UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2001

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

--------------------

LIFESTREAM TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Commission File Number 000-29058

NEVADA 82-0487965
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

510 Clearwater Loop, Suite 101, Post Falls, ID 83854
----------------------------------------------------
(Address of principal executive offices)

(208) 457-9409
----------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days: YES X NO
---- ----

As of November 12, 2001, the registrant had 20,482,853 shares of its $.001 par
value common stock outstanding.

Transitional Small Business Disclosure Format: YES NO X
---- -----

LIFESTREAM TECHNOLOGIES, INC.

INDEX TO
QUARTERLY REPORT ON FORM 10-QSB
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2001

PART I. FINANCIAL INFORMATION
Page
----

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2001 and
June 30, 2001.................................................................1

Condensed Consolidated Statements of Loss for the three months ended
September 30, 2001 and September 30, 2000.....................................3

Condensed Consolidated Statements of Cash Flows for the three months
ended September 30, 2001 and September 30, 2000..............................4

Notes to Interim Condensed Consolidated Financial Statements..................6

Item 2. Management's Discussion and Analysis................................11

PART II. OTHER INFORMATION

Item 1. Legal Proceedings...................................................17

Item 2. Changes in Securities and Use of Proceeds...........................17

Item 3. Defaults Upon Senior Securities.....................................18

Item 4. Submission of Matters to a Vote of Security Holders.................18

Item 5. Other Information...................................................18

Item 6. Exhibits and Reports on Form 8-K....................................18

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
------

September 30, June 30,
2001 2001
---------- ----------

Current assets:
Cash and cash equivalents ......................... $1,315,587 $1,649,979
Accounts receivable, net .......................... 415,028 466,853
Inventories, net (Note 2) ......................... 2,734,833 1,984,030
Prepaid expenses .................................. 141,601 55,399
---------- ----------
Total current assets ................................. 4,607,049 4,156,261
Patent and license rights, net ....................... 1,156,241 1,187,415
Purchased software technology and capitalized software
development costs, net ............................. 784,701 945,408
Property and equipment, net .......................... 890,906 945,530
Deferred financing costs, net ........................ 607,563 320,000
Note receivable - officer (Note 3) ................... 99,394 100,349
Other ................................................ 16,513 14,403
---------- ----------
Total assets ......................................... $8,162,367 $7,669,366
========== ==========

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

September 30, June 30,
2001 2001
------------ ------------

Current liabilities:
Accounts payable .................................................. $ 1,077,070 $ 1,103,044
Accrued liabilities (Note 5) ...................................... 504,642 311,592
Commissions payable - related parties (Note 6) .................... 1,250 320,000
Current maturities of capital lease obligations ................... 104,164 108,084
Current maturities of note payable ................................ 36,330 36,330
------------ ------------
Total current liabilities ............................................ 1,723,456 1,879,050
Capital lease obligations, less current maturities ................... 69,676 81,173
Note payable, less current maturities ................................ 24,220 33,302
Note payable - related party (Note 6) ................................ -- 140,000
Line of credit - related party (Note 6) .............................. -- 500,000
Convertible debt (Note 6) ............................................ 2,670,025 2,109,936
------------ ------------
Total liabilities .................................................... 4,487,377 4,743,461
------------ ------------
Commitments and Contingencies (Note 7)

Stockholders' equity (Note 6):
Preferred stock, $.001 par value; 5,000,000 shares authorized; none
issued or outstanding ........................................... -- --
Common stock, $.001 par value; 50,000,000 shares authorized;
20,482,853 and 20,345,331 issued and outstanding ................ 20,483 20,345
Additional paid-in capital ........................................ 26,252,156 22,384,031
Accumulated deficit ............................................... (22,597,649) (19,478,471)
------------ ------------
Total stockholders' equity ........................................... 3,674,990 2,925,905
------------ ------------
Total liabilities and stockholders' equity ........................... $ 8,162,367 $ 7,669,366
============ ============

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS

Three Months Ended
----------------------------
September 30, September 30,
2001 2000
------------ ------------

Net sales .................................................... $ 879,845 $ 26,974
Cost of sales ................................................ 1,115,768 44,949
------------ ------------
Gross loss ................................................... (235,923) (17,975)
------------ ------------
Operating expenses:
Sales and marketing .................................... 417,878 259,979
General and administrative ............................. 1,067,153 753,285
Product research and development ....................... 130,972 76,300
Depreciation and amortization .......................... 303,980 266,686
------------ ------------
Total operating expenses ..................................... 1,919,983 1,356,250
------------ ------------
Loss from operations ......................................... (2,155,906) (1,374,225)
------------ ------------
Non-operating income (expenses):
Interest income ........................................ 14,763 13,813
Interest and financing expenses ........................ (978,329) (2,032)
Other, net ............................................. 294 (3,011)
------------ ------------
Total non-operating (expense) income ......................... (963,272) 8,770
------------ ------------
Net loss ..................................................... $ (3,119,178) $ (1,365,455)
============ ============

Net loss per share - Basic and diluted (Note 1) .............. (0.15) (0.07)
============ ============

Weighted average number of shares - Basic and diluted (Note 1) 20,418,431 19,352,946
============ ============

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended
September 30, September 30,
2001 2000
----------- -----------

Cash flows from operating activities:
Net loss .......................................................... $(3,119,178) $(1,365,455)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ................................... 303,980 266,686
Amortization of convertible debt discount ....................... 340,105 --
Amortization of deferred financing costs ........................ 44,937 --
Provision for bad debts ......................................... 9,181 --
Provision for inventory obsolescence ............................ 14,276 --
Gain on sale of vehicle ......................................... (479) --
Issuance of common shares and warrants to related party as
inducement to convert line of credit into convertible term note
(Note 6) ...................................................... 349,200 --
Beneficial conversion feature of convertible debt issued
to related party (Note 6) ..................................... 91,000 --
Issuances of common stock for debt offering commissions ......... (38,836) --
Issuances of common stock for other non-employee services ....... 17,500 301,834
Changes in assets and liabilities:
Accounts receivable ............................................. 42,644 519
Inventories ..................................................... (765,079) (94,718)
Prepaid expenses ................................................ (86,202) (87,822)
Accounts payable ................................................ (25,974) 229,533
Accrued liabilities ............................................. 193,050 16,554
Commissions payable ............................................. (524,351) --
Increase in other non-current assets ................................. (2,110) (79,610)
----------- -----------
Net cash used in operating activities ................................ (3,156,336) (812,479)
----------- -----------
Cash flows from investing activities:
Capital expenditures .............................................. (41,353) (83,413)
Software development costs capitalized ............................ (22,882) --
Advances to officer (Note 3) ...................................... -- (74,683)
Repayments from officer (Note 3) .................................. 955 --
----------- -----------
Net cash used in investing activities ................................ (63,280) (158,096)
----------- -----------
Cash flows from financing activities:
Proceeds from issuances of convertible debt (Note 6) .............. 3,322,500 --
Proceeds from exercises of stock options .......................... -- 230,504
Proceeds from sales of common stock ............................... -- 210,000
Proceeds from capital lease ....................................... 17,757 --
Payments on capital lease obligations ............................. (35,017) (10,318)
Payments on convertible and other debt ............................ (420,016) (12,110)
----------- -----------
Net cash provided by financing activities ............................ 2,885,224 418,076
----------- -----------
Net decrease in cash and cash equivalents ............................ (334,392) (552,499)
Cash and cash equivalents at beginning of period ..................... 1,649,979 1,059,637
----------- -----------
Cash and cash equivalents at end of period ........................... $ 1,315,587 $ 507,138
=========== ===========

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended
September 30, September 30,
2001 2000
------------ ------------

Supplemental schedule of cash activities:
Interest paid in cash ............................................ $ 14,505 $ 2,066

Supplemental schedule of non-cash investing and financing activities:
Discount on beneficial conversion feature and fair value of
detachable stock purchase warrants (Note 6) ...................... 3,322,500 --
Deferred financing costs (Note 6) ................................... 332,250 --
Lease assumed by officer ............................................ 7,239 --
Issuance of common stock in exchange for:
Financing costs .................................................. 126,899 657

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Interim Condensed Consolidated Financial Statements

Nature of Business and Organizational Structure

Lifestream Technologies, Inc. (the "Company"), a Nevada corporation
headquartered in Post Falls, Idaho, is a healthcare information technology
company primarily focused on developing, manufacturing and marketing proprietary
smart card-enabled medical diagnostic devices to aid in the prevention,
detection, monitoring and control of certain widespread chronic diseases. The
Company's current diagnostic product line principally consists of three
easy-to-use, hand-held, smart card-enabled cholesterol monitors, one
specifically designed for personal-use by adult at-risk cholesterol patients and
health conscious consumers, one specifically designed for adult point-of-care
facility-use by various medical professionals, and one specifically designed for
children and adolescent point-of-care facility-use by pediatricians.

These condensed consolidated financial statements include the operations of the
Company and its two wholly owned subsidiaries, Lifestream Diagnostics, Inc. and
Secured Interactive Technologies, Inc. All material intercompany transactions
and balances have been eliminated in consolidation.

Fiscal Periods

References to a fiscal year refer to the calendar year in which such fiscal year
ends. The Company's fiscal year end is June 30th.

Use of Estimates

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the condensed consolidated financial statements for the prior
fiscal period have been reclassified to be consistent with the current fiscal
year's presentation.

Preparation of Interim Condensed Consolidated Financial Statements

These interim condensed consolidated financial statements have been prepared by
the Company's management, without audit, in accordance with accounting
principles generally accepted in the United States of America and, in the
opinion of management, contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Company's consolidated
financial position, results of operations and cash flows for the periods
presented. Certain information and note disclosures normally included in
consolidated annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted in these consolidated interim financial statements,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. The consolidated financial position,
results of operations and cash flows for the interim periods disclosed herein
are not necessarily indicative of future financial results. These interim
condensed consolidated financial statements should be read in conjunction with
the annual consolidated financial statements and the notes thereto included in
the Company's most recent Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2001.

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. Interim Condensed Consolidated Financial Statements (continued)

Net Loss Per Share

Basic and diluted net loss per share has been computed by dividing net loss by
the weighted average number of common shares outstanding during the fiscal
period. At September 30, 2001 and 2000, the Company had stock options, stock
warrants and convertible debt outstanding that could potentially be exercised or
converted into 13,112,841 and 2,670,362 common shares, respectively. Should the
Company report net income in a future period, diluted net income per share will
be separately disclosed giving effect to the potential dilution that could occur
under the treasury stock method if these stock options, stock warrants and
convertible debt were exercised or converted into common shares.

Recently Adopted Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 141, "Business Combinations" ("SFAS No.
141"). SFAS No. 141 mandates the purchase method of accounting for all business
combinations initiated after June 30, 2001. In addition, SFAS No. 141 addresses
the accounting for intangible assets and goodwill acquired in business
combinations completed after June 30, 2001. The Company adopted SFAS No. 141, as
required, on July 1, 2001 without any impact on the interim condensed
consolidated financial statements presented herein. The ultimate impact of the
adoption of SFAS No. 141 on the future financial statements of the Company will
be determined by the particulars of future business combinations, if any.

Recently Issued Accounting Standards Not Yet Adopted

In May 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF
00-14, "Accounting for Certain Sales Incentives" ("EITF 00-14"). Under the
provisions of EITF 00-14, for sales incentives that will not result in a loss on
the sale of product or service, a vendor should recognize the cost of the sales
incentive at the latter of the date the related revenue is recorded by the
vendor or the date the sales incentive is offered. The reduction to or refund of
the selling price of the product or service resulting from any cash sales
incentive should be classified as a reduction of revenue. In April 2001, the
EITF delayed the effective date of EITF 00-14. The Company will adopt EITF
00-14, as required, in its consolidated financial statements for the third
quarter of fiscal 2002 with restatement of all comparative prior period
financial statements. Management currently believes that the adoption of EITF
00-14 will not have a material impact on the Company's consolidated financial
statements.

In April 2001, the EITF issued EITF 00-25, "Accounting for Consideration from a
Vendor to a Retailer in Connection with the Purchase or Promotion of the
Vendor's Products" ("EITF 00-25"). Under the provisions of EITF 00-25, it is
presumed, in the absence of persuasive evidence to the contrary, that
consideration from a vendor to a purchaser of the vendor's products should be
characterized as a reduction of revenue when recognized in the vendor's income
statement. This presumption is overcome and the consideration should be
characterized as a cost incurred if, the vendor receives, or will receive, an
identifiable benefit (i.e., goods or services) in return for the consideration
and the vendor can reasonably estimate the fair value of the benefit. The
Company will adopt EITF 00-25, as required, in its consolidated financial
statements for the third quarter of fiscal 2002 with restatement of all
comparative prior period financial statements. Management currently believes
that the adoption of EITF 00-25 will not have a material impact on the Company's
consolidated financial statements.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), which revises the accounting for purchased goodwill
and other intangible assets. Under SFAS No. 142, goodwill and other intangible
assets with indefinite lives will no longer be systematically amortized into
operating results. Instead, each of these assets will be tested, in the absence
of an indicator of possible impairment, at least annually, and upon an indicator
of possible impairment, immediately. The Company will adopt SFAS No. 142, as
required, in its

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. Interim Condensed Consolidated Financial Statements (continued)

Recently Issued Accounting Standards Not Yet Adopted (continued)

consolidated financial statements for the first quarter of fiscal 2003.
Management currently believes that the adoption of SFAS No. 142 will not have a
material impact on the Company's consolidated financial statements.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is a cost by increasing the carrying amount of the related long-lived asset.
Over time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related obligation
for it's recorded amount or incurs a gain or loss upon settlement. The Company
will adopt SFAS No. 143, as required, in its consolidated financial statements
for the first quarter of fiscal 2003. Management currently believes that the
adoption of SFAS No. 143 will not have a material impact on the Company's
consolidated financial statements.

2. Inventories

Inventories consist of the following:

September 30, June 30,
2001 2000
----------- -----------

Raw materials ........................... $ 2,002,126 $ 1,332,519
Work in process ......................... 605,221 549,465
Finished goods .......................... 201,667 161,951
----------- -----------
2,809,014 2,043,935
Less allowance for inventory obsolescence (74,181) (59,905)
----------- -----------
Total inventories ....................... $ 2,734,833 $ 1,984,030
=========== ===========

3. Note Receivable - Officer

The Board of Directors has periodically approved the advancement of funds to the
Company's Chief Executive Officer. The underlying promissory note is unsecured,
has a stated interest rate of 8.75% and requires bi-weekly repayments of
principal and interest through May 23, 2014.

4. Revolving Credit Facility

The Company executed an agreement with a bank effective September 25, 2001 that
provides the Company with a $1.5 million secured revolving credit facility (with
a sub-limit of $0.5 million for letters of credit). Initial borrowings of up to
$500,000 are to be secured with a corresponding bank deposit, with all
borrowings being additionally secured by the Company's accounts receivable. The
agreement requires monthly payments of interest, at a rate equal to the premium
commercial market fund rate plus three percent (5.96% at September 30, 2001),
plus principal payments from collections of the Company's securing accounts
receivable. Letters of credit have terms and interest payable as specified in
the underlying letters of credit. The agreement contains certain covenants that
require the Company to maintain $2.5 million in minimum working capital and $3.5
million in minimum net worth, both as defined by the agreement. The Company is
also required to periodically submit certain financial information to the bank.
The credit facility has a maturity date of September 10, 2002. As of November
14, 2001 the Company has not borrowed against this credit facility.

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Accrued Liabilities

Accrued liabilities consist of the following:

September 30, June 30,
2001 2001
-------- --------

Accrued wages, benefits and related taxes .... $106,310 $152,869
Accrued royalties ............................ 197,540 112,490
Accrued sales returns ........................ 54,278 26,000
Accrued interest payable ..................... 132,846 16,560
Accrued other ................................ 13,668 3,673
-------- --------
Total accrued liabilities .................... $504,642 $311,592
======== ========

6. Convertible Debt

During June 2001, the Company commenced a private offering of convertible notes
with detachable stock purchase warrants from which it had received proceeds of
$3,225,000 as of June 30, 2001. The Company subsequently received additional
proceeds of $3,322,500 through September 30, 2001. The notes are unsecured,
accrue interest at the prime rate plus two percent (8.00% at September 30,
2001), and mature on either July 1, 2003 or July 1, 2006, as specified. The
notes are immediately convertible at the option of the holders into common stock
of the Company at a rate of $1.00 per share. The Company has the right to force
conversion of the notes if the market price of its common stock exceeds $3.00
per share for 20 consecutive trading days. Each note holder received one
detachable stock purchase warrant for every two dollars of note principal. Each
warrant allows the holder to purchase a share of the Company's common stock at
$2.50 per share. As the accompanying detachable warrants, in effect, created a
beneficial conversion feature, the Company was required by U.S. generally
accepted accounting principles to reduce the carrying value of notes by an
amount equal to the estimated fair value of the beneficial conversion feature.
This fair value discount, amounting to $5,487,564 at September 30, 2001, has
been recorded as additional paid-in capital. The unamortized debt discount
amounted to $5,147,459 and $2,165,064 at September 30, 2001 and June 30, 2001,
respectively.

In connection with the immediately preceding offering of convertible notes, the
Company agreed to pay two principal shareholders each a commission equal to five
percent of the related offering proceeds. Total commissions of $652,250 were
incurred which are being amortized as deferred financing fees over the term of
the convertible debt.

During the fiscal 2002 first quarter, the Company executed an agreement with a
principal shareholder and member of the Board of Directors ("Director") whereby
the Company repaid $184,200 in outstanding principal and interest against
unsecured loans and a line of credit provided by the Director during fiscal 2001
and consolidated the remaining $469,984 aggregate principal balance into a
two-year convertible note due August 1, 2003. The note accrues interest at the
prime rate plus two percent (8.00% at September 30, 2001) and is immediately
convertible at the Director's option into common stock of the Company at a
stated rate of $1.00 per share. In connection with this agreement, the Company
issued the Director 40,000 common shares with an aggregate fair value of $54,000
and a warrant allowing the Director to purchase 134,000 additional common shares
at $1.00 per share. The agreement also stipulates that for every subsequent
quarter the note remains outstanding that the Company will issue the Director an
additional warrant for the purchase of 23,500 common shares at $1.00 per share.

LIFESTREAM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Contingencies

The Company is periodically involved in litigation and administrative
proceedings primarily arising in the normal course of its business. In the
opinion of management, the Company's gross liability, if any, and without any
consideration given to the availability of indemnification or insurance
coverage, under any pending or existing litigation or administrative proceedings
would not materially affect its financial position, results of operations or
cash flows.

ITEM 2. OUR MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion includes certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933,as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Statements that include
words such as "anticipates," "may," "envision," "believes," "estimates," or
other future-oriented statements, are forward-looking statements.
Forward-looking statements involve risks and uncertainties that could cause
actual results to differ from anticipated results. Such forward-looking
statements include, but are not limited to, statements regarding our current
business plans, strategies and objectives that involve risks and uncertainties.
These forward-looking statements are based on our current expectations and our
actual performance, results and achievements could differ materially from those
expressed in, or implied by, these forward-looking statements. Factors, within
and beyond our control, that could cause or contribute to such differences
include, among others, the following: those associated with developing and
marketing medical diagnostic devices, including technological advancements and
innovations; identifying, recruiting and retaining highly qualified personnel;
consumer receptivity and preferences; availability, affordability and coverage
terms of private and public medical insurance; political and regulatory
environments and general economic and business conditions; competition; success
of capital-raising, operating, marketing and growth initiatives; development and
operating costs; advertising and promotional efforts; brand awareness; the
existence of adverse publicity; changes in business strategies or development
plans; quality and experience of management; availability, terms and deployment
of capital; business abilities and judgment of personnel; labor and employee
benefit costs; as well as those factors discussed elsewhere in this Form 10-QSB
and in our most recent Form 10-KSB for the fiscal year ended June 30, 2001 filed
with the United States Securities and Exchange Commission. Readers are urged to
carefully review and consider the various disclosures made by us in this report
and those detailed from time to time in our reports and filings with the United
States Securities and Exchange Commission that attempt to advise interested
parties of the risks and factors that are likely to affect our business.

References to a fiscal year refer to the calendar year in which such fiscal year
ends. Our fiscal year ends on June 30th.

Introduction

On January 1, 1999, we commenced limited revenue-generating operations related
to our professional point-of-care cholesterol monitor and ceased being a
development-stage company. In March 1999, we recognized our first revenues from
sales of our professional point-of-care cholesterol monitor. However, shortly
thereafter, we elected to curtail further active marketing of our professional
point-of-care cholesterol monitor and instead deploy our then severely limited
capital resources into the development of an over-the-counter, personal-use
cholesterol monitor for which we envisioned, and continue to envision,
significantly larger market and revenue potential over the longer term. On July
25, 2000, we received the prerequisite FDA market clearance for our
over-the-counter, personal-use cholesterol monitor thereby allowing us to
proceed with production and marketing.

On July 25, 2000, we received the prerequisite FDA market clearance for our
over-the-counter, personal-use cholesterol monitor thereby allowing us to
proceed with production and marketing. In November 2000, we began fulfilling an
initial purchase order received from a high-profile, national speciality
retailer for our personal-use cholesterol monitor. In January 2001, our
over-the-counter, personal-use cholesterol monitor made its formal debut with a
prominent national television-based retailer as well as with two additional
high-profile, national specialty retailers. Shortly thereafter, our personal-use
cholesterol monitor also began to be offered by thirteen other prominent
national and regional retailers, including major department store chains and
additional speciality retailers. The majority of the aforementioned specialty
retailers have multiple sales channels, including retail stores, direct mail
catalogs and e-commerce web sites. Currently, our personal-use cholesterol
monitor is being offered by over thirty national and regional retailers,
including the recent addition of five major national and regional drug store
chains. To date, we have been successful in obtaining follow-up purchase orders
for escalating quantities from all of these retailers with the exception of the
national television-based retailer for which we elected to forego being featured
for the foreseeable future. With the national roll-out of our personal-use
cholesterol monitor well underway, we are also beginning to once again actively
market our professional point-of-care cholesterol monitor.

ITEM 2. OUR MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

Introduction (continued)

Despite the aforementioned progress, it must be noted that we have continued to
experience substantial operating and net losses as evidenced by our substantial
accumulated deficit at September 30, 2001. Additionally, our operating
activities have continued to utilize substantial amounts of cash and cash
equivalents thereby necessitating ongoing procurements of equity and debt
financing to sustain our operations and to fund our growth. Looking forward, we
anticipate substantial operating and net losses, and negative cash flow from
operating activities, for the remainder of fiscal 2002, and possibly beyond. As
such, it must be noted that, despite our positive working capital position at
September 30, 2001, our ability to efficiently produce and sell our cholesterol
monitors, and thereby achieve net profitability and positive operating cash
flow, over the longer term remains highly contingent upon us continuing to meet
our ongoing capital needs, which are anticipated to be significant, and
obtaining broad market acceptance of our cholesterol monitors,
particularly for our over-the-counter, personal-use cholesterol monitor. There
can be no assurances that we will be successful in achieving such. Any failure
by us to raise necessary funding in a timely manner or to effectively execute
our business plan will likely have a material adverse impact on our business,
results of operations, liquidity and cash flows.

Our Results of Operations

Our consolidated net sales for the three months ended September 30, 2001
("fiscal 2002 first quarter") were $879,845 as compared to $26,974 for the three
months ended September 30, 2000 ("fiscal 2001 first quarter"). The vast majority
of our fiscal 2002 first quarter consolidated net sales were derived from sales
of our over-the-counter, personal-use cholesterol monitor whereas all of our
fiscal 2001 first quarter consolidated net sales were derived from sales of our
professional point-of-care cholesterol monitor.

Our cost of sales, being direct labor, material and overhead, including related
product shipping and handling costs, were $1,115,768 for the fiscal 2002 first
quarter as compared to $44,949 for the fiscal 2001 first quarter. Our resulting
gross margin was (26.8%) for the fiscal 2002 first quarter as compared to
(66.6%) for the fiscal 2001 first quarter. Limited unit sales to date of our
cholesterol monitors and introductory wholesale pricing discounts and incentives
granted to achieve market penetration with retailers have resulted in
significant reductions to our targeted gross revenues and margins. For instance,
during the fiscal 2002 first quarter, we gained access to a major national drug
store chain by agreeing to initially provide them at no charge with a
significant number of personal-use cholesterol monitors and dry chemistry test
strips. Although all associated product costs are included in our consolidated
cost of sales, the aggregate retail value of these free products, approximately
$270,000, is excluded from our consolidated net sales consistent with generally
accepted accounting principles in the United States of America, i.e., EITF
00-25. Our ability to realize significantly improved gross margins in the future
remains contingent upon our cholesterol monitors, particularly our personal-use
cholesterol monitor, receiving broad market acceptance, which, in turn, will
enable us to realize improved wholesale prices and various economies of scale in
our procurement and production processes. Although we recently outsourced the
final assembly of our cholesterol devices to a large-scale contract manufacturer
and are continuing to pursue a number of product re-engineering initiatives,
there can be no assurance that we will be successful in achieving the cost
reductions we seek.

Our total operating expenses were $1,919,983 for the fiscal 2002 first quarter,
an increase of $563,733 or 41.6%, from the $1,356,250 incurred during the fiscal
2001 first quarter. The fiscal 2002 first quarter increase, as detailed below,
primarily is attributable to various costs incurred in connection with the
continuing introduction and national roll-out of our over-the-counter,
personal-use cholesterol monitor.

Our sales and marketing expenses were $417,878 for the fiscal 2002 first
quarter, an increase of $157,899, or 60.7%, from the $259,979 incurred during
the fiscal 2001 first quarter. The fiscal 2002 first quarter increase primarily
is attributable to incremental costs incurred for additional sales and marketing
personnel and, to a lesser extent, increased advertising, in connection with the
continuing introduction and national roll-out of our personal-use cholesterol
monitor.

ITEM 2. OUR MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

Our Results of Operations (continued)

Our general and administrative expenses were $1,067,153 (inclusive of $17,500 in
non-cash charges) for the fiscal 2002 first quarter, an increase of $313,868, or
41.7%, from the $753,285 (inclusive of $255,715 in non-cash charges) incurred
during the fiscal 2001 first quarter. The fiscal 2002 first quarter increase
primarily is attributable to various incremental costs incurred for additional
administrative and technical personnel, and associated facilities, in connection
with the introduction and national roll-out of our personal-use cholesterol
monitor. To a lesser extent, fiscal 2002 first quarter increase also reflects
certain general and administrative costs incurred in connection with the
aforementioned product re-engineering initiatives directed at achieving certain
cost reductions.

Our product research and development expenses were $130,972 for the fiscal 2002
first quarter, an increase of $54,672, or 71.7%, from the $76,300 incurred
during the fiscal 2001 first quarter. The fiscal 2002 first quarter increase
primarily is attributable to technical, personnel and regulatory costs incurred
in connection with the aforementioned product re-engineering initiatives
directed at achieving certain cost reductions.

Our non-cash depreciation and amortization expenses were $303,980 for the fiscal
2002 first quarter, an increase of $37,294, or 14.0%, as compared to $266,686
for the fiscal 2001 first quarter. The fiscal 2002 first quarter increase
primarily is attributable to the addition of packaging equipment and leasehold
improvements necessary to the continuing introduction and national roll-out of
our personal-use cholesterol monitor.

Primarily as a result of the foregoing, our loss from operations for the fiscal
2002 first quarter was $2,155,906, an increase of $781,681, or 56.9%, from the
$1,374,225 incurred during the fiscal 2001 first quarter.

Our non-operating expenses and income primarily consist of interest income,
interest and financing expenses, and other miscellaneous income and expense
items. Net non-operating expense was $963,272 (inclusive of $780,337 in non-cash
charges) for the fiscal 2002 first quarter as compared to net non-operating
income was $8,770 for the fiscal 2001 first quarter. As set forth in the
accompanying condensed consolidated statement of cash flows, the fiscal 2002
first quarter primarily reflects various non-cash amortization and inducement
expenses associated with our recent issuances of convertible debt. To a lesser
extent, the fiscal 2002 first quarter reflects interest expense associated with
this convertible debt. It should be noted that the amortization and interest
expenses associated with this outstanding convertible debt will continue to have
a material adverse impact on our results of operations for the foreseeable
future. The fiscal 2001 first quarter primarily reflects interest income.

We incurred a net loss of $3,119,178 ($0.15 per basic and diluted share) for the
fiscal 2002 first quarter as compared to a net loss of $1,365,455 ($0.07 per
basic and diluted share) for the fiscal 2001 first quarter.

Our Liquidity and Capital Resources

We have historically sustained our operations and funded our growth through an
ongoing combination of short-term financings, equity and debt issuances, and
trade credit arrangements. As our working capital requirements have generally
preceded the realization of sales and related accounts receivable, we have
routinely drawn upon our existing cash balances and sought short-term financing,
primarily from existing principal shareholders, to fund the procurement of
component parts and assembly of our cholesterol monitors.

We executed an agreement with a bank effective September 25, 2001 that provides
us with a $1.5 million secured revolving credit facility (with a sub-limit of
$0.5 million for letters of credit). Initial borrowings of up to $500,000 are to
be secured with a corresponding bank deposit, with all borrowings being
additionally secured by our accounts receivable. The agreement requires monthly
payments of interest, at a rate equal to the premium commercial market fund rate
plus three percent (5.96% at September 30, 2001), plus principal payments from
collections of our securing accounts receivable. Letters of credit have terms
and interest payable as specified in the underlying letters of credit.

ITEM 2. OUR MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

Our Liquidity and Capital Resources (continued)

The agreement contains certain covenants that requires us to maintain $2.5
million in minimum working capital and $3.5 million in minimum net worth, both
as defined by the agreement. We are also required to periodically submit certain
financial information to the bank. The credit facility has a maturity date of
September 10, 2002.

Our operating activities consumed $3,156,336 in cash and cash equivalents during
the fiscal 2002 first quarter, an increase of $2,343,857, or 288.5%, from the
$812,479 in cash and cash equivalents consumed during the fiscal 2001 first
quarter. On a comparative quarter-to-quarter basis, the fiscal 2002 first
quarter increase primarily reflects our substantially increased net loss and, to
a significantly lesser extent, the negative cash flow effects of increased
inventories and prepaid expenses and decreased commissions payable and accounts
payable. These negative cash flows were partially offset primarily by the adding
back of various non-cash amortization, depreciation, inducement and compensation
charges and, to a lesser extent, the positive cash flow effects of decreased
accounts receivable and accrued liabilities.

Our investing activities utilized $63,280 in cash and cash equivalents during
the fiscal 2002 first quarter, a decrease of $94,816, or 60.0%, from the
$158,096 in cash and cash equivalents utilized during the fiscal 2001 first
quarter. The fiscal 2002 first quarter decrease primarily is attributable to the
comparative fiscal 2001 first quarter reflecting the negative cash flow effect
of advances to an officer. To a lesser extent, the fiscal 2002 first quarter
decrease is attributable to positive cash flow effect of reduced capital
expenditures. The fiscal 2002 first quarter decrease was partially offset by the
positive cash flow effects of capitalized investments in software development
and, to a significantly lesser extent, advance repayments by an officer.

Our financing activities provided $2,885,224 in cash and cash equivalents during
the fiscal 2002 first quarter, an increase of $2,467,148, or 590.1%, from the
$418,076 in cash and cash equivalents provided by financing activities during
the fiscal 2001 first quarter. The fiscal 2002 first quarter increase primarily
is attributable to increased proceeds from issuances of convertible debt as
described below. The fiscal 2002 first quarter increase was partially offset by
increased debt repayments and the absence of proceeds received in the
comparative fiscal 2001 first quarter from sales of common stock and exercises
of common stock options.

As a result of the foregoing, we had cash and cash equivalents of $1,315,587 and
$1,649,979 at September 30, 2001 and June 30, 2001, respectively. We had working
capital of $2,883,593 and $2,277,211 at September 30, 2001 and June 30, 2001,
respectively.

Just prior to our fiscal 2001 year-end, we commenced a private offering of
convertible notes with detachable stock purchase warrants from which we had
received proceeds of $3,225,000 as of June 30, 2001. We subsequently received
additional proceeds of $3,322,500 through September 30, 2001. The notes are
unsecured, accrue interest at the prime rate plus two percent (8.00% at
September 30, 2001), and mature on either July 1, 2003 or July 1, 2006, as
specified. The notes are immediately convertible at the option of the holders
into our common stock at a rate of $1.00 per share. We have the right to force
conversion of the notes if the market price of our common stock exceeds $3.00
per share for 20 consecutive trading days. Each note holder received one
detachable stock purchase warrant for every two dollars of note principal. Each
warrant allows the holder to purchase a share of our common stock at $2.50 per
share. As the accompanying detachable warrants, in effect, created a beneficial
conversion feature, we were required by U.S. generally accepted accounting
principles to reduce the carrying value of the notes by an amount equal to the
estimated fair value of the beneficial conversion feature. This fair value
discount, amounting to $5,487,564 at September 30, 2001, has been recorded as
additional paid-in capital.

ITEM 2. OUR MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

Our Liquidity and Capital Resources (continued)

at September 30, 2001) and is immediately convertible at the Director's option
into our common stock at a stated rate of $1.00 per share.

Although we currently have no material commitments for the purchase of capital
equipment, we do currently envision the need for additional packaging equipment,
technology hardware and software, and office furnishings, with an estimated
aggregate cost of approximately $250,000, during the remainder of fiscal 2002.
We anticipate that the majority of these items will be procured and financed
through a combination of conventional operating and capital leases, including
under certain existing lease lines of credit available to us with previously
utilized vendors.

Our Other Matters

Seasonal and Inflationary Influences

To date, we have not been materially impacted by seasonal or inflationary
influences. However, as we continue the national introduction and roll-out of
our over-the-counter, personal-use cholesterol monitor to retailers, we may
begin to realize certain seasonal sales concentrations, particularly around
major holidays such as Christmas and Father's Day. We are unable at this time to
estimate the probability, timing or magnitude of any future seasonal sales
concentrations.

Quantitative and Qualitative Disclosures About Market Risk

We currently are exposed to financial market risks from changes in short-term
interest rates as the majority of our outstanding debt is variable in nature
with interest rates that fluctuate with the prime rate. Based on our current
aggregate variable debt level, we believe that the prime rate would have to
increase significantly for the resulting adverse impact on our interest expense
to be material to our anticipated results of operations and operating cash flows
for the remainder of fiscal 2002, and possibly beyond. We currently are not
exposed to financial market risks from changes in foreign currency exchange
rates. However, in the future, we may increase the level of our variable rate
debt or enter into transactions denominated in non-U.S. currencies which could
increase our exposure to these market risks. We have not used, and currently do
not contemplate using, any derivative financial instruments.

Recently Issued Accounting Standards Not Yet Adopted

In May 2000, the EITF issued EITF 00-14, "Accounting for Certain Sales
Incentives" ("EITF 00-14"). Under the provisions of EITF 00-14, for sales
incentives that will not result in a loss on the sale of product or service, a
vendor should recognize the cost of the sales incentive at the latter of the
date the related revenue is recorded by the vendor or the date the sales
incentive is offered. The reduction to or refund of the selling price of the
product or service resulting from any cash sales incentive should be classified
as a reduction of revenue. In April 2001, the EITF delayed the effective date of
EITF 00-14. We will adopt EITF 00-14, as required, in our consolidated financial
statements for the third quarter of fiscal 2002 with restatement of all
comparative prior period financial statements. We currently believe that the
adoption of EITF 00-14 will not have a material impact on our consolidated
financial statements.

ITEM 2. OUR MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

Our Other Matters (continued)

Recently Issued Accounting Standards Not Yet Adopted (continued)

In April 2001, the EITF issued EITF 00-25, "Accounting for Consideration from a
Vendor to a Retailer in Connection with the Purchase or Promotion of the
Vendor's Products" ("EITF 00-25"). Under the provisions of EITF 00-25, it is
presumed, in the absence of persuasive evidence to the contrary, that
consideration from a vendor to a purchaser of the vendor's products should be
characterized as a reduction of revenue when recognized in the vendor's income
statement. This presumption is overcome and the consideration should be
characterized as a cost incurred if, the vendor receives, or will receive, an
identifiable benefit (i.e., goods or services) in return for the consideration
and the vendor can reasonably estimate the fair value of the benefit. We will
adopt EITF 00-25, as required, in our consolidated financial statements for the
third quarter of fiscal 2002 with restatement of all comparative prior period
financial statements. We currently believe that the adoption of EITF 00-25 will
not have a material impact on our consolidated financial statements.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), which revises the accounting for purchased goodwill
and other intangible assets. Under SFAS No. 142, goodwill and other intangible
assets with indefinite lives will no longer be systematically amortized into
operating results. Instead, each of these assets will be tested, in the absence
of an indicator of possible impairment, at least annually, and upon an indicator
of possible impairment, immediately. We will adopt SFAS No. 142, as required, in
our consolidated financial statements for the first quarter of fiscal 2003. We
currently believe that the adoption of SFAS No. 142 will not have a material
impact on our consolidated financial statements.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is a cost by increasing the carrying amount of the related long-lived asset.
Over time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related obligation
for its recorded amount or incurs a gain or loss upon settlement. We will adopt
SFAS No. 143, as required, in our consolidated financial statements for the
first quarter of fiscal 2003. We currently believe that the adoption of SFAS No.
143 will not have a material impact on our consolidated financial statements.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries are periodically involved in incidental
litigation and administrative proceedings primarily arising in the normal course
of its business. In the opinion of management, the Company's gross liability, if
any, and without any consideration given to the availability of indemnification
or insurance coverage, under any pending or existing incidental litigation or
administrative proceedings would not materially affect its financial position,
results of operations or cash flows.

Our wholly-owned subsidiary, Lifestream Diagnostics, Inc., is the plaintiff in
patent infringement litigation, Civil Action No. CV00-300-N-MHW, against Polymer
Technology Systems, Inc., et al, currently pending in the United States District
Court for the District of Idaho. The patent-in-suit is Thakore, U.S. Patent No.
3,135,716 (see "Item 1. Business - Our Intellectual Property Rights"). We allege
willful patent infringement and seek Polymer's immediate discontinuance of the
HDL test strip technology currently utilized in their diagnostic device to which
we claim ownership. The defendants have brought a number of counterclaims,
including antitrust, unfair competition, tortious interference with business
relations, and patent misuse, and have only asserted unspecified general
damages. Discovery is underway and we have answered all discovery requests. The
Court had a hearing on October 10, 2001 to address two motions filed by us,
including a motion for partial summary judgment and a motion for leave to amend
the complaint, we expect the court to rule over these issues over the next 90
days. We have engaged two expert witnesses, who are in the process of completing
their expert reports for use in the litigation. To date, the defendants have not
identified any expert witnesses or presented any evidence to support their
defenses or counterclaims. However, such evidence may be presented at a later
time. Although we believe that our claims are well founded in law and fact, and
believe that the counterclaims and defenses alleged by the defendants are
baseless, the outcome of this litigation cannot be predicted with certainty.
Settlement discussions are at a standstill but may resume at any time.

Item 2. Changes in Securities and Use of Proceeds

We issued 137,522 restricted shares of the Company during the three month period
ended September 30, 2001 for which we relied upon the registration exemption
provisions of Section 4(2) of the Securites Act of 1933, as amended. These
issuances were as follows:

In June 2001, we commenced a private offering of convertible notes with
detachable stock purchase warrants from which we had received proceeds of
$3,225,000 as of June 30, 2001. We subsequently received additional proceeds of
$3,322,500 through September 30, 2001. The notes are unsecured, accrue interest
at the prime rate plus two percent (8.00% at September 30, 2001), and mature on
either July 1, 2003 or July 1, 2006, as specified. The notes are immediately
convertible at the option of the holders into our common stock at a rate of
$1.00 per share. We have the right to force conversion of the notes if the
market price of our common stock exceeds $3.00 per share for 20 consecutive
trading days. Each note holder received one detachable stock purchase warrant
for every two dollars of note principal. Each warrant allows the holder to
purchase a share of our common stock at $2.50 per share. As the accompanying
detachable warrants, in effect, created a beneficial conversion feature, we were
required by U.S. generally accepted accounting principles to reduce the carrying
value of the notes by an amount equal to the estimated fair value of the
beneficial conversion feature. This fair value discount, amounting to $5,487,564
at September 30, 2001, was recorded as additional paid-in capital. In connection
with the immediately preceding offering of convertible notes, the Company agreed
to pay two principal shareholders each a commission equal to five percent of the
related offering proceeds. Total commissions of $652,250 were incurred which are
being amortized as deferred financing fees over the term of the convertible
debt.

During the fiscal 2002 first quarter, we repaid $184,200 in outstanding
principal and interest against outstanding short-term notes and a line of
credit, which had been previously provided by a principal shareholder and member
of the Board of Directors during fiscal 2001, and consolidated the remaining
$469,984 aggregate principal balance into a two-year convertible note due August
1, 2003. As an inducement, we issued this individual 40,000 common shares with
an estimated aggregate fair market value of $66,000 and 134,000 stock purchase
warrants with an estimated aggregate fair market value of $283,200. The note
accrues interest at the prime rate plus two percent (8.00% at

PART II. OTHER INFORMATION (continued)

Item 2. Changes in Securities and Use of Proceeds (continued)

September 30, 2001) and is immediately convertible at the Director's option into
our common stock at a stated rate of $1.00 per share.

In August 2001, we issued 88,063 common shares to an investor in payment of a
convertible debt offering commission with an aggregate fair market value of
$126,899.

In September 2001, we issued 9,459 common shares to a product development
consultant in exchange for services to be subsequently provided over a
twelve-month contract period beginning September 2001 with an estimated
aggregate fair market value of $17,500.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

There were no reports filed on Form 8-K during the three months ended September
30, 2001.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has Duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Post Falls,
State of Idaho, on this 15th day of November 2001.

LIFESTREAM TECHNOLOGIES, INC.

By: /s/ BRETT SWEEZY
--------------------------------------
Brett Sweezy
Chief Financial and Accounting Officer