AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 2002
FILE NO. 333-74172
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LIFEPOINT, INC.
(Exact Name of Registrant as Specified in Its Charter)
<Table>
DELAWARE 33-0539168
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
1205 SOUTH DUPONT STREET, ONTARIO, CALIFORNIA 91761
(Address of Principal Executive Offices) (Zip Code)
</Table>
MS. LINDA H. MASTERSON
LIFEPOINT, INC.
1205 SOUTH DUPONT STREET
ONTARIO, CA 91761
(909) 418-3023
(Name, Address and Telephone Number of Agent for Service)
COPY TO:
ROBERT W. BEREND, ESQ.
WACHTEL & MASYR, LLP
110 EAST 59TH STREET
NEW YORK, N.Y. 10022
(212) 909-9602
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, other than securities offered only in connection with dividend or
reinvestment plans, 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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11,060,419 SHARES
LIFEPOINT, INC.
COMMON STOCK
We, LifePoint, Inc., are not offering for sale any securities pursuant to
this prospectus. Instead, 30 of the 34 selling stockholders named in the list
beginning on page 34 of this prospectus will be selling shares of our common
stock as follows:
- 4,597,002 shares which are issuable upon the conversion of 393,916 shares
of our Series C convertible preferred stock which were sold as part of
units in a private placement closed by us in June and September 2001,
- 4,597,002 shares which are issuable upon the exercise of warrants which
were purchased as part of the units, and
- 1,379,102 shares which are issued or which we estimate will be issuable
upon the quarterly redemption of premium (a payment made instead of
dividends) with respect to the shares of our Series C convertible
preferred stock and 12,186 additional shares which were issued as
compensation to certain of the selling stockholders because of the delay
in our closing with them.
In addition, six of the 34 selling stockholders named in the list will be
selling 475,127 shares of our common stock which are issuable upon the exercise
of warrants issued in partial payment of a placement agent's fee and four
finders' fees in connection with the private placement.
The selling stockholders, or their pledgees, donees, transferees or other
successors-in-interest, may offer the shares of our common stock for resale on
the American Stock Exchange, in the third market, in isolated transactions, or
in a combination of such methods of sale. Their shares may be sold at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to prevailing market prices, or at negotiated prices with
institutional or other investors.
Our common stock is currently listed on the American Stock Exchange under
the symbol: LFP. On May 13, 2002, the closing sales price as so reported was
$3.05 per share.
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 7.
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 , 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Summary..................................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 20
Material Changes............................................ 21
Plan of Distribution........................................ 28
Selling Stockholders........................................ 32
Security Ownership of Certain Beneficial Owners and
Management................................................ 47
Interests of Named Experts and Counsel...................... 49
Incorporation of Certain Information by Reference........... 49
</Table>
2
SUMMARY
Because the following 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 this entire
prospectus carefully, including the risk factors beginning on page 7 of this
prospectus, and the periodic reports filed by us pursuant to the Securities
Exchange Act of 1934 before you decide to purchase a share of our common stock.
You may find a list of our current periodic reports under the caption
"Incorporation of Certain Information by Reference" in this prospectus.
KEY QUESTIONS AND ANSWERS.
1. WHO ARE WE?
We, LifePoint, Inc., are a Delaware corporation, with our corporate office
and manufacturing plant at 1205 South Dupont Street, Ontario, California 91761.
Our research and development facility is located at 10400 Trademark Street,
Rancho Cucamonga, California 91730. Our telephone number is (909) 418-3000. You
should make inquiries relating to this prospectus to Michele A. Clark, our Chief
Accounting Officer, by writing to her at our Ontario, California address or by
calling her at (909) 418-3000.
2. WHAT BUSINESS ARE WE IN?
We have developed, are manufacturing and have now started marketing a
saliva-based, on-site diagnostic test system that initially tests simultaneously
for drugs of abuse and alcohol. We have identified 11 markets for our initial
products. However, our initial focus is:
- law enforcement/criminal justice for testing of drivers and suspects and
for use in drug courts and in probation and parole hearings,
- the industrial workplace for pre-employment and employee testing and
- for emergency medical diagnostic applications.
Our first product uses technology licensed to us from the United States
Navy and our own patented technologies. Our initial product, the LifePoint(R)
IMPACT(TM) Test System, uses a person's saliva to test on-site, for the presence
of alcohol and drugs of abuse, such as cocaine, heroin and marijuana. Our
proprietary system consists of a small instrument with integrated software to
automatically process the sample collection, test the sample and generate
hardcopy test results. It requires a fully contained disposable saliva test
module that consists of a mouthpiece for collecting the sample, connected to a
test cassette that serves as an automatic sample collection device, sample
processing and reaction/read chamber for up to ten different test analyses. Our
initial target market was first law enforcement and our subsequent initial
target markets will be the medical emergency room and the industrial workplace.
On February 26, 2002, we formally launched marketing of our first product
in the United States to the law enforcement market. In March 2002, we commenced
marketing, through distributors, to the law enforcement and medical markets in
certain Western European countries and Australia. Our marketing launch to the
industrial market in these countries and to all three markets in other countries
will follow as we engage distributors for such purpose. We intend to begin
marketing to the medical market in the United States in the third quarter of
2002 assuming that we have obtained FDA 510(k) approval. The timing for our
marketing launch to the industrial market in the United States, as
3
indicated elsewhere in this prospectus, will be dependent on whether FDA
approval is required. As indicated elsewhere in this prospectus, we cannot
assure you that we will meet any and all of these deadlines to launch marketing
of our initial product in other markets.
In later years, we plan that, as our research and development efforts
continue, we will make our non-invasive on-site diagnostic device available for
other uses. Potential uses include long-term therapeutic drug monitoring, rapid
diagnostic testing, disease-state testing and wellness/health screening.
3. WHAT IS OUR RECORD OF REVENUES AND EARNINGS?
We had our first revenues ($22,910) in December 2001. We had no revenues
prior to that date because we had not offered for sale any product or services.
Through December 31, 2001, we incurred net losses of $34,303,558. We first had
the marketing launch of the IMPACT Test System on February 26, 2002.
Accordingly, we anticipate that our operational losses will continue for at
least five additional quarters, if not longer, after March 31, 2002.
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 clearance from the United
States Food and Drug Administration (the "FDA"). We have made our initial
submission of data to the FDA for clearance of our product and currently expect
to complete the remainder of our submission during this quarter ending June 30,
2002. Based on the current average experiences of other companies as tracked by
an industry group, we expect to get such clearance approximately 100 days later.
However, we could be delayed in completing our submission. In addition, the FDA
may not clear the product when submitted. In addition, even if this agency
clears our product, we may receive this clearance later than we anticipate.
Based on the FDA's regulations proposed in November 2000, we may also
require FDA approval to sell to the industrial market in the United States.
Several industry groups are currently attempting to dissuade the FDA from
finalizing this policy. However, we are simultaneously collecting clinical data
in the event that we have to make an application to the FDA for clearance at the
same time as we make our application for medical use as described in the
preceding paragraph.
We did not require any governmental approvals to market the IMPACT Test
System to law enforcement agencies in the United States.
For our entry into the three initial target markets in Canada, the Western
European countries and Australia, we do not require any pre-entry approval from
a governmental agency similar to that which we must obtain from the FDA in the
United States as described above. There are, however, certain certifications
which we must obtain to market successfully in these countries outside the
United States. We have initiated our applications to obtain CSA (Canada) and CE
Mark (Europe) certifications for these countries, as we have for U.L.
certification in the United States. We have also implemented actions at our
manufacturing plant to follow Quality System Regulation as prescribed by the FDA
(for the United States medical markets only) and 1S0 certification for European
sales. We are of the opinion that the obtaining of the certifications described
in this paragraph will not delay our marketing in our initial target markets in
these countries outside the United States.
4
5. WHAT SECURITIES ARE WE OFFERING PURSUANT TO THIS PROSPECTUS?
We are not offering any securities pursuant to this prospectus. Persons or
entities who or which acquired units in our sixth private placement pursuant to
Regulation D under the Securities Act of 1933 will make substantially all of the
sales of shares of our common stock pursuant to this prospectus. These units
consisted of shares of our Series C preferred stock (which shares are
convertible into shares of our common stock) and warrants. We held three
closings with respect to this offering -- on June 20, June 29 and September 28,
2001. We do not intend to offer or sell any additional units.
An entity exercising three warrants and each of three entities and two
persons exercising a warrant will sell other shares of our common stock pursuant
to this prospectus. All of these warrants were granted as partial compensation
for service as a placement agent or a finder in the private placement described
in the preceding paragraph.
All of these persons or entities (including certain transferees) will be
referred to in this prospectus as the "selling stockholders". They are named in
the list beginning on page 34 of this prospectus. The selling stockholders using
this prospectus also will include pledgees, donees, transferees or other
successors-in-interest of the persons or entities named in that list.
The selling stockholders will offer, as of the date of this prospectus:
- 4,597,002 shares when and if they convert 393,916 shares of our Series C
preferred stock.
- 1,379,102 shares which is our current estimate (of which 303,513 shares
have been issued) as to the shares to be issued by us upon our quarterly
redemptions of premium with respect to the 393,916 shares of our Series C
preferred stock during the period which began September 30, 2001 and ends
June 30, 2004.
- 12,186 additional shares which were issued by us to the purchasers of the
units on September 28, 2001 as compensation to them because of the long
delay between their subscriptions and the closing.
- 4,597,002 shares when and if the warrants we sold to the investors are
exercised.
- 444,792 shares when and if the warrants we issued to the placement agent
are exercised.
- 30,335 shares when and if the warrants we issued to finders or their
transferees are exercised.
The selling stockholders may, as an alternative to their offering pursuant
to this prospectus, seek to sell the aggregate of 11,060,419 shares of our
common stock, when permissible, pursuant to the exemption of Rule 144 under the
Securities Act of 1933. As the notes to the table beginning on page 39 of this
prospectus indicate, certain of the selling stockholders beneficially own other
shares of our common stock which are not being offered pursuant to this
prospectus. In addition, those selling stockholders who or which own shares of
our Series C preferred stock and the related warrants may receive shares of our
Common Stock as compensatory payments because of our failure to accomplish
certain registration objectives. These shares are also not being offered
pursuant to this prospectus.
5
6. WHAT IS THE OFFERING PRICE PURSUANT TO THIS PROSPECTUS?
The selling stockholders have advised us that they will sell, from time to
time, the shares of our common stock at the prices quoted for our common stock
on the American Stock Exchange, in the third market, in isolated transactions,
or in a combination of such methods of sale. They may sell their shares at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to prevailing market prices, or at negotiated prices with
institutional or other investors. Our common stock is currently listed on the
American Stock Exchange under the symbol: LFP. On May 13, 2002, the closing
sales price as so reported was $3.05 per share. The selling stockholders have
also advised us that they may sell their shares, when permissible, pursuant to
the exemption of Rule 144 under the Securities Act of 1933. There will be no
underwriter's discounts or commissions, except for the charges to selling
stockholder if he, she or it sells through his, her or its broker-dealer.
7. WILL WE 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 our common
stock by the selling stockholders pursuant to this prospectus. We may, however,
receive $15,216,387 if all of the outstanding warrants we issued to the selling
stockholders are exercised. These warrants enable the holders to purchase an
aggregate of 5,072,129 shares of our common stock. We cannot be certain as to
when and if all of these warrants will be exercised. Nor can we be certain as to
the amount of proceeds we will actually receive from exercises. Estimates are
especially difficult because of provisions in the warrants we issued to
investors which provide for a reduction in the exercise price if we sell in the
future, with certain exceptions, our securities for a sales price less than the
exercise price. In such event, the exercise price of these warrants is reduced
to such lower sales price. In addition, holders may exercise on a "cashless
basis" in most of the warrants. In a cashless exercise the holder is entitled to
receive shares of our common stock having a market value equal to the net
exercise value of the portion of the warrant being exercised. The holder makes
no cash payment to exercise the warrant. The warrants specify the manner of
calculating the number of shares of our common stock issuable in a "cashless"
exercise.
6
RISK FACTORS
Before you invest in our common stock by purchasing shares from a selling
stockholder named in this prospectus, you should be aware that there are various
risks. We have described below all of the risks which we deem material to your
investment decision. A list of the named selling stockholders may be found in
this prospectus in the table beginning on page 34. You should consider carefully
these risk factors, together with all of the other information included in this
prospectus and in the periodic reports we have filed under the Securities
Exchange Act of 1934, before you decide to purchase any shares of our common
stock. For information as to how you may receive copies of our periodic reports,
we direct your attention to the section captioned "Incorporation of Certain
Information by Reference" in this prospectus.
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, our
performance might be quite different from what the forward-looking statements
imply.
THE FOLLOWING RISK FACTORS RELATE TO OUR OPERATIONS:
WE EXPECT OUR OPERATIONAL LOSSES TO CONTINUE FOR PROBABLY AT LEAST ANOTHER FIVE
QUARTERS AFTER MARCH 31, 2002.
From the date we incorporated on October 8, 1992 through December 31, 2001,
we have incurred net losses of $34,303,558. These losses were due to the fact we
had no product or service to offer for sale or rental.
On February 26, 2002, we formally launched marketing of our IMPACT Test
System, our first product, to law enforcement agencies that was one of our three
initial worldwide target markets. There was no governmental approval required as
a prerequisite for us to market to these potential users of our product.
However, as we subsequently indicate in the twelfth section under this caption
"Risk Factors," there are certain legal challenges that we must overcome to make
our product fully acceptable in this market.
For us to market our product in the United States to hospitals and other
medical facilities (especially to medical emergency rooms which are another of
our three initial worldwide target markets), we must first obtain clearance from
the Food and Drug Administration for our product. We currently expect to
complete the filing of our 510(k) application for clearance with the FDA during
this quarter ending June 30, 2002. We currently expect to obtain FDA clearance
approximately 100 days after submission.
Our other initial target market will be industrial companies that currently
test employees for drugs and alcohol. In November 2000, the FDA announced its
intention to regulate drugs of abuse screening tests used in the home, work
place, insurance and sports settings. Should the FDA adopt such regulations,
despite our efforts and those of others to dissuade the FDA from doing so, such
regulations would delay the start of our marketing to the industrial market in
the United States until we comply. However, in anticipation of such adoption, we
have been collecting the field data which we believe, from our
7
discussions with the FDA, this agency would require to approve our entry into
the industrial market in the United States. We would seek this clearance from
the FDA simultaneously with our seeking its approval of use of our product for
medical purposes. In addition, we have commenced efforts to market our product
to law enforcement agencies and medical users in Europe prior to obtaining FDA
approval for use in the United States. This program could offset any loss in
early revenues due to the delay, if it occurs, in our marketing to the
industrial market in the United States.
We may not meet the schedule described in the preceding two paragraphs,
both as to our additional market launches and making our submission to the FDA.
In addition, the FDA or a foreign government may not grant clearance for the
sale of our product for routine screening and/or diagnostic operations.
Furthermore, the clearance process may take longer than we project. Even if we
do meet our schedule and although we have begun to generate revenues, we
anticipate that we shall turn profitable not sooner than five quarters after
March 31, 2002. We can estimate, but we cannot assure you, as to when our
expected revenues will exceed expenses.
OUR TRANSITION TO AN OPERATIONAL COMPANY MAY STRAIN OUR MANAGERIAL, OPERATIONAL
AND FINANCIAL RESOURCES.
We expect to encounter the risks and difficulties frequently encountered by
companies that have recently made a transition from research and development
activities to commercial production and marketing. We have set forth below
certain of these risks and difficulties under this caption "Risk Factors." As an
example, our transition from a development stage company to a commercial company
may strain our managerial, operational and financial resources. If our product
achieves market acceptance, then we will need to increase the number of our
employees, significantly increase our manufacturing capability and enhance our
operating systems and practices. We cannot assure you that we will be able to
effectively do so or otherwise manage our future growth.
WE MAY HAVE A NEED FOR ADDITIONAL FINANCING TO CONTINUE OR EXPAND OUR BUSINESS.
We believe that, with
- the net proceeds from our private placement in June and September 2001 of
$12,694,831,
- the marketing fees and sales proceeds forecasted to be paid as described
in the succeeding paragraph,
- the proceeds from standard commercial banking lines of credit and/or
commercial equipment leasing lines which we are currently negotiating,
and
- the $10,200,000 in gross proceeds received from the sale in April 2002 of
272 units, each unit consisting of 10,000 shares of our common stock and
a common stock purchase warrant to purchase 2,000 shares of our common
stock,
we shall have sufficient funds to complete our field trials and pilot studies
necessary for our submission to the FDA, manufacture and market our product and
reach profitability. We expect to achieve profitability not sooner than five
quarters after March 31, 2002. There can be no assurance that our estimate as to
costs and timing will be correct. In addition, we may not be able to consummate
standard commercial banking lines of credit and/or commercial equipment leasing
lines on an acceptable and timely basis. Furthermore, if there are any delays in
our obtaining FDA approval, or if there is a reduced rate of growth in our
revenues from those we anticipate, we may require additional funding. In
addition, if
8
orders for our product come in faster than we anticipated, we could require
additional financing to expand our manufacturing, sales and other capabilities.
Our inability to meet any such increased demand could result in the cancellation
of orders and thus delay the attainment of profitability.
We have entered into a strategic partnering agreement with CMI, Inc. to
distribute our products exclusively to the law enforcement market in the United
States and Canada. We can give you no assurance, however, that CMI will produce
the level of fee payments and sales proceeds to us initially forecasted by CMI
of $5,000,000 during the first two and one-half years of the agreement.
In addition, competitive conditions in our industry may make us less
attractive to potential investors. For additional information on our potential
competition, we recommend that you read the third succeeding section under this
caption "Risk Factors."
Because of all the uncertainties described in the preceding paragraphs of
this section, we may have to seek additional financing as an alternative against
the possibility that one or more of the anticipated sources of funds is or are
not obtained or that we obtain orders slower or faster than anticipated.
We recognize that, unless we obtain all of the funds described above or, in
the alternative, secure additional financing, we cannot bridge the gap between
the commencement of marketing and when, if ever, we begin to operate on a
profitable basis. Unless we obtain such funds and, to the extent required, the
additional financing and achieve profitability, your investment in our company
may become a complete loss. We can give you no assurance as to our obtaining the
anticipated funds, achieving additional financing or attaining profitability.
POTENTIAL ADDITIONAL FINANCINGS WILL FURTHER DILUTE OUR EXISTING STOCKHOLDERS.
Since October 1997 when we obtained our independence from our former
parent, we have consummated seven private placements to finance our operations.
As a result, we have issued, or will issue (when and if shares of our preferred
stock are converted and warrants are exercised), an aggregate of 40,337,263
shares of our common stock related to these private placements. Such issuances
do not give effect to any shares we may issue in the future in redemption of
premium with respect to our outstanding shares of our Series C preferred stock
or as compensatory payments. The 40,337,263 shares may represent a 553% increase
from the 7,297,206 shares of our common stock outstanding since our initial
public offering in October 1993. Any further issuances due to additional equity
financings will further dilute our existing stockholders.
UNEXPECTED PROBLEMS AS TO HOW OUR PRODUCT FUNCTIONS CAN DELAY OUR RECEIPT OF
REVENUES AND ULTIMATELY OUR ATTAINING PROFITABILITY.
We experienced delays in launching our product because of unanticipated
performance problems that had arisen first in our own testing in our research
and development facility and later at beta sites. We had made a commitment to
ourselves and to our stockholders and prospective customers not to release our
product for sale until we were confident that our product met or exceeded our
customer's expectations. In many markets, we shall get only one chance with a
customer. If a customer's initial experience with a product is not good, it is
very difficult to go back a second time. Accordingly, when a product performance
problem surfaced, we had no choice except to delay the release. We also had to
delay completion of the field testing necessary to furnish us with the data for
our FDA submission. Accordingly, we had to delay our FDA submission.
9
By delaying the time of our product launch, these product problems delayed
our receipt of revenues. They also increased our need for additional financing.
We direct your attention to the second preceding section under this caption
"Risk Factors" for our discussion of how a further delay in our obtaining
revenues will increase our need for additional financing. And with the delay in
our receiving revenues, our opportunity to achieve profitability was delayed
even longer.
Some examples of our past problems and the delays which they caused us are
as follows:
- In February of 2001 we ascertained that certain materials in our plastic
molded parts were not compatible. As a result of the cooperation of our
mold design contractor and our dedicated engineering group, we redesigned
these combinations. However, to do so caused a six-week slip in our
timeline. We reported this problem and the expected delay to our
stockholders by letter in March 2001.
- In April of 2001 we ascertained, during field tests, a problem with how
the mouthpiece collected saliva. We had to halt these field evaluations
until we could ascertain the cause. We quickly found that our supplier
had made, without our knowledge, a change in the materials used in the
production of the mouthpiece tips. We developed three alternative
approaches. One of these required some re-design of the mouthpiece molds.
This work took several weeks to implement and then we first had to
validate the results. As we anticipated to our stockholders by letter in
May of 2001, this caused a delay of six weeks before we could then start
field evaluations again. However, thanks to the significant efforts of
our development team, the cooperation of our outside vendors and the help
of our clinical investigators, we quickly diagnosed the problem and
implemented a solution.
- In September of 2001, we had collected enough final test data to indicate
that we had to make additional engineering modifications to the final
product design. These modifications forced us to delay our intended
product launch from the end of September to the end of the year. We
reported this to our stockholders by letter in October of 2001. If the
resolution was to be limited to only a simple engineering redesign, then
we would have been delayed for only a few weeks to a month at most.
Unfortunately, the engineering redesign did not completely resolve the
problem. We had to add several changes to our plastic molds. Keep in mind
that even a minor mold change can take several months to design,
implement, test and validate. We then tested products made from these
modified molds. We reported this to our stockholders by letter in January
2002. Our efforts were successful and we formally launched marketing of
our product on February 26, 2002.
In early July, 2001, after receiving almost $11,000,000 of the $13,000,000
we ultimately received from our sixth private placement, we reported our belief
that, as a result of these proceeds, together with the forecasted product
revenues from CMI, we would have sufficient funds to enable us to reach
profitability. However, at the time we made that projection, we still expected
to launch our product at the end of September 2001. As we indicate in the
reporting of the last delay above, the actual launch was delayed until the end
of February 2002. As a result, we "lost" five months of sales we initially
anticipated. In addition, at the end of February 2002, instead of having had
five months of operations as we initially anticipated, so that we could
reasonably project that our sales would be accelerating after five months of
marketing, we were just beginning to market.
10
In mid-February 2002, after receiving in September 2001 the additional
$2,000,000 from the sixth private placement and expecting to receive proceeds
from commercial bank lines or equipment lease financing, we reiterated our
belief that we had sufficient funds to enable us to reach profitability.
Both in July 2001 and February 2002, we stated that any additional delays
in our obtaining revenues may require us to seek additional financing. In April
2002, rather than take a chance on the uncertainties described in the second
preceding risk factor and above, we obtained an additional $10,200,000 in gross
proceeds from our seventh private placement.
Should any problem with respect to the performance of our product develop
in the future, we could be delayed, not only from receiving revenues from the
markets in which we were then marketing, but in our schedule to market our
product into additional markets. This could also require us to seek additional
financing.
Your attention is also directed to the possible delays at the FDA described
in the fourth preceding section under this caption "Risk Factors".
WE WILL FACE COMPETITION FROM NEW AND EXISTING DIAGNOSTIC TEST SYSTEMS.
We have begun to compete with many companies of varying size that already
exist or may be founded in the future. Substantially all of their 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.
We face competition from Avitar, Inc., OraSure Technologies, Inc., AnSys,
Inc. and Cozart Bioscience, Ltd. Each of these companies is marketing, or will
soon be marketing, an on-site drug screening, qualitative (yes/no) test using
saliva as the specimen. Each uses a lateral flow membrane system to test for
drugs of abuse. Such system, which is similar to home pregnancy tests, allows a
specimen to flow across a treated test strip (membrane) and produces a test
result on a portion of the test strip. This type of test gives results in under
30 minutes. We believe that the limitations of the technologies used by these
four companies will negatively impact their ability to sell into our target
markets. We believe that none of their products, as currently available, will be
evidentiary in the law enforcement and industrial markets because each such
product is not quantitative and some are non-instrumented. Non-instrumented test
results are subjective to user interpretation. In addition, the results cannot
be stored for later use in court. Accordingly, these tests lack the hard,
objective data required for defense in court. In medical emergency markets, we
believe that their products will not provide the needed quantitative results.
Additionally, we believe that the type of on-site technology used by these four
companies is less sensitive than the instrumented flow immunosensor technology
we have developed and not sensitive enough to detect certain drugs at levels
that are found in saliva. (Flow immunosensor technology is a process by which a
specimen flows through a micro-column device containing the test reagent, a
reaction occurs and, as a result of the immunoassay reaction, the molecules to
be tested in the sample solution cause a signal which is read by a sensor.)
Lastly, none of these products can simultaneously test for drugs of abuse and
alcohol. We, accordingly, believe that our product is superior to the products
these four companies are currently marketing, or will soon be marketing.
However, we could be incorrect in our assessment of their products. In addition,
even if we are correct in our assessment, one or more of these companies could
attempt to modify its product to meet our criticisms. In either of these events,
one or more of these products could significantly impact our ability to sell our
product.
11
In addition, we recognize that other products performing on-site testing
for drugs in blood or saliva may be developed and introduced into the market in
the future.
We also face as competitors BioSite Diagnostics Inc., Syva Company (a
division of Dade International Inc.), Roche Diagnostics (a division of Hoffman
La Roche, Inc.) and at least five other major pharmaceutical companies. All of
these competitors currently use urine as the specimen for on-site drug testing.
Almost all of these prospective competitors have substantially greater financial
resources than we have to develop and market their products.
With respect to breath testing for the presence of alcohol, we will compete
with CMI, Inc., Intoximeters, Inc., Draeger Safety, Inc., and other small
manufacturers.
Furthermore, because of the time frame it has taken for us to bring our
product to market, our competition may have developed name recognition among
customers that will handicap our future marketing efforts.
ALTHOUGH OUR FIRST PRODUCT USING SALIVA HAS CERTAIN ADVANTAGES OVER URINE
TESTING, OUR FIRST PRODUCT MAY NOT BE AS ATTRACTIVE IN THE PRE-EMPLOYMENT
TESTING PORTION OF THE INDUSTRIAL WORKPLACE AS IS URINE TESTING.
Our marketing analysis has indicated a greater market potential for a
saliva sample portable testing instrument for drugs of abuse by law enforcement
agencies, occupational health clinics, hospitals and other medical facilities
than for a urine sample instrument. That is because our initial product is
intended to test whether the person is currently under the influence of drugs of
abuse or alcohol. In addition, saliva collection is observable by the person
administering the test, unlike urine testing. Accordingly, the use of saliva has
been shown to eliminate the recent problems due to alteration and substitution
of urine specimen testing for drugs. Depending on the substance being used,
differences in the individual being tested and dose and time differences,
"currently" in our product indicates drug use from minutes after the drug was
taken to 18 to 24 hours after drug use.
Urine testing, on the other hand, provides information on drug use from
about six to eight hours after the drug was taken to between two to five days
post drug use. For pre-employment testing, employers have historically wanted
the longer window of detection provided by urine testing, or even hair testing.
Accordingly, the current results of the IMPACT System may not be as attractive
to employers for use in pre-employment testing. Our current product may, thus,
have limited appeal for such use.
OUR FAILURE TO COMPLY WITH THE SUBSTANTIAL GOVERNMENTAL REGULATION TO WHICH WE
ARE SUBJECT MAY ADVERSELY AFFECT OUR BUSINESS.
We have already directed your attention to the fact that we cannot market
our saliva based testing device to hospitals and other medical facilities unless
we have FDA approval. We have also pointed out the proposed FDA regulations
relating to marketing to the industrial market in the United States. Your
attention is directed to the section entitled "We expect our operational losses
to continue for probably at least another five quarters after March 31, 2002"
under this caption "Risk Factors."
In addition, the United States Department of Health and Human Services on
February 28, 1992 issued regulations intended to implement the Clinical
Laboratory Improvement Amendments of 1988. These Amendments are commonly
referred to as CLIA. These regulations were to become effective September 1,
1992. The proposed regulations would require that all test sites performing
workplace drug testing, including
12
on-site testing, follow CLIA guidelines for operator training and quality
control, similar to those used by laboratories. On August 28, 1992, the
Department announced that the application of the statute to workplace testing
would not go into effect on September 1, 1992 because of comments made on the
final regulations. If the regulations are not adopted, on-site drug testing in
the workplace will continue to be exempt from the statute. Recently, the
Department again confirmed its intention not to adopt the CLIA regulations in
the workplace. However, if the regulations are adopted, workplace testing would
then be subject to the same requirements as currently required for on-site
testing in the medical markets. We are in the process of completing studies that
we believe will produce data that demonstrates that our product provides the
same results when used by technical personnel as it does when used by
non-technical personnel. If we demonstrate in our FDA submission that our
product delivers similar accuracy from these two user groups, this demonstration
should exempt the IMPACT Test System from CLIA regulation in the medical market
and, if the statute is ever applied, in the workplace market. If we cannot
obtain a waiver from CLIA, the costs of running the IMPACT Test System could be
higher for our potential customers. We cannot give you any assurance that the
Department of Health and Human Services or the FDA will agree to waive the
IMPACT Test System from CLIA regulation.
We do not believe that federal, state and local provisions which have been
enacted or adopted regulating the discharge of material into the environment, or
otherwise relating to the protection of the environment, will have any material
effect upon our capital expenditures, potential earnings and our competitive
position.
WE MAY NOT BE ABLE TO EXPAND OUR MANUFACTURING OPERATIONS ADEQUATELY OR AS
QUICKLY AS REQUIRED TO MEET EXPECTED ORDERS.
We first began our manufacturing process in January 2001. We have completed
the pilot or initial stage of manufacturing with respect to both the instrument
and the saliva test modules. We have initiated the process scale-up and the
automation phase of saliva test module manufacturing. We anticipate that it
could take up to 10 months from April 2002 to complete the full automation of
the saliva test modules. However, we have not as yet made any significant
deliveries of our product. Accordingly, we have not as yet demonstrated the
ability to manufacture our product at the capacity necessary to support our
expected commercial sales. In addition, we may not be able to manufacture cost
effectively on a large scale.
We expect to conduct all manufacturing of the disposable cassettes at our
own facility. In addition, we intend to continue to assemble the instrument for
at least another four to six months or more. If our facility or the equipment in
our facility is significantly damaged or destroyed, we may not be able to
quickly restore manufacturing capacity. We have engaged an OEM supplier to final
assemble the instrument in conjunction with our own in-house assembly. Our
current timetable for transfer of some of the final assembly is four to six
months. We could, accordingly, turn over instrument assembly to a number of
qualified OEM instrument assembly suppliers in the event of such problems at our
facility. We can use another manufacturer for the final assembly of our
instrument because the subassemblies and other components are furnished by other
suppliers. Accordingly, any capable electronics manufacturer would have the
capability to produce this type of equipment. We have identified several
potential electronic manufacturers as potential alternatives to our initial OEM
supplier should we so require. However, the cassette is a proprietary device
developed by us and, accordingly we are not currently aware of any alternative
manufacturer for the cassette.
13
We devoted a significant portion of our capital budget for the fiscal year
ended March 31, 2002 to reduce our cost of goods for the disposable cassette and
automating our manufacturing facility in an effort to continue to lower our
initial manufacturing costs. We are optimistic as to the results of these
efforts. Nevertheless, we cannot assure you that these efforts will result in
the manufacturing cost savings we anticipate and when these savings, if
obtained, will be reflected in our financial statements.
OUR DEPENDENCE ON THIRD-PARTY SUPPLIERS FOR CRITICAL SUPPLIES MAY IMPACT OUR
OPERATIONAL RESULTS.
We are initially only performing the final assembly of the instrument and
critical sub-assemblies are being manufactured by OEM suppliers. Our dependence
on third parties for the manufacture and supply of instrument and cassette
product components could have a material adverse effect on our profit margins
and our ability to deliver our products on a timely and competitive basis if
these third parties were to terminate production of the components, fail to
comply with FDA regulation or be subject to unforeseen adverse results. To
offset any adverse impact as a result of a default by any such supplier, we have
purchased a one-year supply of all critical materials. In addition, we have
identified one or more second sources for each current supplier. Accordingly, we
do not anticipate that our manufacturing process will be negatively impacted by
the loss of any one supplier. In addition, we rely on standing purchase orders
and master purchase agreements with our vendors. Accordingly, we do not
anticipate losing any time because of protracted contractual negotiations. One
risk, however, is that until the second source begins manufacturing at an
acceptable rate, there could be a short delay in our meeting our delivery
schedule to customers.
OUR DEPENDENCE ON CMI, OUR STRATEGIC PARTNER TO MARKET TO THE LAW ENFORCEMENT
MARKET, MAY ADVERSELY AFFECT OUR INITIAL MARKETING EFFORTS IF CMI DOES NOT SELL
IN THE QUANTITIES ANTICIPATED.
As already indicated, our initial target market in the United States was
the law enforcement market. On June 4, 2001, we entered into an exclusive
three-year, renewable, distributorship agreement with CMI, Inc. to distribute
the IMPACT Test System to the law enforcement markets in the United States and
Canada. We selected CMI because, to our knowledge, it is the marketing and
manufacturing leader for evidentiary breath alcohol testing instruments in law
enforcement in this country. Nevertheless, CMI may not be able to sell the
quantities of IMPACT Test Systems of which we believe that CMI is capable. In
such event, we would be required to seek another distributor or increase our own
internal selling staff. We can give you no assurance as to how quickly or
successfully these alternative methods of product distribution will be
implemented. Another risk to us is, of course, that, if MPD Inc., CMI's parent
corporation, became bankrupt or had similar financial problems, this would
prevent CMI from paying fees or making purchases. Otherwise we believe that,
based on its initial forecasts, CMI will pay us approximately $5,000,000 during
the first two and one-half years of the agreement. We can give you no assurance,
however, that CMI will make sales as it initially forecasted and, accordingly,
make significant payments to us. Even if CMI were to pay us the contractual
minimum amounts to maintain its exclusive marketing rights, such payments would
be materially less than the forecasted amount of $5,000,000. For us to realize
such forecasted amount from CMI, CMI would have to sell, on the average, at
least 15 IMPACT Test Systems per month during the two-and-one-half-year period.
As of April 30, 2002, we had received no payments from CMI.
14
The three-year term did not begin until general marketing of our IMPACT
Test System began on February 26, 2002. We note that CMI will benefit from
volume discounts and, therefore, our margins on products purchased by CMI may
decrease over the term of the contract. In addition, CMI has guaranteed pricing
on the instruments, which may result in much lower margins once we transfer the
instrument production to an outside vendor. Our agreement with CMI is
automatically renewable unless CMI or we give notice to the other 180 days prior
to the end of the initial term.
Another risk is that CMI may terminate the distribution agreement. CMI has
the option to terminate the distribution agreement with us:
- if we fail to supply at least 50% of CMI's orders for our product
continuously over any three-consecutive-month period immediately
preceding CMI's notice of default to us;
- if any information which we furnish to CMI is found to be materially
false or fraudulent;
- if we materially breach the agreement and fail to cure such breach within
ten days after CMI's notice to us; or
- if we file a petition in bankruptcy or a petition is filed against us and
not dismissed in 60 days, we make an assignment for the benefit of our
creditors, or we are insolvent and a receiver is appointed for us.
LEGAL PRECEDENT HAS NOT YET BEEN ESTABLISHED FOR UPHOLDING THE RESULTS OF
LIFEPOINT'S DIAGNOSTIC TEST SYSTEM.
The legal precedents for performing drug and alcohol testing in both law
enforcement and the industrial workplace have been well established. Blood and
urine testing are the currently accepted standard samples for drugs. Blood,
breath and saliva are the currently accepted standard samples for alcohol.
However, several saliva-based drug tests are beginning to be used. We believe
that our product meets the Daubert and Frye standards for admission as
scientific evidence in court. These two standards have been adopted in all 50
states. These standards require acceptance of our product or technology by
members of the scientific community and proven performance equal to currently
used methods. We anticipate that the papers we have presented over this past
year and the papers that we will publish from our field evaluations currently
being completed will enable us to meet this requirement prior to the first legal
challenge to our product. However, we cannot assure you that our technology will
be accepted. Until our product is challenged in court, legal precedence will not
have occurred.
The desire to use saliva for drug testing in the workplace market is very
strong. As an example, SAMHSA, the federal agency that regulates drug testing on
federal safety-sensitive workers, has indicated that it is in the process of
adding saliva to the menu of applicable technologies for drug testing of federal
safety sensitive personnel. There are few state laws limiting the use of saliva
for workplace testing. Currently, saliva or other bodily substances testing of
employees for drugs is permitted in all states but Maryland.
State laws are being revised on an ongoing basis to allow law enforcement
officers to use saliva as a specimen for testing for drivers under the influence
of drugs or alcohol. Currently, saliva and other bodily substance testing for
DUI testing with consent is permitted in all states. However, such testing will
be subject to a variety of factors. Saliva or other bodily substances for DUI
testing for drugs or alcohol is specifically permitted in 24 states. Additional
efforts will be needed to change the laws in states which have not
15
adopted saliva as a test specimen. We believe this change will occur because law
enforcement officials are anxious to have a non-invasive test method for drug
testing and are willing to support legislation. We are currently working on
draft legislation for this joint effort. Nevertheless, we cannot assure you as
to when and if this legislation will be adopted in the other states.
Lastly, the National Highway and Traffic Safety Administration must approve
alcohol test products for Department of Transportation use, either as a
screening method or an evidentiary method. We believe that our product meets the
requirements of an evidentiary product. Nevertheless, because we have not yet
submitted our product for approval, we cannot guarantee acceptance by this
governmental agency.
WE ARE DEPENDENT ON USE OF AN EXCLUSIVE LICENSE FROM THE UNITED STATES NAVY FOR
OUR PRODUCT.
Pursuant to a license agreement with the United States Navy, we have the
exclusive right to use the Navy's technology with respect to all possible
diagnostic uses for saliva and for drug testing for urine. We have further
developed the Navy-developed technology for application in our own proprietary
test system. Termination of the license for the Navy patent would end our right
to develop products under the patent. Termination would require us to make
changes in our products that would delay the marketing thereof.
The Navy has the right to terminate the license if we:
- file bankruptcy or are forced into receivership,
- commit a material breach of the agreement,
- willfully misstate or omit material information in our reports to the
Navy or
- fail to bring the technology to market.
We believe that so long as we continue to market our IMPACT Test System in
the manner which we intend, pay to the Navy at least the annual minimum royalty
and are accurate in our reports, we should continue to be able to use the Navy
patent. We believe that the risk of termination while we are still a "going
business" is remote, but the risk is there.
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 that 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 not be able to obtain permission to
use those rights on commercially reasonable terms. In any event, payment of a
royalty or licensing fee to any such company would also add to our costs of
operations and thereby adversely affect our results of operations.
16
WE MAY BE SUED FOR PRODUCT LIABILITY RESULTING FROM THE USE OF OUR DIAGNOSTIC
PRODUCT.
We may be held liable if our IMPACT Test System causes injury of any type.
We have obtained product liability insurance to cover this potential liability.
We believe that the amount of our current coverage is adequate for the potential
risks in these areas. However, assuming a judgment is obtained against us, our
insurance may not cover the potential liabilities. Our policy limits may be
exceeded. If we are required at a later date to increase the coverage, we may
obtain the desired coverage, but only at a higher cost.
WE MAY NOT BE ABLE TO OPERATE SUCCESSFULLY OUR BUSINESS IF WE LOSE KEY PERSONNEL
OR FAIL TO ATTRACT SKILLED PERSONNEL.
We believe that our success in the future will depend on the continued
services of our senior management team and other personnel, as well as our
ability to attract and retain skilled personnel. The loss of any of our senior
management team or other key employees, or our failure to attract and retain the
necessary scientific, manufacturing, sales and marketing personnel could have a
material adverse effect on our business, results of operations and financial
condition.
WE MAY NOT BE ABLE TO ESTABLISH SALES AND MARKETING CAPABILITIES NECESSARY TO
EXPLOIT WHAT WE BELIEVE IS A GREAT POTENTIAL FOR OUR PRODUCT.
We are currently in the process of building up our marketing and sales
capabilities. In addition, we have engaged a strategic partner to sell our
product in the law enforcement market, one of our three initial target markets.
However, we may not be able to add the additional marketing and sales personnel
we require. In addition, we may not be able to engage a second strategic partner
to market our product in certain segments of the industrial marketplace as we
initially contemplated. We also may not obtain the distribution capabilities we
require in foreign markets. Finally, even if we have the personnel and the
strategic partners and distributors, we cannot be certain as to how quickly, if
at all, the different marketplaces will accept our product.
OUR INCREASING EFFORTS TO MARKET OUR PRODUCT OUTSIDE THE UNITED STATES MAY BE
AFFECTED BY REGULATORY, CULTURAL OR OTHER RESTRAINTS.
Now that we have held our market launch of our IMPACT Test System in the
United States, we have commenced efforts to market our product through
distributors in other countries, starting with certain of the Western European
countries and Australia.
In addition to economic and political issues, we may encounter a number of
factors that can slow or impede our international sales, or substantially
increase the costs of international sales, including the following:
- We do not believe that our compliance with the current regulations for
marketing our product in European countries will be a problem. However,
new regulations (including custom regulations) can be adopted by these
countries which may slow, limit or prevent our marketing our product. In
addition, other countries in which we attempt, through distributors, to
market our product may require compliance with regulations different from
those of the Western European market.
- Cultural and political differences may make it difficult to effectively
obtain market acceptances in particular countries.
17
- Although our distribution agreements provide for payment in U.S. dollars,
exchange rates, currency fluctuations, tariffs and other barriers and
extended payment terms could effect our distributors' ability to perform
and, accordingly, impact our revenues.
- Although we made an effort to satisfy ourselves as to the
credit-worthiness of our distributors, the credit-worthiness of the
foreign entities to which they sell may be less certain and their
accounts receivable collections may be more difficult.
ONE PLAINTIFF SEEKS SIGNIFICANT DAMAGES IN LITIGATION AGAINST US.
As we previously reported in our Annual Report on Form 10-K, Global
Consultants, LLC d/b/a Global Capital instituted an action on June 18, 2001 in a
California state court against our company and Linda H. Masterson, our Chairman,
President and Chief Executive Officer. The plaintiff seeks damages aggregating
$4,500,000 for the non-issuance and termination of common stock purchase
warrants for an aggregate of 392,275 shares of our common stock. The plaintiff's
computation of damages is based on the market price of our common stock on one
day reaching $8.00 per share and on an excessive and unsupportable number of
shares subject to the warrants. The plaintiff's second amended complaint does
not allege the previously alleged claims relating to fraud, negligence and
accounting and for punitive or exemplary damages. We believe that the
plaintiff's remaining causes of action for breach of contract, conversion and
violation of a California statute are without merit. Our trial counsel, the law
firm of Rosenfeld, Meyer & Susman, LLP, is of the opinion that the probability
of any recovery by the plaintiff of damages in excess of 10 percent of our
current assets (i.e., current assets of $7,617,790 as of December 31, 2001) is
remote. We are of the further opinion that, even if the plaintiff were able to
overcome all of our affirmative defenses and the allegations of our
counterclaims, which we doubt, its maximum provable damages are less than a
third of that amount. However, unanticipated results in litigation are always
possible should this proceeding proceed to trial.
THE FOLLOWING RISK FACTORS RELATE TO OUR COMMON STOCK:
FUTURE SALES MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Of the 35,323,140 shares of our common stock outstanding on April 30, 2002,
the holders could sell all but an aggregate of 3,545,699 shares. Of these
shares, we issued 315,699 shares as a result of the securities which we sold in
June and September 2001, we sold 2,720,000 shares in April 2002 in our seventh
private placement and we issued 510,000 shares upon the exercises of warrants.
None of these shares has been held for the one-year period necessary for resale
pursuant to the exemption of Rule 144 under the Securities Act of 1933. Holders
subsequently became eligible to sell the aggregate of 315,699 shares pursuant to
this prospectus. Of the shares eligible for sale, as of April 30, 2002, holders
selling pursuant to the exemption of Rule 144 under the Securities Act of 1933
would be limited in the number of shares each sold in each three-month period by
paragraph (e) of such Rule.
As of April 30, 2002, there were 3,156,935 shares reserved for issuance
upon the exercises of stock options granted or to be granted pursuant to either
our 1997 stock option plan or our 2000 stock option plan. Stock options were
exercisable on such date, or will become exercisable within 60 days after that
date, to purchase an aggregate of 756,013 shares. All of the shares issuable
upon the exercises of stock options pursuant to these two plans have been
registered under the Securities Act of 1933 for issuance by us to
18
the respective optionees. Accordingly, unless the optionee is an "affiliate" of
our company as such term is defined in Rule 405 under the Securities Act of
1933, he or she may, after exercise of a stock option, resell the shares
received upon exercise without delivering a "reoffer" prospectus. Consistent
with the practice of other public companies, we filed on August 9, 2001 a
reoffer prospectus so that directors, executive officers and significant
employees of our company holding stock options, or who exercised stock options,
may resell their shares of our common stock immediately as other employees may
do.
In addition, as of April 30, 2002, we had reserved an aggregate of
7,261,359 shares for the exercises of certain outstanding common stock purchase
warrants. The subject warrants do not include the common stock purchase warrants
held by the selling stockholders or those held by our two principal operating
officers. The subject warrants expire on various dates ranging from December 7,
2002 to April 1, 2007. They have exercise prices ranging from $.50 to $4.77 per
share. They were all exercisable as of April 30, 2002. The shares of our common
stock issuable upon exercises of these warrants to purchase an aggregate of
2,870,284 shares have not been registered under the Securities Act of 1933.
Accordingly, these shares will be "restricted securities" as such term is
defined in Rule 144 (a)(3) under the Securities Act of 1933 after issuance. Each
holder may, one year after the exercise of any such warrant, resell his, her or
its shares received upon any such exercise pursuant to the exemption from
registration of Rule 144 under the Securities Act of 1933. We have registered in
another registration statement (File No. 333-65536) under the Securities Act of
1933 for resale by the holders the remaining 4,391,075 shares issuable upon the
exercises of the subject warrants.
We are unable to predict the effect that sales into the market of shares of
our common Stock made under Rule 144 or otherwise and the delayed sales into the
market of shares subject to the outstanding stock options and the warrants may
have on the then prevailing market price of our common stock. It is likely that
market sales of large amounts of these shares of our common stock or of the
11,060,419 shares offered, as of the date of this prospectus, for resale by this
prospectus (or the potential for those sales even if they do not actually occur)
may have the effect of depressing the market price of our common stock.
WE DO NOT ANTICIPATE PAYING DIVIDENDS COMMON STOCK IN THE FORESEEABLE FUTURE.
We intend to retain future earnings, if any, to fund our operations and
expansion of our business. In addition, our expected continuing operational
losses and our Series C preferred stock will limit legally our ability to pay
dividends on our common stock. Accordingly, we do not anticipate paying cash
dividends on shares of our common stock in the foreseeable future.
OUR BOARD'S RIGHT TO AUTHORIZE ADDITIONAL SHARES OF PREFERRED STOCK COULD
ADVERSELY IMPACT THE RIGHTS OF HOLDERS OF OUR COMMON STOCK.
Our board of directors currently has the right, with respect to the
2,570,000 shares of our preferred stock not designated as our Series C preferred
stock, to authorize the issuance of one or more additional series of our
preferred stock with such voting, dividend and other rights as our directors
determine. Such action can be taken by our board without the approval of the
holders of our common stock. The sole limitation is that the rights of the
holders of any new series of preferred stock must be junior to those of the
holders of the Series C preferred stock with respect to dividends, upon
redemption and upon liquidation. Accordingly, the holders of any new series of
preferred stock could be granted
19
voting rights that reduce the voting power of the holders of our common stock.
For example, the preferred holders could be granted the right to vote on a
merger as a separate class even if the merger would not have an adverse effect
on their rights. This right, if granted, would give them a veto with respect to
any merger proposal. Or they could be granted 20 votes per share while voting as
a single class with the holders of the common stock, thereby diluting the voting
power of the holders of our common stock. In addition, the holders of any new
series of preferred stock could be given the option to be redeemed in cash in
the event of a merger. This would make an acquisition of our company less
attractive to a potential acquirer. Thus, our board could authorize the issuance
of shares of the new series of preferred stock in order to defeat a proposal for
the acquisition of our company which a majority of our then holders of our
common stock otherwise favor.
Our certificate of incorporation also provides for a classified
board -- one third of the directors to be elected each year. Accordingly, at
least two successive annual elections will ordinarily be required to replace a
majority of the directors in order to effect a change in management. Thus, the
classification of the directors may frustrate a takeover attempt which a
majority of our then holders of our common stock believe to be in the best
interest of our company.
These are the only two provisions in our certificate of incorporation or
bylaws which could be used by us as an anti-takeover device. In addition, the
obligation to comply with the procedures of Section 203 of the Delaware
corporate statute, which governs our company, may discourage certain potential
acquirors which are unwilling to comply with its provisions. Section 203
prohibits a Delaware corporation such as our company from entering into a
business combination (for example, a merger or consolidation or sale of assets
of the corporation having an aggregate market value equal to 10% or more of all
of its assets) for a period of three years after a stockholder becomes an
"interested stockholder." An interested stockholder is defined as being the
owner of 15% or more of the outstanding voting shares of the corporation. There
are exceptions to its applicability including our board of directors approving
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder. At a minimum we believe such
statutory requirements may require the potential acquirer to negotiate the terms
with our directors. We believe that will be beneficial to our stockholders.
USE OF PROCEEDS
We will not receive any proceeds upon the subsequent sales by the selling
stockholders of the 11,060,419 shares of our common stock offered by this
prospectus. If the common stock purchase warrants outstanding as of April 30,
2002 to purchase an aggregate of 5,072,129 shares of our common stock held by
the selling stockholders and offered for resale pursuant to this prospectus are
exercised in their entirety, we will receive $15,216,387 upon such exercises.
Because of the uncertainty as to when and if any of these warrants will be
exercised and as to which "cashless" exercises will be made, we intend to use
any proceeds from these exercises for working capital purposes.
20
MATERIAL CHANGES
APRIL 2002 PRIVATE PLACEMENT
On April 2, 2002, we sold 272 units, at $37,500 per unit, to eight
accredited investors. Each unit consisted of 10,000 shares of our common stock
and a common stock purchase warrant expiring April 1, 2007 to purchase 2,000
shares of our common stock at $4.50 per share. We realized $10,200,000 in gross
proceeds from the private placement. We have closed this offering and no further
units will be offered.
SERIES C PREFERRED STOCK
A copy of our certificate of designation containing the terms and
conditions governing our Series C convertible preferred stock was filed as an
exhibit to our Annual Report on Form 10-K for the fiscal year ended March 31,
2001. In addition to your reading the description which follows in this section
of this prospectus of this security's material terms and conditions, you may
wish to read this exhibit. To obtain a copy, your attention is directed to
"Incorporation of Certain Information by Reference" in this prospectus.
(1) GENERAL
On June 20, 2001, we sold, at $35,000 per unit, to 11 accredited investors
an aggregate of 228.007 units. Each unit consisted of 1,000 shares of a
newly-designated series of our preferred stock, which we designated as the
Series C convertible preferred stock, and a common stock purchase warrant
expiring June 19, 2006 to purchase then 10,000 shares of our common stock at
$3.50 per share. We shall refer to these common stock purchase warrants as the
"investor warrants" so as to distinguish them from other common stock purchase
warrants we have issued, including those issued to the placement agent and
finders in the offering.
430,000 shares of the 3,000,000 authorized shares of our preferred stock
were designated as the Series C preferred stock in order to cover not only the
original sale by us, but also subsequent sales after the original issuance on
June 20, 2001. On June 29, 2001, we sold an additional 85.713 units at the same
purchase price per unit to the three holders of our then designated Series B 20%
cumulative convertible preferred stock. These holders surrendered these shares
and the related common stock purchase warrants as their payment for such units.
These three holders were among the 11 purchasers on June 20, 2001. The exchange
was contemplated at the date of the initial closing.
On September 28, 2001, we sold an additional 80.196 units at the same
purchase price per unit to 16 accredited investors. We, accordingly, had sold an
aggregate of 393.916 units. We realized $12,694,831 in proceeds (net of
$1,092,278 in expenses) from this offering.
As of August 16, 2001, we and the purchasers agreed that a holder could
convert a share of our Series C preferred stock at an initial conversion price
of $3.00 (not $3.50) into 11.67 shares (not 10 shares) of our common stock. In
addition, we and the holders agreed to reduce the exercise price of our investor
warrants from $3.50 to $3.00 per share. A holder would also receive 11,670
shares, not 10,000 shares, upon exercise of an investor warrant included in a
unit. Furthermore, we and the holders agreed to delete the provision requiring
quarterly resets of the exercise price of our investment warrants based on the
market prices for our common stock during the first year. The changes to our
Series C preferred stock were to become effective only if the related
certificate of designation
21
governing the terms and conditions was so amended. This action would have
required our obtaining the consent or approval of the holders of a majority of
the outstanding shares of our common stock. It also would have given rise to a
great expense to us. However, the investors agreed, as of November 21, 2001, to
waive the requirement of an amendment to the certificate of designation.
Instead, we agreed by contract with the investors to give them the right to
convert their shares of our Series C preferred stock on the amended basis
described above. Such agreement is permitted by Delaware law which governs our
company. The investors also agreed that we could make compensatory payments in
shares of our common stock, rather than in cash, if we defaulted in the
performance of our registration commitments to the investors.
There were outstanding, as of April 30, 2002, an aggregate of 393,916
shares of our Series C preferred stock (convertible into an aggregate of
4,597,002 shares of our common stock) and investor warrants to purchase an
aggregate of 4,597,002 shares of our common stock.
(2) ESCROW ARRANGEMENT
Pursuant to an escrow agreement, unless waived, 50% of the proceeds, the
shares of our Series C preferred stock and the investor warrants were to be held
in escrow. As a result of waivers, 321.72 units and the related proceeds were
held in escrow. They were to be released upon achievement by our company of the
two milestones. On March 16 and March 22, 2002, respectively, we confirmed to
the escrow agent our achievement of the two milestones. Accordingly, all
proceeds have been released to us and the investors have received all of their
securities held in escrow.
To enable us to meet our cash needs as a result of funds which were then
still being held in escrow, on February 1, 2002, General Conference Corporation
of Seventh-day Adventists, our largest stockholder and one of the investors with
then escrowed purchase proceeds and securities, loaned us $1,500,000. The loan
was due April 9, 2002. We were required to pay interest at the annual rate of
5%. We prepaid the loan on March 25, 2002 with the proceeds released to us from
escrow, including payment of $10,890 in interest. We also issued a warrant
expiring January 29, 2007 to our lender to purchase 500,000 shares of our common
stock at $3.25 per share.
(3) SENIORITY OF OUR SERIES C PREFERRED STOCK
Our Series C preferred stock is senior to any other series of our preferred
stock which we may in the future designate and our common stock. Except as may
be consented to by the holders of at least a majority of the then outstanding
shares of our Series C preferred stock,
(a) we may not pay any dividends or make other distributions on our
common stock or any other series of the preferred stock (other than
dividends on our common stock in shares),
(b) we may not redeem any shares of our common stock or any other
series of the preferred stock; and
(c) we may not distribute to the holders of our common stock or any
other series of the preferred stock any assets upon liquidation,
dissolution or winding up of our company until the holders of our Series C
preferred stock have received $35.00 per share (which is the stated value
of a share of our Series C preferred stock) and
22
any accumulated but unpaid premium (we shall explain how premium is defined
in the second succeeding subsection).
We may make redemptions of premium and other redemptions only if legally
permissible under the Delaware General Corporation Law. Because we currently
have sufficient "surplus" as that term is defined under the Delaware General
Corporation Law, we should be able to make these redemptions on a current basis.
As of December 31, 2001, we determined our surplus to be approximately
$2,100,000. We redeemed, as of September 30, 2001, December 31, 2001 and March
31, 2002, with respect to premium accrued as of each such date because we deemed
the surplus to be sufficient under Delaware law. However, continuance of
operational losses in the future, as we currently anticipate, would increase our
accumulated deficit. Unless the increase was offset by additional equity
financings (as to which we can give you no assurance), our surplus would be
reduced, possibly to a level at some point in the future that would be too low
to permit a redemption of premium under Delaware law. There are actions other
than equity financings which we can take to create additional "surplus" for a
dividend. We are not confined to "surplus" as shown in our latest balance sheet.
We are also not confined to GAAP accounting rules when making a determination
whether a surplus exists. We may, for example, reevaluate the value of a patent
to increase the available surplus for dividends. However, in determining whether
or not a surplus exists, we are required to use fair values for both assets and
liabilities.
If we are prohibited from redeeming any premium as a result of having
insufficient surplus, we are not liable to the holders of the Series C preferred
stock. In such an event, the holders may pay to us an amount sufficient to
fulfill our obligation to make the premium payment and we will redeem the
premium in shares of our common stock. Absent such payment by the holder, the
obligation to redeem would accrue until we were legally able to make the
redemption.
(4) DIVIDENDS
There will be no dividends payable on our Series C preferred stock.
(5) PREMIUM
On the last date of each of our fiscal quarters, commencing September 30,
2001, we are required to redeem all accrued and unpaid premium as of such date.
This obligation continues until no share of our Series C preferred stock is
outstanding. Premium is defined by the related certificate of designation for
this security to be an amount equal to the product of:
(a) 10% (5% after June 20, 2004),
(b) the quotient of the number of days since the last redemption of
premium and 365 and
(c) the stated value (i.e., $35.00 per share).
We are to effect the redemption of premium by the issuance of a number of
shares of our common stock to each holder of our Series C Preferred Stock equal
to the quotient obtained by dividing the aggregate amount of premium then due on
the shares of our Series C preferred stock held by such holder on such date by
the market price on such date.
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We are to calculate the market price of our common stock as an average over
a 20-trading-day period. We will determine "market price" as follows:
(a) if our common stock is then listed on a national securities
exchange or quoted on The Nasdaq Stock Market, we will use the average of
the closing sale prices of our common stock as reported on the exchange or
quoted for Nasdaq on each trading day during such 20-trading-day period as
reported by Bloomberg Financial Services (or a comparable service) or
(b) if our common stock is not then listed on an exchange or quoted on
Nasdaq, we will use the average of the closing bid and asked prices for our
common stock on the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. or in the pink sheets as reported by Bloomberg
Financial Services (or a comparable service) or, if no such price is
available, as determined by an investment banking firm we select which is
reasonably acceptable to the holders of a majority of the outstanding
shares of our Series C preferred stock.
We made our first redemption as of September 30, 2001. We issued an
aggregate of 108,203 shares of our common stock. Because our common stock is
currently listed on the American Stock Exchange, we calculated market price on
the basis of (a), as defined above.
We made our second redemption as of December 31, 2001. We issued an
aggregate of 121,505 shares of our common stock.
We made our third redemption as of March 31, 2002. We issued an aggregate
of 73,805 shares of our common stock.
(6) CONVERSION
A holder may convert initially a share of our Series C preferred stock at a
fixed conversion price of $3.00 per share into 11.67 shares of our common stock.
On June 20, 2004, the conversion price will become the lesser of $3.00 or the
market price on such anniversary date for any shares still outstanding. The
market price of our common stock will be calculated for this purpose on the same
basis as described in the preceding subsection for premium. If all 393,916
shares of our Series C preferred stock which were outstanding on the date of
this prospectus were converted at $3.00 per share, we would issue 4,597,002
shares of our common stock.
We are required to adjust the number of shares of our common stock issuable
upon conversion and the conversion price in the event of a stock dividend, a
stock split, a reorganization, a recapitalization or a combination or
subdivision of our common stock or a similar event. If we sell shares of our
common stock (or a security convertible or exercisable into shares of our common
stock) for a purchase price less than the then conversion price, the conversion
price will be reduced to such purchase price.
Upon conversion, whether optional or mandatory as described above or in the
succeeding three paragraphs, a holder is entitled to all accumulated but unpaid
premium to the date of conversion.
We can compel conversion of our Series C preferred stock if conversion is
required by an investment banker in an underwritten offering. For us to qualify
for this forced conversion right we must receive net proceeds of at least
$20,000,000 from the offering. In addition, the offering price to the public,
net of underwriting discounts and commissions, can not be less than $10.00 per
share of our common stock.
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In the event that the market price of our common stock for any ten
consecutive trading days is at or above $7.50, $8.50, $9.50, $10.50 and $11.50,
respectively, we can compel the holders to convert not more than 20% of the then
outstanding shares of our Series C preferred stock. Once we compel conversion at
a trigger price, we can only compel conversion at the next higher trigger price.
For us to utilize the mandatory conversion right described in this paragraph or
the preceding paragraph, our common stock must still be listed on the American
Stock Exchange (or the New York Stock Exchange) or quoted on Nasdaq. In
addition, we must otherwise be in compliance with our obligations and authorized
shares of our common stock must be available for conversion of the shares of our
Series C preferred stock.
If our common stock is suspended from trading or not listed on the American
Stock Exchange which it currently is (or the New York Stock Exchange), or quoted
on Nasdaq for an aggregate of ten full trading days during any nine-month
period, each holder of the Series C preferred stock may, at his, her or its
option, convert his, her or its shares. If the market price of our common stock
is less than the then conversion price, the conversion price shall be reduced to
the lower market price.
(7) REDEMPTION
In certain default situations, as, for example:
(a) our failure to make timely deliveries (after a grace period) of
certificates for shares of our common stock following conversions of shares
of our Series C preferred stock;
(b) our default (after a grace period) in fulfilling our obligations
under a registration rights agreement with the purchasers of our Series C
preferred stock; or
(c) our material breach of our agreements with such purchasers (after
a grace period to cure), or if we:
(1) sell all of our assets,
(2) sell or issue shares of our common stock and/or other
securities exercisable or convertible into shares of our common stock
resulting in ownership by a person, entity or group other than our
current affiliates of 50% or more of our common stock, or
(3) merge where we are not the survivor,
any holder of our Series C preferred stock may demand, in the case of the
defaults set forth in clauses (a) and (c), that we redeem, for cash, his, her or
its shares at a specified redemption price, plus accrued and unpaid premium. In
the event of a default by us pursuant to clause (b), we are obligated to make
compensatory payments (either in cash or, since November 21, 2001, in shares of
our common stock) pursuant to the following formula set forth in the
registration rights agreement as amended: the product of the purchase price for
the units and 0.15 for each 30-day period after the deadline. Thus, if we paid
in cash, we would pay the holder $15,000 for each 30-day period with respect to
each $1,000,000 of purchase price. If we paid in shares of our common stock, we
would determine the number of shares by dividing the amount of cash payment by
the lesser of (i) the conversion price (currently $3.00) and (ii) the average of
the closing bid prices of our common stock during the five trading days
preceding the due date for the payment. Both calculations are based upon only
the shares not then held in escrow and not then registered under the Securities
Act. The certificate of designation relating to our Series C
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preferred stock provides that the redemption right described in clause (c)(2)
arises as a result of the mere accumulation of ownership of 50% or more of the
shares of our common stock. However, on March 12, 2002, all of the holders
agreed, retroactively to the date of their purchase, to waive this redemption
right except if the accumulation arose from sales or issuances by us. They also
agreed, as a condition to their transferring their shares, to obtain a similar
waiver from any transferee.
The specified redemption price will be the greater of:
(a) $42 plus 120% of accrued and unpaid premium for each share of our
Series C preferred stock or
(b) 11.67 times (subject to adjustment for, among other things,
accrued and unpaid premium) the higher of:
(i) the highest closing price for the shares of our common stock
for the days between the receipt of the investor's notice to redeem his,
her or its shares of our Series C preferred stock and the day before we
redeem the shares from the investor and
(ii) the fair market value of the shares on the date on which we
receive a notice of the investor's intention to redeem his, her or its
shares, as determined by us and the holders of the majority of the
shares of the Series C preferred stock. If we and they cannot agree, an
investment banking firm mutually acceptable to the holders of the
majority of the shares of our Series C preferred stock will make the
determination.
We may, at our option, redeem the shares of our Series C preferred stock at
its stated value (i.e., $35.00 per share) plus accrued but unpaid premium, if
the closing sales price of our common stock is less than $3.50 per share for 11
or more consecutive trading dates. If we exercise this option, we must issue to
a holder an investor warrant to purchase .875 of a share of our common stock for
each share of the Series C preferred stock redeemed.
We may also, at our option, redeem the shares of our Series C preferred
stock at its stated value (i.e., $35.00 per share), plus accrued but unpaid
premium, on and after June 20, 2004. Our common stock must be listed on the
American Stock Exchange or the New York Stock Exchange or quoted on Nasdaq for
us to redeem as provided in this paragraph or the preceding paragraph. In
addition, we must otherwise be in compliance with our obligations and authorized
shares of our common stock must be available for conversion of shares of our
Series C preferred stock.
(8) REACQUIRED SHARES
Shares of our Series C preferred stock which have been converted, redeemed
or reacquired by us in any manner will, upon compliance by us with the
provisions of the Delaware General Corporation Law, have the status of
authorized and unissued shares of the preferred stock not constituting part of
any series of our preferred stock. In other words, they will be in the same
status as if never issued.
(9) FRACTIONAL SHARES
No fractional shares will be issued upon either conversion of a share of
our Series C preferred stock or upon redemption of premium in shares of our
common stock. Instead we will disregard the fractional share and we shall round
up or down to the nearest whole share the number of shares of our common stock
which we issue.
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(10) VOTING RIGHTS
We have described in the subsection entitled "Seniority of our Series C
Preferred Stock" under this caption "Material Changes" in this prospectus
certain actions that we may not take without the consent of a majority of the
holders of our Series C preferred stock. In addition, the vote or consent of a
majority of the holders is required if we are to:
- alter or change the rights, preferences or privileges of our Series C
preferred stock or issue any additional shares of such series except on
the same terms and conditions.
- alter or change the rights, preferences or privileges of any previously
issued shares of our capital stock as to affect adversely our Series C
preferred stock.
- create any new class or series of our capital stock having a preference
over, or ranking on the same rank as, our Series C preferred stock as to
the distribution of assets upon liquidation, dissolution or winding up of
our company.
- increase the par value of our common stock.
The holders of shares of our Series C preferred stock have no other voting
rights except as they are otherwise granted by the Delaware General Corporation
Law. This statute provides a voting right to the holders of the Series C
preferred stock if the action being voted upon by the holders of our common
stock would adversely affect the rights of the preferred stockholders.
Whenever the holders of shares of the Series C preferred stock have been
granted by this law the right to vote separately as a class, the vote of the
holders of at least a majority of the then outstanding shares will be required
for approval. However, we have agreed contractually with the holders that, if
their consent is required with respect to a change affecting their security,
unanimous consent is required.
(11) LIQUIDATION
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of our company, each holder of shares of our Series C preferred
stock will be entitled to receive out of the assets available for distribution
to stockholders an amount equal to $35.00 per share (i.e., its stated value).
Each holder will also receive a sum equal to all accrued but unpaid premium, if
any, before any payment may be made to the other stockholders. After payment in
cash to the holders of the shares of the Series C preferred stock of the full
amounts fixed by the certificate of designation as described in this paragraph,
such holders will have no right or claim to any of our remaining assets.
INVESTOR WARRANTS
A copy of the form of investor warrant was filed as an exhibit to the
registration statement of which this prospectus constitutes part I. In addition
to your reading the following description of its material terms and conditions,
you may wish to read this exhibit. To obtain a copy, your attention is directed
to "Incorporation of Certain Information by Reference" in this prospectus.
The investor warrants are initially exercisable at $3.00 per share. The
exercise price and the number of shares of our common stock are subject to
adjustment in the event of a stock dividend, a stock split, a reorganization, a
recapitalization or a combination or subdivision of our common stock or a
similar event. If we, on or prior to June 19, 2004, sell shares of our common
stock (or a security convertible or exercisable into shares of our
27
common stock) for a purchase price less than the then conversion price, then we
must reduce the exercise price of our investor warrant to such lower sale
exercise price.
An investor warrant may be exercised on a "cashless" basis. In a cashless
exercise the holder is entitled to receive shares of our common stock having a
market value equal to the net exercise value of the portion of the warrant being
exercised. The holder makes no cash payment to exercise the warrant. The
investor warrants specify the manner of calculating the number of shares of our
common stock issuable in a "cashless" exercise.
As a result of an agreement dated as of August 16, 2001, we and the holders
of the investor warrants agreed to delete a provision in our investor warrants
that would have reset the exercise price to a lower price based on the market
price of our common stock at the end of each quarter during the first year the
warrants were outstanding. In addition, the agreement reduced the exercise price
of the investor warrants from $3.50 to $3.00 per share.
PLAN OF DISTRIBUTION
ELIGIBLE SHARES
All shares of our common stock to be reoffered pursuant to this prospectus
by the selling stockholders are shares:
- issuable upon the conversions of shares of our Series C preferred stock
we sold to most of the selling stockholders in a private placement which
we closed on June 20, June 29 and September 28, 2001.
- issued or issuable upon the quarterly redemptions of premium with respect
to the outstanding shares of our Series C preferred stock.
- issued to those selling stockholders who or which purchased their
securities on September 28, 2001 as compensation for the delay in our
closing with them.
- issuable upon the exercises of common stock purchase warrants expiring
June 19, 2006 (These investor warrants were initially issued in the
private placement as part of units with the shares of our Series C
preferred stock).
- issuable upon the exercises of common stock purchase warrants expiring
June 19, 2006 and September 27, 2006 issued to one of the selling
stockholders as partial payment of a placement agent fee in the private
placement.
- issuable upon the exercises of common stock purchase warrants expiring
June 19, 2006 and September 27, 2006 issued as partial payments of
finder's fees in connection with the private placement.
The term "selling stockholders" as used by us in this prospectus includes
pledgees, donees, transferees or other successors in interest selling shares of
our common stock received after the date of this prospectus from one or more of
the selling stockholders named in the list commencing on page 34 as a pledge,
gift, partnership distribution or other non-sale related transfer.
We have registered an aggregate of 1,379,102 shares of our common stock
based on our current estimate as to the shares to be issued upon the redemption
of premium with respect to the 393,916 shares of the Series C preferred stock
outstanding as of March 31, 2002. This estimate is for the period commencing
September 30, 2001 and ending June 30, 2004. An aggregate of 303,513 shares of
these estimated shares of our common stock were
28
issued as of September 30, 2001, December 31, 2001 and March 31, 2002 in
redemption of premium. Our estimate as to the shares to be issued in the future
in redemption of premium assumes that no shares of the Series C preferred stock
will be converted or redeemed during that period. Should we require additional
shares for redemption of premium, we intend to file a new registration statement
under the Securities Act of 1933 registering the additional shares then
required. We shall follow the same procedure if we issue additional shares of
our common stock as compensatory payments for not meeting certain registration
deadlines. As of April 30, 2002, we estimated that such shares could be as many
as 260,231 shares. We shall be issuing these 260,231 shares in May 2002.
WARRANT SHARES
Certain of the selling stockholders are offering pursuant to this
prospectus shares of our common stock issuable when and if the investor
warrants, the placement agent's warrants and the finder's warrants are
exercised.
For certain information as to the investor warrants, we direct your
attention to the section entitled "Investor Warrants" under the caption
"Material Changes" in this prospectus.
We granted the three placement agent's warrants to purchase an aggregate of
444,792 shares of our common stock to Wells Fargo Van Kasper LLC in partial
payment for its services as the placement agent in our sixth private placement
in June and September 2001. We also paid such firm cash fees of $676,973.
We issued one of the finder's warrants to purchase 11,670 shares of our
common stock to Ladenburg Thalmann & Co. Inc. in partial payment of a finder's
fee with respect to our sixth private placement in June 2001. We also paid such
firm a cash finder's fee of $35,000.
We issued a second finder's warrant to purchase 9,329 shares of our common
stock to EHC Consulting in partial payment of a finder's fee with respect to our
sixth private placement in June 2001. We also paid such firm a cash finder's fee
of $41,970.
We issued the third finder's warrant to purchase 2,042 shares of our common
stock to APS Financial Corporation in partial payment of a finder's fee with
respect to our sixth private placement in September 2001. We also paid such firm
a cash finder's fee of $6,125. APS Financial Corporation is not listed as a
selling stockholder because it transferred 50% of its finder's warrant to each
of Lee E. Burton and American Physicians Service Group, Inc. The transferees are
affiliated with the finder and are each listed as a selling stockholder in the
table beginning on page 34 of this prospectus.
We issued the fourth finder's warrant to purchase 7,294 shares of our
common stock to Michael Mrkulic in partial payment of a finder's fee with
respect to our sixth private placement in September 2001. He was also entitled
to a cash finder's fee of $21,125. However, at his request, we netted this
amount against his purchase price for .625 of a unit.
All of the placement agent's warrants and the finder's warrants are
exercisable initially at $3.00 per share. Each expires on either June 19, 2006
or September 27, 2006. Each also provides for an adjustment to the number of
shares of our common stock issuable upon exercise and the exercise price in the
event of a stock dividend, a stock split and similar events as described for the
investor warrants.
29
DISTRIBUTION METHOD
All of the selling stockholders have advised us that they may sell, from
time to time, pursuant to this prospectus, their shares of our common stock (an
aggregate of 11,060,419 shares as of the date of this prospectus) on the
American Stock Exchange, in the third market, in isolated transactions, or in a
combination of such methods of sale. They have also advised us that their sales
may be made at fixed prices which may be changed, at market prices prevailing at
the time of sale, at prices related to prevailing market prices, or at
negotiated prices with institutional or other investors. In addition, the
selling stockholders may sell, when permissible, pursuant to the exemption of
Rule 144 under the Securities Act of 1933. As of the date of this prospectus,
none of the shares of our common stock being offered pursuant to this prospectus
had met the one-year holding requirement to become eligible for sale pursuant to
Rule 144 under the Securities Act of 1933. On May 13, 2002, the closing sales
price as reported on the American Stock Exchange was $3.05 per share.
The selling stockholders will act independently of each other. They may
sell the shares of our common stock 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 our 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 re-sales by such
broker-dealer for its account pursuant to this prospectus;
(c) ordinary brokerage transactions and transactions in which the
broker solicits, or acts as an intermediary for, purchasers; or
(d) face-to-face transactions between the selling stockholder and
purchasers without a broker-dealer.
In effecting sales, a broker-dealer engaged by a 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 which
will be negotiated immediately prior to sale. This compensation to a particular
broker-dealer might be in excess of customary commissions for routine market
transactions. 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 of 1933 in connection with these
sales. Any profits realized by the selling stockholder and the compensation of
such brokers or dealers may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933.
Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares of
our common stock through a block trade, a purchase by a broker or dealer, or any
special offering other than an underwritten offering, we shall file a
post-effective amendment to this registration statement to amend the prospectus.
In such amendment we shall disclose (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.
30
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in, or transfer or assign, some or all
of the shares of our common stock owned by them. The pledgees, secured parties
or persons to whom such securities have been hypothecated shall, upon
foreclosure in the event of a default, and the transferees and assignees shall,
be deemed to be selling stockholders for the purpose of this prospectus. The
number of shares of our common stock beneficially owned by a selling stockholder
who or which so transfers, pledges or assigns will decrease as and when the
selling stockholder takes such actions. The plan of distribution for the selling
stockholder's shares of our common stock sold hereunder will otherwise remain
unchanged by reason of a transfer, pledge or assignment. In addition, a selling
stockholder may, from time to time, sell short our common stock. In such
instances, this prospectus may be delivered in connection with such short sales
and the shares of our common stock offered hereby may be used to cover such
short sales.
A selling stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of our common
stock in the course of hedging the positions they assume with such selling
stockholder. This may occur in connection with distributions of shares of our
common stock by such broker-dealers. A selling stockholder may also enter into
option or other transactions with a broker-dealer that involve the delivery of
shares of our common stock to the broker-dealer. The broker-dealer may then
resell or otherwise transfer the shares of our common stock. A selling
stockholder may also loan or pledge shares of our common stock to a
broker-dealer. The broker-dealer may then sell the shares of our common stock so
loaned or, upon a default, may sell or otherwise transfer the pledged shares of
our common stock.
In order to comply with the securities laws of some states, the shares of
our common stock will have to be sold for a selling stockholder in those
jurisdictions only through registered or licensed brokers or dealers.
We have advised the selling stockholders of the requirement under the
Securities Act of 1933 that each of them, or any broker-dealer acting for him,
she or it, must deliver a copy of this prospectus in connection with any resale
by such selling stockholder of shares of our common stock under this prospectus.
We have furnished copies of this prospectus to the American Stock Exchange so
that, only with respect to a sale made on the American Stock Exchange, the
selling stockholder or its broker-dealer will not have to deliver a copy of this
prospectus to the purchaser.
We have also undertaken, if, in the future in our opinion, this prospectus
no longer complies with Section 10(a)(3) of the Securities Act of 1933, to
advise the selling stockholders of this opinion, to request that the selling
stockholders cease use of this prospectus and to confirm our then intention to
amend this registration statement in order to effect such compliance.
The holders of a majority of the shares have the right to select an
underwriter (reasonably acceptable to us) to sell for whichever selling
stockholders so desire. In the event of such a request, we shall file a
post-effective amendment to the registration statement so that a new amended
prospectus will become available describing the underwritten offering, whether
on a firm commitment or best efforts basis. As of the date of this prospectus,
we have received no such request.
31
MISCELLANEOUS
We have also advised each of the selling stockholders that a court may
determine at a later date that he, she or it is an "underwriter" within the
meaning of Section 2(11) of the Securities Act of 1933. In such event the
selling stockholder may be found liable for monetary damages to purchasers under
Sections 11, 12(2) and 15 of the Securities Act of 1933 if there are any defects
in this registration statement (i.e., material misstatements or omissions). We
have also advised them that they may be found liable under Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 for such material misstatements
or omissions, if any.
We 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, as of the date of this prospectus, of 11,060,419 shares of our common
stock offered by this prospectus will comply with the requirements of the
federal securities 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 our common stock, or
attempting to induce any person to bid for, or to purchase, shares of our common
stock during a restricted period (as such term is defined in Rule 100) which
ends when he, she or it has completed his, her or its participation in a
distribution of shares in an offering made pursuant to this prospectus. Rule 102
sets forth certain exceptions for the selling stockholder, including exercising
a stock option or warrant. For purposes of the Rule, exercise of an investor
warrant, a placement agent's warrant or a finder's warrant would be excepted.
We are bearing all costs relating to the registration of the shares of our
common stock offered by this prospectus. Any commissions, discounts or other
fees payable to broker-dealer in connection with any sale of shares of our
common stock will be borne by the selling stockholder selling such shares.
SELLING STOCKHOLDERS
The next following table for each selling stockholder indicates, except as
described in the third succeeding paragraph, as of the date of this prospectus:
- the name of the selling stockholder,
- the number of shares of our common stock beneficially owned as of April
30, 2002,
- the number of shares of our common stock to be offered pursuant to this
prospectus, and
- the number of shares of our common stock to be beneficially owned if all
of the shares to be offered pursuant to this prospectus are sold.
The table also indicates the percentage of beneficial ownership before and
after the proposed sales. During the past three years, none of the selling
stockholders had any position, office or other material relationship with us,
except as a stockholder and except that Paul Sandler, a director of our company,
is affiliated with a family partnership PMLDSS, Ltd. that is a selling
stockholder.
32
The selling stockholders are offering, by this prospectus, as of the date
of this prospectus, as indicated in the next following table, an aggregate of
11,060,419 shares of our common stock, as follows:
(1) an aggregate of 4,597,002 shares issuable upon the conversions of
393,916 outstanding shares of our Series C preferred stock,
(2) an aggregate of 5,072,129 shares issuable upon the exercises of
- our investor warrants to purchase an aggregate of 4,597,002
shares,
- our placement agent's warrants to purchase an aggregate of
444,792 shares and
- our finder's warrants to purchase an aggregate of 30,335 shares,
(3) an aggregate of 303,513 shares already issued upon the redemption
of premium with respect to the 393,916 outstanding shares of our Series C
preferred stock,
(4) an aggregate of 1,075,589 additional shares which we estimate to
be issued commencing as of June 30, 2002 and on or before June 30, 2004
upon the redemption of premium with respect to the 393,916 outstanding
shares of our Series C preferred stock, and
(5) 12,186 additional shares issued as compensation for the delay in
closing with respect to the 80,196 shares of our Series C preferred stock
purchased on September 28, 2001.
This above estimate in (4) assumes that no shares of our Series C preferred
stock are converted, redeemed or cancelled prior to June 30, 2004. Because the
premium rate during that period is 10% per year and our estimated period was
three years, we multiplied 4,597,002, which is the number of shares of our
common stock to be issued upon conversion, by 30% to arrive at a total of
1,379,102 shares. We then deducted the 303,513 shares already issued to arrive
at our estimate of 1,075,589 shares as indicated in (4) above.
We have included within the shares reported in the table as beneficially
owned by most of the selling stockholders our estimate as to the shares of our
common stock which may be issued to them as compensatory shares through April
30, 2002 as a result of our not meeting certain deadlines with respect to the
registration statement of which this prospectus constitutes part I. We are
obligated, once these shares are issued, to register under the Securities Act of
1933 the compensatory shares for resale by the holders. Your attention is
directed to the section "Series C Preferred Stock -- (7) Redemption" under the
caption "Material Changes" in the prospectus for an explanation of how these
compensatory payments are calculated.
The percentages of beneficial ownership reported in the next following
table are based upon 35,323,140 shares of our common stock which were
outstanding on April 30, 2002. Effect is given, where applicable, pursuant to
Rule 13d-3(1)(i) under the Securities Exchange Act of 1934, to shares issuable
upon the conversion of shares of our Series C preferred stock and exercises of
the investor warrants, the placement agent's warrants and the finder's warrants,
all of which were convertible or exercisable as of April 30, 2002.
33
Each of the following symbols as used in the following table shall have the
meaning assigned to it as below:
<Table>
<Caption>
Symbol Meaning
- ------ -------
CS Shares of our common stock issuable upon
conversion of our Series C preferred stock.
IW Shares of our common stock issuable upon
exercise of our investor warrants
PS Shares of our common stock issued upon
redemption of premium
EP Shares of common stock estimated to be issued
upon redemption of premium
CD Shares of our common stock issued as
compensation for our delay in closing
EC Shares of our common stock estimated to be
issued as compensatory payments pursuant to our
registration rights agreement with investors
OW Shares of our common stock issuable upon
exercise of placement agent's and finder's
warrants
OS Shares of our common stock beneficially owned
by the selling stockholders acquired other than
in connection with our private placement in
June and September 2001
TS The total of all of the foregoing shares of our
common stock
</Table>
Where a particular symbol is not shown for the selling stockholder, he, she or
it does not own shares falling in that category. In addition, because a selling
stockholder may convert his, her or its shares of our Series C preferred stock
prior to June 30, 2004, the selling stockholder may not receive all of the
shares shown in the table for the symbol EP. If this occurs, the selling
stockholder's total shown in the table for the symbol TS would also be reduced.
Similarly, the shares shown in the table for the symbol EC could be less if all
estimated shares are not issued.
TABLE OF SELLING STOCKHOLDERS
<Table>
<Caption>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------------------- --------------
NAME OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE SALE SALE SALE
- ------------------- --------- --------- ------ -----
General Conference............ CS 333,424 333,424 0
Corporation of Seventh-day IW 333,424 333,424 0
Adventists(1) PS 23,971 23,971 0
EP 76,056 76,056 0
EC 17,500 0 17,500
OS 6,763,129 0 6,763,129 20.5% 18.4%
--------- --------- ---------
TS 7,547,504 766,875 6,780,629
</Table>
34
<Table>
<Caption>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------------------- --------------
NAME OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE SALE SALE SALE
- ------------------- --------- --------- ------ -----
Omicron Partners
L.P.(2)................. CS 828,570 828,570 0
IW 828,570 828,570 0
PS 59,569 59,569 0
EP 189,002 189,002 0
EC 43,488 0 43,488 4.99% nil
--------- --------- ---------
TS 1,949,199 1,905,711 43,488
Zanett Lombardier
Master.................. CS 666,859 666,859 0
Fund II, L.P.(3) TW 646,852 646,852 0
PS 47,942 47,942 0
EP 152,116 152,116 0
EC 35,000 0 35,000
--------- --------- ---------
TS 1,548,769 1,513,769 35,000 4.2% nil
Rano Mukhamadieva(4)...... IW 20,007 20,007 0 nil 0
New England Partners...... CS 333,424 333,424 0
Capital, L.P.(5) IW 333,424 333,424 0
PS 14,358 14,358 0
EP 85,669 85,669 0
EC 25,000 0 25,000
CD 1,441 1,441 0
--------- --------- ---------
TS 793,316 768,316 25,000 2.2 nil
Estate of Herman
Sandler(6).............. CS 105,030 105,030 0
IW 105,030 105,030 0
PS 4,524 4,524 0
CD 1,544 1,544 0
EP 26,985 26,985 0
EC 7,875 0 7,875
OS 450,000 0 450,000
--------- --------- ---------
TS 700,988 243,113 457,875 2.0% 1.3%
Dandelion
International,.......... CS 421,229 421,229 0
Ltd.(7) IW 421,229 421,229 0
PS 31,556 31,556 0
EP 94,813 94,813 0
EC 22,109 0 22,109
OS 87,500 0 87,500
--------- --------- ---------
TS 1,078,436 968,827 109,609 3.0% nil
Bomoseen Investments...... CS 421,229 421,229 0
Ltd.(8) IW 421,229 421,229 0
PS 31,556 31,556 0
EP 94,813 94,813 0
EC 22,109 0 22,109
--------- --------- ---------
TS 990,936 968,827 22,109 2.7% nil
</Table>
35
<Table>
<Caption>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------------------- --------------
NAME OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE SALE SALE SALE
- ------------------- --------- --------- ------ -----
Wallington Investment..... CS 409,559 409,559 0
Holdings Ltd.(9) IW 409,559 409,559 0
PS 31,354 31,354 0
EP 91,514 91,514 0
EC 21,496 0 21,496
--------- --------- ---------
TS 963,482 941,986 21,496 2.6% nil
McCarthy Family
Partners................ CS 81,690 81,690
2002, G.P.(10) IW 81,690 81,690 0
PS 1,419 1,419 0
EP 23,088 23,088 0
EC 4,288 0 4,288
--------- --------- ---------
TS 192,175 187,887 4,288 nil nil
PMLDSS Ltd.(11)........... CS 105,030 105,030
IW 105,030 105,030 0
PS 4,524 4,524 0
EP 26,985 26,985 0
EC 7,875 0 7,875
CD 1,575 1,575 0
OS 227,320 0 227,320
--------- --------- ---------
TS 478,339 243,144 235,195 1.3% nil
Brendon Devlin............ CS 116,700 116,700 0
IW 116,700 116,700 0
PS 5,025 5,025 0
EP 29,985 29,985 0
EC 8,750 0 8,750
CD 2,860 2,860 0
--------- --------- ---------
TS 280,020 271,270 8,750 nil nil
Elliott International..... CS 183,382 183,382 0
L.P.(12) IW 137,537 137,537 0
PS 13,185 13,185 0
EP 41,830 41,830 0
EC 9,625 0 9,625
--------- --------- ---------
TS 385,559 375,934 9,625 1.1% nil
Elliott Associates,
L.P.(13)................ CS 150,041 150,041 0
IW 112,530 112,530 0
PS 10,786 10,786 0
EP 34,226 34,226 0
EC 7,875 0 7,875
--------- --------- ---------
TS 315,458 307,583 7,875 nil nil
RAM Capital Resources,.... IW 83,356 83,356 0 nil nil
LLC(14)
</Table>
36
<Table>
<Caption>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------------------- --------------
NAME OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE SALE SALE SALE
- ------------------- --------- --------- ------ -----
Timberline Opportunity.... CS 11,670 11,670
Partners, L.P.(15) IW 11,670 11,670 0
PS 839 839 00
EP 2,662 2,662 0
EC 875 0 875
OS 165,000 0 165,000
--------- --------- ---------
TS 192,716 26,841 165,875 nil nil
AWINN Ltd.(16)............ CS 23,340 23,340 0
IW 23,340 23,340 0
PS 1,004 1,004 0
EP 5,998 5,998 0
EC 1,225 0 1,225
CD 599 599 0
OS 146,978 0 146,978
--------- --------- ---------
TS 202,484 54,281 148,203 nil nil
The Michael S. McCord..... CS 11,670 11,670 0
GST Trust(17) IW 11,670 11,670 0
PS 503 503 0
EP 2,998 2,998 0
EC 875 0 875
CD 307 307 0
OS 25,000 0 25,000
--------- --------- ---------
TS 53,023 27,148 25,875 nil nil
OTATO Limited............. CS 133,038 133,038 0
Partnership(18) IW 133,038 133,038 0
PS 9,564 9,564 0
EP 30,347 30,347 0
EC 6,983 0 6,983
--------- --------- ---------
TS 312,970 305,987 6,983 nil nil
H&B Wilson Interests,..... CS 23,340 23,340 0
Ltd.(19) IW 23,340 23,340 0
PS 1,004 1,004 0
EP 5,998 5,998 0
EC 1,750 0 1,750
CD 620 620 0
OS 60,602 0 60,602
--------- --------- ---------
TS 116,654 54,302 62,352 nil nil
Lee E. Burton(20)......... CS 11,670 11,670 0
IW 11,670 11,670 0
PS 503 503 0
EP 2,998 2,998 0
EC 875 0 875
CD 7 7 0
OW 1,021 1,021 0
OS 28,485 0 28,485
--------- --------- ---------
TS 57,229 27,869 29,360 nil nil
</Table>
37
<Table>
<Caption>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------------------- --------------
NAME OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE SALE SALE SALE
- ------------------- --------- --------- ------ -----
Raul M. Rodelas........... CS 35,010 35,010 0
IW 35,010 35,010 0
PS 1,507 1,507 0
EP 8,996 8,996 0
EC 2,625 0 2,625
CD 524 524 0
--------- --------- ---------
TS 83,672 81,047 2,625 nil nil
Michel A. Amsalem......... CS 70,020 70,020 0
IW 70,020 70,020 0
PS 3,015 3,015 0
EP 17,991 17,991 0
EC 3,675 0 3,675
CD 768 768 0
--------- --------- ---------
TS 165,489 161,814 3,675 nil nil
Aljay L. Smith............ CS 29,175 29,175 0
IW 29,175 29,175 0
PS 1,257 1,257 0
EP 7,496 7,496 0
EC 2,188 0 2,188
CD 724 724 0
--------- --------- ---------
TS 70,015 67,827 2,188 nil nil
Gary Blum................. CS 29,175 29,175
IW 29,175 29,175 0
PS 1,257 1,257 0
EP 7,496 7,496 0
EC 2,188 0 2,188
CD 409 409 0
--------- --------- ---------
TS 69,700 67,512 2,188 nil nil
Harry S. Y. Nam(21)....... CS 11,670 11,670 0
IW 11,670 11,670 0
PS 503 503 0
EP 2,998 2,998 0
EC 875 0 875
CD 7 7 0
OS 20,000 0 20,000
--------- --------- ---------
TS 47,723 26,848 20,875 nil nil
Dos Cunados(22)........... CS 11,670 11,670 0
IW 11,670 11,670 0
PS 503 503 0
EP 2,998 2,998 0
EC 613 0 613
CS 300 300 0
OS 20,908 0 20,908
--------- --------- ---------
TS 48,662 27,141 21,521 nil nil
</Table>
38
<Table>
<Caption>
BENEFICIAL
NUMBER OF SHARES OWNERSHIP(1)
--------------------------------------------- --------------
NAME OF BEFORE AFTER BEFORE AFTER
SELLING STOCKHOLDER SALE SALE SALE SALE
- ------------------- --------- --------- ------ -----
Stifel Nicolaus,.......... CS 11,670 11,670 0
Custodian for A. Ray IW 11,670 11,670 0
Cercle IRA PS 503 503 0
EP 2,998 2,998 0
EC 875 0 875
CD 309 309 0
--------- --------- ---------
TS 28,025 27,150 875 nil nil
Michael Mrkulic(23)....... CS 7,294 7,294 0
IW 7,294 7,294 0
PS 314 314 0
EP 1,874 1,874 0
EC 547 0 547
CD 192 192 0
OW 7,294 7,294 0
--------- --------- ---------
TS 24,809 24,262 547 nil nil
Scorpion Acquisition...... CS 20,423 20,423 0
LLC(24) IW 20,423 20,423 0
PS 1,468 1,468 0
EP 4,659 4,659 0
EC 1,072 0 1,072
--------- --------- ---------
TS 48,045 46,973 1,072 nil nil
Wells Fargo Van Kasper.... OW 444,792 444,792 0
LLC(25) OS 25,000 0 25,000
--------- --------- ---------
TS 469,792 444,792 25,000 1.3% nil
Ladenburg Thalmann........ OW 11,670 11,670 0 nil 0
& Co. Inc.(26)
EHC Consulting(27)........ OW 9,329 9,329 0 nil 0
American Physicians....... OW 1,021 1,021 0
Service Group, Inc.(28) OS 22,056 0 22,056
--------- --------- ---------
TS 23,077 1,021 22,056 nil nil
</Table>
- -------------------------
(1) No person or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934 or Regulation 13D-G) controls this selling
stockholder. The governing board of this selling stockholder delegates
investment authority over owned and trustee funds through various
committees to the General Conference Investment Office, which is led by an
Associate Treasurer of this selling stockholder (currently Gary DeBoer is
assigned with respect to us). Day-to-day responsibility with respect to
each issuer in which this selling stockholder makes an investment
(including us) is delegated to one or more portfolio managers (currently
Kenneth Rasmussen is assigned with respect to us). They may vote our shares
or execute investment decisions with respect to our securities, but only
within the guidelines or policies authorized by the governing board or one
of the governing committees. The shares of our common stock reported in the
table as being beneficially owned, as of April 30, 2002, by this selling
stockholder include (a) an aggregate of 6,023,129 shares acquired by this
selling stockholder and its affiliate in prior private placements of our
39
company and in open market purchases and (b) an aggregate of 740,000 shares
issuable upon the exercises of two warrants expiring February 28, 2005 also
acquired in a prior private placement of our company and one expiring
January 29, 2007 acquired as additional compensation for a loan to us. This
selling stockholder is also offering 240,000 of the shares described in (a)
and 240,000 of the shares described in (b) pursuant to another registration
statement of our company.
(2) Omicron Capital, L.P., a Delaware limited partnership ("Omicron Capital"),
serves as subadvisor to this selling stockholder, a Bahamas limited
partnership. Omicron Capital, Inc. a Delaware corporation ("OCI"), serves
as general partner of Omicron Capital and Grove Management Limited
("Grove") is the general partner of this selling stockholder. By reason of
such relationships, Omicron Capital and OCI may be deemed to share
dispositive power over the shares of our common stock owned by this selling
stockholder and Grove may be deemed to share voting and dispositive power
over the shares of our common stock owned by this selling stockholder.
Omicron Capital, OCI and Grove disclaim beneficial ownership of such shares
of our common stock. On the date of this prospectus, Olivier H. Morali, an
officer of OCI, has delegated authority from the Board of Directors of OCI
regarding the portfolio management decisions with respect to the shares of
our common stock owned by this selling shareholder. Mr. Morali disclaims
beneficial ownership of such shares of our common stock and he has no legal
right to maintain such delegated authority. No other person beneficially
owns the shares of our common stock owned by this selling stockholder. This
selling stockholder and Grove are not "affiliates" of one another, as that
term is used for purposes of the Securities Exchange Act of 1934, or of any
other person named in this prospectus as a selling stockholder. No person
or "group" (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934 or Regulation 13D-G) controls this selling stockholder
and Grove.
Under the terms of our Series C Preferred Stock and our investor warrants
held by this selling stockholder, these securities are convertible or
exercisable by any holder only to the extent that the number of shares of
our common stock issuable upon the conversion or exercise of those
securities, together with the number of shares of our common stock owned by
the holder and its affiliates (but not including shares of our common stock
underlying unconverted and unexercised portion of those securities or
securities containing similar provisions) would not exceed 4.99% of the
then outstanding shares of our common stock as determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934. Thus, the number
of shares of our common stock set forth in the table for this selling
stockholder exceeds the number of shares of our common stock that this
selling stockholder could own beneficially at any given time through its
ownership of the Series C Preferred Stock and the investor warrants.
(3) Lombardier Management Limited, a Cayman Islands limited liability company
("Lombardier"), is the general partner and serves as subadvisor to this
selling stockholder, a Cayman Islands limited partnership. Zanett
Lombardier Limited is the limited partner of this selling stockholder ("ZL
Limited"). By reason of such relationships, Lombardier may be deemed to
share dispositive power over the shares of our common stock owned by this
selling stockholder and ZL Limited may be deemed to share voting and
dispositive power over the shares of our common stock owned by this selling
stockholder. Lombardier and ZL Limited disclaim beneficial ownership of
such shares of common stock. On the date of this prospectus, Gianluca
Cicogna, a director of Lombardier, has delegated authority from the Board
of
40
Directors of Lombardier to make portfolio management decisions with respect
to the shares of our common stock owned by this selling shareholder. Mr.
Cicogna disclaims beneficial ownership of such shares of our common stock
and he had no legal right to maintain such delegated authority. No other
person beneficially owns the shares of our common stock owned by this
selling stockholder. Lombardier and ZL Limited are not "affiliates" of one
another, as that term is used for purposes of the Securities Exchange Act
of 1934, or of any other person named in this prospectus as a selling
stockholder. No person or "group" (as that term is used in Section 13(d) of
the Securities Exchange Act of 1934 or Regulation 13D-G) controls
Lombardier and ZL Limited.
(4) The shares of our common stock reported in the table as being beneficially
owned and being offered by this selling stockholder reflect an aggregate of
20,007 shares issuable upon the exercise of an investor warrant transferred
to her by Zanett Lombardier Master Fund II, L.P., another selling
stockholder.
(5) NEP Capital LLC ("NEP Capital"), as the general partner of this selling
stockholder, has the sole voting and investment powers with respect to the
shares of our common stock reported in the table for this selling
stockholder. Accordingly, NEP Capital may be deemed the beneficial owner of
these shares as a result of possessing these powers. However, NEP Capital
disclaims such beneficial ownership of these shares. There are five
independent members of NEP Capital: David A. Dullum, Robert J. Hanks, John
F. Rousseau, Jr., Edwin Snape and Christopher Young. Each disclaims
beneficial ownership of the shares. Accordingly, no person or "group" (as
that term is defined in Section 13(d) of the Securities Exchange Act of
1934 or Regulation 13D-G) controls NEP Capital.
(6) The late Mr. Sandler was an affiliate of a broker-dealer registered under
the Securities Exchange Act of 1934. He purchased shares of our Series C
preferred stock and investor warrants in the ordinary course of his
personal business and not that of the broker-dealer. At the time of the
purchase of these securities, he had no agreements or understandings,
directly or indirectly, with any person to distribute the shares reported
in the table. The shares of our common stock reported in the table as being
beneficially owned, as of April 30, 2002, by this selling stockholder
include (a) 300,000 shares acquired by the late Mr. Sandler upon the
exercise of a common stock purchase warrant and (b) 150,000 shares issuable
upon the exercise of a common stock purchase warrant expiring January 7,
2003 granted to him. The late Mr. Sandler was a brother of Paul Sandler, a
director of our company.
(7) Dany Aboukheir, as a director of this selling stockholder, has sole voting
and investment powers with respect to the shares of our common stock
reported in the table for this selling stockholder. Accordingly, she may be
deemed the beneficial owner of these shares as a result of possessing these
powers. However, she disclaims such beneficial ownership of these shares.
The shares of our common stock reported in the table as being beneficially
owned, as of April 30, 2002, by this selling stockholder include 87,500
shares issuable upon the exercise of a common stock purchase warrant
expiring March 13, 2006. This selling stockholder is offering these 87,500
shares pursuant to another registration statement of our company. This
selling stockholder was a former holder of shares of the Series B preferred
stock.
(8) Each of Robert T. Tucker and Nancy Main is a director of this selling
stockholder. As such, they have shared voting and investment powers with
respect to the shares of our common stock reported in the table for this
selling stockholder. Accordingly,
41
they may be deemed the beneficial owners of these shares as a result of
possessing these powers. However, they disclaim such beneficial ownership
of these shares. This selling stockholder was a former holder of shares of
the Series B preferred stock.
(9) Dominique Lang, as a director of this selling stockholder, has sole voting
and investment powers with respect to the shares of our common stock
reported in the table for this selling stockholder. Accordingly, he may be
deemed the beneficial owner of these shares as a result of possessing these
powers. However, he disclaims such beneficial ownership. This selling
stockholder was a former holder of shares of the Series B preferred stock.
(10) Kevin McCarthy, as the general partner of this selling stockholder, has
sole voting and investment powers with respect to the shares of our common
stock reported in the table for this selling stockholder. Accordingly, he
may be deemed a beneficial owner of these shares. This selling shareholder
acquired its securities from Dandelion International, Ltd., Bomoseen
Investments Ltd. and Wallington Investment Holdings Ltd., three other
selling stockholders.
(11) Paul Sandler, a director of our company, is the President of the corporate
general partner of this selling stockholder (which is a "family
partnership"). As such, he has voting and investment powers with respect to
the shares of our common stock reported in the table for this selling
stockholder. Accordingly, he may be deemed a beneficial owner of the shares
reported in the table. The shares of our common stock reported in the table
as being beneficially owned, as of April 30, 2002, by this selling
stockholder include (a) 200,000 shares owned directly by Dr. Sandler and
(b) an aggregate of 27,320 shares issuable upon the exercises of stock
options granted to Dr. Sandler as a director as to which the stock options
are currently exercisable or exercisable within 60 days of April 30, 2002.
(12) Elliott International Capital Associates Inc. has the sole voting and
investment powers with respect to securities (including ours) owned by this
selling stockholder. Paul E. Singer, as President of such entity, with the
power to act on its behalf, may be deemed the beneficial owner of the
shares of our common stock reported in the table for this selling
stockholder as a result of possessing such powers. However, he disclaims
sole beneficial ownership of these shares.
(13) Paul E. Singer is the general partner of this selling stockholder. As such,
he has sole voting and investment powers with respect to the shares of our
common stock reported in the table. Accordingly, he may be deemed the
beneficial owner of these shares as a result of possessing such powers.
However, he disclaims sole beneficial ownership of these shares.
(14) Michael E. Fein, as the President of this selling stockholder, has sole
voting and investment powers with respect to the shares of our common stock
reported in the table for this selling stockholder. Accordingly, he may be
deemed the beneficial owner of these shares as a result of possessing such
powers. However, he disclaims sole beneficial ownership of these shares.
The shares of our common stock reported in the table as being beneficially
owned, as of April 30, 2002, and offered by this selling stockholder
reflect (a) 45,845 shares issuable upon the exercise of an investor warrant
transferred to it by Elliot International L.P., another selling
stockholder, and (b) 37,511 shares issuable upon the exercise of an
investor warrant transferred to it by Elliot Associates, L.P., another
selling stockholder.
42
(15) Timberline Asset Management LLC, as the general partner of this selling
stockholder, has sole voting and investment powers with respect to the
shares of our common stock reported in the table for this selling
stockholder. Adam Haron is the sole member of the limited liability company
which is the general partner. Accordingly, he may be deemed the beneficial
owner of these shares as a result of possessing such powers. The shares of
our common stock reported in the table as being beneficially owned, as of
April 30, 2002, by this selling stockholder include (a) 82,500 shares
acquired in our fourth private placement in February 2000, (b) 40,000
shares issued upon the partial exercises of a common stock purchase warrant
expiring February 28, 2005 also acquired in such private placement and (c)
42,500 shares issuable upon the exercise of the foregoing warrant. This
selling stockholder is also offering the shares described in (a), (b) and
(c) pursuant to another registration statement of our company.
(16) Peter M. Way is the principal limited partner and a 50% owner with his wife
of the corporate general partner of this selling stockholder. As such, he
has shared voting and investment powers with respect to the shares of our
common stock reported in the table for this selling stockholder.
Accordingly, he may be deemed a beneficial owner of these shares as a
result of possessing such powers. The shares of our common stock reported
in the table as being beneficially owned, as of April 30, 2002, by this
selling stockholder include (a) 2,500 shares acquired by Mr. Way in our
fourth private placement in February 2000, (b) 12,500 shares issued to him
upon the exercise of a common stock purchase warrant expiring February 28,
2005 acquired in the same private placement and (c) 131,978 shares acquired
by Mr. Way in our third private placement in January. This selling
stockholder is also offering the shares described in (a) and (b) pursuant
to another registration statement of our company.
(17) Michael S. McCord is the trustee of this selling stockholder. As such, he
has sole voting and investment powers with respect to the shares of our
common stock reported in the table for this selling stockholder.
Accordingly, he may be deemed a beneficial owner of these shares as a
result of possessing such powers. The shares of our common stock reported
in the table as beneficially owned, as of April 30, 2002, by this selling
stockholder include (a) 12,500 shares acquired by Mr. McCord in our fourth
private placement in February 2000 and (b) 12,500 shares issuable to Mr.
McCord upon the exercise of a common stock purchase warrant expiring
February 28, 2005 also acquired in that private placement. Mr. McCord is
offering the shares described in (a) and (b) pursuant to another
registration statement of our company.
(18) OTA Grand Cayman, Inc., a Delaware corporation ("OTAGC"), is the general
partner of this selling stockholder, a Grand Cayman limited partnership. By
reason of such relationship, OTAGC may be deemed to share voting and
dispositive power over the shares of our common stock beneficially owned by
this selling stockholder. OTAGC disclaims beneficial ownership of such
shares of our common stock. On the date of this prospectus, Frederick
Berdon and Paul Masters, registered representatives of a registered
broker-dealer at which this selling stockholder maintains a brokerage
account, have discretionary authority to trade the shares of our common
stock owned by this selling stockholder and sold through such account.
Messrs. Berdon and Masters disclaim beneficial ownership of such shares of
our common stock and neither of such persons has any legal right to require
this selling stockholder to maintain a brokerage account with such
registered broker-dealer or to require this selling stockholder to continue
to provide such person discretionary
43
trading authority over the shares of such account. No other person
beneficially owns the shares of our common stock owned by this selling
stockholder. This selling stockholder and OTAGC are not "affiliates," as
that term is used for purposes of the Securities Exchange Act of 1934, or
of any other person named in this prospectus as a selling stockholder. No
other person or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934 or Regulation 13D-G) controls this selling
stockholder or OTAGC.
(19) Herman T. Wilson, Jr. is the general partner of this selling stockholder.
As such, he has sole voting and investment powers with respect to the
shares of our common stock reported in the table for this selling
stockholder. Accordingly, he may be deemed a beneficial owner of these
shares as a result of possessing these powers. The shares of our common
stock reported in the table as being beneficially owned, as of April 30,
2002, by this selling stockholder include 60,602 shares beneficially owned
by Mr. Wilson and acquired by him in our third private placement in January
1999.
(20) This selling stockholder is an affiliate of APS Financial Corporation, a
broker-dealer registered under the Securities Exchange Act of 1934. He
purchased his shares of our Series C Preferred Stock and investor warrants
in the ordinary course of his business and not that of this broker-dealer.
At the time of his purchase of these securities, he had no agreements or
understandings, directly or indirectly, with any person to distribute the
shares reported in the table. With respect to the shares underlying the
finder's warrant, APS Financial Corporation, the broker-dealer-transferor,
was granted this warrant in the ordinary course of its business. At the
time of acquisition of this warrant, the broker-dealer-transferor had no
agreements or understandings, directly or indirectly, with any person to
distribute the underlying shares. The shares of our common stock reported
in the table as being beneficially owned, as of April 30, 2002, by this
selling stockholder include (a) 20,000 shares issuable upon the exercise of
a common stock purchase warrant expiring March 13, 2005 acquired in our
fourth private placement in March 2000 and (b) 8,485 shares issuable upon
the exercise of a common stock purchase warrant expiring March 13, 2005
issued in partial payment of a finder's fee in connection with such private
placement. This selling stockholder is also offering the shares described
in (a) and (b) pursuant to another registration statement of our company.
(21) The shares of our common stock reported in the table as being beneficially
owned, as of April 30, 2002, by this selling stockholder include 20,000
shares acquired from a purchaser in our fourth private placement in
February and March 2000. He is also offering the 20,000 shares pursuant to
another registration statement of our company. Mr. Nam is affiliated with
Hyosung Corporation which acquired in our fourth private placement in
February 2000 (a) 500,000 shares of our common stock and (b) a common stock
purchase warrant expiring February 28, 2005 to purchase 500,000 shares of
our common stock. Hyosung Corporation is also offering all of the shares of
the common stock described in (a) and (b) in another registration statement
of our company.
(22) Ben B. McAndrew, III, as the managing partner of this selling stockholder,
has sole voting and investment powers with respect to the shares of our
common stock reported in the table for this selling stockholder.
Accordingly, he may be deemed the beneficial owner of these shares as a
result of possessing these powers. The shares of our common stock reported
in the table as beneficially owned, as of April 30, 2002,
44
by this selling stockholder include 20,908 shares acquired in our third
private placement in January 1999.
(23) This selling stockholder is an affiliate of a broker-dealer registered
under the Securities Exchange Act of 1934. He purchased shares of our
Series C Preferred Stock and an investor warrant in the ordinary course of
his business and not that of the broker-dealer. Mr. Mrkulic was entitled to
a finder's fee which we netted, at his request, against the purchase price
for his .625 of a unit. At the time of the purchase of these securities,
this selling stockholder did not have any agreements or understandings,
directly or indirectly, with any person to distribute the shares of our
common stock reported in the table. With respect to the shares underlying
the finder's warrant, he acquired the finder's warrant in the ordinary
course of his business. At the time of acquisition of this finder's
warrant, he had no agreements or understandings, directly or indirectly,
with any person to distribute the underlying shares.
(24) Each of Nuno Brandolini and Kevin McCarthy are directors of this selling
stockholder. As such, they have shared voting and investment powers with
respect to the shares of our common stock reported in the table for this
selling stockholder. Accordingly, they may be deemed the beneficial owners
of these shares as a result of possessing these powers. However, each
disclaims being the sole beneficial owner of these shares.
(25) This selling stockholder is a broker-dealer registered under the Securities
Exchange Act of 1934 and no person or "group" (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934 or Regulation 13D-G)
controls this selling stockholder. 469,792 shares of the shares of our
common stock reported in the table as being beneficially owned and as being
offered by this selling stockholder reflect shares issuable upon the
exercises of three placement agent's warrants which we granted to it in
partial payment of this selling stockholder's services as placement agent
for our sixth private placement in June and September 2001. We granted this
selling stockholder the placement agent's warrants in the ordinary course
of its business. At the time of the acquisition of these warrants, this
selling stockholder had no agreements or understandings, directly or
indirectly, with any person to distribute these underlying shares. This
selling stockholder also is the beneficial owner of 25,000 shares of our
common stock reported in the table which are issuable upon the exercise of
a warrant expiring April 2, 2007. We issued this warrant to this selling
stockholder in connection with our seventh private placement in April 2002
in the ordinary course of its business. At the time of the acquisition of
this warrant, this selling stockholder had no agreements or understandings,
directly or indirectly, with any person to distribute the underlying
shares.
(26) This selling stockholder is a broker-dealer registered under the Securities
Exchange Act of 1934 and no person or "group" (as that term is used in
Section 13(d) of the Securities Exchange Act of 1934 or Regulation 13D-G)
controls this selling stockholder. The shares of our common stock reported
in the table as being beneficially owned and as being offered by this
selling stockholder reflect shares issuable upon the exercise of a finder's
warrant which we granted to this selling stockholder in partial payment of
a finder's fee in connection with our sixth private placement in June 2001.
We granted this selling stockholder a finder's warrant in the ordinary
course of its business. At the time of the acquisition of this warrant,
this
45
selling stockholder had no agreements or understandings, directly or
indirectly, with any person to distribute the underlying shares of our
common stock.
(27) Edmund Chavez has sole voting and investment powers with respect to the
shares of our common stock reported in the table for this selling
stockholder. Accordingly, he may be deemed the beneficial owner of these
shares. The shares of our common stock reported in the table as being
beneficially owned and as being offered by this selling stockholder reflect
shares issuable upon the exercise of a finder's warrant which we granted in
partial payment of a finder's fee to this selling stockholder in connection
with our sixth private placement in June 2001. The selling stockholder
acquired the finder's warrant in the ordinary course of its business,
referring a potential investor to the placement agent and us. At the time
of the acquisition of their warrant, this selling stockholder had no
agreements or understandings, directly or indirectly, with any person to
distribute the underlying shares of our common stock.
(28) The persons who share voting and/or investment control of the shares of our
common stock reported in the table for this selling stockholder are its
four officers (Kenneth S. Shifrin, Chairman and CEO; William H. Hayes,
Senior Vice President; Maury Magids, Senior Vice President; and Thomas R.
Solomine, Controller) and its four directors (Mr. Shifrin; Robert L. Myer;
William A. Searles and Marc R. Still). Accordingly, no individual or
"group" (as that term is used in Section 13(d) of the Securities Exchange
Act of 1934 or Regulation 13D-G) controls this selling stockholder. This
selling stockholder is an affiliate of APS Financial Corporation, a
broker-dealer registered under the Securities Exchange Act of 1934. We
granted this broker-dealer the finder's warrant in the ordinary course of
its business. At the time of its acquisition of this warrant, neither the
broker-dealer nor this selling stockholder as the former's transferee had
any agreements or understandings, directly or indirectly, with any person
to distribute the underlying shares reported in the table. The shares of
our common stock reported as being beneficially owned, as of April 30,
2002, by this selling stockholder include 22,056 shares issuable upon the
exercise of a warrant expiring March 13, 2005. This selling shareholder is
also offering these 22,056 shares pursuant to another registration
statement of our company.
46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 2002, certain information
with respect to (1) any person known to us who or which beneficially owned more
than 5% of our common stock, (2) each director of our company, (3) our Chief
Executive Officer and (3) all directors and executive officers as a group. Each
beneficial owner who is a natural person has advised us that he or she has sole
voting and investment power as to the shares of our common stock, except that,
until a common stock purchase warrant or a stock option is exercised, there is
no voting right.
<Table>
<Caption>
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
- ------------------------------------ ------------------ ---------------------
General Conference Corporation of
Seventh-day Adventists.................. 7,547,504(2) 20.5%
12501 Old Columbia Pike
Silver Spring, MD 20804-6600
Jonathan J. Pallin........................ 2,740,389(3) 7.7%
722 Starlight Heights Drive
La Canada, CA 91011
Linda H. Masterson(4)..................... 1,967,788(5) 5.6%
1205 South Dupont Street
Ontario, CA 91761
Peter S. Gold(6).......................... 920,216(7) 2.6%
16027 Ventura Blvd., Suite 601
Encino, CA 91436
Paul Sandler(6)........................... 478,339(8) 1.3%
533 West Hatcher Road
Phoenix, Arizona 85021
Charles J. Casamento(6)................... 10,006(9) nil
99 Belbrook Way
Atherton, CA 94027
Stan Yakatan(6)........................... 10,006(9) nil
635 Euclid Avenue, Unit 110
Miami Beach, FL 33139
All directors and executive............... 3,759,796(10) 10.4%
Officers as a group (8 persons)
</Table>
- -------------------------
(1) The percentages computed in this column of the table are based upon
35,323,140 shares of our common stock which were outstanding on April 30,
2002. Effect is given, pursuant to Rule 13d-3(1)(i) under the Securities
Exchange Act of 1934, to shares issuable upon the exercise of common stock
purchase warrants and stock options currently exercisable or exercisable
within 60 days of April 30, 2002 and to the shares issuable upon the
conversion of shares of our Series C preferred stock, all of which shares
are currently convertible.
(2) The shares of our common stock reported in the table include (a) 240,000
shares issuable upon the exercise by this holder and its affiliate at $3.00
per share of a common stock purchase warrant expiring February 28, 2005;
(b) 333,424 shares
47
issuable upon the conversion of 28,571 shares of our Series C preferred
stock (c) 333,424 shares issuable upon the exercise as $3.00 per share of a
common stock purchase warrant expiring June 19, 2006; (d) 500,000 shares
issuable upon the exercise at $3.25 per share of a common stock purchase
warrant expiring January 29, 2007; (e) 76,056 shares estimated to be issued
upon redemption of premium with respect to the 28,571 shares of our Series
C preferred stock; and (f) 17,500 shares estimated to be issued as
compensatory shares.
(3) The shares of our common stock reported in the table include an aggregate
of 306,289 shares issuable upon the exercise at $.50 per share of four
common stock purchase warrants expiring January 7, 2003.
(4) A director of our company since May 31, 1996; effective August 1, 1996, our
President; effective May 23, 1997, our Chief Executive Officer; and,
effective June 16, 2000, our Chairman of the Board.
(5) The shares of our common stock reported in this table as being beneficially
owned by Ms. Masterson are held, or, following exercise, will be held by
Robert P. Masterson and Linda H. Masterson, Trustees of Masterson Family
Trust, dated September 23, 2000 and include (a) 5,962 shares issuable upon
the exercise at $.50 per share of an option expiring June 29, 2008; (b)
17,500 shares issuable upon the exercise at $1.67 per share of an option
expiring October 9, 2009; and (c) 50,000 shares issuable upon the exercise
at $6.00 per share of an option expiring October 19, 2010.
(6) A director of the Company
(7) The shares of our common stock reported in the table include (a) an
aggregate of 200,000 shares issuable upon the exercise of two common stock
purchase warrants expiring December 7, 2002, one for 100,000 shares
exercisable at $.50 per share and the other exercisable at $1.00 per share;
(b) 11,888 shares issuable upon the exercise at $1.81 per share of an
option expiring April 15, 2009; (c) 5,412 shares issuable upon the exercise
at $3.22 per share of an option expiring April 15, 2010; and (d) 2,916
shares issuable upon the exercise at $4.09 per share of an option expiring
April 15, 2011.
(8) The shares of our common stock reported in the table include (a) 11,888
shares issuable upon the exercise at $1.81 per share of an option expiring
April 15, 2009; (b) 5,412 shares issuable upon the exercise at $3.22 per
share of an option expiring April 15, 2010; (c) 3,921 shares issuable upon
the exercise at $2.55 per share of an option expiring January 20, 2010; (d)
2,916 shares issuable upon the exercise at $4.09 per share of an option
expiring April 15, 2011; and (e) 3,183 shares issuable upon the exercise at
$3.77 per share of an option expiring December 14, 2010. The shares
reported in the table also include (w) 105,030 shares issuable upon the
conversion of 9,000 shares of our Series C preferred stock and (x) 105,030
shares issuable upon the exercise at $3.00 per share of a common stock
purchase warrant expiring September 27, 2006, both of which securities
being held in the name of PMLDSS Ltd., a family partnership of which Dr.
Sandler is the President of the corporate general partner and, accordingly,
may be deemed the beneficial owner of such securities. The table also
reflects as beneficially owned our estimates as to (y) an aggregate of
26,985 shares to be issued to PMLDSS Ltd. upon the future redemption of
premium with respect to the 9,000 shares of Series C preferred stock and
(z) 7,875 shares to be issued to PMLDSS Ltd. as compensatory shares.
48
(9) The shares of our common stock reported reflected in the table reflect (a)
7,506 shares issuable upon the exercise at $6.56 per share of an option
expiring June 15, 2010 and (b) 2,500 shares issuable upon the exercise at
$3.48 per share of an option expiring June 15, 2011.
(10) The shares of our common stock reported in the table include (a) those
issuable upon the exercise of the common stock purchase warrants and the
options described in Notes (5), (7), (8) and (9) to the table, (b) an
aggregate of 145,008 shares issuable to an executive officer upon his
exercise at $.50 per share of two options expiring March 19, 2008 and one
option expiring June 30, 2008; (c) 18,750 shares issuable to the same
executive officer upon his exercise at $1.67 per share of an option
expiring October 9, 2009; (d) 25,000 shares issuable to the same executive
officer upon his exercise at $6.00 per share of an option expiring October
19, 2010; (e) 19,805 shares issuable to another executive officer upon her
exercise at $1.81 per share of an option expiring April 16, 2009; (f)
19,798 shares issuable to the same executive officer upon her exercise at
$1.87 per share of an option expiring November 16, 2009; (g) 5,628 shares
issuable to the same executive officer upon her exercise at $4.35 per share
of an option expiring December 14, 2010; and (h) an aggregate of 38,970
shares issuable to a third executive officer upon his exercise at $4.81 per
share of three options expiring August 24, 2010.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The financial statements of our company appearing in our Annual Report
(Form 10-K) at March 31, 2001 and for each of the three years in the period
ended March 31, 2001 have been audited by Ernst & Young LLP, independent
auditors, and, for the period from October 8, 1992 (inception) through March 31,
1995, by Wolinetz, Lafazan and Co., P.C, independent certified public
accountants, as set forth in their respective reports thereon included therein
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance on such reports given upon the authority of such
firms as experts in accounting and auditing.
The validity of the shares offered hereby will be passed upon for our
company by Wachtel & Masyr, LLP, 110 East 59th Street, New York, New York 10022.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We have filed the following documents with the Securities and Exchange
Commission (the "Commission"). We incorporate them in this prospectus by this
reference:
(a) our Annual Report on Form 10-K for the fiscal year ended March 31,
2001;
(a)(1) our Form 10-K/A filed on July 30, 2001;
(a)(2) our Form 10-K/A filed on December 17, 2001;
(a)(3) our Form 10-K/A filed on February 8, 2002;
(a)(4) our Form 10-K/A filed on February 22, 2002;
(a)(5) our Form 10-K/A filed on April 11, 2002;
(a)(6) our Form 10-K/A filed on May 10, 2002;
(b) our Current Report filed on May 30, 2001;
49
(c) our Current Report on Form 8-K filed on June 25, 2001;
(d) our Quarterly Report on Form 10-Q for the quarter ended June 30,
2001;
(d)(1) our Form 10-Q/A filed on February 22, 2002;
(e) our Current Report on Form 8-K filed on October 1, 2001;
(f) our Quarterly Report on Form 10-Q for the quarter ended September
30, 2001;
(f)(1) our Form 10-Q/A filed on February 22, 2002;
(f)(2) our Form 10-Q/A filed on April 11, 2002;
(g) our Current Report on Form 8-K filed on December 26, 2001;
(h) our Current Report on Form 8-K filed on January 16, 2001;
(i) our Current Report on Form 8-K filed on January 23, 2002;
(j) our Quarterly Report on Form 10-Q for the quarter ended December
31, 2001;
(k) our Current Report on Form 8-K filed on April 19, 2002; and
(l) the description of our common stock as contained in our
Registration Statement on Form 8-A filed on April 18, 2000 under the
Securities Exchange Act.
All documents subsequently filed by us pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act prior to termination of the offering
pursuant to this prospectus shall be deemed to be incorporated in this
prospectus by reference. They shall be a part of this prospectus from the
respective dates of filing of such documents.
Any statement contained in an incorporated document or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained in this
prospectus or in any other subsequently filed incorporated document modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
prospectus.
We will provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, a copy of any incorporated
documents if not delivered with this prospectus. Requests for such copies should
be directed to LifePoint, Inc., Attention: Michele A. Clark, Controller and
Chief Accounting Officer, 1205 South Dupont Street, Ontario, CA 91761,
telephone: (909) 418-3000.
We are subject to the informational requirements of the Securities Exchange
Act of 1934. In accordance with such statute and the related regulations, we
file reports, proxy and information statements and other information with the
Commission. You may read and copy such reports, proxy and information statements
and other information filed with the Commission (including this registration
statement and all of its exhibits) at the following public reference facilities
of the Commission:
<Table>
450 Fifth Street, N.W. Citicorp Center
Judiciary Plaza 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661
</Table>
50
You may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants, including our company (since May 17, 1996), that file
electronically with the Commission at the following Web site address:
http://www.sec.gov. Since April 19, 2000, our common stock has been listed on
the American Stock Exchange LLC (the "AMEX"). Accordingly, you may read and
obtain copies of our reports, proxy and information statements and other
information filed after that date may be inspected and copied at the AMEX
Library, 86 Trinity Place, New York, NY 10006.
Certain information with respect to our company may also be obtained on our
web site: www.LifePointInc.com. Information contained in our web site is not
part of this prospectus.
51
- ------------------------------------------------
- ------------------------------------------------
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 US. 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.
11,060,419 SHARES
OF COMMON STOCK
($.001 PAR VALUE)
OFFERED BY
SELLING STOCKHOLDERS
-------------------------
PROSPECTUS
-------------------------
, 2002
- ------------------------------------------------
- ------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<Table>
Securities and Exchange Commission fee...................... $ 3,816
Accountants' fees........................................... 20,225
Legal fees and expenses..................................... 250,000
Placement agent's and finders' fees......................... 781,943
Printing and engraving expenses............................. 25,000
Miscellaneous............................................... 27,016
----------
Total............................................. $1,108,000
</Table>
- -------------------------
* Estimated, except for the Securities and Exchange Commission fee.
ITEM 16. EXHIBITS
Exhibits 4(a) and 4(g) were filed with this Registration Statement as
originally filed and this Amendment, respectively, by incorporation by reference
as indicated in the footnotes. The unmarked exhibits were filed with this
Registration Statement as originally filed or with Amendment No. 2. The exhibits
marked with asterisks are filed with this Amendment No. 3.
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT
------- -------
4(a) Certificate of Designation of the Series C Convertible
Preferred Stock as filed in Delaware on June 20, 2001.(1)
4(a)(1) Restated Certificate of Incorporation as filed in Delaware
on January 28, 2002.
4(b) Registration Rights Agreement dated as of June 20, 2001 by
and among the Company and certain Investors.
4(c) Amendatory Agreement dated as of August 16, 2001 by and
among the Company and certain Investors.
4(d) Amendatory Agreement dated as of November 21, 2001 by and
among the Company and certain Investors.
4(e) Form of Common Stock purchase warrant expiring June 19, 2006
issued as part of Units with shares of Series C Preferred
Stock.
4(f) Form of Common Stock purchase warrant expiring June 19, 2006
issued as a Placement Agent's Warrant.
4(g) Form of Common Stock purchase warrant expiring June 19, 2006
issued as a Finder's Warrant.
4(h) Letter Agreement dated December 19, 2001 by and among the
Company and certain Investors extending deadline for First
Milestone.(2)
4(i) Letter Agreement dated January 15, 2002 by and among the
Company and certain Investors further extending deadline for
First Milestone.(3)
4(j) Letter Agreement dated March 12, 2002 by and among the
Company and the holders of the Series C preferred stock
waiving a redemption right.
</Table>
II-1
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT
------- -------
5(a)* Opinion of Wachtel & Masyr, LLP.
23(a)* Consent of Wachtel & Masyr, LLP is included in its opinion
filed as Exhibit 5.
23(b)* Consent of Independent Auditors.
23(c)* Consent of Wolinetz, Gottlieb & Lafazan, P.C.
23(d)* Consent of Rosenfeld, Meyer & Susman, LLP.
</Table>
- -------------------------
1 Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2001 and incorporated herein by this reference.
2 Filed as an exhibit to the Company's Current Report on Form 8-K filed on
December 26, 2001.
3 Filed as an exhibit to the Company's Current Report on Form 8-K filed on
January 16, 2002.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the
II-2
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the Prospectus, to deliver, or cause to be
delivered to each person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 6 to the Registration
Statement, or otherwise, the Registrant 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
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Ontario, State of California, on May 14, 2002.
LIFEPOINT, INC.
(Registrant)
By: /s/ LINDA H. MASTERSON
-----------------------------------
Linda H. Masterson
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on May 14, 2002.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ LINDA H. MASTERSON Principal Executive Officer and
----------------------------------------- Director
Linda H. Masterson
/s/ LINDA H. MASTERSON Acting Principal Financial
----------------------------------------- Officer
Linda H. Masterson
/s/ MICHELE A. CLARK Principal Accounting Officer
-----------------------------------------
Michele A. Clark
/s/ CHARLES J. CASAMENTO Director
-----------------------------------------
Charles J. Casamento
/s/ PETER S. GOLD Director
-----------------------------------------
Peter S. Gold
/s/ PAUL SANDLER Director
-----------------------------------------
Paul Sandler
/s/ STAN YAKATAN Director
-----------------------------------------
Stan Yakatan
</Table>
II-4
LIFEPOINT, INC.
EXHIBITS FILED WITH
AMENDMENT TO
REGISTRATION STATEMENT ON FORM S-3
E-1
EXHIBIT INDEX
<Table>
<Caption>
PAGE
NUMBER EXHIBIT NUMBER
- ------ ------- ------
5 Opinion of Wachtel & Masyr, LLP............................. E-3
23(a) Consent of Wachtel & Masyr, LLP is included in its opinion
filed as Exhibit 5.......................................... E-3
23(b) Consent of Independent Auditors............................. E-5
23(c) Consent of Wolinetz, Lafazan and Co., P.C. ................. E-6
23(d) Consent of Rosenfeld, Meyer & Susman, LLP .................. E-7
</Table>
E-2