Prospectus is dated , 2000
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 3
Risk Factors................................................ 6
Use of Proceeds............................................. 12
Business.................................................... 13
Market for the Common Stock and Related Stockholder
Matters................................................... 31
Management.................................................. 34
Security Ownership of Certain Beneficial Owners and
Management................................................ 43
Description of Securities................................... 45
Plan of Distribution........................................ 54
Selling Stockholders........................................ 59
Legal Matters............................................... 69
Experts..................................................... 70
Commission Position on Indemnification...................... 70
Selected Financial Data..................................... 72
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 73
Index to Financial Statements............................... F-1
Report of Independent Auditors.............................. F-2
Report of Independent Certified Public Accountants.......... F-3
Audited Financial Statements................................ F-4
Unaudited Financial Statements.............................. F-20
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SUMMARY
Because this is a summary, it does not contain all of the information that
may be important to you as a prospective purchaser of shares of our Common Stock
from a Selling Stockholder. You should read the entire prospectus carefully,
including the risk factors and the financial statements, before you decide to
purchase a share of our Common Stock.
KEY QUESTIONS AND ANSWERS.
1. WHO ARE WE?
LifePoint, Inc. is a Delaware corporation, with its sole office at 10400
Trademark Street, Rancho Cucamonga, California 91730. The Company's telephone
number is (909) 466-8047. You should make inquiries relating to this prospectus
to Linda H. Masterson, our President and Chief Executive Officer, by writing her
at the Company's address or by calling her at extension 223.
2. WHAT BUSINESS ARE WE IN?
We are in the late stages of developing our first product, using technology
licensed to us from the United States Navy and our own patented technology. Our
initial device will use a person's saliva to test on-site, without having to
take the sample to a laboratory, the presence in a person's body of (1) drugs of
abuse, such as cocaine, heroin and marijuana, and (2) alcohol.
3. WHAT IS OUR RECORD OF REVENUES AND EARNINGS?
Because we have not offered for sale any product or services, we have had
no revenues. Through September 30, 1999, we incurred losses of $16,079,292.
Because we do not expect to begin marketing our first product described above
before the fourth quarter of 2000 at the earliest, our operational losses will
continue through that date, if not longer.
4. DO WE NEED ANY GOVERNMENTAL APPROVALS TO BEGIN MARKETING?
For us to market our testing device to hospitals and other medical
facilities in the United States, we must first obtain the approval of the United
States Food and Drug Administration. We currently expect to submit our product
to the FDA for approval not earlier than the first quarter of 2001. Based on the
current experiences of other companies, we expect to get such approval not
earlier than 100 days later. However, the FDA may not approve. In addition, even
if this agency approves our product, we may receive its approval later than we
anticipate. We expect our development work to be completed and a manufacturing
operation to be in place not earlier than the fourth quarter of 2000. Then we
can first begin to market our product to law enforcement agencies, industrial
companies with safety sensitive positions and other non-medical users.
5. WHAT SECURITIES ARE THE COMPANY OFFERING PURSUANT TO THIS PROSPECTUS?
We are not offering any securities pursuant to this prospectus. All sales
pursuant to this prospectus will be by the Company's stockholders named in the
list beginning on page 60 of this prospectus. These stockholders will be
referred to in this prospectus as the
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"Selling Stockholders." We, but not pursuant to this prospectus, will offer, or
have offered, to the Selling Stockholders the following shares of the Common
Stock:
- 12,000,000 shares upon the conversion of 600,000 shares of the Company's
Series A 10% Cumulative Convertible Preferred Stock,
- up to 500,000 shares which is our current estimate as to the dividends
which may be issuable with respect to the shares of the Series A
Preferred Stock during the three years after January 21, 1999 and
- 1,028,705 shares (which total reflects cancellations of 506,747 shares)
upon the exercise of certain Common Stock purchase warrants with
expiration dates ranging between December 7, 2002 and January 20, 2004
and with exercise prices ranging between $.50 and $2.41 per share. These
warrants will be referred to in this prospectus as the "Selling
Stockholders Warrants."
For additional information as to these securities, we suggest that you read the
sections "Series A Preferred Stock" and "Warrants" under the caption
"Description of Securities" and "Plan of Distribution" in this prospectus.
Certain of the Selling Stockholders have already converted their shares of
the Series A Preferred Stock into shares of the Common Stock, have already
received shares of the Common Stock as dividends on the Series A Preferred Stock
when they converted or have already exercised their Selling Stockholders
Warrants. Certain of these Selling Stockholders have already sold their shares
of the Common Stock received upon these conversions or exercises. Accordingly,
the Selling Stockholders named in this prospectus are now offering:
- an aggregate of 10,989,097 shares received or to be received upon
conversions of the Series A Preferred Stock,
- up to an aggregate of 498,473 shares received or to be received as
dividends with respect to the Series A Preferred Stock and
- an aggregate of 1,006,705 shares received or to be received upon
exercises of the Selling Stockholders Warrants
- or an aggregate of 12,494,275 shares.
6. WHAT IS THE OFFERING PRICE PURSUANT TO THIS PROSPECTUS?
The Selling Stockholders have advised us that, after conversion of their
shares of the Series A Preferred Stock or exercise of their Selling Stockholders
Warrants, they will sell the shares of the Common Stock received upon conversion
or exercise, from time to time, at the prices quoted for the Common Stock in the
over-the-counter market. Our Common Stock is currently reported on the NASD's
OTC Bulletin Board under the symbol: LFPT. On January 11, 2000, the high bid and
low asked prices as so reported were $2.72 and $2.56, respectively, per share.
The Selling Stockholders have also advised us that they may sell their shares in
isolated transactions, at negotiated prices, with institutional or other
investors. There will be no underwriter's discounts or commissions, except for
the charges to the Selling Stockholder if he, she or it sells through his, her
or its broker-dealer. See "Plan of Distribution."
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7. WILL THE COMPANY RECEIVE ANY PROCEEDS AS A RESULT OF SALES OF SHARES
PURSUANT TO THIS PROSPECTUS?
We will not receive any proceeds from the sales of shares of the Common
Stock by the Selling Stockholders pursuant to this prospectus. We will, however,
receive $1,427,354 if all of the outstanding Selling Stockholders' Warrants are
exercised.
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RISK FACTORS
Before you invest in our Common Stock by purchasing shares from a Selling
Stockholder named in this prospectus (see the list beginning on page 60 of this
prospectus), you should be aware that there are various risks, including those
described below. You should consider carefully these risk factors, together with
all of the other information included in this prospectus, before you decide to
purchase any shares of our Common Stock.
Some of the information in this prospectus may contain forward-looking
statements. These statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward looking" information. When considering these forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. These forward-looking statements could involve
known and unknown risks, uncertainties and other factors that might materially
alter the actual results suggested by the statements. In other words, the
Company's performance might be quite different from what the forward-looking
statements imply.
THE FOLLOWING RISK FACTORS RELATE TO OUR OPERATIONS:
WE HAVE HAD A HISTORY OF OPERATIONAL LOSSES AND EXPECT OUR LOSSES TO CONTINUE.
From the date we incorporated on October 8, 1992 through September 30,
1999, we incurred net losses of $16,079,292. These losses were due to the fact
we have had no product or service to offer for sale or rental and, as a result,
have incurred only expenses without generating any revenues. We are still
developing our first marketable product, a device using a person's saliva to
test on-site for the presence in his or her body of (1) drugs of abuse, such as
cocaine, heroin and marijuana, and (2) alcohol. Through September 30, 1999, we
incurred $7,879,780 in expenses for all research and development of this product
and $8,189,512 for all other costs and expenses (net of interest income.)
We anticipate completing the development of a prototype instrument of the
testing device not earlier than the second quarter of 2000. Assuming we receive
the necessary financing, as described in the next section under this caption
"Risk Factors," we anticipate completing the development of the product and
having a manufacturing operation in place not earlier than the fourth quarter of
2000. We would then begin to market our product to law enforcement agencies,
industrial companies with safety sensitive positions and other non-medical users
because there is no governmental approval required as a prerequisite for us to
market to them. However, for us to market our product in the United States to
hospitals and other medical facilities, we must first obtain approval by the
Food and Drug Administration (the "FDA") of the product. We currently expect to
obtain FDA approval not earlier than the second quarter of 2001. Many potential
non-medical users of our product may want to wait until we have obtained FDA
approval before they use the testing device, even though there is no such legal
requirement for us to sell the product to them. This delay would further defer
our receipt of revenues.
We may not meet the schedule described in the preceding paragraph. In
addition, the FDA or any foreign government may not grant approval for the sale
of the Company's product for routine screening and diagnostic operations.
Furthermore, the approval process may take longer than we project. Even if we do
meet our schedule, we cannot expect to
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produce product revenues until the fourth quarter of 2000 at the earliest. In
the interim period, we expect to have income from other sources such as research
grants and partnering agreements. However, such income may not be obtained. We,
therefore, anticipate that our losses will continue until at least the fourth
quarter of 2000, if not longer. We cannot be certain when our expected revenues
will exceed expenses. For more detailed information, your attention is directed
to "Business -- Seeking a Product -- Preliminary Background" and "Financial
Statements" in this prospectus.
WE HAVE A NEED FOR ADDITIONAL FINANCING.
As a result of the $6,000,000 in gross proceeds realized in the Company's
private placement closed in January 1999, we believe that we have sufficient
funds to complete the development of the prototype instrument of our drugs of
abuse/alcohol testing product. However, our latest estimate is that completion
of the development and launching of the product after the prototype instrument
will require an additional cost of approximately $4,500,000.
We have consummated three private placements pursuant to Regulation D under
the Securities Act since November 1997. Accordingly, we have engaged the
services of an investment banking firm and are attempting to use this financing
method to raise the approximately $4,500,000 we need to complete the development
of the project and commence marketing to law enforcement agencies and other
non-medical users. We implemented such an offering during the month of December
1999. However, investors may not be receptive to making an investment,
particularly in our Company, at the time we desire because of the then stock
market conditions.
Based on our discussions with various persons, we believe that we may
persuade an investment banking firm to do a public offering of our securities to
raise the balance of the funding we require should the private placement effort
fail. However, we do not know whether the stock market will be receptive to a
public offering by us at the time we desire. In addition, an underwriter may
wish to wait until the prototype instrument is completed for a public offering.
In addition to adverse conditions in the stock market that may adversely
impact our efforts to obtain public and private financing, as described above,
competitive conditions in our industry may also influence adversely prospective
sources of financing. For additional information on our potential competition,
we recommend that you read the sections "We will face major competition" under
this caption "Risk Factors" and "Competition" under the caption "Business" in
this prospectus.
We also believe that development of the prototype instrument will
facilitate our efforts to obtain a large pharmaceutical or medical diagnostic
company to fund the project through a strategic alliance with us. We are excited
about the possibilities for growth of our product. However, a large
pharmaceutical or medical diagnostic company may not also be so impressed as to
enter into a strategic alliance with us. Even if they do so, we cannot be
certain when this will occur. Some potential strategic partners may want to wait
until we actually have either the prototype instrument or clinical samples.
If all of the Common Stock purchase warrants (including the Selling
Stockholders Warrants, but excluding the Common Stock purchase warrants
hereinafter mentioned which were granted on October 10, 1999) which were
outstanding, and almost all of which were exercisable, on December 3, 1999 and
all of the stock options which were outstanding
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as of December 3, 1999 were subsequently exercised, we would realize $4,034,480
in gross proceeds. However, we cannot be certain as to when and if these
warrants and options will be exercised by the respective holders, especially
because the outstanding stock options are not currently exercisable as to all of
the shares of the Common Stock subject thereto. Accordingly, we cannot rely on
these exercises as a source of financing. For additional information as to these
warrants and options, we recommend that you read "Description of
Securities -- Warrants" and "Management -- Option/SAR Grants" in this
prospectus. In addition, for information as to certain warrants granted on
October 10, 1999 referred to above, none of which are currently exercisable, we
recommend that you read "Management -- Certain Relationships and Related
Transactions."
We recognize that without additional financing we cannot bring our product
to market. Without any product we cannot produce revenues. If that event occurs,
your investment in our Common Stock may become a complete loss. In addition,
even after we begin to derive revenues, we may need additional financing until
we begin to operate on a profitable basis. We cannot assure you that we will
either obtain such financing or profitability. For more information as to our
financing requirements, we suggest you read "Business -- Need for Financing" in
this prospectus.
WE WILL FACE MAJOR COMPETITION.
If our product to test for drugs of abuse and alcohol is successfully
developed, we will compete with many companies of varying size that already
exist or may be founded in the future. Substantially all of the current tests
available either use urine or blood samples as a specimen to test for drugs of
abuse or use breath, saliva, or blood samples to test for alcohol. On July 19,
1999, Avitar, Inc. ("Avitar") announced that it had commenced shipping of the
first oral screening test for cocaine, opiates and marijuana. We have evaluated
this product and we believe that the limitations of the technologies used by
Avitar will negatively impact Avitar's ability to sell into our target markets.
We believe that Avitar's product as currently offered will not be court
defensible in law enforcement and industrial markets and not useful in medical
emergencies because the result is not quantitative. Additionally, the type of
technology used by Avitar is less sensitive than the instrumented systems we are
developing and, we believe, not sensitive enough to detect certain drugs at
levels that are found in saliva. Although we believe that our product under
development is superior to the one Avitar is marketing, we could be incorrect in
our assessment of the Avitar product and, even if we are correct in our
assessment, Avitar could attempt to modify its product to meet our criticisms.
In either of these events, Avitar's product could significantly impact our
ability to sell our product which we are developing.
In addition, we recognize that another product or products performing
on-site test for drugs in blood or saliva may be developed in the future.
With respect to testing for the presence of alcohol, we will compete with
Intoxmeter, Inc., LifeLock, Inc. and other small manufacturers.
With respect to testing for the presence of drugs of abuse in saliva, we
may face as competitors at least eight major pharmaceutical companies which
currently use urine as the specimen for testing. Almost all of these prospective
competitors have substantially greater financial resources than we do to develop
and market their products. Their names and their testing products are listed
under "Business -- Competition" in this prospectus.
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We believe that our saliva sample testing product will be unique because,
to our knowledge, no company is currently offering a simultaneous test for drugs
and alcohol using saliva as a specimen. In addition, we are not aware of any
products that can deliver an immediate "blood equivalent" drug testing that
indicates current impairment in a person from the National Institute of Drug
Abuse ("NIDA") list of drugs of abuse ("NIDA-5") As indicated in the fourth
preceding paragraph, Avitar recently released a three-drug screening test for
saliva and we have been told that one or more other companies may be developing
a saliva-based testing device to test for drugs. We believe the technology they
are using is very different from that of the Company. Accordingly, by the time
we first offer our product for sale, there may already be some competition to
our product also using saliva as a specimen for testing. This competition would
be in addition to that of the companies already using urine as the specimen for
testing. Furthermore, because of the time frame it will take for us to bring our
product to market, our competition may have developed name recognition among
customers that will handicap our future marketing efforts.
OUR INDUSTRY IS SUBJECT TO TECHNOLOGICAL CHANGES.
The substance abuse testing industry is a technologically sensitive
industry. Companies are constantly developing new methods and making changes to
current methods for substance abuse detection in order to remain competitive.
When our product is launched, we shall compete with the larger companies named
under "Business -- Competition" in this prospectus. Many of these companies have
substantially greater resources to invest in the research and development of
their products than we do. These competitors may develop products in the future
that make our products obsolete or non-competitive from a pricing point of view.
For us to remain competitive, we may require substantial financial resources for
personnel and other costs to conduct research and update our products to reflect
the technological advances. However, we may not be able to obtain such financial
resources when we require the same. Even if we do obtain the financing, the
terms thereof may adversely affect our results of operations.
OUR EFFORTS TO LEGALLY PROTECT OUR PRODUCT MAY NOT BE SUCCESSFUL.
We will be dependent on our patents and trade secret law to legally protect
the uniqueness of our testing product. However, if we institute legal action
against those companies which we believe may have improperly used our
technology, we may find ourselves in long and costly litigation. This result
would increase our costs of operations and thus adversely affect our results of
operations. In addition, should it be successfully claimed that we have
infringed on the technology of another company, we may have to pay such company
a royalty or licensing fee. This result would also add to our costs of
operations and thereby adversely affect our results of operations. For more
detailed information as to our prospective legal defenses, we recommend that you
read "Business -- Patents and Technology" in this prospectus.
THE FOLLOWING RISK FACTORS RELATE TO OUR COMMON STOCK:
OUR STOCKHOLDERS MAY FACE LIQUIDITY PROBLEMS WHEN THEY SEEK TO SELL THEIR
SHARES.
We currently do not meet the requirements to list our Common Stock on a
national securities exchange or on The Nasdaq Stock Market, Inc. ("Nasdaq").
Accordingly, trading in our Common Stock is conducted in the over-the-counter
market and reported on
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the NASD's OTC Bulletin Board. Consequently, selling our shares may be more
difficult because smaller quantities of shares may be bought and sold,
transactions may be delayed and security analysts' and news media's coverage of
our Company may be reduced. These factors could result in lower prices and
larger spreads in the bid and asked prices for our shares.
In addition, because the bid price of our Common Stock is below $5.00 per
share, the shares became subject to Rule 15g-9 and the other penny stock
regulations under the Securities Exchange Act of 1934, as amended (the Exchange
Act"). Rule 15g-9 imposes additional sales practice requirements on
broker-dealers that sell low-priced securities to persons other than established
customers and institutional accredited investors. For transactions covered by
this Rule, a broker-dealer must make a special suitability determination for the
prospective purchaser and have received the purchaser's written consent to the
transaction prior to the sale. Consequently, the Rule and the other "penny
stock" regulations may adversely affect the ability of broker-dealers to sell
our shares and may adversely affect the ability of holders to sell their shares
of the Common Stock in the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT MARKET PRICE OF THE COMMON
STOCK.
Of the 15,417,537 shares of the Common Stock outstanding as of December 3,
1999, we had previously registered under the Securities Act of 1933, as amended
(the "Securities Act"), 2,956,277 of those shares without giving effect to the
shares included in this prospectus for resale. Accordingly, a holder of any of
those 2,956,277 shares may sell his, her or its shares without any requirement
that the holder deliver to his, her or its purchaser a prospectus naming the
holder as a selling stockholder, unless the holder is an affiliate of the
Company as defined in Rule 144 (a)(1) under the Securities Act. Even the holder
who is an affiliate may sell his, her or its shares as permitted by Rule 144
without delivery of such a prospectus.
In addition, as of December 3, 1999, an additional 9,900,306 shares were
restricted securities as defined in Rule 144 (a)(3) under the Securities Act. A
holder of any of such shares may sell them pursuant to the exemption from
registration of Rule 144.
In summary, of the 15,417,537 shares of the Common Stock outstanding as of
December 3, 1999, 12,855,583 shares were saleable without the necessity of the
Company filing a registration statement under the Securities Act naming the
holders as selling stockholders.
As of December 3, 1999, we had reserved 1,955,053 shares of the Common
Stock for the exercise of stock options (the "Options") granted or to be granted
pursuant to the LifePoint, Inc. 1997 Stock Option Plan (the "Stock Option
Plan"). For further information as to the Options already granted and when
Options became or will become exercisable under the Stock Option Plan, we direct
your attention to the sections "Option/ SAR Grants," "Compensation of Directors"
and "Certain Relationships and Related Transactions" under the caption
"Management" in this prospectus. All of the shares issuable upon the exercises
of the Options have been registered under the Securities Act. Accordingly,
unless the optionee is an affiliate of the Company as defined in Rule 144 (a)(i)
under the Securities Act, he or she may, after exercise of an Option, resell the
shares received upon exercise without the use of a reoffer prospectus.
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In addition, as of December 3, 1999, the Company had reserved an aggregate
of 1,742,609 shares for the exercise of outstanding Common Stock purchase
warrants (the "Warrants") other than the Selling Stockholders Warrants and seven
Common Stock purchase warrants to purchase an aggregate of 3,000,000 shares of
the Common Stock granted on October 10, 1999 to the two principal operating
officers of the Company and which will not become exercisable until designated
goals are achieved. We direct your attention to "Management-Certain
Relationships and Related Transactions" where the terms of these seven warrants
are described. The Warrants expire on various dates ranging from October 26,
2002 to July 1, 2004, have exercise prices ranging from $.50 to $1.97 per share
and were almost all exercisable as of December 3, 1999. The shares of the Common
Stock issuable upon exercises of the Warrants have not been registered under the
Securities Act. Accordingly, these shares will be "restricted securities" as
defined in Rule 144 (a)(3) under the Securities Act after issuance. The holder
(including an affiliate of the Company) may, one year after the exercise of the
Warrant, resell his, her or its shares received upon such exercise pursuant to
the exemption from registration of Rule 144 under the Securities Act.
We are unable to predict the effect that sales of our shares of the Common
Stock made under Rule 144 and the delayed sales of shares subject to the Options
and the Warrants may have on the then prevailing market price of our shares. It
is likely that market sales of large amounts of these shares of the Common Stock
or of the 12,494,275 shares offered for resale by this prospectus (or the
potential for those sales even if they do not actually occur) will have the
effect of depressing the market price of the Common Stock.
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE
FUTURE.
We intend to retain future earnings, if any, to fund operations and
expansion of our business. In addition, our expected continuing operational
losses and the outstanding shares of the Series A Preferred Stock (and any other
series of the Preferred Stock that may hereafter be issued) will limit legally
our ability to pay dividends on the Common Stock. Accordingly, we do not
anticipate paying cash dividends on shares of our Common Stock in the
foreseeable future.
OUR DIRECTORS HAVE SIGNIFICANT VOTING POWER
At our recent Annual Meeting of Stockholders which we held on August 20,
1999, the directors of our Company were eligible to vote 31.1% of the shares
then eligible to vote on the election of directors. (Our executive officers held
only Options and Warrants so they were not eligible to vote any shares at the
Annual Meeting.) Delaware law, to which we are subject as a Delaware
corporation, requires, for a director to be elected, that only a majority of the
votes actually cast at the meeting must vote in favor. At the August 20th
meeting, only 78% of the shares eligible to vote were present for voting
purposes. Accordingly, the directors, by voting their 31.1% of the current
shares eligible to vote, had a substantial influence on who was elected a
director. This voting power may influence future elections of directors as well.
For additional information as to this effect and information as to the
directors' lesser influence on certain proposals other than the election of
directors, please see "Description of Securities-Management Voting Power."
11
<PAGE> 13
USE OF PROCEEDS
The Company will not receive any proceeds upon the conversions of the
shares of the Series A Preferred Stock into shares of the Common Stock or upon
the subsequent sales by the Selling Stockholders of the shares of the Common
Stock issued to them upon these conversions. The Company will not receive any
proceeds from the sales by the Selling Stockholders of the shares issued to them
as dividends with respect to their converted shares of the Series A Preferred
Stock. If the Selling Stockholders Warrants are exercised in their entirety, the
Company will receive $1,427,354 upon such exercises. Because of the uncertainty
as to when and if any of these Selling Stockholders Warrants will be exercised,
the Company intends to use any proceeds from these exercises for working capital
purposes, which it did with respect to the $63,000 received, as of December 3,
1999, with respect to two Selling Stockholders Warrants exercised as to an
aggregate of 109,000 shares of the Common Stock. The Company will not receive
any of the proceeds from the subsequent sales by the holders of the underlying
shares of the Common Stock received upon exercises of the Selling Stockholders
Warrants.
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<PAGE> 14
BUSINESS
SAFE HARBOR STATEMENT UNDER THE PRIVATE LITIGATION REFORM ACT OF 1995
With the exception of historical information, the matters discussed in this
prospectus include certain forward-looking statements that involve risks and
uncertainties. Among the risks and uncertainties to which the Company is subject
are the risks that:
- it will not obtain the substantial financing necessary to complete the
development of its products and then to initiate manufacturing and
marketing and, accordingly, not develop any revenue source;
- it will not secure the additional personnel required first to complete
the development program and, if that is successful, later to implement
the manufacturing process, especially in its current location;
- it will not complete the product development program on a timely or
successful basis and the costs will be higher than projected;
- during the period before the first quarter of 2001 when the Company's
management currently believes that its saliva based drugs of abuse and
alcohol testing product will be submitted for United States governmental
approval and the fourth quarter of 2000 when the Company's marketing to
non-medical users will have begun, competitors will have begun to offer
for sale a saliva based competitive product covering some or all of the
drugs of abuse and alcohol for which the Company's product will be used
for testing; and
- because of the delays, the potential market for the Company's products
will not be as large as currently anticipated.
As a result, the actual results realized by the Company could differ
materially from the statements made herein. Stockholders of the Company and
potential investors in the Company are cautioned not to place undue reliance on
forward-looking statements made in this prospectus. See also "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Forward Looking Statements."
AVAILABLE INFORMATION
The Company files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy and information statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, as well at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of this material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
N.W., Washington, D.C., 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants (including the Company) that file electronically with the Commission
at the following Web site address: http://www.sec.gov.
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<PAGE> 15
Copies of the Company's reports, proxy and information statements and other
information filed with the Commission can be obtained from the Company by
writing Assistant Secretary Anne Lohr at LifePoint, Inc., 10400 Trademark
Street, Rancho Cucamonga, CA 91730 or by calling her at (909) 466-8047,
extension 222. They can also be obtained by contacting the Company on its Web
site: www.lifepoint.com.
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.
The Company's name was changed to "LifePoint, Inc." on February 25, 1998.
Effective as of January 1, 1993, SAT sublicensed or transferred to the
Company certain rights or assets to develop drug testing products in exchange
for 3,500,000 shares of the Company's Common Stock, $.001 per value (the "Common
Stock"). In October and November 1993, the Company had a public offering of the
Common Stock in which an aggregate of 1,721,900 shares was sold. As of September
30, 1997, SAT owned 5,575,306 shares of the Common Stock or 76.4% of the
7,297,206 shares of the Common Stock then outstanding. From its inception until
October 31, 1997, the Company was a subsidiary of SAT or otherwise under its
control.
SAT ceased providing advances to the Company in August 1997 as a result of
SAT's inability to secure financing for its own programs. On September 10, 1997,
SAT filed a petition under Chapter 11 of the Federal Bankruptcy Code. The
Company temporarily suspended its product development activities on September
19, 1997, but did not file for bankruptcy.
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. The Company was advised that the sole members of Meadow
Lane were Jonathan J. Pallin (who, since October 31, 1997, has served as a
director of the Company) and his brother-in-law Herman Sandler. Mr. Sandler is
also the brother of Dr. Paul Sandler, a director of the Company since December
5, 1997. For information as to the current share ownership of Messrs. Pallin and
Sandler as a result of the distribution by Meadow Lane to them, see Notes (4)
and (5) to the table under "Security Ownership of Certain Beneficial Owners and
Management."
The Company then resumed its product development efforts. 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.
For additional information as to certain of the prior relationships between the
Company and SAT, its former parent, see the sections "Material
Contracts -- Management Agreement," "Certain Relationships with SAT," "Loans
from SAT to the Company" and "Transfer of Assets from SAT to the Company" under
this caption "Business."
SEEKING A PRODUCT -- PRELIMINARY BACKGROUND
The Company has not produced any revenues through June 30, 1999 because its
products are still in the developmental stage. The Company is developing
proprietary
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<PAGE> 16
systems that will generate immediate, diagnostic results for a broad variety of
substances by non-invasively testing saliva. Management believes that this
product, when developed, can 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
agencies.
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. As indicated below, the
Company's first efforts were to develop a device to test for the Drugs of Abuse
using urine as the test specimen. However, based on its review of the potential
market in 1995, the Company decided to develop a saliva specimen testing product
first. In late 1996, it expanded the development program to also test for the
presence of alcohol.
In January 1992, the United States Navy (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 NIDA list of drugs of abuse. By an amendment dated
March 15, 1994, the scope of the License Agreement was broadened to permit SAT
to use the technology for testing for methadone, benzodiazapines, barbiturates,
propoxyphene, tricyclic antidepressants and anabolic steroids. Except as set
forth in the two preceding sentences, SAT under the License Agreement could not
use the USN technology to test for other substances.
By an amendment dated June 16, 1995, the term of the exclusive right under
the License Agreement was extended to terminate ten years from June 27, 1995. In
addition, SAT was granted a nonexclusive right to use the technology thereafter
for the balance of the patent term, unless the License Agreement was terminated
sooner because of SAT's default. By letter dated May 15, 1995, the USN notified
SAT that, because the expiration date of the USN patent had been extended to
February 23, 2010 under the GATT/WTO treaty, the expiration date of the License
Agreement was extended to February 23, 2010.
With the sale of the SAT majority stockholder interest in the Company (see
the section "History of the Company" under this caption "Business"), the license
agreement with the USN was transferred directly to the Company from SAT and the
Sublicense dated September 23, 1993 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 and urine.
The Company is further developing the USN-developed technology for
application in its own proprietary test system. See the sections "Material
Contracts" and "Patents and Technology" under this caption "Business."
Until the saliva based test system is submitted to the FDA and/or marketing
has commenced, no revenues from product sales are likely to be produced. The
Company conducted an internal feasibility study on the product that was
completed in November 1996. Based on the results of the feasibility study, the
Company proceeded to the next stage of development. Assuming subsequent success
in the remainder of the development program, the Company currently expects to
submit its five-panel screening
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<PAGE> 17
assay to the FDA in the first quarter of 2001 at the earliest, to begin selling
to non-medical markets in the fourth quarter of 2000 at the earliest and to
begin selling to the medical markets after obtaining FDA approval in the second
quarter of 2001 at the earliest. However, there can be no assurance that any of
the foregoing will occur by the specified date or that the product will be
successfully developed.
Once the product is submitted to the FDA, 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. The Company will be able to commence
marketing of the product in 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 (1) as to when the Company will
submit such assay to the FDA, if at all, (2) as to when the FDA will give its
clearance and (3) 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 companies' testing of safety
sensitive positions, 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 market 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. In addition,
management expects that the Company's tests will be performed on a screening
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 a urine sample instrument. However, the use of this product in
other potential markets that are testing for "lifestyle," such as pre-employment
testing, may be limited with the initial product.
Currently, to the Company's knowledge, no competitor is currently offering
a blood-equivalent saliva test, but one competitor has just began to offer a
sample screening test product on an "on site" basis for three 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 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 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 of the Avitar product and, even
if management is correct in its assessment, Avitar could attempt to modify its
product to
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<PAGE> 18
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 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 the Company 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 three private placements pursuant to
Regulation D under the Securities Act to fund its operations, as described in
the succeeding three paragraphs.
On November 21, 1997, the Company closed as to the sale of 1,690,000 shares
of the Common Stock. On December 10, 1997, the Company closed as to the sale of
an additional 1,510,000 shares of the Common Stock. The aggregate of 3,200,000
shares was sold at $.50 per share and the Company realized $1,600,000 in gross
proceeds. There were no underwriting discounts or commissions allowed or paid
pursuant to the private placement. A finder's fee of $160,000 was paid to
Jonathan J. Pallin who was a member of Meadow Lane and who, on October 31, 1997,
was elected as the Chairman of the Board and a director of the Company. Since
January 8, 1999, he has served only as a director.
On July 23, 1998, the Company closed 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. There were no underwriting discounts or commissions paid related to
the private placement. However, a Selling Stockholders Warrant expiring December
13, 2003 to purchase 50,000 shares of the Common Stock at $1.08 was granted to
Ira Jay Mitchell, an otherwise unaffiliated person and a Selling Stockholder in
this prospectus, 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 Company's 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. Finders' fees were paid to various
consultants and bankers for their
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<PAGE> 19
assistance in helping the Company to complete this private placement. For their
assistance in completing this private placement, finders' fees were paid as
follows:
<TABLE>
<CAPTION>
SELLING
STOCKHOLDERS
NAME OF FINDER CASH FEE WARRANTS(1)
-------------- -------- ------------
<S> <C> <C>
Alan Stone & Company..................................... $ 2,500 0
Ambient Capital Group, Inc. ............................. 0 10,000
Corporate Capital Management, L.L.C. .................... 10,000 14,000
Charles Dargan........................................... 20,000 56,000
Global Capital Corporation............................... 13,951 0(2)
The Gramercy Partnership, L.L.C. ........................ 72,169 144,338
The Kriegsman Group...................................... 15,000 40,000
Libra Finance S.A. ...................................... 13,951 42,275
Ira Jay Mitchell......................................... 0 50,000
Online Capital GmbH...................................... 24,056 48,112
Jonathan J. Pallin....................................... 420,451 0
-------- -------
Total.................................................. $592,078 404,725
======== =======
</TABLE>
- -------------------------
(1) All of these Selling Stockholders Warrants expire on January 20, 2004 and
have an exercise price of $2.41 per share.
(2) A Selling Stockholders Warrant to purchase 42,275 shares of the Common Stock
was subsequently canceled.
Management believes that, with the net proceeds from the private placement
described in the preceding paragraph, the Company has sufficient funds to
complete the prototype instrument for the drugs of abuse and alcohol testing
products and that the prototype instrument will be completed not earlier than
the second quarter of 2000. 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 of development.
Management's latest estimate is that completion of the development and
launching of a saliva based drugs of abuse and alcohol testing product after the
prototype instrument will require an additional cost of approximately $4,500,000
beyond the $6,000,000 funding completed in January 1999 and that the product
will not be launched earlier than the fourth quarter of 2000. In addition, even
after the Company begins to derive revenues from product sales, the Company may
require additional financing until it begins to operate on a profitable basis,
as to which there can be no assurance.
Since October 1997, management had been pursuing parallel paths for
financing: venture capital, strategic partnering, a public offering and/or a
private placement for all or part of the required funding.
Management had initially believed that one likely source for the additional
funding would have been an investment by a venture capital investor or
investors. Any such investment would have been likely to dilute substantially
the stock interest of the current stockholders.
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<PAGE> 20
Management has also been exploring the possibility of obtaining a strategic
partner for the Company. To this end, the Company had an agreement with Burrill
& Company ("Burrill"), a San Francisco-based merchant bank focused exclusively
on servicing life science companies. The agreement with Burrill was terminated
by the Company on May 7, 1999. Pursuant to the parties' agreement, the Company
has paid $61,000 to Burrill and granted Burrill a Selling Stockholders Warrant
expiring November 30, 2003 to purchase 124,980 shares of the Common Stock at
$1.15 per share in full settlement of all claims by Burrill for fees except as
hereinafter reported. See "Plan of Distribution." Burrill has reserved the right
to seek to assert a claim under the agreement for additional compensation (both
in the form of cash and stock) should the Company secure a strategic partner
from the list of potential candidates developed with Burrill, a claim which the
Company disputes. The Company has continued 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 currently anticipates that these partnering agreements may not be
completed until the Company has at least completed development of the prototype
instrument. Accordingly, there can be no certainty as to when the Company can
complete such an agreement, if at all.
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. At least one firm has offered to conduct a
public offering in early 2000. However, despite these indications of interest,
stock market conditions may not be receptive to a public offering by the Company
at that time. 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 three private placements pursuant to
Regulation D under the Securities Act since November 1997, the Company initiated
in December 1999 a private placement to seek to raise the additional necessary
financing. As with a public offering, potential investors may not be receptive
to a private placement by the Company at this time, either because of general
stock market conditions or conditions generally in the substance abuse testing
industry.
In summation, the Company may not be successful in securing additional
financing, whether through a strategic partner, a public offering or a private
placement.
If all of the Warrants and the Selling Stockholders Warrants to purchase an
aggregate of 2,662,314 shares of the Common Stock which were outstanding on
December 3, 1999 were subsequently exercised, the Company would realize
$2,483,785 in gross proceeds. If all of the Options to purchase an aggregate of
1,446,500 shares outstanding on December 3, 1999 were subsequently exercised,
the Company would realize $1,550,695 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 which were not all currently exercisable as of December 3,
1999. Accordingly, management believes that the Company cannot rely on these
exercises as a source of financing.
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
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<PAGE> 21
tests. Testing on a urine sample took approximately 20 minutes per drug
selected. 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 "Seeking a Product-Preliminary Background" 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. Research is being conducted 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 research utilizes much of the development 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 is in the fourth quarter
of 2000 and for submission to the FDA in the first quarter of 2001. There can be
no assurance that the Company will meet such timetable.
(A) IMMUNOSENSOR ANALYZER. The Company anticipates manufacturing a
small portable device in conjunction with the flow immunosensor technology.
When used with the drug assays described below, the Company expects that
this unit will provide 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. There can be, however, no
assurance that the Company will be able to complete the development and
then market this product.
(B) DRUG ASSAYS FOR IMMUNOSENSOR ANALYZER. The Company intends to
develop 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
analyses (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 research and development efforts for the drug assays
concurrently with the instrument. There can be no assurance that the
Company will be able to complete the development and then market the assay
cartridges.
MANUFACTURING
Whenever the Company commences manufacturing, the Company will be required
in the United States to follow current Good Manufacturing Practices ("GMP") as
prescribed by the FDA. 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 GMP. 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. The Company is currently
seeking a Vice President, Manufacturing to assist on the finalization of
specifications for the saliva based testing product for drugs of abuse and
alcohol and then to supervise the manufacturing operations of the Company.
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<PAGE> 22
MARKETING AND DISTRIBUTION
Although the Company had engaged the services of a consultant to undertake
a marketing survey in 1995, because of the delays in the development of its
products due to the decision to have a test using a saliva sample, a definitive
marketing program has not been finalized or implemented. The Company has
initiated preliminary marketing efforts, including additional market research to
finalize final product specifications and preliminary product positioning in the
target markets: law enforcement, the industrial workplace and the medical
emergency room. The Company has employed, effective January 17, 2000, a Vice
President, Marketing and Sales to expand on this effort and finalize the
marketing plan.
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 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. The
Company will be able to commence marketing of the product in 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 assays 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, have been initiated for each target market segment.
The Company's proposed medical screening and diagnostic products will be
subject to significant governmental 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 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 in the United
States 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'
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<PAGE> 23
products. Management believes that approximately 100 days has lately been the
time period for approval.
If the 510(k) procedure is not available, 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. Based on its discussions with the FDA, management believes that the
510(k) procedure will be followed.
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.
Pursuant to applications filed by the Company, to date, the Company had
received FDA approval to manufacture and market the original urine test
instrument and five urine drug assays. However, as indicated in the section
"Drug Testing Products" under this caption "Business," because additional
development work was necessary before the product could be marketed, the Company
has abandoned further development work on this product at this time. As
indicated in the section "Seeking a Product-Preliminary Background" under this
caption "Business," the Company is focusing its efforts on the development of
the saliva sample testing product.
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
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<PAGE> 24
until further investigation is completed. Such decision has not been made as of
the date hereof.
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 adopted in the current
form. There can be no assurance that the CLIA regulations will not be adopted
or, if adopted, that the Company's product will be exempt thereunder.
RESEARCH AND DEVELOPMENT
During the fiscal years ended March 31, 1999 ("fiscal 1999"), 1998 ("fiscal
1998") and 1997 ("fiscal 1997"), the Company incurred approximately $1,118,000,
$1,052,000 and $1,735,000, respectively, in expenses for development of the
saliva drug testing technology. During the six-month period ended September 30,
1999, the Company incurred approximately $1,043,000 in development expenses as
compared to approximately $558,000 in such expenses during the comparable
six-month period in the prior fiscal year. From October 8, 1992 (inception) to
September 30, 1999, the Company has spent approximately $7,880,000 on
development of the drug testing technology. See the section "Need for Financing"
under this caption "Business" for information as to the estimated expenses to
complete the product development.
PATENTS AND TECHNOLOGY
In addition to its rights under the USN patent license (see the section
"Seeking a Product-Preliminary Background" 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; and
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<PAGE> 25
(3) On November 2, 1998, the Company filed a patent application
(Patent Application #09/183,295) which includes 26 claims for a saliva
aspiration system used for diagnostic purposes. Management believes that
this patent will provide broad patent protection for its unique saliva
collection system that has significant advantages over the currently
accepted method of absorption for saliva collection. The Company is not
certain whether and when this patent may issue.
The Company previously had rights from SAT to use Patent No. 5,066,859,
"Hematocrit and Oxygen Saturation Blood Analyzer," issued on November 19, 1992,
but the assignment agreement dated January 16, 1992 between SAT and Maurice N.
Karkar and James C. Velnosky, the owners of the patent, was terminated by SAT on
November 7, 1996. The Company never used the SAT rights to this patent because
it had no relevance to the products the Company was developing.
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 other patents or licenses to use
the same 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 would be costly and the Company's business would 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
patent applications have
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<PAGE> 26
been filed in Canada, certain European countries and Japan. The saliva
aspiration patent has only been applied for in the United States. The Company
has one year to initiate filings of this patent in other countries.
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. On July 19, 1999, Avitar announced that it had
commenced shipping of the first oral screening test for 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,
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<PAGE> 27
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.
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., 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, Roche, Marion, Abbott, 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 recently released
a three-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, Roche's RIA, Marion's TLC, Abbott's FPIA
methods, 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 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 "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.
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<PAGE> 28
MATERIAL CONTRACTS
(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 may be added to the 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 sublicenses in the
Licensed Territory. There were minimum annual royalty payments of $180,000 for
1993, $375,000 for 1994, $600,000 for 1995 and $1,000,000 for 1996 and each
calendar year thereafter throughout the term of the License Agreement. 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.
By an amendment dated March 15, 1994, the scope of the License Agreement
was broadened to permit SAT to use the technology for testing for methadone,
benzodiazapines, barbiturates, propoxyphene, tricyclic antidepressants and
anabolic steroids. Except as set forth in the preceding sentence, SAT under the
License Agreement could not use USN technology to test for other substances. The
aforementioned minimum annual royalties were amended November 28, 1994 as
follows: the minimum annual royalty for 1995 was reduced to $375,000 and, for
1996, it was reduced to $600,000.
By an amendment dated June 16, 1995, the term of the exclusive right under
the License Agreement was extended to terminate ten years from June 27, 1995. In
June 1995, the License Agreement with the USN was renegotiated and amended to
provide for minimum annual royalties of $100,000 per year commencing October 1,
1995 and terminating September 30, 2005. Additional royalties were to be paid
pursuant to a schedule based upon sales of products. In addition, SAT was
granted a nonexclusive right to use the technology thereafter for the balance of
the patent term, unless the License Agreement was terminated sooner because of
SAT's default. By letter dated May 15, 1995, the USN notified SAT that, because
the expiration date of the USN patent had been extended to February 23, 2010
under the GATT/WTO treaty, the expiration date of the License Agreement was
extended to February 23, 2010.
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 product sales by the
Company. 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."
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 was paid in several payments
over the year
27
<PAGE> 29
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.
(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 licensing 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 has 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, has the right of first election
to file a patent application on such joint inventions in all other countries.
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
substantially 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.
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<PAGE> 30
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 was elected as the Chairman of the Board and a director of the
Company. Mr. Pallin, as the distributee of Meadow Lane, was the beneficial owner
of 4,213,595 shares of the Common Stock or 26.8% of the outstanding shares as of
December 3, 1999. Since October 16, 1997, 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, Michele A. Clark was elected as the Controller, and
designated as the Chief Accounting Officer, of the Company. The other
officerships in the Company held by Mr. Muccini remain vacant. 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.
SAT had filed in February 1996 a Registration Statement on Form S-4 under
the Securities Act to merge the Company with and into a wholly-owned subsidiary
of SAT (the "LifePoint Merger"). In consideration of their consent to such
merger, the minority stockholders of the Company were to receive shares of the
SAT Common Stock, $.01 par value. As a result of SAT's bankruptcy and its
subsequent sale of its shares of the Common Stock to Meadow Lane, this SAT
proposal to take the Company private was abandoned.
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 proposal for the then minority
stockholders of the Company to consent to 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
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<PAGE> 31
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 correctly 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 Common Stock purchase 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 $333,144 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 December 3, 1999, the Company employed 24 employees, of whom 20 were
directly involved in its research and development program. Additional personnel
will be required to complete the development project and, if the project
development is completed successfully, to manufacture and market the product.
PROPERTIES
The Company maintains its principal executive offices and laboratory
facilities in Rancho Cucamonga, California. The premises, which consist of
approximately 10,000 square feet, are leased at $72,000 per year pursuant to a
lease that expires March 31, 2002. Management believes that additional space
will be required when and if manufacturing of the drug and alcohol test product
commences. Because of the expenses and prospective delays involved in attempting
to move the Company's research facility and the current unavailability of
adjoining space, management believes that the manufacturing and warehousing
facilities will have to be located in another building. There can be no
assurance that such facilities will be available at an acceptable rent when the
Company requires the same.
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<PAGE> 32
LEGAL PROCEEDINGS
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.
MARKET FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS
EXCHANGE MARKET DATA
The Common Stock was traded on the Pacific Exchange, Inc. (the "Pacific
Exchange") under the symbol "U.S.D.P" until May 12, 1997 when trading was
suspended because the Company failed to meet the Pacific Exchange's maintenance
criteria. The quarterly high and low sales prices for the Common Stock as
reported by the Pacific Exchange are set forth below during the period
indicated:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------ ------
<S> <C> <C>
FISCAL 1996
June 30, 1995................................ $ 5.50 $ 2.50
September 30, 1995........................... 4.75 2.50
December 31, 1995............................ 4.50 2.625
March 31, 1996............................... 4.50 3.00
FISCAL 1997
June 30, 1996................................ $ 4.25 $ 3.50
September 30, 1996........................... 3.75 2.375
December 31, 1996............................ 2.875 0.75
March 31, 1997............................... * *
</TABLE>
- -------------------------
* According to the National Quotation Bureau, Inc., there were no sales reported
during the quarter ended March 31, 1997 and the high bid and low asked prices
were $1.875 and $2.00, respectively. These quotations reflected inter-dealer
process, without retail mark-up, mark-down or commission, and may not have
represented actual transactions. On May 12, 1997, the last day on which there
was a reported market price, the closing sale price was $1.6875 per share.
Effective October 28, 1997, the Commission granted the Pacific Exchange's
application to delist and deregister the Common Stock under Section 12(b) of the
Exchange Act.
SUBSEQUENT TRADING
Effective February 4, 1998, the Company registered the Common Stock under
Section 12(g) of the Exchange Act. On February 13, 1998, a broker-dealer filed a
Rule 15c2-11 notice with the National Association of Securities Dealers, Inc.
(the "NASD") to initiate quotations with respect to the Common Stock. The Common
Stock was subsequently quoted on the NASD's OTC Bulletin Board under the symbol:
LFPT.
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<PAGE> 33
Based primarily on the current market quotations for the Common Stock, the
Company does not currently meet the entry requirements for any major national
securities exchange or Nasdaq, either the National Market System or the SmallCap
Market. Secondary trading (i.e., by its stockholders) is currently permissible
in 50 states and the District of Columbia.
OVER-THE-COUNTER MARKET DATA
There have been quotations in the over-the-counter market for the Common
Stock since June 25, 1998. The quarterly high bid and low asked prices as quoted
by the NASD's OTC Bulletin Board for fiscal 1999 and for the fiscal year ending
March 31, 2000 ("fiscal 2000") are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
FISCAL 1999
June 30, 1998(1)............................... $1.50 $0.50
September 30, 1998............................. 2.75 1.00
December 31, 1998.............................. 1.75 0.75
March 31, 1999................................. 1.69 1.63
FISCAL 2000
June 30, 1999.................................. $1.85 $0.83
September 30, 1999............................. 1.84 0.87
</TABLE>
- -------------------------
(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.
The high bid and low asked prices of the Common Stock on January 11, 2000
were $2.72 and $2.56, respectively, as reported by the NASD's OTC Bulletin
Board.
"PENNY STOCK" RULES
Because the bid price of the Common Stock has been below $5.00 per share,
the security has become subject to Rule 15g-9 promulgated under the Exchange
Act. This Rule imposes additional sales practices requirements on a
broker-dealer which sells Rule 15g-9 securities to persons other than the
broker-dealer's established customers and institutional accredited investors (as
such term is defined in Rule 501(a) under the Securities Act). For transactions
covered under Rule 15g-9, the broker-dealer must make a suitability
determination of the purchaser and receive the purchaser's written agreement to
the transaction prior to the sale. In addition, broker-dealers, particularly if
they are market makers in the Common Stock, have to comply with the disclosure
requirements of Rules 15g-2, 15g-3, 15g-4, 15g-5 and 15g-6 under the Exchange
Act unless the transaction is exempt under Rule 15g-1. Consequently, Rule 15g-9
and these other Rules may adversely affect the ability of broker-dealers to sell
or to make markets in the Common Stock and also may adversely affect the ability
of purchasers of the shares offered by this prospectus to resell their shares.
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<PAGE> 34
HOLDERS
As of December 3, 1999, there were 188 holders of record of the Common
Stock and, based on requests for copies in connection with the 1999 Annual
Meeting of Stockholders, the Company believes that there are approximately 1,700
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, the Company's cash requirements, and the
provisions of the Series A Preferred Stock, the Board has no current intention
to pay any such dividends.
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<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information relating to the directors
and executive officers of the Company as of December 3, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- ----------------------------------------------
<S> <C> <C>
Linda H. Masterson................ 48 Chief Executive Officer, President and a
director
Thomas J. Foley................... 60 Senior Vice President, Research and
Development
Michele A. Clark.................. 46 Controller and Chief Accounting Officer
Peter S. Gold..................... 75 Director
Jonathan J. Pallin................ 50 Director
Paul Sandler...................... 60 Director
</TABLE>
Each director of the Company is elected to serve until the next Annual
Meeting of Stockholders or until his or her successor is elected and shall have
qualified. Each director listed above was reelected at the Annual Meeting of
Stockholders held on August 20, 1999. Each officer of the Company is elected by
the Board of Directors to serve at the discretion of the Board.
BUSINESS HISTORY
Linda H. Masterson has over 20 years' experience in marketing, sales and
business development in the medical diagnostics, healthcare and biotechnology
fields. She was elected a director of SAT on September 26, 1995. Effective May
13, 1996, she became the President and the Chief Operating Officer of SAT. On
May 31, 1996, she was elected a director of the Company and, on July 31, 1996,
the President and the Chief Operating Officer of the Company. Effective November
19, 1996, she relinquished her duties as the Chief Operating Officer of SAT in
order to devote more time to supervising the development program of the Company
and the operations of the then Alcohol Products and BioTox Divisions of SAT. On
May 23, 1997, she resigned as the President of SAT in order to become the Chief
Executive Officer of the Company (formally designated as such on May 26, 1997).
On November 4, 1997, she resigned as a director of SAT, thereby terminating her
last position with the former parent of the Company. Until May 13, 1996 when she
became an employee of SAT, she was employed as the Executive Vice President of
Cholestech, Inc., a start-up diagnostic company, for which she developed and
restructured the company's business strategy. In November 1993, Ms. Masterson
founded Masterson & Associates, a company of which she was the President and
owner until she joined Cholestech, Inc. in May 1994, which was engaged in the
business of providing advice to start-up companies, including the preparation of
technology and market assessments and the preparation of strategic and five-year
business plans for biotech, medical device, pharmaceutical and software
applications companies. From April 1992 to November 1993, Ms. Masterson was
employed as the Vice President of Marketing and Sales of BioStar, Inc., a
start-up biotech company focused on the commercialization of a new detection
technology applicable to both immunoassay and hybridization based systems. From
1989 to 1992, she was employed as the Senior Vice President of Marketing, Sales
and Business Development by Gen-Probe, Inc., a specialized genetic probe
biotechnology company focused on infectious diseases, cancer and therapeutics.
Prior to 1989, Ms. Masterson was employed for 12 years in various domestic and
international marketing and sales positions at Johnson & Johnson, Inc., Baxter
International Inc. and Warner
34
<PAGE> 36
Lambert Co. Ms. Masterson has a BS in Medical Technology from the University of
Rhode Island, an MS in Microbiology/Biochemistry from the University of Maryland
and attended the Executive Advanced Management Program at the Wharton School of
Business at the University of Pennsylvania.
Thomas J. Foley has over 25 years' experience in the medical diagnostic
industry. He was elected to an officership in the Company effective March 9,
1998. From November 1997 to March 1998, he was a consultant to various
companies. From November 1994 to November 1997, he served as the Executive Vice
President of Business and Product Development at HiChem/Elan Diagnostics
("HiChem"), where he managed research and development, regulatory affairs
(including FDA submissions), strategic and business planning, technology
assessment for acquisitions, and manufacturing operations. Prior to joining
HiChem in November 1994, Dr. Foley was the Vice President of Research and
Development at Hycor Biomedical, Inc. ("Hycor"), where he was responsible for
research and development of all products, including drugs of abuse products,
over an eight-year period from May 1986 to November 1994. Prior to Hycor, Dr.
Foley was the Vice President of Research and Development at Gilford Instruments
from 1983 to 1986 and Worthington Diagnostics from 1981 to 1983. Prior to
Worthington Diagnostics, Dr. Foley worked at Beckman Instruments, Inc. and was
the chemistry product development manager for the Astra, one of Beckman's most
successful product lines. Dr. Foley has a Ph.D. in Biochemistry from Trinity
College, Dublin.
Michele A. Clark became an employee of the Company on April 12, 1999 and
was elected as its Controller and appointed as its Chief Accounting Officer on
April 16, 1999. Ms. Clark has 25 years of accounting and finance experience in
manufacturing and high tech companies. Ms. Clark was most recently the
Controller at Auto-Graphics, Inc. ("Auto-Graphics"), a software development
company, where she managed all accounting, finance, human resource and
administrative functions within the company. Additionally, she was responsible
for all filings with the Commission and shareholder relations. Prior to
Auto-Graphics, Ms. Clark was Controller at Typecraft, Inc. ("Typecraft"), a
commercial lithographer, where she was responsible for all accounting, finance
and human resource functions. Prior to Typecraft, Ms. Clark served as accounting
manager for three retail companies with multiple locations. Ms. Clark graduated
Cum Laude with a B.S. in Accounting from University of La Verne.
Peter S. Gold was elected as a director of the Company on December 5, 1997.
He retired in 1988 as the Chairman and the Chief Executive Officer of Price
Pfister, Inc., the largest manufacturer of faucets in the world. Mr. Gold did a
leveraged buyout and purchased the company in 1983; he subsequently took the
company public in 1987; and sold the company in 1988. Price Pfister is now owned
by Black & Decker. Mr. Gold is a Director Emeritus of The Home Depot, Inc. and
has major investments in commercial real estate in various parts of the United
States. Mr. Gold is the Chairman of the Board of Trustees of Pitzer College
(Claremont College), Claremont, CA, and a member of the Board of Trustees of the
City of Hope. Mr. Gold received a Doctor of Humane Letters from Pitzer College,
Claremont, CA, and received a law degree at Southwestern University, Los
Angeles, CA.
Jonathan J. Pallin was elected Chairman of the Board and a director of the
Company on October 31, 1997. He resigned as the Chairman of the Board on January
8, 1999. However, he continued to serve the Company as a financial consultant
until March 31, 1999. He has over 22 years experience in the financial markets
as an institutional fixed income broker, financial consultant, and served in an
investment banking advisory role.
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<PAGE> 37
Mr. Pallin served as Senior Vice President, Retail Brokerage for PaineWebber
Incorporated from January 1991 to July 1993, as a the Senior Vice President
Investments, Retail Brokerage for Baraban Securities Incorporated from July 1993
to May 1996 and as a Vice President, Retail Brokerage for Sutro & Co.
Incorporated from May 1996 to October 1997. Mr. Pallin has an MBA from Arizona
State University with a major emphasis on Accounting, and a BS from Long Island
University (Southampton) in Business and Psychology.
Paul Sandler was elected as a director of the Company on December 5, 1997.
He is a Board Certified pediatric nephrologist at the Arizona Kidney Disease &
Hypertension Center in Phoenix. Additionally, Dr. Sandler is the Medical
Director at Walter Boswell Memorial Hospital, the Phoenix Artificial Kidney
Center, and South Phoenix Dialysis Center, the South Mountain Dialysis Services,
and Phoenix Memorial Hospital PPG. Dr. Sandler was a fellow at Albert Einstein
College of Medicine in New York City, and received his post-graduate training at
Kings County Hospital, New York City. Dr. Sandler received his MD at the State
University of New York, and received his BA from Emory University.
FAMILY RELATIONSHIPS
Jonathan J. Pallin and Paul Sandler are brothers-in-law. There are no other
family relationships between the officers and directors of the Company.
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning
compensation paid or accrued by the Company during fiscal 1999, fiscal 1998 and
fiscal 1997 to the sole person who served as the Chief Executive Officer during
fiscal 1999 and to each other executive officer whose total annual salary and
bonus exceeded $100,000 during any such year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
----------------------------- COMPENSATION
OTHER ----------------------
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION OPTIONS SATION
- --------------------------- ---- ------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Linda H. Masterson........... 1999 184,038(2) 50,000
Chief Executive Officer 1998 125,249(2) 700,000
and President(1) 1997 0(3)
Thomas J. Foley.............. 1999 135,769 220,000
Sr. Vice President,
Research
and Development
Stephen J. Kline............. 1999 --
Vice President, Research 1998 20,131(5) 150,000(6)
and Development 1997 125,000 50,000(6)
</TABLE>
- -------------------------
(1) Ms. Masterson was elected the President of the Company effective August 1,
1996 and designated as its Chief Executive Officer on May 26, 1997.
(2) The amount shown in the table for 1998 does not reflect $33,654 paid by SAT
to Ms. Masterson for the period April 1 to June 1, 1997 nor $19,038 in
deferred salary which was paid in October 1998 after the Company obtained
long-term financing.
36
<PAGE> 38
Effective August 11, 1997, the Company directly paid all compensation for
Ms. Masterson.
(3) Ms. Masterson became an employee of SAT on May 13, 1996 and all compensation
paid to her for fiscal 1997 was paid by SAT. To the extent any such services
were on behalf of the Company, this was reflected in SAT's management fee to
the Company.
(4) Dr. Kline resigned on September 12, 1997.
(5) The amount shown in the table does not reflect $50,000 paid by SAT to Dr.
Kline during fiscal 1998.
(6) These options were canceled upon his resignation. See note (4) to this
table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
On August 14, 1997, the Board of Directors adopted, subject to stockholder
approval, the Stock Option Plan providing for the granting of the 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, 1999, Options to purchase an aggregate of 794,167 shares of
the Common Stock granted to employees (including two officers, one of whom is
also a director) were outstanding. As of such date, Options to purchase an
aggregate of 41,197 shares of the Common Stock had been exercised by employees
and Options to purchase an aggregate of 130,278 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. 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, 1999,
all were incentive stock options except for Options to purchase an aggregate of
120,000 shares and all had an exercise price of $.50 per share. The Options had
expiration dates ranging from August 13, 2002 to June 30, 2008.
The Company has not granted any Options to consultants. For information as
to three Options granted subsequent to March 31, 1999 to three non-employee
directors, see the section "Compensation of Directors" under this caption
"Management" and, for information as to two Options granted to two executive
officers (one of whom is also a director), see the section "Certain
Relationships and Related Transactions" under this caption "Management." Since
March 31, 1999 and through December 3, 1999, the Company has granted Options to
purchase an aggregate of 671,500 shares (including those to the aforementioned
three directors and two executive officers) with expiration dates ranging from
April 15, 2009 to November 16, 2009 and exercise prices ranging from $1.12 to
$1.87 per share. Options to purchase an aggregate of 3,750 shares were also
exercised and Options to purchase an aggregate of 15,417 shares were cancelled.
37
<PAGE> 39
The Company has never granted any stock appreciation rights.
The following table contains information concerning the grant of Options to
the named executive officers whose compensation for fiscal 1999 exceeded
$100,000 as reported in the Summary Compensation Table under this caption
"Management."
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION --------------------
NAME (#) 1999(1) ($/SH)(2) DATE 5%($) 10%($)
- ---- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Linda H. Masterson... 50,000 28.6% $0.50 6/30/08 $40,722 $64,844
Thomas J. Foley...... 20,000 11.4% $0.50 6/30/08 $16,289 $25,937
</TABLE>
- -------------------------
(1) Based upon Options to purchase 175,000 shares of Common Stock granted in
fiscal 1999.
(2) The exercise price is equal to 100% of the fair market value of the Common
Stock at the date of grant as determined by the Board of Directors at the
time of grant.
(3) The potential realizable value is calculated based upon the term of the
Option at the time of grant (ten years). Stock price appreciation of five
percent and ten percent is assumed pursuant to rules promulgated by the
Commission and does not represent the Company's prediction of the stock
price performance.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
Options to purchase an aggregate of 41,197 shares of the Common Stock were
exercised by employees terminating their employment during fiscal 1999.
As indicated in the preceding section, the Company has never granted any
stock appreciation rights.
The following table shows the fiscal year-end option values for the named
executive officers whose compensation for fiscal 1999 exceeded $100,000 as
reported in the Summary Compensation Table under this caption "Management."
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR END
(#) EXERCISABLE/ ($) EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---- -------------------------- -----------------------
<S> <C> <C>
Linda H. Masterson.............. 466,667/283,333 $772,917/$469,270(1)
Thomas J. Foley................. 25,000/195,000 $41,406/$322,969(1)
</TABLE>
- -------------------------
(1) The market value of the options on March 31, 1999 was based on the average
of the high bid and low asked prices of $1.65625 per share on that date.
38
<PAGE> 40
OTHER COMPENSATION
The Company currently has no pension plan in effect and has in effect no
restricted stock plan, no stock appreciation rights nor any other long-term
incentive plan under which grants or allocations may be made in the fiscal 1999
or thereafter.
COMPENSATION OF DIRECTORS
On April 16, 1999, the Board of Directors approved a compensation plan for
outside directors. In consideration of the services to be performed as a
director of the Corporation, each director:
(a) who is not an employee of the Corporation, or any subsidiary of the
Corporation (if hereafter created), or
(b) who is not a consultant to the Corporation, or any subsidiary of the
Corporation, and is paid a fee on a monthly basis
shall receive as compensation a grant of an Option pursuant to the Stock Option
Plan. Each grant shall be for the right to purchase 15,000 shares of the Common
Stock on an annual basis. Except for incumbent directors, the initial grant
shall be on the day of his or her first election as a director of the
Corporation, whether by the Board or the stockholders, and thereafter on the
anniversary day of such first election. The exercise price of each Option shall
be the Fair Market Value as determined pursuant to the Stock Option Plan on the
respective date of the grant, or if not a business day, on the preceding day on
which the Common Stock was traded. Each Option will expire ten years from its
date of grant and will become exercisable as to one quarter of the shares of the
Common Stock on the first anniversary of the date of grant and 1/36(th) of the
remaining shares of the Common Stock on the same date each month thereafter for
a period of 36 months.
On April 16, 1999, pursuant to the foregoing authorization, each of Peter
S. Gold and Paul Sandler, each a non-employee, non-consultant director, was
granted an Option expiring April 15, 2009 under the Stock Option Plan to
purchase 15,000 shares of the Common Stock at $1.81 per share. The Option
becomes exercisable as provided in the preceding paragraph. April 16th of each
year, commencing 2000, will be the date of grant of an Option for each of
Messrs. Gold and Sandler assuming he is still a director of the Company and
otherwise eligible on such date of grant. For Jonathan J. Pallin, also a non-
employee, non-consultant director, the date of grant for his first Option,
pursuant to the foregoing authorization, was September 20, 1999, i.e., the first
business day which was more than six months after the date of his last
disposition of shares of the Common Stock (i.e., March 17, 1999), and the
exercise price was $1.625 per share. September 20th will be the date of grant
each year, commencing 2000, for future Options to Mr. Pallin assuming he is
still a director of the Company and otherwise eligible on such date of grant.
See the section "Certain Relationships and Related Transactions" under this
caption "Management" for information as to a compensation arrangement with Mr.
Pallin for his former services as a financial consultant to the Company.
EMPLOYMENT AND SEVERANCE AGREEMENTS
There are no employment agreements currently in effect in the Company.
Pursuant to a Severance Agreement dated as of October 27, 1997 (the
"Masterson Severance Agreement") between the Company and Linda H. Masterson, the
Company has
39
<PAGE> 41
agreed to pay Ms. Masterson for her services as the Chief Executive Officer and
the President of the Company a base salary of $165,000; provided, however, such
amount was to be $120,000 from October 27, 1997 to the date at least $5,000,000
in long term financing was obtained, at which time or upon her termination the
difference was to be paid to her. As a result of the consummation of the
Company's third private placement on January 21, 1999 this limitation terminated
and, effective January 29, 1999, she was paid at the authorized rate. $19,038 of
the deferred salary was paid to her in October 1998.
The Masterson Severance Agreement also provided for the grant of:
(1) a stock option under the Stock Option Plan to purchase 150,000
shares of the Common Stock at $.50 per share, the option to become
immediately exercisable as to all shares subject thereto in the event she
is terminated without cause, the Company is acquired or sold without the
Board's approval, the corporate headquarters are moved outside the State of
California, the positions of Chief Executive Officer or President are
eliminated or her duties are substantially changed;
(2) stock options to purchase an aggregate of 150,000 shares of the
Common Stock, an option to purchase 75,000 shares to be granted upon
completion of the working pilot plant project and an option to purchase
75,000 shares to be granted upon product release into the first targeted
market; and
(3) Common Stock purchase warrants to purchase an aggregate of 400,000
shares of the Common Stock at $.50 per share, a warrant to purchase 200,000
shares which was granted upon the purchase on October 19, 1997 of SAT's
shares of the Common Stock by Meadow Lane (see section "Directors and
Officers" under the caption "Management") and a warrant to purchase 200,000
shares to be granted at the completion of a long term financing of at least
$5,000,000.
The stock options have all been granted as Options under the Stock Option Plan.
Also as a result of the private placement consummated on January 21, 1999 as
described in the preceding paragraph, the second warrant has now become
exercisable.
In the event that Ms. Masterson is terminated without cause (as defined in
the Masterson Severance Agreement), she will be paid severance pay in a lump sum
amount equal to her annual base salary ($180,000 effective as of September 1,
1999) that would have been paid to her had she not been terminated during the
period between the date of termination and October 27, 2001.
The Company had a Severance Agreement dated as of October 24, 1997 (the
"Benken Severance Agreement") with William B. Benken, the then Vice President,
Operations of the Company. Because Mr. Benken was terminated for cause on
October 7, 1998, the Benken Severance Agreement did not become operative.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the sections "Material Contracts "and" Certain Relationships with SAT"
under the caption "Business" for information as to transactions between the
Company and SAT, its major stockholder, during fiscal 1998.
See the section "Employment and Severance Agreements" under this caption
"Management" for information relating to the severance agreement with Linda H.
Masterson, the President, the Chief Executive Officer and a director of the
Company.
On October 10, 1999, after over four months of due diligence, the
Compensation Committed granted to Ms. Masterson five Common Stock purchase
warrants (the
40
<PAGE> 42
"Masterson Warrants"), each to purchase 500,000 shares of the Common Stock at
$1.72 per share, which exercise price was the average of the high bid and low
asked prices of the Common Stock during the prior 20 trading days. Each of the
Masterson Warrants will not become exercisable unless the Company achieves a
specified goal before a specified date as follows:
(1) A definitive agreement with a strategic partner is executed on or
before October 9, 2001;
(2) A second definitive agreement with another strategic partner is
executed on or before October 9, 2001;
(3) A financing pursuant to which the Company realizes at least
$4,500,000 in net proceeds is closed on or before October 9, 2000;
(4) The clinical trials for the saliva based testing product are
completed on or before September 30, 2000; and
(5) Sales of the saliva based testing product to third parties (other
than to a strategic partner) aggregating at least $100,000 are consummated
on or before December 31, 2000.
Each of the Masterson Warrants will expire five years from the date the Warrant
becomes exercisable, but not later than five years from the respective deadline
dates as set forth above.
On October 10, 1999, the Compensation Committee granted to Thomas J. Foley,
the Senior Vice President, Research and Development of the Company, two Common
Stock purchase warrants (the "Foley Warrants"), each to purchase 250,000 shares
of the Common Stock at the same exercise price as for the Masterson Warrants.
Each of the Foley Warrants will not become exercisable unless the Company
achieves a specified goal before a specified date as follows:
(1) The saliva based testing product is submitted to the FDA for
approval on or before December 31, 2000 and
(2) Sales of the saliva based testing product to third parties (other
than to a strategic partner) aggregating at least $100,000 are consummated
on or before December 31, 2000.
Each of the Foley Warrants will expire as provided for the Masterson Warrants.
All of the Masterson Warrants and the Foley Warrants will become
immediately exercisable in the event of a "hostile takeover" of the Company (as
such term is defined in the warrants). In addition, each of the Masterson
Warrants or the Foley Warrants is terminated for reasons other than cause or
disability (as such terms are defined in the severance agreement between Ms.
Masterson and the Company) or death, provided that the holder has made a
substantial contribution to the achievement of the goal, as, for example, Ms.
Masterson negotiating all of the terms of the financing and then is not the
Chief Executive Officer of the Company at the closing. Each of the Masterson
Warrants or the Foley Warrants terminates, even if it has become exercisable, if
the holder is terminated for cause.
On October 10, 1999, pursuant to its recently adopted policy of making
annual reviews of each optionee, the Compensation Committee also granted,
pursuant to the Stock Option Plan, Options expiring October 9, 2009 exercisable
at $1.67 per share to Ms. Masterson to purchase 120,000 shares of the Common
Stock and Mr. Foley to
41
<PAGE> 43
purchase 60,000 shares of the Common Stock. These Options become exercisable in
accordance with the terms of the Stock Option Plan (see the section "Option/SAR
Grants in Last Fiscal Year" under this caption "Management").
As indicated in "Business -- Need for Financing," Jonathan J. Pallin, the
Chairman of the Board from October 31, 1997 until January 8, 1999 and a director
of the Company, received a finder's fee of $160,000 for a private placement,
which fee was authorized prior to his being elected to such positions.
On April 28, 1998, the Board authorized the following compensation
arrangement for Mr. Pallin for his services as a financial consultant to, and as
the Chairperson of the Board of, the Company:
(1) a fee of $10,000 per month for a one-year period commencing April
1, 1998 and
(2) a bonus of (a) $75,000 if the Company obtains cash financing of
$5,000,000 to $6,900,000; (b) $100,000 if the Company obtains cash
financing of $7,000,000 to $9,900,000; and (c) $125,000 if the Company
obtains cash financing of over $10,000,000, subject to certain limitations.
On January 8, 1999, the Board accepted the resignation of Mr. Pallin as the
Chairman of the Board, canceled the foregoing bonus compensation arrangement and
authorized his engagement only as a financial consultant to the Company on the
following terms:
(1) he would continue to receive $10,000 per month through March 31,
1999 on the basis he would continue to serve the Company on a daily basis
as a financial consultant and
(2) he would receive a finder's fee of 10% of the gross proceeds from
any purchaser whom or which he secured for a Company financing.
He received $420,451 as his finder's fee for the Company's third private
placement closed on January 21, 1999 (see "Business -- Need for Financing").
On April 16, 1999, the Board of Directors of the Company authorized as a
policy of the Company that it would not enter into any agreement in the future
with a director or an officer of the Company or a person who is the beneficial
owner of 5% or more of the outstanding shares of the Common Stock, the
beneficial ownership being determined in the manner contemplated by Rule 13d-3
under the Exchange Act, unless such agreement is on terms and conditions no less
favorable than those which could be obtained from an independent unaffiliated
third party to the Company.
On April 16, 1999, the Board also authorized as a policy of the Company
that in the future any forgiveness of loans to the persons named in the
preceding paragraph must be approved by a majority of the Company's independent
directors who do not have an interest in the transaction and who have access, at
the Company's expense, to the Company's or independent legal counsel.
Since the Company obtained its independence from SAT in October 1997, all
transactions with persons described in the second preceding paragraph, including
those described above in this section for Mr. Pallin, were authorized by all of
the Company's independent directors who did not have an interest in the
transactions and who had access to the Company's outside counsel.
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<PAGE> 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 3, 1999, certain information
with respect to (1) any person who beneficially owned more than 5% of the Common
Stock, (2) each director of the Company, (3) the Chief Executive Officer of the
Company and (4) all directors and executive officers as a group. Each beneficial
owner who is a natural person has advised the Company that he or she has sole
voting and investment power as to the shares of the Common Stock, except that,
until a Warrant or an Option is exercised, there is no voting right. See
"Description of Securities -- Series A Preferred Stock-Voting Rights" for
information as to the voting rights of the holders of shares of the Series A
Preferred Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF COMMON STOCK COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
- ------------------- ------------------ ---------------------
<S> <C> <C>
General Conference Corporation of
Seventh-day Adventists.................. 5,735,000(2) 28.8%
12501 Old Columbia Pike
Silver Spring, MD 20804-6600
Jonathan J. Pallin(3)..................... 4,213,595(4) 26.8%
10400 Trademark Street
Rancho Cucamonga, CA 91730
Herman Sandler............................ 1,150,000(5) 7.2%
2 World Trade Center, 104th Floor
New York, NY 10048
Melvin Simon(6)........................... 500,000(7) 3.2%
c/o Melvin Simon & Associates, Inc.
115 W. Washington Street
Indianapolis, IN 46204
Herbert Simon(6).......................... 500,000(7) 3.2%
c/o Melvin Simon & Associates, Inc.
115 W. Washington Street
Indianapolis, IN 46204
Peter S. Gold(7).......................... 900,000(9) 5.8%
16027 Ventura Blvd., Suite 601
Encino, CA 91436
Linda H. Masterson(10).................... 510,419(11) 3.2%
10400 Trademark Street
Rancho Cucamonga, CA 91730
Paul Sandler(8)........................... 200,000(12) 1.3%
333 West Hatcher Road
Phoenix, AZ 85021
All directors and executive Officers as a
group (six persons)..................... 5,877,763(13) 35.6%
</TABLE>
- -------------------------
(1) The percentages computed in this column of the table are based upon
15,417,537 shares of the Common Stock which were outstanding on December 3,
1999. Effect is given, pursuant to Rule 13d-3(l)(i) under the Exchange Act,
to shares issuable upon the exercise of the Warrants and the Options which
were exercisable on December 3,
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<PAGE> 45
1999 or within 60 days thereafter and, where applicable, to the conversion
of the Series A Preferred Stock, all of which shares were currently
convertible as of such date.
(2) The shares reported in the table include 4,500,000 shares issuable upon the
conversion of 225,000 shares of the Series A Preferred Stock. See Note (2)
to the table under "Selling Stockholders."
(3) A director of the Company since October 31, 1997 and the Chairman of the
Board from that date until January 8, 1999.
(4) The shares reported in the table reflect (a) 3,907,306 shares of the
5,575,306 shares acquired by Meadow Lane from SAT (see "Business -- History
of the Company"), of which 4,325,306 shares were initially distributed to
Mr. Pallin, and (b) 306,289 shares issuable upon the exercise of that
portion of the Meadow Lane Warrant transferred to him. The shares reported
in the table do not reflect a subsequent grant to Mr. Pallin of an Option
expiring September 19, 2009 to purchase 15,000 shares at $1.65 per share,
which Option was not exercisable on December 3, 1999 or within 60 days
thereafter.
(5) The shares reported in the table reflect (a) 700,000 shares of the
5,575,306 shares acquired by Meadow Lane from SAT, of which 1,250,000
shares were initially distributed to Mr. Sandler, (b) 150,000 shares
issuable upon the exercise of that portion of the Meadow Lane Warrant
transferred to Mr. Sandler and (c) 300,000 shares issuable upon the
exercise of a Warrant expiring November 4, 2002 exercisable at $.50 per
share.
(6) The shares reported in the table for each of these two stockholders were
acquired by Melvin Simon & Associates, Inc. from the Company in two private
placements and subsequently distributed to the stockholders in March 1999.
Because the two stockholders may be deemed to be a "group" pursuant to Rule
13d-5(b)(1) under the Exchange Act, the Company reported their ownership in
the table, even though they disclaim beneficial ownership in each other's
shares. See Note (6) to the table under "Selling Stockholders."
(7) The shares reported in the table include 250,000 shares issuable upon the
conversion of 12,500 shares of the Series A Preferred Stock.
(8) A director of the Company since December 5, 1997.
(9) The shares reported in the table include an aggregate of 200,000 shares
issuable upon the exercises of two Warrants expiring November 4, 2002, one
for 100,000 shares exercisable at $.50 per share and the other exercisable
at $1.00 per share. The shares reported in the table do not include 15,000
shares issuable upon the exercise at $1.81 per share of an Option expiring
April 15, 2009 which was not exercisable on December 3, 1999 or within 60
days thereafter.
(10) A director of the Company since May 31, 1996; effective August 1, 1996, its
President; and, effective May 23, 1997, its Chief Executive Officer.
(11) The shares reported in this table reflect (a) an aggregate of 400,000
shares issuable upon the exercises at $.50 per share of two Warrants
expiring October 26, 2002, (b) 90,625 shares issuable upon the partial
exercises at $.50 per share of an Option expiring August 13, 2007 and (c)
19,794 shares issuable upon the partial exercises at $.50 per share of an
Option expiring June 29, 2008. The shares reported in the table do not
reflect (i) an aggregate of 89,581 shares subject to the foregoing Options
as to which the Options were not exercisable on December 3, 1999 or within
60 days thereafter, (ii) 150,000 shares issuable upon the exercise at $.50
per share of another
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<PAGE> 46
Option expiring August 13, 2007 which was not exercisable on December 3, 1999 or
within 60 days thereafter, (iii) 120,000 shares issuable upon the exercise at
$1.67 per share of another Option expiring October 9, 2009 which was not
exercisable on December 3, 1999 or within 60 days thereafter and (iv) an
aggregate of 2,500,000 shares issuable upon the exercises at $1.72 per
share of the Masterson Warrants which were not exercisable on December 3,
1999 or within 60 days thereafter. See "Management -- Certain Relationships
and Related Transactions."
(12) The shares reported in the table do not include 15,000 shares issuable upon
the exercise at $1.81 per share of an Option expiring April 15, 2009 which
was not exercisable on December 3, 1999 or within 60 days thereafter.
(13) The shares reported in the table include (a) those issuable upon the
exercise of the Warrants and the Options described in Notes (4), (9) and
(11) to the table and (b) an aggregate of 53,749 shares issuable upon the
partial exercises at $.50 per share of two Options granted to an executive
officer, one Option expiring March 19, 2008 and the other expiring June 29,
2008. The shares reported in the table do not include (i) an aggregate of
66,251 shares subject to the foregoing Options which were not exercisable
on December 3, 1999 or within 60 days thereafter, (ii) 100,000 shares
issuable upon the exercise at $.50 per share of another Option expiring
March 19, 2008 granted to the same executive officer which was not
exercisable on December 3, 1999 or within 60 days thereafter, (iii) 60,000
shares issuable upon the exercise at $1.67 per share of another Option
expiring October 9, 2009 granted to the same executive officer which was
not exercisable on December 3, 1999 or within 60 days thereafter, (iv) an
aggregate of 500,000 shares issuable upon the exercises at $1.72 per share
of the Foley Warrants (see "Management -- Certain Relationships and Related
Transactions") which were not exercisable on December 3, 1999 or within 60
days thereafter, (v) 50,000 shares issuable upon the exercise at $1.81 per
share of an Option expiring April 15, 2009 granted to another executive
officer which was not exercisable on December 3, 1999 or within 60 days
thereafter and (vi) 50,000 shares issuable upon the exercise at $1.87 per
share of an Option expiring November 16, 2009 granted to this second
executive officer which was not exercisable on December 3, 1999 or within
60 days thereafter.
DESCRIPTION OF SECURITIES
CERTIFICATE OF INCORPORATION
The Restated Certificate of Incorporation of the Company describes the
terms of the Preferred Stock (including the Series A Preferred Stock) and the
Common Stock in greater detail than this prospectus and may provide information
that differs from this prospectus. If the information differs from this
prospectus, a prospective purchaser of the Common Stock is requested to rely on
the information in the Restated Certificate of Incorporation. Such prospective
purchaser may obtain a copy of the Company's Restated Certificate of
Incorporation from the Company by writing to Anne Lohr, Assistant Secretary,
LifePoint, Inc., 10400 Trademark Street, Rancho Cucamonga, CA 91730, or by
calling her at (909) 466-8047, extension 222.
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<PAGE> 47
CLASSES OF STOCK
The Company's Restated Certificate of Incorporation currently authorizes
3,000,000 shares of Preferred Stock, $.001 par value (the "Preferred Stock"),
and 50,000,000 shares of Common Stock, $.001 par value (the "Common Stock").
PREFERRED STOCK
The Restated Certificate of Incorporation provides for the issuance of
3,000,000 shares of the Preferred Stock. 600,000 of such shares were initially
designated as the Series A 10% Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock"). The Board of Directors of the Company is authorized
to designate the remaining series, to determine the number of shares of the
Preferred Stock in each series and to fix the powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof. Accordingly, the Board could, without the approval of the
holders of the Common Stock, issue a new series of the Preferred Stock with
voting and conversion rights which may adversely affect the voting powers of the
holders of the Common Stock. Unless the holders of at least 66 2/3% of the then
outstanding shares of the Series A Preferred Stock consent, all future series of
the Preferred Stock must be junior to the Series A Preferred Stock with respect
to dividends, redemption and liquidation. For purposes of the Series A Preferred
Stock, the term "Junior Stock" means the Common Stock and any other series of
the Preferred Stock hereafter authorized (unless the holders of the Series A
Preferred Stock permit otherwise as provided in the preceding sentence).
SERIES A PREFERRED STOCK
(1) DIVIDENDS
The holders of shares of the Series A Preferred Stock are entitled to
receive, when and as declared by the Board of Directors of the Company, out of
the funds of the Company legally available therefor, cumulative dividends at the
annual rate of $1.00 per share payable semiannually on January 2 and July 1 of
each year that any shares of the Series A Preferred Stock are outstanding.
Dividends on the Series A Preferred Stock accrue on each share thereof from day
to day from January 21, 1999, whether or not earned or declared. Accordingly, if
dividends with respect to any previous dividend period at the rate provided
therefor have not been paid on all shares of the Series A Preferred Stock at the
time outstanding, the deficiency will be fully paid on such shares before any
distribution shall be paid on the Junior Stock.
At the option of the Company, a dividend may be paid either in cash or in
the form of shares of the Common Stock. The shares to be issued as a dividend
will be valued at the then Average Market Price (as defined in the succeeding
paragraph) of the Common Stock during the 20 trading days immediately preceding
the declaration of the dividend.
The Average Market Price for a 20-trading-day period will be determined as
follows:
(1) if the Common Stock is then listed on a national securities
exchange or quoted on Nasdaq, the Average Market Price will mean the
average of the closing sale prices reported on the exchange or quoted for
Nasdaq on each trading day during such 20-trading-day period or,
(2) if the Common Stock is not then listed on an exchange or quoted on
Nasdaq, the Average Market Price will mean the average of the closing bid
and asked prices for the Common Stock reported by the NASD's OTC Bulletin
Board or in the pink sheets as reported by the National Quotation Bureau,
Inc., or similar
46
<PAGE> 48
organization performing similar functions in the over-the-counter market,
for each trading day during such 20-trading-day period.
(2) CONVERSION
A holder of shares of the Series A Preferred Stock, but only as to 500
shares or a multiple thereof (unless the holder owns less than 500 shares), may,
at the holder's option, at any time, convert such shares into shares of the
Common Stock at the conversion price of $.50 per share based on a stated value
of $10.00 per share of the Series A Preferred Stock. Accordingly, 500 shares of
the Series A Preferred Stock would convert into 10,000 shares of the Common
Stock (i.e., the product of 500 (the number of shares) and $10.00 (the stated
value) or $5,000 divided by $.50 (the conversion price)). If all 600,000
originally authorized shares of the Series A Preferred Stock are converted, an
aggregate of 12,000,000 shares of the Common Stock will be issued upon
conversion. Upon conversion, a holder is entitled to receive all accrued but
unpaid dividends to the date of conversion.
As of December 3, 1999, the holders of an aggregate of 172,625 shares of
the Series A Preferred Stock had converted such shares into an aggregate of
3,452,500 shares of the Common Stock. They also received an aggregate of 33,884
shares of the Common Stock in payment for accrued but unpaid dividends.
The number of shares issuable upon conversion and the conversion price will
be adjusted in the event of a stock dividend, a stock split, a reorganization, a
recapitalization, or a combination or subdivision of the Common Stock or a
similar event.
(3) OPTIONAL REDEMPTION
Since July 1, 1999 the Company may, upon not less than 30 nor more than 60
days' notice, redeem, in whole or in part (but only in multiples of 500 shares
unless the holder owns less), the then outstanding shares of the Series A
Preferred Stock at a redemption price of $10.00 per share. The holder will also
receive all accrued but unpaid dividends to the date of redemption. The Company,
at its discretion, may pay the redemption price in cash or with shares of the
Common Stock on the basis of the Average Market Price of the Common Stock for
the 20 trading days immediately preceding the notice of redemption. If the
Company calls the shares of the Series A Preferred Stock for redemption, the
holder may, at any time on or prior to the redemption date, convert his, her or
its shares into shares of the Common Stock as described in the preceding
subsection.
(4) MANDATORY REDEMPTION
In the event that the Average Market Price of the Common Stock for any
30-day period is $4.00 or more, the Company shall, by notice to the holders of
the Series A Preferred Stock, call all of the then outstanding shares of the
Series A Preferred Stock for redemption as of a date not less than ten nor more
than 30 days after the date the notice is given (the "Mandatory Redemption
Date"). In lieu of cash, the Company shall issue to each holder of the Series A
Preferred Stock that number of shares of the Common Stock as if the holder had
converted on the Mandatory Redemption Date. The holder of the Series A Preferred
Stock will also receive accrued but unpaid dividends to the Mandatory Redemption
Date.
(5) REACQUIRED SHARES
Shares of the Series A Preferred Stock which have been converted, redeemed
or reacquired by the Company in any manner will, upon compliance by the Company
with
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<PAGE> 49
the General Corporation Law of the State of Delaware (the "GCL"), have the
status of authorized and unissued shares of the Preferred Stock not constituting
part of any series of the Preferred Stock. As an alternative, the Board of
Directors may elect by resolution to retain the shares of the Series A Preferred
Stock that were converted, redeemed or otherwise reacquired as treasury shares
or to retire the same and reduce the capital of the Company in accordance with
the GCL.
The 172,625 shares of the Series A Preferred Stock which had been converted
as of December 3, 1999 were restored to the status of authorized and unissued
shares of the Preferred Stock not constituting part of any series of the
Preferred Stock. Accordingly, as of December 3, 1999, 2,572,625 shares of the
Preferred Stock were available for issuance in another series.
(6) FRACTIONAL SHARES
No fractional shares will be issued upon either conversion of a share of
the Series A Preferred Stock or upon payment of a dividend in shares of the
Common Stock. Instead the holder shall be paid an amount in cash (computed to
the nearest cent) equal to the Market Value of such fractional share. The Market
Value of a share of the Common Stock shall be computed in the same manner as the
Average Market Value for a dividend except that the price shall be for the
trading day preceding the conversion date or the dividend payment date,
whichever is applicable, and not the average of the prices for the prior 20
trading days.
(7) VOTING RIGHTS
The holders of shares of the Series A Preferred Stock have the following
voting rights:
(1) to vote, one vote per share, with the holders of the Common Stock
on the election of directors and on all other matters submitted to a vote
of the holders of the Common Stock except where such holders of the Series
A Preferred Stock have the right under the GCL to vote separately as a
class and
(2) to vote, one vote per share, separately as a class (a) where
provided by the GCL, such as where the matter to be voted on may adversely
affect the rights of the holders of the Series A Preferred Stock, (b) where
the holders' consent is requested by the Company and (c) as hereinafter
provided in the succeeding sentence. If and whenever the Company will have
failed to declare and pay the amount of dividends payable on the Series A
Preferred Stock for three consecutive semiannual payment dates, the
holders, voting as a class, will be entitled to elect one director and the
holders of the Common Stock and such other of the Company's stock as shall
then have the right to vote for directors shall be entitled to elect the
remaining members of the Board of Directors. At such time as all dividends
accumulated on the outstanding shares of the Series A Preferred Stock have
been paid, the contingent right of the holders of the Series A Preferred
Stock to elect a member of the Board will cease, subject to reinstitution
from time to time upon the same terms and conditions. No dividends were
paid on July 1, 1999 and January 3, 2000 because under the GCL funds were
not legally available for such dividend. If no dividend is paid on June 1,
2000, the holders may exercise this right to elect a director.
Whenever the holders of shares of the Series A Preferred Stock have been
granted by law the right to vote separately as a class, or if the Company
requires the consent of the holders to some action, the vote of the holders of
at least 66 2/3% of the then outstanding shares will be required for approval.
Whenever the holders of shares of the Series A
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<PAGE> 50
Preferred Stock are voting separately as a class to elect a director, a
plurality of the shares voting will be necessary to elect such director and a
majority will be necessary for a quorum.
(8) LIQUIDATION, DISSOLUTION AND WINDING UP
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, each holder of shares of the Series A Preferred
Stock will be entitled to receive out of the assets available for distribution
to stockholders an amount equal to $10.00 per share before any payments or
distributions will be made on shares of the Junior Stock. Each holder will also
receive, as a preferential payment, a sum equal to all accrued but unpaid
dividends, if any. After payment in cash to the holders of the shares of the
Series A Preferred Stock of the full preferential amounts fixed hereby, such
holders will have no right or claim to any of the remaining assets of the
Company.
A merger or consolidation of the Corporation in which it is not the
survivor will not be deemed a liquidation, dissolution or winding up of the
Corporation, provided that provision for the exchange of the shares of the
Series A Preferred Stock and for the payment of accrued but unpaid dividends
thereon is made with the approval of the holders of at least 66 2/3% of the then
outstanding shares of the Series A Preferred Stock. If such approval is
obtained, such provision will be binding on the remaining holders. Otherwise
such merger or consolidation will be deemed a liquidation of the Company.
(9) LIMITATION ON INDEBTEDNESS
The Company has agreed that, until the working prototype instrument for its
saliva based testing product for drugs of abuse and alcohol is completed
(currently contemplated to be not earlier than the second quarter of 2000), it
will not, without the consent of the holders of at least 66 2/3% of the then
outstanding shares of the Series A Preferred Stock, incur indebtedness, other
than the anticipated up to $2,000,000 in indebtedness at any time outstanding
incurred in connection with the purchase or leasing of manufacturing, research
and office equipment and facilities.
COMMON STOCK
Each holder of the Common Stock is entitled (1) to one vote for each share
held of record, (2) to notice of any meeting of the stockholders of the Company
and (3) to a pro rata share of any dividends declared on the Common Stock by the
Board of Directors. Upon liquidation of the Company, each holder of the Common
Stock is entitled to share ratably any assets available for distribution after
payment of all debts and any distribution in respect of the then outstanding
shares of the Preferred Stock (of which only the Series A Preferred Stock is
currently outstanding). Holders of the Common Stock have no preemptive,
subscription or conversion rights. All outstanding shares of the Common Stock
are, and all shares of the Common Stock to be issued upon the conversion of the
shares of the Series A Preferred Stock and the exercise of the Selling
Stockholders Warrants will be, fully paid and nonassessable.
As of December 3, 1999, there were 15,417,537 shares of the Common Stock
outstanding. Additionally, there were
(1) 1,955,053 shares of the Common Stock reserved for the granting of
Options pursuant to the Stock Option Plan. As of December 3, 1999, there
were outstanding Options to purchase 1,446,500 shares of the Common Stock,
which expire on various
49
<PAGE> 51
dates from August 13, 2007 to November 16, 2009 and which have exercise
prices ranging from $.50 to $1.87 per share, and
(2) 5,662,314 shares of the Common Stock reserved for issuance upon
the exercise of the Warrants (including the Meadow Lane Warrant), the
Selling Stockholders Warrants, the Masterson Warrants and the Foley
Warrants which expire on various dates ranging from October 26, 2002 to
October 9, 2006 and which have exercise prices ranging from $.50 to $2.41
per share.
Fully diluted and assuming Options are granted as to the remaining shares
subject to the Stock Option Plan, the Company may have as many as 32,048,520
shares of the Common Stock outstanding after giving effect to the up to
8,547,500 shares of the Common Stock which may be issued upon the conversion of
the 427,375 shares of the Series A Preferred Stock outstanding as of December 3,
1999. This total also gives effect to any shares which may be issued as
dividends on the Series A Preferred Stock, as to which the Company estimated, as
of December 3, 1999, up to an additional 466,116 shares may be so issued during
the ensuing 26 months.
The Common Stock is traded in the over-counter market and market price
quotations are reported on the OTC Bulletin Board of the NASD under the symbol
"LFPT". Secondary trading is currently permissible in 50 states and the District
of Columbia.
RECENT STOCKHOLDERS' MEETING
At the Annual Meeting of Stockholders, held on August 20, 1999, the
stockholders of the Company approved two proposals relating to the Common Stock:
(1) to permit the implementation of a possible reverse stock split of the Common
Stock in an amount which the Board of Directors deems appropriate, to be not
less than one-for-two and not more than one-for-five, and the timing of its
effectiveness to be at such time as the Board determines, but not later than
June 30, 2000, and (2) to permit an increase in the number of authorized shares
of the Common Stock by up to 10,000,000 shares, but only if a reverse stock
split is approved and then implemented in an amount not less than one-for-three
nor more than one-for-five. Both changes, if they were to be implemented by the
Board, would be made effective by the Company filing an Amendment to the
Restated Certificate of Incorporation.
Except for the increase in the par value of a share of the Common Stock and
the concurrent decrease in the number of shares held by each holder of the
Common Stock as a result of the reverse stock split, if implemented, the Board
is of the opinion that the proposed Amendment to the Restated Certificate of
Incorporation would create no material differences between the shares of the
Common Stock prior to the Amendment and the shares of the Common Stock after the
Amendment. In addition, the Board is of the opinion that, except for a temporary
increase in the percentage of voting power which the holders of the Series A
Preferred Stock would have on matters which they vote together with the holders
of the Common Stock until additional shares of the Common Stock are issued or
additional shares of the Series A Preferred Stock are converted into shares of
the Common Stock, there would be no material differences between the shares of
the Series A Preferred Stock prior to the Amendment and the shares of the Series
A Preferred Stock after the Amendment.
Based on the Board's current intention to pursue a private placement (see
"Business -- Need for Financing"), the Company announced on October 19, 1999
that it had no current intention to pursue a reverse stock split assuming the
Company
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<PAGE> 52
consummated an offering for at least the $4,500,000 in net proceeds necessary to
bring the saliva-based testing product to market. There can be no assurance that
such financing will be consummated or, if consummated, when.
NON-CUMULATIVE VOTING
The holders of shares of the Common Stock do not have cumulative voting
rights, which means that the holders of more than 50% of such outstanding shares
voting for the election of directors of the Company can elect all of the
directors to be elected, if they so choose, and, in such event, the holder of
the remaining shares will not be able to elect any of the Company's director.
MANAGEMENT VOTING POWER
At the recent Annual Meeting of Stockholders held on August 20, 1999, the
directors of the Company were eligible to vote an aggregate of 4,807,306 shares
of the 15,456,042 shares then eligible to vote or 31.1% thereof. (The executive
officers held only Options and Warrants so they were not eligible to vote any
shares at the Annual Meeting.) Delaware law, to which the Company is subject as
a Delaware corporation, requires, for a director to be elected, that only a
majority of the votes actually cast at the meeting must vote in favor. (The
foregoing assumes, of course, that a majority of the shares eligible to vote are
present, in person or by proxy, to permit the Company to have a quorum under
Delaware law.) In addition, the few stockholders meetings held by the Company
did not have 100% of the shares eligible to vote responding to its proxy
solicitations. At the August 20th meeting, only 78% were present for voting
purposes. Accordingly, the directors, by voting their 31.1% of the current
shares eligible to vote, had a substantial influence on who was elected a
director. This voting power may influence future elections of directors as well
until conditions change as described in the next paragraph.
This voting power will, however, lessen as more shares of the Series A
Preferred Stock are converted into shares of the Common Stock, shares of the
Common Stock are issued as dividends with respect to the Preferred Stock and
Options, Warrants, Selling Stockholders Warrants, Masterson Warrants and Foley
Warrants are exercised. Thus, if all of the shares of the Common Stock which the
Company has reserved for issuance as of December 3, 1999 are issued, the
directors and executive officers of the Company (assuming they exercise all of
their Options and Warrants and the Masterson Warrants and the Foley Warrants)
will be able to vote an aggregate of 9,558,595 shares of the 32,048,520 shares
eligible to vote or 29.8% thereof. Any financing which the Company does in the
future or any other action in which its directors and executive officers do not
acquire shares and as to which the shares are not currently reserved will
further reduce their voting power.
On proposals submitted to our stockholders requiring an affirmative vote of
more than 50% of the shares eligible to vote, unlike the case for election of
directors, this voting power of directors and executive officers is obviously
less significant.
DIVIDENDS
The payment in the future by the Company of all dividends, if any, on the
Common Stock rests within the discretion of the Board of Directors and will
depend, among other things, upon the Company's earnings, its capital
requirements, its financial condition and the status of dividends on any shares
of the Preferred Stock then outstanding (of which the Series A Preferred Stock
is the sole series currently outstanding), as well as other
51
<PAGE> 53
relevant factors. The Company has never paid or declared any dividends on the
Common Stock. Based upon the Board's current intention of using funds for the
product development program, the current operational losses and the provisions
of the Series A Preferred Stock, the Company does not contemplate or anticipate
paying any dividends on the Common Stock in the foreseeable future.
TRANSFER AGENT
U.S. Stock Transfer and Trust Company, 1745 Gardena Avenue, Suite 200,
Glendale, CA 91204, is the Transfer Agent for the Common Stock. The Company acts
as its own Transfer Agent for the Series A Preferred Stock.
WARRANTS
As of December 3, 1999, there were outstanding Selling Stockholders
Warrants to purchase an aggregate of 919,705 shares of the Common Stock. Except
as indicated under "Plan of Distribution," all Selling Stockholders Warrants
have an expiration date of January 20, 2004 and an exercise price of $2.41 per
share. All were exercisable as of that date.
As of December 3, 1999, there were outstanding Warrants (including the
Meadow Lane Warrant) to purchase an aggregate of 1,742,609 shares of the Common
Stock. The Warrants have expiration dates ranging from October 26, 2002 to July
1, 2004 and were almost all exercisable as of that date at exercise prices
ranging from $.50 to $1.97 per share.
For information as to the grants on October 10, 1999 of the Masterson
Warrants and the Foley Warrants, see "Management -- Certain Relationships and
Related Transactions." None of the Masterson Warrants and the Foley Warrants
were exercisable as of December 3, 1999 or exercisable within 60 days
thereafter. Warrants previously granted to Ms. Masterson, which are included in
the Warrants described in the preceding paragraph, are currently exercisable.
The number of shares issuable upon exercise and the exercise price of the
Selling Stockholders Warrants, the Warrants, the Masterson Warrants and the
Foley Warrants will be adjusted in the event of a stock dividend, a stock split,
a reorganization, a recapitalization, or a combination or subdivision of the
Common Stock or a similar event.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 15,417,537 shares of the Common Stock outstanding as of December 3,
1999, the Company had previously registered under the Securities Act 2,956,277
of those shares without giving effect to any of the shares included in this
prospectus for resale. Accordingly, a holder of any of those 2,956,277 shares,
as of that date, could sell his, her or its shares without any requirement that
the holder deliver to his, her or its purchaser a prospectus naming the holder
as a selling stockholder, unless the holder was an affiliate of the Company as
defined in Rule 144 (a)(1) under the Securities Act. Even the holder who is an
affiliate can sell his, her or its shares as permitted by Rule 144 without
delivery of such a prospectus.
In addition, as of December 3, 1999, an additional 9,900,306 shares were
restricted securities as defined in Rule 144 (a)(3) under the Securities Act. A
holder of any of such shares could sell them pursuant to the exemption from
registration of Rule 144.
52
<PAGE> 54
In summary, of the 15,417,537 shares of the Common Stock outstanding as of
December 3, 1999, 12,855,583 shares were saleable without the necessity of the
Company filing a registration statement under the Securities Act naming the
holders as selling stockholders.
As of December 3, 1999, the Company had reserved 1,955,053 shares of the
Common Stock for the exercise of the Options granted or to be granted pursuant
to Stock Option Plan. As of that date, there were outstanding Options to
purchase an aggregate of 775,000 shares at $.50 per share and an aggregate of
671,500 shares at exercise prices ranging from $1.12 to $1.87 per share expiring
on dates between April 15, 2009 and November 16, 2009. Options as to an
aggregate of 44,947 shares had been exercised as of December 3, 1999. Each of
the outstanding Options became, or generally will become, exercisable on a
cumulative basis as to one-quarter of the shares subject thereto on the first
anniversary of its respective date of grant and as to 1/36th of the remaining
shares subject thereto each month during the ensuing 36-month period thereafter.
Certain of the outstanding Options will become exercisable only upon achievement
of a designated goal. As of December 3, 1999 or within 60 days thereafter,
Options were exercisable as to 240,724 shares of the Common Stock. All of the
shares issuable upon the exercises of the Options have been registered under the
Securities Act. Accordingly, unless the optionee is an affiliate of the Company
as defined in Rule 144(a)(i) under the Securities Act, he or she may, after
exercise of an Option, resell the shares received upon exercise without the use
of a reoffer prospectus. Of the optionees holding Options outstanding on
December 3, 1999, only Linda H. Masterson, the President and Chief Executive
Officer of the Company, Thomas J. Foley, the Senior Vice President, Research and
Development of the Company, Michele A. Clark, the Controller and Chief
Accounting Officer of the Company, and David Smith, the Director, Engineering of
the Corporation, may be deemed affiliates requiring a reoffer prospectus to
resell shares received upon an exercise. As of such date, Ms. Masterson, Dr.
Foley, Ms. Clark and Mr. Smith held Options to purchase in the aggregate 980,000
shares of the Common Stock, of which Options to purchase an aggregate of 204,173
shares were then exercisable or exercisable within 60 days thereafter.
In addition, as of December 3, 1999, the Company had reserved an aggregate
of 1,742,609 shares for the exercise of the Warrants which expire on various
dates through July 1, 2004 and which have exercise prices ranging from $.50 to
$1.97 per share. As of December 3, 1999, almost all of the Warrants were
exercisable. The shares of the Common Stock issuable upon exercises of the
Warrants have not been registered under the Securities Act. Accordingly, such
shares will be restricted securities as defined in Rule 144 (a)(3) under the
Securities Act after issuance. A holder (including an affiliate of the Company)
may, one year after the exercise of the Warrant, resell his, her or its shares
received upon such exercise pursuant to the exemption from registration of Rule
144 under the Securities Act.
The Company is unable to predict the effect that sales of shares of the
Common Stock made under Rule 144 and the delayed sales of shares subject to the
Options, the Warrants, the Masterson Warrants and the Foley Warrants (assuming
all of the foregoing securities become exercisable) may have on the then
prevailing market price of the shares of the Common Stock. It is likely that
market sales of large amounts of these shares of the Common Stock or of the
12,494,275 shares offered by this prospectus (or the potential for those sales
even if they do not actually occur) will have the effect of depressing the
market price of the Common Stock.
53
<PAGE> 55
PLAN OF DISTRIBUTION
Each of the holders of shares of the Series A Preferred Stock, of which
427,375 shares were outstanding as of December 3, 1999, has advised the Company
that, when and if such Selling Stockholder converts his, her or its shares into
shares of the Common Stock, such Selling Stockholder may, from time to time,
offer such underlying shares of the Common Stock for sale pursuant to this
prospectus at the prices then prevailing on the NASD's OTC Bulletin Board or
otherwise in the over-the-counter market. Each share of the Series A Preferred
Stock is currently convertible into 20 shares of the Common Stock. Each such
Selling Stockholder has also indicated that he, she or it may sell the shares of
the Common Stock in isolated transactions, at negotiated prices, with
institutional or other investors. Each such Selling Stockholder has also advised
the Company that he, she or it has not engaged any underwriter to act for him,
her or it. However, each has indicated that sales may be effected for each
Selling Stockholder through his, her or its personal broker-dealer. If all
427,375 shares of the Series A Preferred Stock are converted, an aggregate of
8,547,500 shares of the Common Stock will be so offered for resale pursuant to
this prospectus.
The Selling Stockholders who or which own shares of the Series A Preferred
Stock have indicated that they may also sell, in the same manner as described in
the preceding paragraph, the shares of the Common Stock they receive upon
conversion as payment for accrued but unpaid dividends. The Company estimates
that it may issue to such Selling Stockholders up to an aggregate of 466,116
shares of the Common Stock as dividends during the 26 months following December
3, 1999. The Company cannot be more specific as to the number of shares because
it cannot anticipate when a Selling Stockholder will convert, but, for the
purpose of making an estimate, assumed the holders would not convert during a
three year-period from January 21, 1999.
As of December 3, 1999, certain of the Selling Stockholders had converted
shares of the Series A Preferred Stock into an aggregate of 2,441,597 shares of
the Common Stock. These Selling Stockholders have advised the Company that they
may sell such shares of the Common Stock, together with the aggregate of 32,357
shares of the Common Stock they received as accrued but unpaid dividends through
the respective date of conversion, in the same manner as described in the second
preceding paragraph for the other Selling Stockholders. Also as of December 3,
1999, other Selling Stockholders (including some originally named in the
Registration Statement (the "Registration Statement") of which this prospectus
constitutes Part I) had converted shares of the Series A Preferred Stock into an
aggregate of 1,010,903 shares of the Common Stock and had received an aggregate
of 1,527 shares as accrued but unpaid dividends. They have advised the Company
that they have sold these shares and, accordingly, will not be offering them
pursuant to this prospectus.
Those Selling Stockholders who or which own or owned shares of the Series A
Preferred Stock as described in the preceding three paragraphs acquired such
shares in the Company's third private placement closed on January 21, 1999. See
"Business -- Need for Financing."
In addition, each of the Selling Stockholders who or which holds a Selling
Stockholders Warrant has advised the Company that, when and if he, she or it
exercises his, her or its Selling Stockholder Warrant, the Selling Stockholder
may, from time to time, sell the shares of the Common Stock issued upon exercise
in the same manner as described for the other Selling Stockholders in the fourth
preceding paragraph. Each of the Selling Stockholders Warrants is currently
exercisable. If all of the Selling Stockholders'
54
<PAGE> 56
Warrants outstanding as of December 3, 1999 are exercised, an aggregate of
919,705 shares may be so offered pursuant to this prospectus.
As of December 3, 1999, two Selling Stockholders had exercised their
Selling Stockholders Warrants as to an aggregate of 109,000 shares of the Common
Stock. The Selling Stockholder which exercised its Selling Stockholders Warrant
as to 34,000 shares has advised the Company that it sold 22,000 of such shares
and, accordingly, will only be offering 12,000 of such shares pursuant to this
prospectus in the same manner as described in the fifth preceding paragraph. The
other Selling Stockholder who exercised a Selling Stockholders Warrant as to
75,000 shares of the Common Stock has advised the Company he will sell these
shares in the same manner as described in the fifth preceding paragraph. The
Company has terminated two Selling Stockholders Warrants originally included in
the Registration Statement to purchase an aggregate of 281,727 shares because of
the default by the holders of these warrants. Another Selling Stockholder
Warrant originally included in the Registration Statement to purchase 100,000
shares was cancelled because of the holder's death. The Company had also
cancelled a portion of a Selling Stockholders Warrant as to 125,020 shares (see
(1) in the succeeding paragraph). Accordingly, none of these 506,747 shares will
be offered for resale pursuant to this prospectus.
The Selling Stockholders who or which hold the Selling Stockholders
Warrants acquired such securities as follows:
(1) Burrill & Company initially was granted a Selling Stockholders
Warrant expiring November 30, 2003 to purchase 250,000 shares of the Common
Stock at $1.15 per share received on December 3, 1998 for its services to
seek a strategic partner for the Company. This Selling Stockholders Warrant
was to become exercisable as to 20,830 shares on each of the first 11
months during the term of the Company's agreement with Burrill and as to
20,870 shares in the 12th month. The agreement was terminated by the
Company on May 7, 1999. In resolution of a dispute, Burrill and the Company
have agreed that the Selling Stockholder Warrant entitles Burrill to
purchase 124,980 shares of the Common Stock. See "Business -- Need for
Financing."
(2) Ira Jay Mitchell held three Selling Stockholders Warrants to
purchase an aggregate of 175,000 shares of the Common Stock as follows: (a)
a Selling Stockholders Warrant expiring December 13, 2003 to purchase
50,000 shares at $1.08 per share received on December 14, 1998 as a
finder's fee with respect to the Company's second private placement in July
and August 1998, (b) a Selling Stockholders Warrant expiring January 20,
2004 to purchase 50,000 shares at $2.41 per share received on January 21,
1999 as a finder's fee with respect to the Company's third private
placement in January 1999 and (c) a Selling Stockholders Warrant expiring
December 7, 2002 to purchase 75,000 shares at $.50 per share received on
December 8, 1997 as compensation for management/real estate relocations
consulting services. See "Business -- Need for Financing" for information
as to the two private placements. He has exercised the Selling Stockholders
Warrant described in (c) and continues to hold the other two Selling
Stockholders Warrants.
(3) The Gramercy Partnership, L.L.C. holds a Selling Stockholders
Warrant expiring January 20, 2004 to purchase 144,338 shares of the Common
Stock at $2.41 per share received on January 21, 1999 as a finder's fee
with respect to the Company's third private placement in January 1999. See
"Business -- Need for Financing."
55
<PAGE> 57
(4) The Kriegsman Group holds two Selling Stockholders Warrants to
purchase an aggregate of 120,000 shares of the Common Stock as follows: (a)
80,000 shares issuable upon the exercise of a Selling Stockholders Warrant
expiring April 7, 2003 at $1.00 per share received on April 8, 1998 as
compensation for prospective investment banking services and (b) 40,000
shares issuable upon the exercise of a Selling Stockholders Warrant
expiring January 20, 2004 at $2.41 per share received on January 21, 1999
as a finder's fee with respect to the Company's third private placement in
January 1999 (see "Business -- Need for Financing").
(5) WebStNews.com, Inc. held a Selling Stockholders Warrant expiring
August 30, 2000 to purchase 100,000 shares of the Common Stock at $.75 per
share. The Selling Stockholders Warrant was acquired on August 31, 1998 for
services in setting up a Web site for the Company and reporting as to the
Company on its Web site. This Selling Stockholder exercised this Selling
Stockholders Warrant as to 34,000 shares and sold 22,000 of such shares. It
may still exercise this Selling Stockholders Warrant as to 66,000 shares.
(6) Fred Reno holds two Selling Stockholders Warrants to purchase an
aggregate of 60,000 shares of the Common Stock as follows: (a) a Selling
Stockholders Warrant expiring December 7, 2002 to purchase 30,000 shares at
$.50 per share and (b) a Selling Stockholders Warrant expiring January 7,
2004 to purchase 30,000 shares at $1.02 per share, the first being received
on December 8, 1997 as consideration for Mr. Reno agreeing to serve as a
consultant on law enforcement and security matters and the second being
received on January 8, 1997 as consideration for his agreeing to serve the
Company for an additional two years and broadening his duties to include
public relations in connection with television and radio.
(7) Charles Dargan holds a Selling Stockholders Warrant expiring
January 20, 2004 to purchase 56,000 shares of the Common Stock at $2.41 per
share received on January 21, 1999 as a finder's fee with respect to the
Company's third private placement in January 1999. See "Business -- Need
for Financing."
(8) Online Capital GmbH holds a Selling Stockholders Warrant expiring
January 20, 2004 to purchase 48,112 shares of the Common Stock at $2.41 per
share received on January 21, 1999 as a finder's fee with respect to the
Company's third private placement in January 1999. See "Business -- Need
for Financing."
(9) Libra Finance S.A. holds a Selling Stockholders Warrant expiring
January 20, 2004 to purchase 42,275 shares of the Common Stock at $2.41 per
share received on January 21, 1999 as a finder's fee with respect to the
Company's third private placement in January 1999. See "Business -- Need
for Financing."
(10) Michael S. Rosenblum holds a Selling Stockholders Warrant
expiring December 7, 2002 to purchase 40,000 shares of the Common Stock at
$.50 per share received on December 8, 1997 for his legal services in
connection with the purchase of SAT's majority interest in the Company.
(11) Ambient Capital Group, Inc. holds two Selling Stockholders
Warrants to purchase an aggregate of 30,000 shares of the Common Stock as
follows: (a) 20,000 shares issuable upon the exercise of a Selling
Stockholders Warrant expiring April 7, 2003 at $1.00 per share received on
April 8, 1998 as compensation for prospective investment banking services
and (b) 10,000 shares issuable upon the exercise of a Selling Stockholders
Warrant expiring January 20, 2004 at $2.41 per share received on
56
<PAGE> 58
January 21, 1999 as a finder's fee with respect to the Company's third
private placement in January 1999 (see "Business -- Need for Financing").
(12) Shoreh Moheb holds a Selling Stockholders Warrant expiring
October 26, 2002 to purchase 30,000 shares of the Common Stock at $.50 per
share received on October 27, 1997 as a rehiring bonus because she was then
deemed a key employee to complete the chemistry aspects of the Company's
research and development program. Since January 1, 1999, she has not been
employed by the Company.
(13) Allan Stone & Company holds a Selling Stockholders Warrant
expiring January 13, 2003 to purchase 25,000 shares of the Common Stock at
$.50 per share received on January 14, 1998 as consideration for its public
relations services on behalf of the Company.
(14) Guohong Wang holds two Selling Stockholders Warrants to purchase
an aggregate of 14,000 shares of the Common Stock as follows: (a) a Selling
Stockholders Warrant expiring March 19, 2003 to purchase 12,000 shares at
$.50 per share and (b) a Selling Stockholders Warrant expiring January 7,
2004 to purchase 2,000 shares of the Common Stock at $1.57 per share, the
first received on March 20, 1998 and the second received on January 8,
1999, both as compensation for his consulting services as an organic
chemist in the research and development program of the Company. In March
1999, he rejoined the Company as an employee.
(15) Corporate Capital Management L.L.C. holds a Selling Stockholders
Warrant expiring January 20, 2004 to purchase 14,000 shares of the Common
Stock at $2.41 per share received on January 21, 1999 as a finder's fee
with respect to the Company's third private placement in January 1999. See
"Business -- Need for Financing."
(16) Lonna Williams holds a Selling Stockholders Warrant expiring
March 19, 2003 to purchase 5,000 shares of the Common Stock at $.50 per
share received on March 20, 1998 as compensation for her services as a
consultant to the Company on product marketing matters. She previously
served the Company as its Vice President, Marketing until September 1997.
The shares of the Common Stock offered by the Selling Stockholders, issued
after either the conversions of shares of the Series A Preferred Stock or the
exercises of the Selling Stockholders Warrants, may be sold pursuant to this
prospectus by one or more of the following methods, without limitation: (a) a
block trade on which the broker-dealer so engaged will attempt to sell the
shares of the Common Stock as agent, but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by the
broker-dealer as principal and resale by such broker-dealer for its account
pursuant to this prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-face
transactions between the Selling Stockholder and purchasers without a
broker-dealer. In effecting sales, a broker-dealer engaged by the Selling
Stockholder may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from the Selling
Stockholder in amounts to be negotiated immediately prior to sale. Brokers or
dealers and any participating brokers or dealers acting as described in this
paragraph may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act in connection with such sales.
Upon the Company being notified by a Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares of
the Common Stock through a block trade, a special offering, an exchange
distribution or a
57
<PAGE> 59
secondary distribution or a purchase by a broker or dealer, a supplement to the
prospectus will be filed, if required, pursuant to Rule 424(c) under the
Securities Act, disclosing (a) the name of each broker-dealer, (b) the number of
shares involved, (c) the price at which such shares were sold, (d) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (e) that such broker-dealer(s) did not conduct any
investigation to verify the information set out in this prospectus, as
supplemented, and (f) other facts material to the transaction.
Under most applicable state laws, any sale by a Selling Stockholder through
a broker-dealer must be made through a broker-dealer registered in the state of
residence if the Selling Stockholder is a natural person or the state where its
principal office is located if not a natural person.
As of December 3, 1999, none of the shares of the Common Stock being
offered pursuant to this prospectus could be sold pursuant to Rule 144 under the
Securities Act. In the opinion of Wachtel & Masyr, LLP, counsel to the Company,
a Selling Stockholder who or which is offering shares of the Common Stock upon
the conversion of shares of the Series A Preferred Stock will become eligible,
insofar as the one-year holding period requirement of paragraph (d) of Rule 144
is concerned, to seek to use the exemption of Rule 144 on and after January 21,
2000, i.e., one year after the holder purchased from the Company his, her or its
shares of the Series A Preferred Stock at the closing of the Company's third
private placement held on January 21, 1999. Such counsel is also of the opinion
that a Selling Stockholder who or which exercises a Selling Stockholders Warrant
will become eligible, insofar as the one-year holding period requirement of
paragraph (d) of Rule 144 is concerned, to seek to use the exemption of Rule 144
on and after one year from the date of exercise of the Selling Stockholders
Warrant. Each of the Selling Stockholders has advised the Company that, as his,
her or its shares become eligible for sale pursuant to Rule 144, he, she or it
may, as an alternative to use of this prospectus, sell such shares pursuant to
Rule 144.
Because the Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Company has advised the
Selling Stockholders of the requirement under the Securities Act that each of
them, or any broker-dealer acting for him, her or it, must deliver a copy of
this prospectus in connection with any sale by such Selling Stockholder of
shares of the Common Stock registered hereunder unless such sale is pursuant to
Rule 144 as described in the preceding paragraph. The Company has also
undertaken, if, in the future in the opinion of the Company, this prospectus no
longer complies with Section 10(a)(3) of the Securities Act, to advise the
Selling Stockholders of this opinion, to request that the Selling Stockholders
cease use of this prospectus and, if the Company is then still obligated under
its registration commitment to the Selling Stockholder, to confirm the Company's
then intention to amend the Registration Statement in order to effect such
compliance. [The Company's registration commitment to a purchaser of the Series
A Preferred Stock, by its terms, was to keep the Registration Statement
effective for one year from its effective date under the Securities Act of April
5, 1999. There was no similar registration commitment to the holders of the
Selling Stockholders Warrants.] The Company has also advised each of the Selling
Stockholders that, if it is determined that he, she or it is an "underwriter,"
the Selling Stockholder may be found liable for monetary damages to purchasers
under Sections 11, 12(2) and 15 of the Securities Act if there are any defects
in the Registration Statement (i.e., material misstatements or omissions) and
also may be found liable under Section 10(b) of the Exchange Act and Rule 10b-5
thereunder for such material misstatements or omissions, if any.
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<PAGE> 60
The Company, its officers and directors, and the Selling Stockholders are
obligated to take such steps as may be necessary to ensure that the offer and
sale by the Selling Stockholders of an aggregate of 12,494,275 shares of the
Common Stock offered by this prospectus will comply with the requirements of the
federal security laws, including Regulation M.
In general, Rule 102 under Regulation M prohibits any Selling Stockholder
or a broker-dealer acting for such Selling Stockholder from, directly or
indirectly, bidding for or purchasing any shares of the Common Stock or
attempting to induce any person to bid for, or to purchase, shares of the Common
Stock during a restricted period (as defined in Rule 100) which ends when he,
she or it has completed his, her or its participation in the offering made
pursuant to this prospectus. Rule 102 sets forth certain exceptions for the
Selling Stockholder, including exercising a Common Stock purchase warrant
(which, for purposes of the Rule, would include exercise of a Selling
Stockholders Warrant).
The Company is bearing all costs relating to the registration of the shares
of the Common Stock offered by this prospectus (other than fees and expenses, if
any, of counsel or other advisors to a Selling Stockholder). Any commissions,
discounts or other fees payable to broker-dealer in connection with any sale of
the Common Stock will be borne by the Selling Stockholder selling such shares.
SELLING STOCKHOLDERS
Each of the Selling Stockholders named in the next following table has
advised the Company that he, she or it may, from time to time, offer all of the
shares shown next to his, her or its name at the prices then prevailing in the
over-the-counter market or in isolated transactions, at negotiated prices, with
institutional or other investors. See "Plan of Distribution." Each Selling
Stockholder who is a natural person and who has already converted his or her
shares of the Series A Preferred Stock into shares of the Common Stock or who
has exercised a Selling Stockholders Warrant has advised the Company that he or
she has sole voting and investment power with respect to such shares except
where such powers are shared with a spouse. Each Selling Stockholder who is a
natural person has advised the Company that he or she will have sole voting and
investment power with respect to his or her shares of the Common Stock after he
or she converts his or her shares of the Series A Preferred Stock or exercises a
Selling Stockholders Warrant except where such powers are shared with a spouse.
No Selling Stockholder has any voting power with respect to the shares of the
Common Stock issuable upon the exercise of a Selling Stockholder Warrant until
such security is exercised. In addition, the Selling Stockholder may vote his,
her or its shares of the Series A Preferred Stock, but not the underlying shares
of the Common Stock until after conversion. See "Description of Securities --
Series A Preferred Stock -- Voting Rights." No Selling Stockholder, if a natural
person, and no natural person affiliated with any entity which is a Selling
Stockholder is, or has ever been, an executive officer or director of the
Company except that Michael S. McCord served as a director from May 31, 1996
until October 31, 1997. The business relationships to the Company of those
Selling Stockholders who or which hold Selling Stockholders Warrants is
described under "Plan of Distribution."
The Selling Stockholders are offering, by this prospectus, an aggregate of
12,494,275 shares of the Common Stock, of which, as of December 3, 1999,
9,933,321 shares will not be outstanding until (1)(a) 427,375 shares of the
Series A Preferred Stock are converted into 8,547,500 shares of the Common Stock
and (b) up to 466,116 shares, as estimated over the next 26 months after
December 3, 1999, will not be outstanding until they are
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<PAGE> 61
issued as accrued but unpaid dividends and (2) 919,705 shares will not be
outstanding until all of the Selling Stockholders Warrants are exercised.
<TABLE>
<CAPTION>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------- --------------
NAME AND ADDRESS OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE OFFERED SALE SALE SALE
------------------- --------- --------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
General Conference Corporation of
Seventh-day Adventists(2).......... 5,735,000 4,500,000 1,235,000 28.8% 6.2%
12501 Old Columbia Pike
Silver Spring, MD 20804
Ira Jay Mitchell(3).................. 625,000 325,000 300,000 4.0% 1.9%
1718 Chastain Parkway East
Pacific Palisades, CA 90272
Arthur D. Sterling and Marie E.
Sterling JTWROS(4)................. 507,684 507,684 0 3.3% 0
3000 Northmoor Tr.
Long Beach, IN 46360
The Intergroup Corporation(5)........ 500,000 200,000 300,000 3.2% 1.9%
2121 Avenue of the Stars
Suite 2020
Los Angeles, CA 90067
Melvin Simon(6)...................... 500,000 250,000 250,000 3.2% 1.6%
Melvin Simon & Associates, Inc.
115 W. Washington Street
Indianapolis, IN 46204
Herbert Simon(6)..................... 500,000 250,000 250,000 3.2% 1.6%
Melvin Simon & Associates, Inc.
115 W. Washington Street
Indianapolis, IN 46204
Jerome Finkelstein(7)................ 332,000 300,000 32,000 2.1% nil
362 Elm Drive
Roslyn, NY 11576
Austost Anstalt Schaan(4)............ 330,413 330,413 0 2.1% 0
163 Landstrasse, 9494
Furstentums Vadiz,
Liechtenstein
Balmore Funds S.A.(4)................ 319,740 319,740 0 2.1% 0
P.O. Box 4603
CH-8022
Zurich, Switzerland
Erik Moskowitz(8).................... 250,000 250,000 0 1.6% 0
Mansur & Co
875 N. Michigan Avenue
Chicago, IL 60045
Whyteburg, Limited(4)................ 227,717 227,717 0 1.5% 0
Mark Tollner
1006 North Carol Drive Suite 4
West Hollywood, CA 90069
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------- --------------
NAME AND ADDRESS OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE OFFERED SALE SALE SALE
------------------- --------- --------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
Robert Van Caneghan(4)............... 204,559 204,559 0 1.3% 0
123 Radcliff Road
Staten Island, NY 10305
Mansur Holdings III, Ltd.(4)......... 204,282 204,282 0 1.3% 0
875 North Michigan Avenue
Chicago, IL 60011
William F. Blackburn, Jr.(8)......... 200,000 200,000 0 1.3% 0
2159 Century Hill
Los Angeles, CA 90067
John P. Gannon(9).................... 200,000 200,000 0 1.3% 0
925 S. Mason Road #248
Katy, TX 77450
Paul A. Kaye Family Trust............ 180,000 80,000 100,000 1.2% nil
U/A dated October 6, 1993(10)
9 Diamente Road
Rancho Palos Verdes,
CA 90275
Anglo American Partnership I(8)...... 150,000 150,000 0 nil 0
2049 Century Park East #2330
Los Angeles, CA 90067
CMS Inc. Profit Sharing Trust(8)..... 150,000 150,000 0 nil 0
16830 Ventura Blvd. # 266
Encino, CA 91436
Peter M. Way(8)...................... 150,000 150,000 0 nil 0
5308 Ashbrook
Houston, TX 77081
The Gramercy Partnership,............
L.L.C.(11) 145,276 145,276 0 nil 0
100 Wall Street 2nd Floor
New York, NY 10005
Coury Family Trust(8)................ 120,000 120,000 0 nil 0
22682 Ledeana
Mission Viejo, CA 92691
M&J Investment Trust(8).............. 112,500 112,500 0 nil 0
14 Woodbridge Road
Hingham, MA 02043
Carl H. Spahr(12).................... 110,000 100,000 10,000 nil nil
2662 Ridge Pine Drive
La Crescente, CA 91214
Karim Amiryani(4).................... 100,906 100,906 0 nil 0
319 Copa De Oro Road
Los Angeles, CA 90077
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------- --------------
NAME AND ADDRESS OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE OFFERED SALE SALE SALE
------------------- --------- --------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
Hussein A. Khashoggi(4).............. 100,562 100,562 0 nil 0
The Gramercy
Partnership, L.L.C.
100 Wall Street 2nd Flr.
New York, NY 10005
Anglo American Partnership II(8)..... 100,000 100,000 0 nil 0
2049 Century Park East # 2330
Los Angeles, CA 90067
Erland & Company(8).................. 100,000 100,000 0 nil 0
7731 Firenze Avenue
Los Angeles, CA 90046
Michael S. McCord(8)................. 100,000 100,000 0 nil 0
2001 Kirby Drive Suite 701
Houston, TX 77019
Michael J. Moser IRA(8).............. 100,000 100,000 0 nil 0
Frost National Bank
P.O. Box 2479
San Antonio, TX 78298
Santa Fe Financial Corporation(8).... 100,000 100,000 0 nil 0
2121 Avenue of the Stars
Suite 2020
Los Angeles, CA 90067
Johnny Thomas(8)..................... 100,000 100,000 0 nil 0
12038 Canary Court
Grand Terrace, GA 92313
Meredith Y. Kelly and
J. Joyce Kelly(4).................. 94,297 94,297 0 nil 0
4813 Lori Street
Valdosta, GA 31605
Marlin Trust dated 10-31-92(13)...... 90,000 70,000 20,000 nil nil
22291 Cass Avenue
Woodland Hills, CA 91364
Herman T. Wilson, Jr.(8)............. 60,000 60,000 0 nil 0
2001 Kirby Drive Suite 712
Houston, TX 77019
J. Allan Dougherty(4)................ 51,068 51,068 0 nil 0
One Peachtree Center
Suite 2800
3030 Peachtree Street NE
Atlanta, GA 30308
Dorothy Hawkins(4)................... 51,068 51,068 0 nil 0
J. Allan Dougherty,
Trustee U/T/D 5/31/96
3030 Peachtree Street N.E.
Suite 2800
Atlanta, GA 30308
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------- --------------
NAME AND ADDRESS OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE OFFERED SALE SALE SALE
------------------- --------- --------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
Bruce S. Kerievsky(4)................ 50,768 50,768 0 nil 0
7 Arrandale Avenue
Great Neck, NY 11024
Robert Weinstein and
Leslie Weinstein JTWROS(4)......... 50,318 50,318 0 nil 0
10 Marina Key
Secaucus, NJ 07094
The Century Trust(8)................. 50,000 50,000 0 nil 0
2080 Century Park East
Penthouse Suite
Los Angeles, CA 90067
Dos Cunados(8)....................... 50,000 50,000 0 nil 0
827 Wade Hampton
Houston, TX 77024
Barry Forwand and
Arlene Forwand JTWROS(8)........... 50,000 50,000 0 nil 0
8 Hampton Hill Ct.
Huntington, NY 11743
Warren S. Grundfest(8)............... 50,000 50,000 0 nil 0
8272 Skyline Drive
Los Angeles, CA 90046
Stephen L. McCord(8)................. 50,000 50,000 0 nil 0
8235 Douglas Avenue Suite 990
Dallas, TX 75225
Thomas A. Miklusak(8)................ 50,000 50,000 0 nil 0
1418 El Vago
La Canada, CA 91011
Kristine K. Moser(8)................. 50,000 50,000 0 nil 0
7711 Kensico
Houston, TX 77036
Michael Mrkulic(8)................... 50,000 50,000 0 nil 0
345 Passaic Avenue # D13
Passaic, NJ 07055
Paul Musto and Rose Anne
Musto JTWROS(8).................... 50,000 50,000 0 nil 0
3 Hammerstein Drive
Saugus, MA 01906
George Szakacs(8).................... 50,000 50,000 0 nil 0
Global Wire & Cable, Inc.
61 Willett Street
Passaic, NJ 07055
Donald Hoffman(14)................... 30,000 30,000 0 nil 0
1110 North 24th Street
Allentown, PA 18104
</TABLE>
63
<PAGE> 65
<TABLE>
<CAPTION>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------- --------------
NAME AND ADDRESS OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE OFFERED SALE SALE SALE
------------------- --------- --------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
Paul L. Cormier and
Susan E. Cormier JTWROS(15)........ 28,113 28,113 0 nil 0
9 Marathon Road
Trumball, CT 06611
Lester Bart and
Amy Bart JTWROS(16)................ 26,462 26,462 0 nil 0
47-53 188th Street
Flushing, NY 11358
Robert M. Wysinski(16)............... 25,470 25,470 0 nil 0
6905 Lake Trail Drive
Westerville, OH 43082
Leanne Mitchell(16).................. 25,349 25,349 0 nil 0
300 East 74th Street
New York, NY 10021
Arnold Wandel(16).................... 25,184 25,184 0 nil 0
1041 Annapolis Street
West Lawrence, NY 11691
Len Rothstein(4)..................... 21,173 21,173 0 nil 0
134 Privateer Mall
Marina del Ray, CA 90292
Richard McCullough(17)............... 20,186 20,186 0 nil 0
310 Arcadia Place
San Antonio, TX 78209
Louis F. Mazziotta and
Nancy E. Mazziotta
JTWROS(14)......................... 20,000 20,000 0 nil 0
111 North 31st Street
Allentown, PA 18104
Glenn M. Gardner(14)................. 17,000 17,000 0 nil 0
3332 N. Woodlawn Avenue
Metarie, LA 70006
Dorothy B. Ray(14)................... 17,000 17,000 0 nil 0
24 Orpheum Avenue
Metarie, LA 70005
John J. Walsh(14).................... 17,000 17,000 0 nil 0
24 Orpheum Avenue
Metarie, LA 70005
Andrew John Long(4).................. 15,722 15,722 0 nil 0
2480 E. Colorado Blvd.
Pasadena, CA 91107
Michael A. Rogawski(17).............. 15,139 15,139 0 nil 0
5223 Wisconsin Avenue,
N.W. Suite 210
Washington, D.C. 20015
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------- --------------
NAME AND ADDRESS OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE OFFERED SALE SALE SALE
------------------- --------- --------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
ISM Investments, L.L.C.(16).......... 12,263 12,263 0 nil 0
100 Wall Street 2nd Flr.
New York, NY 10005
Arthur A. Marquardt(15).............. 10,076 10,076 0 nil 0
133 Concord Street
Brooklyn, NY 11201
Gregory Whitney-Perdon(16)........... 6,807 6,807 0 nil 0
9 Gracie Square
New York, NY 10028
Wales Securities Limited(4).......... 1,580 1,580 0 nil 0
First Fidelity Capital
9100 Wilshire Blvd.
437 West Tower
Beverly Hills, CA 90212
John P. Green(4)..................... 310 310 0 nil 0
52 Haller Drive
Cedar Grove, NJ 07009
Michael S. Rosenblum(18)............. 140,000 40,000 100,000 nil nil
Michael S. Rosenblum, PA.
1875 Century Park East,
Suite 700
Los Angeles, CA 90067
Burrill & Company(19)................ 124,980 124,980 0 nil 0
120 Montgomery Street
Suite 1370
San Francisco, CA 94104
The Kriegsman Group(19).............. 120,000 120,000 0 nil 0
920 Greentree Road
Pacific Palisades, CA 90272
WebStNews.com.Inc.(20)............... 78,000 78,000 0 nil 0
445 Orchard Street
Santa Rosa, CA 95404
Fred Reno(19)........................ 60,000 60,000 0 nil 0
2545 Gardner Place
Glendale CA 91206
Charles Dargan(19)................... 56,000 56,000 0 nil 0
7551 Trask Avenue
Playa Del Rey, CA 90293
Online Capital GmbH(19).............. 48,112 48,112 0 nil 0
354 East 50th Street
New York, NY 10022
Libra Finance S.A.(19)............... 42,275 42,275 0 nil 0
160 Central Park South
Suite 3212
New York, NY 10019
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------- --------------
NAME AND ADDRESS OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE OFFERED SALE SALE SALE
------------------- --------- --------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
Ambient Capital Group, Inc.(19)...... 30,000 30,000 0 nil 0
10990 Wilshire Boulevard
Suite 1800
Los Angeles, CA 90024
Shoreh Moheb(19)..................... 30,000 30,000 0 nil 0
5630 Van Gogh Way
Yorba Linda, CA 92887
Alan Stone & Company(19)............. 25,000 25,000 0 nil 0
10941 Wilshire Boulevard,
Suite 1620
Los Angeles, CA 90024
Guohong Wang(19)..................... 14,000 14,000 0 nil 0
937 Kingsley Drive
Arcadia, CA 91007
Corporate Capital Management
L.L.C.(19)......................... 14,000 14,000 0 nil 0
2000 South Plymouth Road
Suite 210
Minnetonkia, MN 55305
Lonna Williams(19)................... 5,000 5,000 0 nil 0
6823 Adolphia Dr.
Carlsbad, CA 92009
</TABLE>
- -------------------------
(1) The percentages computed in this column of the table are based upon
15,417,537 shares of the Common Stock which were outstanding on December 3,
1999. Effect is given, where applicable, (a) pursuant to Rule 13d-3(1)(i)
under the Exchange Act, to shares issuable upon the exercise of the
Warrants and the conversion of the Series A Preferred Stock and (b) the
issuance of dividends on shares of the Common Stock where the shares of the
Series A Preferred Stock have been converted.
(2) The shares reported in the table as being beneficially owned by this
Selling Stockholder reflect (a) 430,000 shares of the Common Stock acquired
in the Company's first private placement in December 1997, (b) 500,000
shares acquired in the Company's second private placement in July 1998, (c)
105,000 shares acquired in open market purchases and (d) 4,500,000 shares
issuable upon the conversion of 225,000 shares of the Series A Preferred
Stock acquired in the Company's third private placement in January 1999.
For information as to the three private placements, see "Business -- Need
for Financing." The shares reported in the table as being offered by this
Selling Stockholder reflect only those shares described in (d).
(3) The shares reported in the table as being beneficially owned by this
Selling Stockholder reflect (a) 300,000 shares of the Common Stock acquired
in the Company's first private placement in November 1997, (b) 75,000
shares issued upon the exercise at $.50 per share of a Selling Stockholders
Warrant expiring December 7, 2002, (c) 50,000 shares issuable upon the
exercise at $1.08 per share of
66
<PAGE> 68
a Selling Stockholders Warrant expiring December 13, 2003, (d) 50,000
shares issuable upon the exercise at $2.41 per share of a Selling
Stockholders Warrant expiring January 20, 2004 and (e) 150,000 shares
issuable upon the conversion of 7,500 shares of the Series A Preferred
Stock. See "Business -- Need for Financing." The shares reported in the
table as being offered by this Selling Stockholder reflect all of the
foregoing shares except those described in (a).
(4) The shares reported in the table as being beneficially owned and as being
offered by this Selling Stockholder or Selling Stockholders reflect shares
of the Common Stock (a) issued upon the conversion of shares of the Series
A Preferred Stock acquired in the Company's third private placement in
January 1999 (see "Business -- Need for Financing") and/or (b) issued as a
dividend when this Selling Stockholder or Selling Stockholders converted
shares of the Series A Preferred Stock.
(5) The shares reported in the table as being beneficially owned by this
Selling Stockholder reflect (a) 300,000 shares of the Common Stock acquired
in the Company's first private placement in December 1997 and (b) 200,000
shares issuable upon the conversion of 10,000 shares of the Series A
Preferred Stock acquired in the Company's third private placement in
January 1999. See "Business -- Need for Financing." The shares reported in
the table as being offered by this Selling Stockholder reflect only those
shares described in (b).
(6) The shares reported in the table as being beneficially owned by this
Selling Stockholder reflect (a) 250,000 of the 500,000 shares of the Common
Stock acquired by Melvin Simon & Associates, Inc. in the Company's second
private placement in July 1998 and (b) 250,000 of the 500,000 shares
issuable upon the conversion of 25,000 shares of the Series A Preferred
Stock acquired by Melvin Simon & Associates, Inc. in the Company's third
private placement in January 1999. See "Business -- Need for Financing."
Melvin Simon & Associates, Inc. subsequently divided its shares equally
between Melvin Simon and Herbert Simon. The shares reported in the table as
being offered by this Selling Stockholder reflect only those shares
described in (b). See Note (6) to the table under "Security Ownership of
Certain Beneficial Ownership and Management."
(7) The shares reported in the table as being beneficially owned by this
Selling Stockholder reflect (a) 25,000 shares of the Common Stock acquired
in the Company's second private placement in August 1998, (b) 7,000 shares
acquired in an open market purchase and (c) 300,000 shares issuable upon
the conversion of 15,000 shares of the Series A Preferred Stock acquired in
the Company's third private placement in January 1999. See
"Business -- Need for Financing." The shares reported in the table as being
offered by this Selling Stockholder reflect only those shares described in
(c).
(8) The shares reported in the table as being beneficially owned and as being
offered by this Selling Stockholder or Selling Stockholders reflect shares
of the Common Stock issuable upon the conversion of shares of the Series A
Preferred Stock acquired in the Company's third private placement in
January 1999. See "Business -- Need for Financing."
(9) This Selling Stockholder, who acquired 10,000 shares of the Series A
Preferred Stock in the Company's third private placement in January 1999
(see "Business -- Need for Financing"), has advised the Company that he
acquired the shares for the benefit of his children (Brenda Marie Gannon,
Daniel Joseph Gannon, Heather Ann
67
<PAGE> 69
Gannon, Travis Kendall Hodges and Justin Matthew Hodges) and will offer
40,000 shares of the Common Stock issuable upon conversion on behalf of
each child.
(10) The shares reported in the table as being beneficially owned by this
Selling Stockholder reflect (a) 100,000 shares of the Common Stock acquired
in the Company's first private placement in December 1997 and (b) 80,000
shares issuable upon the conversion of 4,000 shares of the Series A
Preferred Stock acquired in the Company's third private placement in
January 1999. See "Business -- Need for Financing." The shares reported in
the table as being offered by this Selling Stockholder reflect only those
shares described in (b).
(11) The shares reported in the table as being beneficially owned and as being
offered by this Selling Stockholder reflect (a) 750 shares of the 12,500
shares issued upon the conversion of 625 shares of the Series A Preferred
Stock acquired in the Company's third private placement in January 1999
(see "Business -- Need for Financing"), (b) 188 shares issued as a dividend
when this Selling Stockholder converted its shares of the Series A
Preferred Stock and (c) 144,338 shares issuable upon the exercise at $2.41
per share of a Selling Stockholders Warrant (see "Plan of Distribution").
(12) The shares reported in the table as being beneficially owned by this
Selling Stockholder reflect (a) 10,000 shares of the Common Stock acquired
in the Company's first private placement in December 1997 and (b) 100,000
shares issuable upon the conversion of 5,000 shares of the Series A
Preferred Stock acquired in the Company's third private placement in
January 1999. See "Business -- Need for Financing." The shares reported in
the table as being offered by this Selling Stockholder reflect only those
shares described in (b).
(13) The shares reported in the table as being beneficially owned by this
Selling Stockholder reflect (a) 20,000 shares of the Common Stock acquired
in the Company's first private placement in November 1997 and (b) 70,000
shares issuable upon the conversion of 3,500 shares of the Series A
Preferred Stock acquired in the Company's third private placement in
January 1999. See "Business -- Need for Financing." The shares reported in
the table as being offered by this Selling Stockholder reflect only those
described in (b).
(14) The shares reported in this table as being beneficially owned and as being
offered by this Selling Stockholder or Selling Stockholders reflect shares
issuable upon the conversion of shares of the Series A Preferred Stock
acquired in the Company's third private placement. See "Business -- Need
for Financing." The shares of the Series A Preferred Stock purchased by
this Selling Stockholder or Selling Stockholders, who is an accredited
investor or are accredited investors as such term is defined in Rule 501(a)
under the Securities Act, were less than the minimum permitted by the
private placement (i.e., 2,500 shares), but were subscribed for by The
Gramercy Partnership, L.L.C. and then transferred to this Selling
Stockholder or Selling Stockholders.
(15) The shares reported in this table as being beneficially owned and as being
offered by this Selling Stockholder or Selling Stockholders reflect shares
of the Common Stock (a) issuable or issued upon the conversion of shares of
the Series A Preferred Stock acquired in the Company's third private
placement (see "Business -- Need for Financing") and (b) issued as a
dividend when this Selling Stockholder or Selling Stockholders made a
partial conversion of his or their shares of the Series A
68
<PAGE> 70
Preferred Stock. The shares of the Series A Preferred Stock purchased by
this Selling Stockholder or Selling Stockholders, who is an accredited
investor or are accredited investors as such term is defined in Rule 501(a)
under the Securities Act, were less than the minimum permitted by the
private placement (i.e., 2,500 shares), but were subscribed for by The
Gramercy Partnership, L.L.C. and then transferred to this Selling
Stockholder or Selling Stockholders.
(16) The shares reported in this table as being beneficially owned and as being
offered by this Selling Stockholder or Selling Stockholders reflect shares
of the Common Stock (a) issued upon the conversion of shares of the Series
A Preferred Stock acquired in the Company's third private placement (see
"Business -- Need for Financing") and (b) issued as dividend when this
Selling Stockholder or Selling Stockholders converted shares of the Series
A Preferred Stock. The shares of the Series A Preferred purchased by this
Selling Stockholder or Selling Stockholders, who is an accredited investor
or are accredited investors as such term is defined in Rule 501(a) under
the Securities Act, were less than the minimum permitted by the private
placement (i.e., 2,500 shares), but were subscribed for by The Gramercy
Partnership, L.L.C. and then transferred to this Selling Stockholder or
Selling Stockholders.
(17) The shares reported in this table as being beneficially owned and as being
offered by this Selling Stockholder reflect shares of the Common Stock (a)
issuable or issued upon the conversion of shares of the Series A Preferred
Stock acquired in the Company's third private placement in January 1999
(see "Business -- Need for Financing") and (b) issued as a dividend when
this Selling Stockholder made a partial conversion of his shares of the
Series A Preferred Stock.
(18) The shares reported in the table as beneficially owned by this Selling
Stockholder reflect (a) 100,000 shares of the Common Stock received upon
exercise of a Common Stock purchase warrant granted to him by Jonathan J.
Pallin, a director of the Company, and (b) 40,000 shares issuable upon the
exercise of a Selling Stockholders Warrant (see "Plan of Distribution").
The shares reported in the table as being offered reflect only those shares
described in (b).
(19) The shares reported in the table as beneficially owned and as being offered
by this Selling Stockholder reflect shares of the Common Stock issuable
upon the exercise of one or two Selling Stockholders Warrants. See "Plan of
Distribution."
(20) The shares reported in the table as beneficially owned by this Selling
Stockholder reflect (a) 66,000 shares of the Common Stock issuable upon the
exercise of a Selling Stockholders Warrant received as a fee for setting up
a Web site for the Company and reporting on the Company on its Web site
(see "Plan of Distribution") and (b) 12,000 shares issued upon the partial
exercise of the foregoing Selling Stockholders Warrant.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Wachtel & Masyr, LLP, New York, New York.
69
<PAGE> 71
EXPERTS
The financial statements of LifePoint, Inc. (a development stage
enterprise) at March 31, 1999 and 1998 and for each of the three years in the
period ended March 31, 1999, appearing in this prospectus and the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, and, for
the period October 8, 1992 (inception) through March 31, 1995, by Wolinetz,
Gottlieb & Lafazan, P.C., independent auditors, as set forth in their respective
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firms as experts in accounting and
auditing.
COMMISSION POSITION ON INDEMNIFICATION
The Board of Directors has authorized indemnification of directors and
officers of the Company to the fullest extent permitted by Delaware law.
Section 145(a) of the GCL permits a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if he or she acted
in good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
Under Section 145(b) of the GCL, a corporation also may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation. However, in such an action by or on behalf of a corporation, no
indemnification may be made in respect of any claim, issue or matter as to which
the person is adjudged liable to the corporation unless and only to the extent
that the Delaware Court of Chancery or the court in which such action or suit
was brought determines that, despite the adjudication of liability but in view
of all the circumstances, of the case, the person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Pursuant to Section 145(c) of the GCL, to the extent a current or former
director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or preceding referred to in subsections
(a) or (b), he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred in connection therewith.
70
<PAGE> 72
Under Section 145(d) of the GCL, unless the determination as to
indemnification is made by a court, the determination as to a person who is a
director or officer at the time of determination must be made (1) by a majority
vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum; (2) by a committee of such directors designated
by a majority vote of such directors, even though less than a quorum; (3) if
there are no such directors, or if the directors so direct, by independent legal
counsel in a written opinion; or (4) by the stockholders.
Under Section 145(e) of the GCL, expenses (including attorney's fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the corporation as authorized in Section
145 of the GCL.
In addition, under Section 145(f) of the GCL, the indemnification provided
by Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to an action in
his or her official capacity and as to an action in another capacity while
holding such office.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
71
<PAGE> 73
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company for
each of the five fiscal years ended March 31, 1999, for each of the six-month
periods ended September 30, 1999 and 1998 and cumulative from October 8, 1992
(inception) to September 30, 1999. This selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Company's financial statements and
related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEARS ENDED MARCH 31,
------------------------- -------------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of
Operations Data:
Revenues:................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Selling, General and
Administrative........ 689,876 657,491 1,483,135 672,998 268,668 318,510 475,400
Research and
Development........... 1,042,893 558,193 1,117,786 1,052,233 1,735,449 949,439 1,261,219
Depreciation and
Amortization.......... 48,171 104,178 142,387 217,034 143,634 143,969 162,871
Interest
Expense -- Parent..... -- -- -- 34,530 23,095 -- 3,319
Management Fees --
Parent................ -- -- -- 409,838 420,000 420,000 420,000
Interest Expense........ -- -- -- 956 5,822 71,882 40,640
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Costs and
Expenses........ 1,780,940 1,319,862 2,743,308 2,387,589 2,596,668 1,903,800 2,363,449
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from Operations...... (1,780,940) (1,319,862) (2,743,308) (2,387,589) (2,596,668) (1,903,800) (2,363,449)
Other Income (Expense).... 71,960 23,796 46,595 (164,701) (33,905) 262,995 31,232
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Loss............ $(1,708,980) $ ,296,066) $(2,696,713) $(2,552,290) $(2,630,573) $(1,640,805) $(2,332,217)
=========== =========== =========== =========== =========== =========== ===========
Earnings per Common Share:
Weighted Average Common
Shares Outstanding.... 14,483,992 11,223,632 11,566,684 8,032,231 5,221,900 5,221,900 5,221,900
=========== =========== =========== =========== =========== =========== ===========
Net Loss per Common
Share............. $ (0.12) $ (0.12) $ (.23) $ (.32) $ (.50) $ (.31) $ (.45)
=========== =========== =========== =========== =========== =========== ===========
Earnings per Common Share,
Assuming Dilution:
Weighted Average Common
Shares................ 14,883,992 11,223,632 11,566,684 8,032,231 5,221,900 5,221,,900 5,221,900
=========== =========== =========== =========== =========== =========== ===========
Net Loss per Common
Share, Assuming
Dilution.............. $ (0.12) $ (0.12) $ (.23) $ (.32) $ (.50) $ (.31) $ (.45)
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
CUMULATIVE FROM
OCTOBER 8, 1992
(INCEPTION)
TO
SEPTEMBER 30, 1999
------------------
<S> <C>
Selected Statement of
Operations Data:
Revenues:................. $ --
------------
Costs and Expenses:
Selling, General and
Administrative........ 4,757,559
Research and
Development........... 7,879,780
Depreciation and
Amortization.......... 967,250
Interest
Expense -- Parent..... 95,790
Management Fees --
Parent................ 2,089,838
Interest Expense........ 119,300
------------
Total Costs and
Expenses........ 15,909,517
------------
Loss from Operations...... (15,909,517)
Other Income (Expense).... (169,775)
------------
Net Loss............ $(16,079,292)
============
Earnings per Common Share:
Weighted Average Common
Shares Outstanding....
Net Loss per Common
Share.............
Earnings per Common Share,
Assuming Dilution:
Weighted Average Common
Shares................
Net Loss per Common
Share, Assuming
Dilution..............
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------- ---------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Working Capital (Deficit)......... $2,623,206 $ 353,508 $4,350,843 $ 409,951 $(1,996,218) $ 536,880 $2,089,323
========== ========== ========== ========== =========== ========== ==========
Total Assets...................... $3,442,876 $1,317,942 $5,058,408 $1,073,284 $ 595,947 $1,175,390 $4,444,105
========== ========== ========== ========== =========== ========== ==========
Stockholders' Equity (Deficit).... $2,766,207 $ 596,369 $4,428,684 $ 735,831 $(1,573,686) $1,056,887 $2,697,692
========== ========== ========== ========== =========== ========== ==========
</TABLE>
72
<PAGE> 74
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 fourth quarter of 2000 at the earliest. Because the Company has not
produced any revenues as a result of its being a development stage company, it
has been dependent, ever since gaining its independence from its former parent
SAT in October 1997 (see the section "History of the Company" under the caption
"Business"), on the net proceeds derived from three private placements pursuant
to Regulation D under the Securities Act to fund its operations, as described in
the succeeding three paragraphs.
On November 21 and December 10, 1997, the Company closed as to the sales of
an aggregate of 3,200,000 shares of the Common Stock at $.50 per share and the
Company realized $1,600,000 in gross proceeds. There were no underwriting
discounts or commissions allowed or paid pursuant to the private placement. A
finder's fee of $160,000 was paid to Jonathan J. Pallin who was a member of
Meadow Lane and who, on October 31, 1997, was elected as the Chairman of the
Board and a director of the Company.
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
Selling Stockholders 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 (including
$420,451 to Mr. Pallin) and Selling Stockholders 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.
Management believes that, with the net proceeds from the private placement
described in the preceding paragraph, the Company has sufficient funds to
complete the prototype instrument for the testing product for drugs of abuse and
alcohol and that the prototype instrument will be completed not earlier than the
second quarter of 2000. 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 of development.
Management has announced the establishment of two financing arrangements
which will help the Company to conserve cash. On July 2, 1999, the Company
established a $500,000 revolving line of credit agreement ($500,000 available at
September 30, 1999) with City National Bank of Beverly Hills, California. The
line of credit is secured by funds and securities in the Company's SEI Liquidity
Management account at City National Bank. The interest rate on the revolving
line of credit is variable and set at the prime rate as declared from time to
time by City National Bank. The revolving line of credit will
73
<PAGE> 75
renew annually in June and does not require guarantors nor annual fees.
Additionally, the Company entered into an equipment lease financing agreement
with FirstCorp of Portland, Oregon totaling $300,000.
Management's latest estimate is that completion of the development and
launching of a saliva based drugs of abuse and alcohol testing product, after
the prototype instrument, will require an additional funding of approximately
$4,500,000, beyond the $6,000,000 raised in January 1999, and that the product
will not be launched earlier than the fourth quarter of 2000.
Since October 1997, management had been pursuing parallel paths for
long-term financing venture capital, strategic partnering, a public offering
and/or a private placement for all or part of the required funding.
Having successfully consummated three private placements pursuant to
Regulation D under the Securities Act since November 1997, the Company is
currently seeking to raise the additional required 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 at this time,
either because of general stock market conditions or conditions generally in the
substance abuse technology industry.
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. At least one firm has offered to conduct a
public offering in late 1999 or early 2000. There can be no assurance that stock
market conditions would be receptive to a public offering by the Company at that
time. In addition, competitive conditions in the substance abuse testing
industry at that time may make the Company less attractive to potential public
investors.
Management has also been exploring the possibility of obtaining a strategic
partner(s) for the Company. To this end, the Company has an agreement with the
Venture Merchant Group to assist in the identification of potential strategic
partners for the Company. 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 end of this fiscal year.
There can be no assurance that the Company will be successful in securing
additional financing, whether through a strategic partner, a public offering or
a private placement.
If all of the Warrants to purchase an aggregate of 2,662,314 shares of the
Common Stock which were outstanding on September 30, 1999 were subsequently
exercised, the Company would realize $2,483,785 in gross proceeds. If all of the
Options to purchase an aggregate of 1,067,500 shares outstanding on September
30, 1999 were subsequently exercised, the Company would realize $870,465 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 a Warrant
which were not all currently exercisable as of September 30, 1999. 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 1999 amounted to $2,096,000 as
compared to $2,322,000 and $2,119,000 in fiscal 1998 and 1997, respectively. The
cash used by operating activities in 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
74
<PAGE> 76
development early in fiscal 1998. Cash used in operating activities for fiscal
1998 increased $203,000 from fiscal 1997 due primarily from moving product
development from the research stage to the development stage.
INVESTING CASH FLOWS
During fiscal 1999, net cash used by investing activities was $24,000 as a
result of purchases of property and equipment and patent related costs. During
fiscal 1998, net cash provided by investing activities of $20,000 was generated
from the sale of property and equipment offset by the purchases of property and
equipment. Net cash used by investing activities of $53,000 during fiscal 1997
was for purchases of property and equipment.
FINANCING CASH FLOWS
Net cash provided by financing activities amounted to $6,320,000 during
fiscal 1999 related to the second private placement of 1,025,000 of the Common
Stock with net proceeds approximating $1,018,000 and net proceeds of $5,146,000
from the sale of 600,000 shares of the Series A Preferred Stock as described
above.
Net cash provided by financing activities amounted to $2,900,000 during
fiscal 1998. Financing cash flows were provided by loans from SAT of
approximately $1,465,000 and the net proceeds of approximately $1,434,000 of a
private placement of 3,200,000 shares of the Common Stock at $0.50 per share.
Net cash provided by financing activities amounted to $1,922,000 during
fiscal 1997. Financing cash flows were provided by loans from SAT of
approximately $1,668,000 and net proceeds from repayment of note receivable from
SAT in the amount of approximately $282,000.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999 VS. SEPTEMBER 30, 1998
During the six months ended September 30, 1999, the Company spent
$1,042,893 on research and development and an additional $689,876 on general and
administrative expenses, as compared with $588,193 and $657,491, respectively,
during the six months ended September 30, 1998. The research and development
expenses for the six months ended September 30, 1999 increased by $484,700, or
86.8%, over the same period during 1998 due to the nearly three-fold increase in
staffing levels and related research materials. General and administrative
expenses increased $32,385, or 4.9%, as a result of increased staffing levels.
From inception on October 8, 1992 to September 30, 1999, the Company has
spent $7,879,780 on research and development and $4,757,559 on general and
administrative expenses. Management fees paid to SAT aggregated an additional
$2,089,838 during such period.
FISCAL 1999 VS. FISCAL 1998
During fiscal 1999, the Company continued as a development stage enterprise
with no revenues. Research and development expenses in fiscal 1999 were
$1,118,000 as compared to $1,052,000 in fiscal 1998, or an increase of $66,000
or 6.2%. The increase in fiscal 1999 was primarily due to increased staffing
levels. Selling, general and administrative expenses were $1,483,000 in fiscal
1999 as compared to $673,000 in fiscal 1998, or an increase of $810,000 or
120.4%. In fiscal 1998 the Company paid management fees to SAT of
75
<PAGE> 77
$410,000 which are not included in the selling, general and administrative
expenses. Total selling, general and administrative expense including management
fees was $1,083,000, or an increase in fiscal 1999 of $400,000 or 36.9%. This
increase is as a result of the Company's focus on investor relations, as well as
additional expenses incurred for legal, accounting and administrative functions
assumed with its independence from SAT. As of March 31, 1998, the Company did
not anticipate generating revenues from product sales during the fiscal year
ending March 31, 1999 and not until after submission of the drugs of
abuse/alcohol testing product to the FDA in March 2000 at the earliest.
Accordingly, management anticipated that operating losses would continue for at
least a 24-month period.
The net loss for fiscal 1999 was $2,697,000 as compared to $2,552,000 for
fiscal 1998. The increase of $145,000 or 5.7% was primarily the result of the
increase in selling, general and administrative expenses noted above.
FISCAL 1998 VS. FISCAL 1997
During fiscal 1998, the Company continued as a development stage enterprise
with no revenues. Selling, general and administrative expenses were $673,000 in
fiscal 1998 as compared to $269,000 in fiscal 1997, or an increase of $404,000
or 150.2%. Management fees paid to SAT were $410,000 in fiscal 1998 as compared
to $420,000 in fiscal 1997, a decrease of $10,000 or 2.4%. During fiscal 1998,
the management fees were based on the proportional costs for shared resources
and personnel. However, during the second quarter of fiscal 1998, the management
fee was discontinued because services were no longer provided by SAT. Overall,
selling, general and administrative expenses and management fees were $1,083,000
in fiscal 1998 versus $689,000 in fiscal 1997, and increased based on actual
incurred expenses rather than a previously negotiated fee. Research and
development expenditures totaled $1,052,000 in fiscal 1998 as compared to
$1,735,000 in fiscal 1997 or a decrease of $683,000 or 39.4%. The decrease was
primarily the result of the temporary suspension and subsequent reduced
expenditures for product development efforts by the Company, due to a cessation
of funding by its former parent SAT.
The net loss for fiscal 1998 was $2,552,000 as compared to $2,631,000 for
fiscal 1997. The decrease of $79,000 or 2.8% was primarily the result of a
suspension and subsequent reduction in the product development expenditures due
to a cessation of funding by the Company's former parent SAT.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
Based on a recent assessment, the Company determined that all of the
software currently in use on its computer system properly utilizes dates beyond
December 31, 1999.
INFLATION
The Company believes that inflation has not had a material effect on its
results of operations.
76
<PAGE> 78
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 $4,500,000 over the
recently raised $6,000,000 to complete the development of a saliva-based drug
and alcohol testing product. Unless this financing is obtained and the product
development program successfully completed (which is not anticipated until the
fourth quarter of 2000 at the earliest), the Company will continue without
revenues from a product or service and, accordingly, will have to cease
operating. Although management is pursuing, or will pursue, these financial
routes: a strategic partner, a public offering and a private placement, there
can be no assurance that any additional financing will be consummated.
As of September 30, 1999, the Company employed 20 employees, of whom 17
were directly involved in its research and development program. Management
estimates that it will require approximately 24 scientists and engineers to
complete this project and, if the product is successfully developed,
approximately 24 persons to commence manufacturing thereof. There can be no
assurance that such personnel will be available when the Company requires them,
especially at its current location in Rancho Cucamonga, California. Management
anticipates that the Company, in such circumstances, may have to move to a
different location in California where such personnel may be more readily
available, which move will add to the Company's costs. There can be no assurance
that the Company, in such circumstances, will be any more successful in such new
location in obtaining such personnel.
An independent consultant in June 1997 confirmed management's belief that
the Company's saliva-based drugs of abuse and alcohol testing products could be
developed and that, once developed, there would be a significant market
therefor. However, there are certain risks in any research and development
program that the product will not ultimately be developed, that it will be
developed later than anticipated, that the estimated costs will be higher than
projected and that the market may be smaller then anticipated when the product
is ultimately marketed.
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 simultaneous test for drugs and alcohol using saliva
samples as a specimen on an "on-site" basis. Avitar recently released an oral
three-drug screening test and, as noted therein, the Company has been advised
that such a product may be under development by one or more companies and,
accordingly, there can be no assurance that such a product will not be offered
by a competitor.
77
<PAGE> 79
INDEX TO FINANCIAL STATEMENTS
AUDITED ANNUAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
1. Report of Ernst & Young LLP.............................. F-2
2. Report of Wolinetz, Gottlieb & Lafazan, P.C.............. F-3
3. Balance Sheets as of March 31, 1999 and 1998............. F-4
4. Statements of Operations for the years ended March 31,
1999, 1998 and 1997 and for the period from October 8,
1992 (inception) to March 31, 1999....................... F-5
5. Statements of Stockholders' Equity for the years March
31, 1999, 1998 and 1997 and for the period from October
8, 1992 (inception) to March 31, 1999.................... F-6
6. Statements of Cash Flows for the years ended March 31,
1999, 1998 and 1997 and for the period from October 8,
1992 (inception) to March 31, 1999....................... F-7
7. Notes to Financial Statements............................ F-9
</TABLE>
UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
1. Balance Sheet as of September 30, 1999................... F-19
2. Statements of Operations for the six months ended
September 30, 1999 and 1998 and for the period from
October 8, 1992 (inception) to September 30, 1999........ F-20
3. Statements of Cash Flows for the six months ended
September 30, 1999 and 1998 and for the period from
October 8, 1992 (inception) to September 30, 1999........ F-21
4. Notes to Financial Statements (September 30, 1999)....... F-23
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
LifePoint, Inc.
We have audited the accompanying balance sheets of LifePoint, Inc. (a
development stage enterprise) (the "Company") as of March 31, 1999 and 1998, and
the related statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1999, and for the period
October 8, 1992 (inception) through March 31, 1999. 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, 1999, 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 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 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, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1999 and the period from October 8, 1992 (inception)
through March 31, 1999, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Riverside, California
May 21, 1999
F-2
<PAGE> 81
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'
equity and cash flows for the period from October 8, 1992 (inception) through
March 31, 1995 of LifePoint, Inc. (a Development Stage Enterprise). 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 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 financial 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
F-3
<PAGE> 82
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 4,796,432 $ 597,254
Prepaid expenses and other current assets....... 35,882 150,150
------------ ------------
Total current assets......................... 4,832,314 747,404
Property and equipment, net....................... 153,290 286,188
Patents and other assets, net..................... 72,804 39,692
------------ ------------
$ 5,058,408 $ 1,073,284
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 231,264 $ 119,577
Accrued expenses................................ 250,207 217,876
------------ ------------
Total current liabilities.................... 481,471 337,453
Accrued consulting -- long term................... 148,253 --
------------ ------------
629,724 337,453
Commitments and contingencies (Note 6)
Stockholders' equity:
Series A 10% Cumulative Convertible Preferred
Stock, $.001 par value, 600,000 shares
authorized, 557,725 issued and outstanding at
March 31, 1999............................... 558 --
Common Stock, $.001 par value; 50,000,000 shares
authorized, 12,665,209 and 10,497,206 shares
issued and outstanding at March 31, 1999 and
1998, respectively........................... 12,665 10,497
Additional paid-in capital...................... 18,791,442 12,398,933
Deficit accumulated in the development stage.... (14,375,981) (11,673,599)
------------ ------------
Total stockholders' equity................... 4,428,684 735,831
------------ ------------
$ 5,058,408 $ 1,073,284
============ ============
</TABLE>
See Accompanying Notes.
F-4
<PAGE> 83
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEARS ENDED MARCH 31 OCTOBER 8, 1992
--------------------------------------- (INCEPTION) TO
1999 1998 1997 MARCH 31, 1999
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Revenues........................ $ -- $ -- $ -- $ --
Costs and expenses:
Selling, general and
administrative expenses.... 1,483,135 672,998 268,668 4,067,683
Research and development...... 1,117,786 1,052,233 1,735,449 6,836,887
Depreciation and
amortization............... 142,387 217,034 143,634 919,079
Interest expense -- parent.... -- 34,530 23,095 95,790
Management fees -- parent..... -- 409,838 420,000 2,089,838
Interest expense.............. -- 956 5,822 119,300
----------- ----------- ----------- ------------
Total costs and expenses... 2,743,308 2,387,589 2,596,668 14,128,577
----------- ----------- ----------- ------------
Loss from operations............ (2,743,308) (2,387,589) (2,596,668) (14,128,577)
Other income (expense):
Interest income............... 46,595 13,895 -- 496,111
Loss on disposal of property
and equipment.............. -- (178,596) (33,905) (212,501)
Loss on sale of marketable
securities................. -- -- -- (627,512)
Interest income -- parent..... -- -- -- 102,167
----------- ----------- ----------- ------------
Total other income
(expense)................ 46,595 (164,701) (33,905) (241,735)
----------- ----------- ----------- ------------
Net loss........................ $(2,696,713) $(2,552,290) $(2,630,573) $(14,370,312)
=========== =========== =========== ============
Earnings per common share --
basic:
Weighted average common shares
outstanding................ 11,566,684 8,032,231 5,221,900
=========== =========== ===========
Net loss per common share..... $ (0.23) $ (0.32) $ (0.50)
=========== =========== ===========
Earnings per common share,
assuming dilution:
Weighted average common shares
outstanding................ 11,566,684 8,032,231 5,221,900
=========== =========== ===========
Net loss per common share,
assuming dilution (1998 has
been Restated; see Note
1)......................... $ (0.23) $ (0.32) $ (0.50)
=========== =========== ===========
</TABLE>
See Accompanying Notes.
F-5
<PAGE> 84
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD OCTOBER 8, 1992 (INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL IN THE
COMMON PREFERRED PAID-IN DEVELOPMENT
STOCK STOCK CAPITAL STAGE TOTAL
------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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
Issuance of 255,000 shares of common stock 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) --
Stock 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
======= ==== =========== ============ ===========
</TABLE>
See Accompanying Notes.
F-6
<PAGE> 85
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEARS ENDED MARCH 31 OCTOBER 8, 1992
--------------------------------------- (INCEPTION) TO
1999 1998 1997 MARCH 31, 1999
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................. $(2,696,713) $(2,552,290) $(2,630,573) $(14,370,312)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.......................... 142,387 217,034 143,634 919,079
Loss on disposal of property and equipment............. -- 178,596 33,905 237,976
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:
Prepaid expenses and other current assets............ 204,268 (15,150) 20,203 88,519
Other assets......................................... (18,130) (517) 1,174 (22,466)
Cash overdraft....................................... -- (119,514) 119,514 --
Accounts payable..................................... 111,687 (97,110) 199,761 285,623
Accrued expenses..................................... (200,795) 66,536 (6,580) (117,919)
----------- ----------- ----------- ------------
Net cash used by operating activities.................... (2,096,136) (2,322,415) (2,118,962) (11,995,683)
INVESTING ACTIVITIES
Sale of marketable securities............................ -- -- -- 3,285,625
Purchase of marketable securities........................ -- -- -- (3,908,281)
Purchases of property and equipment...................... (6,786) (59,380) (52,540) (603,563)
Proceeds from sale of property and equipment, net........ -- 80,828 -- 80,828
Additional patent costs.................................. (17,685) (1,402) -- (56,924)
----------- ----------- ----------- ------------
Net cash provided by investing activities................ (24,471) 20,045 (52,540) (1,202,315)
FINANCING ACTIVITIES
Sale of common stock..................................... 1,025,000 1,600,000 -- 11,246,226
Expenses of common stock offering........................ (5,736) (165,187) -- (1,681,586)
Sale of preferred stock.................................. 6,000,000 -- -- 6,000,000
Expenses of preferred stock offering..................... (720,077) -- -- (720,077)
Payments of loan to parent............................... -- -- -- (1,917,057)
Payment of loan by parent................................ -- -- -- 1,634,762
Proceeds of loan payable -- parent....................... -- 1,464,811 1,668,179 4,715,067
Payment of loan payable -- parent........................ -- -- -- (1,299,782)
Proceeds of note receivable -- parent.................... -- -- 282,295 --
Proceeds of capital leases............................... -- -- -- 101,572
Payments of capital leases............................... -- -- (28,019) (105,293)
Proceeds of brokerage loan payable....................... -- -- -- 2,674,683
Payments of brokerage loan payable....................... -- -- -- (2,674,683)
Exercise of stock option................................. 20,598 -- -- 20,598
----------- ----------- ----------- ------------
Net cash provided by financing activities................ 6,319,785 2,899,624 1,922,455 17,994,430
----------- ----------- ----------- ------------
Increase (decrease) in cash and cash equivalents......... 4,199,178 597,254 (249,047) 4,796,432
Cash and cash equivalents at beginning of period......... 597,254 -- 249,047 --
----------- ----------- ----------- ------------
Cash and cash equivalents at end of period............... $ 4,796,432 $ 597,254 $ -- $ 4,796,432
=========== =========== =========== ============
</TABLE>
F-7
<PAGE> 86
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEARS ENDED MARCH 31 OCTOBER 8, 1992
--------------------------------------- (INCEPTION) TO
1999 1998 1997 MARCH 31, 1999
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH INFORMATION:
Cash paid for interest................................... $ -- $ 35,486 $ 5,873 $ 192,046
=========== =========== =========== ============
Noncash operating activities:
Value of common stock for consulting services.......... $ 53,340 $ 150,000 $ -- $ 203,340
=========== =========== =========== ============
Noncash investing activities:
Value of assets transferred to lessor in lieu of
payment on capital leases............................ $ -- $ 71,405 $ -- $ 71,405
=========== =========== =========== ============
Noncash financing activities:
Value of common stock issued and additional paid-in
capital for the transfer of assets from Parent....... $ -- $ 344,000 $ -- $ 781,060
=========== =========== =========== ============
Value of common stock issued to Parent and additional
paid-in capital for the forgiveness of debt.......... $ -- $ 3,160,502 $ -- $ 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.... $ 4,864 $ -- $ -- $ 4,864
=========== =========== =========== ============
Value of common stock warrants issued for preferred stock
offering............................................... $ 133,559 $ -- $ -- $ 133,559
=========== =========== =========== ============
</TABLE>
See Accompanying Notes.
F-8
<PAGE> 87
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
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 Naval Research Laboratory. 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. 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, 1999, and 1998, accumulated
amortization of patents was approximately $9,000 and $6,300, respectively.
F-9
<PAGE> 88
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128),
which was effective for annual and interim periods ending after December 15,
1997. SFAS No. 128 replaced the previously required primary and fully diluted
earnings per share (EPS) with basic and diluted EPS. Unlike primary earnings per
share, basic earnings per share exclude any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share are very similar
to the previously required fully diluted earnings per share. All earnings per
share amounts for all periods have been presented and, where necessary, restated
to conform to SFAS No. 128. Net loss per common share, assuming dilution, for
the year ended March 31, 1998 has been restated due to an error in the
calculation. There were no adjustments necessary to net loss in calculating the
income available to common stockholders after assumed conversions of stock
options and warrants that are considered to be 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, 1999,
the Company has realized no revenues and has accumulated losses of $14,370,312.
The Company will require additional capital to continue the research,
development and ultimate manufacture and marketing of its product past prototype
phase. Recovery of the Company's assets is dependent upon future events,
including completion of the
F-10
<PAGE> 89
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
development program and ultimately achieving profitable operations. The outcome
of these events is undeterminable.
The Company successfully completed private placements of both common and
preferred stock in the fiscal year ended March 31, 1999, with resulting proceeds
of $7,025,000. As a result, management believes that the Company has sufficient
cash on hand at March 31, 1999 to sustain operations through March 31, 2000. The
Company continues to pursue parallel paths to secure additional funding
including strategic partnering, venture capital investors, additional private
placements, and a possible public offering. There can be no assurance that any
of these additional sources of financing will be available and, in such event,
the Company would not be able to complete the development, manufacturing and
marketing of its product on a timely basis.
3. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Furniture, Fixtures and Equipment................ $285,594 $287,502
Test Equipment................................... 425,768 425,768
Leasehold Improvements........................... 217,849 209,155
-------- --------
929,211 922,425
Less: Accumulated Depreciation................... 775,921 636,237
-------- --------
$153,290 $286,188
======== ========
</TABLE>
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 is convertible into 20 shares of the Company's common stock.
Dividends are cumulative and are payable semi-annually at a rate of $1.00 per
share. The dividends are payable in cash or Common Stock. Shares may be redeemed
at the option of the Company upon not less than 30 days nor more than 60 days
notice. In the event that the Average Market Price of the Common Stock for any
30-day period is $4.00 or more, the Company shall, by notice to the holders,
call all of the then outstanding shares of the Series A Preferred Stock for
redemption as of a date not less than ten nor more than 30 days after the date
the notice is given. Preferred Stock dividends and redemption price may be
satisfied in cash or Common Stock or a combination of both, at the Company's
sole discretion. Holders of the Series A Preferred Stock have the right to vote
one vote per share, with the holders of the Common Stock,
F-11
<PAGE> 90
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
on the election of directors and on all other matters submitted to a vote of the
holders of the Common Stock. Rights to vote, one vote per share, as a class are
granted where the holders consent is requested by the Company or where provided
by the General Corporation Law of the State of Delaware.
The aggregate of 600,000 shares was sold 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. For their assistance in completing this private
placement, finders' fees were paid in cash payments of $592,708 and in 404,725
common stock purchase Warrants expiring on January 20, 2004 with an exercise
price of $2.41 per share.
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 an unaffiliated party
for $250,000. LifePoint is now completely independent from SAT.
The purchaser of the Common Stock also loaned money to LifePoint to allow
LifePoint to recommence product development. During the third 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 $0.50 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.
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.
F-12
<PAGE> 91
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION/STOCK ISSUANCE PLAN
On August 14, 1997, the Board of Directors adopted, subject to stockholder
approval, 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, 1999, Options to purchase an aggregate of 794,167 shares of
the Common Stock granted to employees (including officers) were outstanding. As
of such date, Options to purchase an aggregate of 41,197 shares of the Common
Stock had been exercised and Options to purchase an aggregate of 130,278 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 1/36(th) 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. 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, 1999, all were incentive stock options except for Options to
purchase an aggregate of 120,000 shares and all had an exercise price of $.50
per share.
F-13
<PAGE> 92
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS NON-STATUTORY OPTIONS
------------------------ ------------------------
NUMBER OF PRICE RANGE NUMBER OF PRICE RANGE
SHARES PER SHARE SHARES PER SHARE
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
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
======== ========
</TABLE>
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 January 20,
2004, to purchase 1,136,725 shares of the Common Stock at $0.50 to $2.41 per
share during fiscal 1999 and 1,577,289 shares of the Common Stock at $0.50 to
$1.00 per share during fiscal 1998.
<TABLE>
<CAPTION>
WARRANTS
-------------------------
NUMBER OF PRICE RANGE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding -- April 1, 1995......................... 150,000 $7.50
---------
Outstanding -- March 31, 1996........................ 150,000 7.50
---------
Outstanding -- March 31, 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
=========
</TABLE>
F-14
<PAGE> 93
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the stock option and warrant grants as of March
31, 1999, 1998 and 1997, and activities during the years ending on those dates,
is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS AND EXERCISE OPTIONS AND EXERCISE OPTIONS AND EXERCISE
WARRANTS PRICE WARRANTS PRICE WARRANTS PRICE
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 2,977,289 $1.09 150,000 $7.50 302,000 $7.25
Granted....................... 1,311,725 1.31 2,827,289 0.75 -- --
Canceled...................... (434,636) 0.72 -- -- (152,000) 7.00
Exercised..................... (196,197) 0.90 -- -- -- --
Expired....................... (150,000) 7.50 -- -- -- --
---------- ---------
Outstanding at end of year.... 3,508,181 0.82 2,977,289 1.09 150,000 7.50
========== ========== =========
Options and warrants
exercisable at year end..... 2,837,190 0.89 2,027,289 1.36 150,000 7.50
========== ========== =========
Weighted-average fair value of
options and warrants granted
during the year............. $ 0.82 $ 0.53 $ --
========== ========== =========
</TABLE>
The following table summarizes information about stock options and warrants
outstanding as of March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS OPTIONS AND WARRANTS
OUTSTANDING EXERCISABLE
WEIGHTED- ---------------------------- ----------------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING OPTIONS AND AVERAGE OPTIONS AND AVERAGE
EXERCISE PRICES LIFE (YEARS) WARRANTS EXERCISE PRICE WARRANTS EXERCISE PRICE
- --------------- ------------ ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.50 to $2.41 6.0 3,508,181 $0.82 2,837,190 $0.89
</TABLE>
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,
F-15
<PAGE> 94
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
prescribed under FAS 123, the effect on the Company's net loss and net loss per
share, as of March 31, 1999 would have been adjusted to the pro forma amounts as
indicated below:
<TABLE>
<S> <C>
Net Loss
As reported............................................. $(2,696,713)
Pro forma............................................... (3,144,713)
Net Loss per share (Basic)
As reported............................................. $ (0.23)
Pro forma............................................... (0.27)
Net Loss per share (Diluted)
As reported............................................. $ (0.23)
Pro forma............................................... (0.27)
</TABLE>
In the fiscal year ended March 31, 1999 the Company employed the Black-Scholes
option pricing model in order to calculate the above effect on net loss and net
loss per share. The Minimum Value method was used for the years ended March 31,
1998 and 1997. The following table describes the assumptions utilized by the
Black-Scholes option-pricing model and the resulting fair value of the options
granted for the year ended March 31, 1999.
<TABLE>
<S> <C>
Volatility.................................................. 1.87
Risk-free interest rate..................................... 6.00%
Expected life in years...................................... 5
Forfeiture rate............................................. 0.00%
Dividend yield.............................................. 0.00%
</TABLE>
5. INCOME TAXES
For income tax purposes, LifePoint has a net operating loss carry forward
at March 31, 1999 of approximately $12,806,000 expiring in 2009 to 2014 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.
F-16
<PAGE> 95
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
MARCH 31
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit.... $ 918,000 $ 586,000 $ 869,000
Decrease in tax benefit resulting
from net operating loss for which
no benefit is currently
available........................ (918,000) (586,000) (869,000)
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset are presented below:
<TABLE>
<CAPTION>
MARCH 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $4,354,000 $3,436,000
Capital loss carryforwards.................. 213,600 213,600
---------- ----------
4,567,600 3,649,600
Less:
Valuation allowance under SFAS 109.......... 4,567,600 3,649,600
---------- ----------
Net deferred tax assets..................... $ -- $ --
========== ==========
</TABLE>
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 $4,567,600 valuation allowance at March 31, 1999 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 $918,000.
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 office and
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
F-17
<PAGE> 96
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
estate taxes and other occupancy costs. Rent expense for the fiscal years ended
March 31, 1999, 1998 and 1997 was $69,000, $44,000 and $45,000, respectively.
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 Department of the Navy (the License Agreement).
SAT and the Department of the Navy 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 Department of Navy 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 U.S. Navy
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 Navy
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
F-18
<PAGE> 97
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 and
$420,000 for the years ended March 31, 1998 and 1997 in management fees. The
management fee was discontinued after June 30, 1997 because no services were
being provided after that date.
F-19
<PAGE> 98
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
1999
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,057,925
Prepaid expenses and other current assets................. 50,382
------------
Total current assets................................... 3,108,307
Property and equipment, net................................. 273,194
Patents and other assets, net............................... 61,375
------------
$ 3,442,876
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 183,141
Accrued expenses.......................................... 270,000
Capital Lease -- Short Term............................... 31,960
------------
Total current liabilities.............................. 485,101
Capital Lease -- Long Term.................................. 43,315
Accrued Consulting -- Long Term............................. 148,253
------------
676,669
Commitments and contingencies (Note 8) Stockholders' equity:
Series A 10% Cumulative Convertible Preferred Stock, $.001
par value, 600,000 shares authorized, 447,375 and
557,725 outstanding at September 30, 1999 and March 31,
1999................................................... 447
Common Stock, $.001 par value; 50,000,000 shares
authorized, 15,008,667 and 12,668,959 shares issued and
outstanding at September 30, 1999 and March 31, 1999,
respectively........................................... 15,008
Additional paid-in capital................................ 18,871,513
Deficit accumulated in the development stage.............. (16,120,761)
------------
Total stockholders' equity............................. 2,766,207
------------
$ 3,442,876
============
</TABLE>
See Accompanying Notes.
F-20
<PAGE> 99
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
FROM
FOR THE FOR THE OCTOBER 8,
THREE MONTHS ENDED SIX MONTHS ENDED 1992
SEPTEMBER 30 SEPTEMBER 30 (INCEPTION) TO
------------------------- ------------------------- SEPTEMBER 30,
1999 1998 1999 1998 1999
----------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues........................ $ -- $ -- $ -- $ -- $ --
Costs and expenses:
General and administrative
expenses................... 389,212 474,082 689,876 657,491 4,757,559
Research and development...... 559,707 294,491 1,042,893 558,193 7,879,780
Depreciation and
amortization............... 24,085 52,149 48,171 104,178 967,250
Interest expense -- parent.... -- -- -- -- 95,790
Management fees -- parent..... -- -- -- -- 2,089,838
Interest expense.............. -- -- -- -- 119,300
----------- ----------- ----------- ----------- ------------
Total costs and expenses... 973,004 820,722 1,780,940 1,319,862 15,909,517
----------- ----------- ----------- ----------- ------------
Loss from operations............ (973,004) (820,722) (1,780,940) (1,319,862) (15,909,517)
Other income/(expense).......... 44,263 19,133 71,960 23,796 (169,775)
----------- ----------- ----------- ----------- ------------
Net loss........................ $ (928,741) $ (801,589) $(1,708,980) $(1,296,066) $(16,079,292)
=========== =========== =========== =========== ============
Earnings per common share:
Weighted average common shares
outstanding................ 15,003,145 11,697,597 14,483,992 11,223,632
=========== =========== =========== ===========
Net loss per common share..... $ (0.06) $ (0.07) $ (0.12) $ (0.12)
=========== =========== =========== ===========
Earnings per common share,
assuming dilution:
Weighted average common shares
outstanding................ 15,003,145 11,697,597 14,483,992 11,223,632
=========== =========== =========== ===========
Net loss per common share,
assuming dilution.......... $ (0.06) $ (0.07) $ (0.12) $ (0.12)
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes.
F-21
<PAGE> 100
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
FROM
FOR THE SIX MONTHS ENDED OCTOBER 8, 1992
SEPTEMBER 30 (INCEPTION) TO
------------------------- SEPTEMBER 30
1999 1998 1999
----------- ----------- ------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss.................................................. $(1,708,980) $(1,296,066) $(16,079,292)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization............................. 46,470 104,178 965,549
Consulting expense........................................ -- 137,930 361,160
Loss on disposal of property and equipment................ -- -- 237,976
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....... (14,500) 48,650 74,019
Change in other assets.................................... 11,429 (9,792) (11,037)
Change in accounts payable................................ (48,121) 60,480 237,502
Change in accrued expenses................................ 19,793 5,980 (98,126)
----------- ----------- ------------
Net cash used by operating activities................... (1,693,909) (948,640) (13,689,592)
----------- ----------- ------------
Cash flow from investing activities:
Sale of marketable securities............................. -- -- 3,285,625
Purchases of marketable securities........................ -- -- (3,908,281)
Purchases of property and equipment....................... (91,099) (6,197) (694,662)
Proceeds from sale of property and equipment.............. -- -- 80,828
Patent costs.............................................. -- (5,170) (56,924)
----------- ----------- ------------
Cash used by investing activities....................... (91,099) (11,367) (1,293,414)
----------- ----------- ------------
Cash flow from financing activities:
Sales of common stock..................................... 63,000 1,025,000 11,309,226
Expenses of common stock offering......................... -- (5,736) (1,681,586)
Sales of preferred stock.................................. -- -- 6,000,000
Expenses of preferred stock offering...................... (18,374) -- (738,451)
Exercise of stock options................................. 1,875 -- 22,473
Advances on note receivable -- parent..................... -- -- (1,917,057)
Collection on note receivable -- parent................... -- -- 1,634,762
Proceeds of loan payable -- parent........................ -- -- 4,715,067
Payment of loan payable -- Parent......................... -- -- (1,299,782)
Proceeds of capital leases................................ -- -- 101,572
Payments of capital leases................................ -- -- (105,293)
Proceeds of brokerage loan payable........................ -- -- 2,674,683
Payments of brokerage loan payable........................ -- -- (2,674,683)
----------- ----------- ------------
Net cash provided by financing activities............... 46,501 1,019,264 18,040,931
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents............ (1,738,507) 59,257 3,057,925
Cash and cash equivalents -- beginning of period............ 4,796,432 597,254 --
----------- ----------- ------------
Cash and cash equivalents -- end of period.................. $ 3,057,925 $ 656,511 $ 3,057,925
=========== =========== ============
</TABLE>
F-22
<PAGE> 101
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
CUMULATIVE
FROM
FOR THE SIX MONTHS ENDED OCTOBER 8, 1992
SEPTEMBER 30 (INCEPTION) TO
------------------------- SEPTEMBER 30
1999 1998 1999
----------- ----------- ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH INFORMATION:
Cash paid for interest...................................... $ 2,546 $ -- $ 194,592
=========== =========== ============
Non-cash operating activities:
Value of common stock for consulting services............. $ -- $ (12,660) $ 203,340
=========== =========== ============
Non-cash investing activities:
Value of assets transferred to lessor in lieu of payment
on capital leases....................................... $ -- $ -- $ 71,405
=========== =========== ============
Non-cash 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................................................ $ -- $ 467,660 $ 187,500
=========== =========== ============
Value of common stock issued and additional paid-in
capital issued as dividends on preferred stock
conversions............................................. $ 33,707 $ -- $ 38,572
=========== =========== ============
Value of common stock warrants issued for preferred stock
offering................................................ $ -- $ -- $ 133,559
=========== =========== ============
Value of preferred stock converted to common stock........ $ 2,207 $ -- $ 3,053
=========== =========== ============
</TABLE>
See Accompanying Notes.
F-23
<PAGE> 102
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
In the opinion of LifePoint, Inc. (the "Company"), the accompanying
unaudited financial statements reflect all adjustments (which include only
normal recurring adjustments except as disclosed below) necessary to present
fairly the financial position, results of operations and cash flows for the
periods presented. Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year due to external factors
which are beyond the control of the Company. This Report should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999 (the "Annual Report").
NOTE 2 -- CONTINUING OPERATIONS AND LIQUIDITY
The Company has historically incurred recurring operating losses due to the
fact that it is still a development stage enterprise incurring research and
development expenses and deriving no revenues and has experienced an ongoing
deficiency in working capital. The Company financed its operations during the
quarter ended September 30, 1999 from the private placements of both common and
preferred stock completed in the fiscal year ended March 31, 1999, with
resulting gross proceeds of $7,025,000. As a result, management believes that
the Company has sufficient cash on hand to sustain operations through March 31,
2000.
The Company has established a $500,000 revolving line of credit agreement
($500,000 available at September 30,1999) with City National Bank of Beverly
Hills, California. 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 4.
The Company continues to pursue parallel paths to secure additional funding
including strategic partnering, additional private placements, and a possible
public offering. There can be no assurance that any of these additional sources
of financing will be available and, in such event, the Company would not be able
to complete the development, manufacturing and marketing of its product on a
timely basis. The Company will require additional capital to continue the
research, development and ultimate manufacture and marketing of its product past
prototype phase. Recovery of the Company's assets is dependent upon future
events, including completion of the development program and ultimately achieving
profitable operations. The outcome of these events is undeterminable.
F-24
<PAGE> 103
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Furniture and Fixtures.................................. $ 423,826
Test Equipment.......................................... 425,768
Leasehold Improvements.................................. 245,991
----------
1,095,585
Less: Accumulated Depreciation.......................... 822,391
$ 273,194
==========
</TABLE>
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
Substance Abuse Technologies, Inc. ("SAT"), the former parent of the
Company, and the Department of the Navy 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. This
license was transferred from SAT to the Company effective with the sale of SAT's
majority ownership of the Common Stock in October 1997.
In April 1999, the Company and the United States Navy ("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 the Company's 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.
On July 14, 1999 the Company entered into an equipment lease financing
agreement with FirstCorp of Portland, Oregon. The agreement allows for a credit
line of $300,000 ($216,000 available at September 30, 1999) for the purchase of
capital equipment, with a minimum takedown size of $50,000 and a soft cost
allowance of up to 20%. The term of each takedown lease is thirty months with an
end of lease purchase option at not more than 10% of original equipment cost.
NOTE 5 -- STOCKHOLDERS' EQUITY
During the quarter ended September 30, 1999, the Company issued 100,000
shares of Common Stock to holders who elected to convert their shares of the
Series A 10%
F-25
<PAGE> 104
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cumulative Convertible Preferred Stock. In addition, 2,136 shares of Common
Stock were issued as dividends on the converted shares.
During the quarter ended September 30, 1999, stock options were granted to
an employee to purchase 15,000 shares of the Common Stock at $1.40 per share. On
April 16, 1999, the Board of Directors approved a compensation plan for outside
directors which stated that each non-employee, non-consultant director shall
receive as compensation a grant of an option pursuant to the stock option plan
and each grant shall be for the right to purchase 15,000 shares of the Common
Stock on an annual basis. Options to purchase 15,000 shares of the Common Stock
at $1.63 per share were granted to a director of the Company under the new
approved compensation plan during the quarter ended September 30, 1999. As of
September 30, 1999, there were outstanding, under the stock option plan,
incentive stock options to purchase an aggregate of 1,067,500 shares held by a
total of 18 employees and 3 directors.
During the quarter ended September 30, 1999, the Company issued warrants to
an outside party to purchase an aggregate of 125,000 shares of the common stock
at a price of $1.07 per share as payment for services. As of September 30, 1999,
there were warrants outstanding to purchase 2,662,314 shares of the Common
Stock.
F-26
<PAGE> 105
- ------------------------------------------------
- ------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. IF ANY SUCH INFORMATION OR REPRESENTATIONS IS
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
-------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
LIFEPOINT, INC.
12,494,275 SHARES
OF COMMON STOCK
($.001 PAR VALUE)
OFFERED BY
SELLING STOCKHOLDERS
-------------------------
PROSPECTUS
-------------------------
, 2000
- ------------------------------------------------
- ------------------------------------------------
<PAGE> 106
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
All of the following exhibits designated with a footnote reference are
incorporated herein by reference to a prior effective 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 marked by an asterisk,
the exhibit was previously filed with this Registration Statement. If no
footnote reference is made or there is no asterisk, the exhibit is filed with
this Post-Effective Amendment No. 2 to this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C> <C>
2(b) -- Agreement and Plan of Merger dated as of April 23, 1996 by
and among SAT, U.S. Drug Acquisition Corp. and the
Company.(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 the
Company.(2)
3(a) -- Copy of Certificate of Incorporation of the Corporation as
filed in Delaware on October 8, 1992.(3)
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 the Company.(3)
3(b)(1) -- Copy of By-Laws of the Company as adopted on February 26,
1999 superseding those filed as Exhibit 3(b) hereto.(10)
5(a) -- Opinion of Wachtel & Masyr, LLP.*
10(a) -- Copy of License Agreement dated January 24, 1992 by and
between the U.S. Navy and SAT. (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 the Company and the United States of America as
represented by the Secretary of the Navy.(10)
</TABLE>
II-1
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C> <C>
10(b) -- Copy of Assignment dated as of January 1, 1993 between the
Company and SAT 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 the Company 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 the Company 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 April 18, 1998 to Lease filed
as Exhibit 10(e) hereto.(5)
10(e)(6) -- Copy of Sixth Amendment dated March 31, 1999 to Lease filed
as Exhibit 10(e) hereto.
10(f) -- Form of Warrant Agreement by and between the Company and
Baraban Securities, Incorporated.(3)
10(f)(1) -- Form of Common Stock purchase warrant expiring October 13,
1998 of the Company.(3)
10(g) -- Copy of the Company's 1994 Stock Option/Stock Issuance
Plan.(9)
10(g)(1) -- Form of Stock Option expiring October 2, 2004 of the
Company.(9)
10(g)(2) -- Copy of the Company's 1997 Stock Option Plan.(4)
10(g)(3) -- Form of Stock Option used under Plan filed as Exhibit
10(g)(2).
10(h) -- Copy of Employment Agreement dated March 1, 1993 between
Doug Allen, SAT and the Company.(1)
10(i) -- Copy of Severance Agreement dated as of October 27, 1997
between the Company and Linda H. Masterson.(4)
</TABLE>
II-2
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C> <C>
10(j) -- Copy of Severance Agreement dated as of October 24, 1997
between the Company and William B. Benken.(4)
10(k) -- Copy of Agreement dated December 1, 1998 between Burrill &
Company and the Company.(5)
23(a) -- Consent of Wachtel & Masyr, LLP.
23(b) -- Consent of Ernst & Young LLP.
23(c) -- Consent of Wolinetz, Gottlieb & Lafazan, P.C.
</TABLE>
- -------------------------
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997.
(3) Filed as an exhibit to the Company's Registration Statement on Form SB-2,
File No. 33-61786, and incorporated herein by this reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998.
(6) Filed as an exhibit to SAT's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996 and incorporated herein by this reference.
(7) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q 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 the Company's Registration Statement on Form S-8,
File No. 33-89346.
(10) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1999 and incorporated herein by this reference.
(b) FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules are omitted as they are not required, are
inapplicable, or the information is included in the financial statements or the
notes thereto.
II-3
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this post-effective amendment to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Rancho Cucamonga, State of California, on January 14, 2000.
LIFEPOINT, INC.
(Registrant)
By: /s/ LINDA H. MASTERSON
-----------------------------------
Name: Linda H. Masterson
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to the registration statement has been signed by the
following persons in the capacities indicated on January 14, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ LINDA H. MASTERSON President (Principal Executive
- --------------------------------------------------- Officer) and a director
Linda H. Masterson
/s/ MICHELE A. CLARK Principal Accounting Officer
- ---------------------------------------------------
Michele A. Clark
/s/ PETER S. GOLD Director
- ---------------------------------------------------
Peter S. Gold
/s/ JONATHAN J. PALLIN Director
- ---------------------------------------------------
Jonathan J. Pallin
/s/ PAUL SANDLER Director
- ---------------------------------------------------
Paul Sandler
</TABLE>
II-4
<PAGE> 110
EXHIBIT INDEX
LIFEPOINT, INC.
REGISTRATION STATEMENT ON FORM S-1
EXHIBITS FILED WITH POST-EFFECTIVE AMENDMENT NO. 2
TO FORM S-1 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
PAGE
NUMBER EXHIBIT NUMBER
- ------ ------- ------
<S> <C> <C>
23(a) Consent of Wachtel & Masyr, LLP............................. E-2
23(b) Consent of Ernst & Young LLP................................ E-3
23(c) Consent of Wolinetz, Gottlieb & Lafazan, P.C. .............. E-4
</TABLE>
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF COUNSEL
We consent to the filing of our opinion dated March 23, 1999 as Exhibit 5
to Amendment No. 1 to Registration Statement (Form S-1 No. 333-72663) of
LifePoint, Inc. and to the references to our firm under the captions "Plan of
Distribution" and "Legal Matters" included in the Prospectus constituting Part I
of Post-Effective Amendment No. 2 to the aforementioned Registration Statement.
/s/ WACHTEL & MASYR, LLP
New York, New York
January 14, 2000
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 21, 1999 in Post-Effective Amendment No. 2 to
the Registration Statement (Form S-1 No. 333-72663) and related Prospectus of
LifePoint, Inc. for the registration of 12,494,275 shares of its common stock,
10,989,097 shares of which were issued or are issuable upon conversion of shares
of its Series A 10% Cumulative Convertible Preferred Stock, 498,473 shares of
which were issued or are issuable as accrued but unpaid dividends on the
Preferred Stock and 1,006,705 shares of which are issuable or were issued upon
the exercise of common stock purchase warrants.
/s/ ERNST & YOUNG LLP
Riverside, California
January 14, 2000
<PAGE> 1
EXHIBIT 23(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 26, 1995 in Post-Effective Amendment No. 2 to
the Registration Statement (Form S-1 No. 333-72663) and related Prospectus of
LifePoint, Inc. for the registration of 12,494,275 shares of its common stock,
10,989,097 shares of which were issued or are issuable upon conversion of shares
of its Series A 10% Cumulative Convertible Preferred Stock, 498,473 shares of
which were issued or are issuable as accrued but unpaid dividends on the
Preferred Stock and 1,006,705 of which are issuable or were issued upon the
exercise of common stock purchase warrants.
/s/ WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
January 14, 2000
