SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Amendment No. 1
to
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended March 31, 1999
Commission File No. 0-23721
LIFEPOINT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0539168
(State or other jurisdiction of (IRS Employer
Incorporation organization) I.D. Number)
10400 Trademark Street
Rancho Cucamonga, California 91730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code:
(909) 466-8047
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports, and (2) has been subject to
such filing requirements for the past 90 days: Yes[X] No[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
As of June 3, 1999, there were 14,234,098 shares of the registrant's Common
Stock and 485,375 shares of the Preferred Series "A" Stock outstanding.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $8,986,000 (based on the average of the bid and
ask prices of Registrant's Common Stock on NASD's OTC Bulletin Board at June
3, 1999, or $1.1375 per share). This determination of affiliate status is
not necessarily a conclusive determination for other purposes.
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
Page F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
LifePoint, Inc.
Rancho Cucamonga, California
We have audited the accompanying statements of operations, stockholders'
(deficit) equity and cash flows for the year ended March 31, 1995 and the
period from October 8, 1992 (inception) through March 31, 1995 of LifePoint,
Inc. (a Development Stage Enterprise). These statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statements referred to above present fairly, in all
materials respects, the results of operations and cash flows of LifePoint, Inc.
for the year ended March 31, 1995 and the period from October 8, 1992
(inception) through March 31, 1995, in conformity with generally accepted
accounting principles.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
May 26, 1995
Page F-2
LIFEPOINT, INC.
(a Development Stage Enterprise)
BALANCE SHEETS
March 31
1999 1998
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
See Accompanying Notes.
Page F-3
LIFEPOINT, INC.
(a Development Stage Enterprise)
STATEMENTS OF OPERATIONS
Cumulative
From
October 8, 1992
Years Ended March 31 (Inception) to
1999 1998 1997 March 31, 1999
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 $ (0.23) $ (0.32) $ (0.50)
has been restated; see Note 1)
See Accompanying Notes.
Page F-4
LIFEPOINT, INC.
(a Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period October 8, 1992 (Inception) to March 31, 1999
Deficit
Accumulated
Additional in the
Common Preferred Paid-In Development
Stock Stock Capital Stage Total
Balance at October 8, 1992 $ - $ - $ - $ - $ -
Issuance of 3,500,000 shares of common
stock for value of assets transferred from
Parent 3,500 - 445,186 - 448,686
Net loss for the period ended March 31, 1993 - - - (257,422) (257,422)
---------- ------- ----------- ------------ -------------
Balance at April 1, 1993 3,500 - 445,186 (257,422) 191,264
Sale of 1,721,900 shares of common stock in
connection with initial public offering, net
of offering costs of $1,510,663 1,722 - 7,097,215 - 7,098,937
Net loss for the year ended March 31, 1994 - - - (2,260,292) (2,260,292)
---------- ------- ----------- ------------ -------------
Balance at March 31, 1994 5,222 - 7,542,401 (2,517,714) 5,029,909
Net loss for the year ended March 31, 1995 - - - (2,332,217) (2,332,217)
---------- ------- ----------- ------------ -------------
Balance at March 31, 1995 5,222 - 7,542,401 (4,849,931) 2,697,692
Net loss for the year ended March 31, 1996 - - - (1,640,805) (1,640,805)
---------- ------- ----------- ------------ -------------
Balance at March 31, 1996 5,222 - 7,542,401 (6,490,736) 1,056,887
Net loss for the year ended March 31, 1997 - - - (2,630,573) (2,630,573)
---------- ------- ----------- ------------ -------------
Balance at March 31, 1997 5,222 - 7,542,401 (9,121,309) (1,573,686)
Issuance of 2,075,306 shares of common
stock for forgiveness of debt by former
Parent 2,075 - 3,424,919 - 3,426,994
Sale of 3,200,000 shares of common stock
through private placement offering, net
of offering costs of $165,187 3,200 - 1,431,613 - 1,434,813
Net loss for the year ended March 31, 1998 - - - (2,552,290) (2,552,290)
---------- ------- ----------- ------------ -------------
Balance at March 31, 1998 10,497 - 12,398,933 (11,673,599) 735,831
Sale of 1,025,000 shares of common stock
through private placement offering,net
of offering costs of $5,736 1,025 - 1,018,239 - 1,019,264
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
See Accompanying Notes.
Page F-6
LIFEPOINT, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
Cumulative
From
October 8, 1992
Years Ended March 31 (Inception) to
1999 1998 1997 March 31, 1999
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
Page F-6
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
See Accompanying Notes.
Page F-7
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.
Research and Development Costs
Research and development costs are expensed as incurred.
Page F-8
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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.
Page F-9
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
2. CONTINUING OPERATIONS (continued)
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:
March 31
1999 1998
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
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, 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 Deleware.
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.
Page F-10
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
4. STOCKHOLDERS' EQUITY (continued)
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.
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.
Page F-11
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
4. STOCKHOLDERS' EQUITY (continued)
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 1/36th 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.
Incentive Stock Options Non-Statutory Options
Number of Price Range Number of Price Range
Shares Per Share Shares Per Share
Outstanding - April 1, 1995 218,000 $7.00 10,000 $7.00
Canceled (66,000) 7.00 (10,000) 7.00
-------- --------
Outstanding - March 31, 1996 152,000 7.00 - -
Canceled (152,000) 7.00 - -
-------- --------
Outstanding - March 31, 1997 - - - -
Granted 950,000 0.50 300,000 1.00-4.00
-------- --------
Outstanding - March 31, 1998 950,000 0.50 300,000 1.00-4.00
Granted 40,000 0.50-1.34 135,000 0.50
Exercised (41,197) 0.50 (155,000) 1.00
Canceled (274,636) 0.50-1.34 (160,000) 0.50-1.00
-------- --------
Outstanding - March 31, 1999 674,167 0.50 120,000 0.50
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.
Page F-12
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
4. STOCKHOLDERS' EQUITY (continued)
Warrants
Number of Price Range
Shares Per Share
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
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:
1999 1998 1997
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Options and Exercise Options and Exercise Options and Exercise
Warrants Price Warrants Price Warrants Price
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 $ -
The following table summarizes information about stock options and
warrants outstanding as of March 31, 1999:
Options and Warrants Options and Warrants
Outstanding Exercisable
Weighted ------------------------------------------------
Average Weighted Weighted
Range of Remaining Options Average Options Average
Exercise Life and Exercise and Exercise
Prices (Years) Warrants Price Warrants Price
$0.50 to $2.41 6.0 3,508,181 $ 0.82 2,837,190 $ 0.89
Page F-13
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
4. STOCKHOLDERS' EQUITY (continued)
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", under which no compensation
cost for stock options is recognized for stock option awards granted at or
above fair market value. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("FAS 123"), established accounting
and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. The Company has elected to remain on
its current method of accounting as described above, and has adopted the
disclosure requirements of FAS 123. Had compensation cost for the Company's
stock option plan been determined based upon the Black-Scholes valuation
methodology, prescribed under FAS 123, the effect on the Company's net loss and
net loss per share, as of March 31, 1999 would have been adjusted to the
proforma amounts as indicated below:
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)
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.
Volatility 1.87
Risk-free interest rate 6.00%
Expected life in years 5
Forfeiture rate 0.00%
Dividend yield 0.00%
Page F-14
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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.
Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for each
period as a result of the following:
March 31
1999 1998 1997
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)
---------- ---------- ----------
$ - $ - $ -
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset are presented below:
March 31
1999 1998
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 $ - $ -
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.
Page F-15
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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 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, it's 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
Page F-16
LIFEPOINT, INC.
(a Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
7. INTERCOMPANY ALLOCATIONS (continued)
Agreement was again amended to provide for a percentage of time and services
agreement whereby the costs of certain SAT employees and facilities were
allocated to LifePoint based on a percentage of usage. As the activity of
LifePoint had been increasing, there had been a tremendous increase in time
required by SAT employees and expanded use of leased space to satisfy
LifePoint's needs. The services provided to LifePoint by SAT pursuant to the
Management Agreement included management, administrative,
accounting and other financial services and advice, including, without
limitation, the services then performed by the Treasurer of LifePoint (who was
also the Treasurer of SAT), for which he was not directly compensated by
LifePoint; services relating to LifePoint's financial and banking
relationships; services relating to the preparation of financial statements,
budgets, forecasts and cash flow projections; cash management advice; and other
miscellaneous services and advice. LifePoint paid $410,000 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.
Page F-17