SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14 INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by party other than the registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LIFESTREAM TECHNOLOGIES, INC.
(Name of Registrant as Specified in Its Charter
and of Person Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0- 11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
LIFESTREAM TECHNOLOGIES, INC.
510 Clearwater Loop, Suite 101, Post Falls, Idaho 83854
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER ___, 2003
To our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders
(hereinafter, "the Special Meeting") of Lifestream Technologies, Inc.
(hereinafter, "the Company"), a Nevada corporation, which will be held at Red
Lion Templin's Resort located at 414 East First Avenue, Post Falls, Idaho, on
November ___, 2003 at 8:30 a.m. Pacific Time, or at any and all adjournments
thereof. The sole purpose of the Special Meeting is to approve an amendment (the
"Amendment") to the Articles of Incorporation to increase the number of
authorized shares of common stock from 100,000,000 shares to 250,000,000 shares.
This matter is more fully discussed in the Proxy Statement accompanying this
Notice. We believe the approval of this Amendment is imperative in view of the
Company's financial situation and operational needs and its consequent need for
additional authorized shares for the purpose of obtaining additional financing.
The Board of Directors of the Company has unanimously determined that the
proposed Amendment is advisable and in the best interests of the Company and
recommends that you vote FOR the Amendment.
The Board has fixed the close of business on July 31, 2003 as the record date
for determining those stockholders who will be entitled to notice of, and to
vote at, the Special Meeting. The stock transfer books will not be closed
between the record date and the date of the meeting.
Approval of the proposed Amendment requires the affirmative vote of at least a
majority of the outstanding shares of the Company's Common Stock entitled to
vote, whether present in person or represented by proxy. Accordingly, it is
important that your shares be represented at the meeting. THE PROMPT RETURN OF
PROXIES WILL SAVE YOUR COMPANY THE EXPENSE OF FURTHER REQUESTS IN ORDER TO
OBTAIN THE NECESSARY APPROVAL. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE. Your proxy may be revoked, in writing, at any time prior to
the time it is voted. You may also revoke your proxy by attending the meeting
and voting in person.
Please read the proxy materials carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
Very truly yours,
/s/ Christopher Maus
--------------------
Christopher Maus, Chairman of the Board of
Directors, President and Chief Executive Officer
Post Falls, Idaho
October __, 2003
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
PROXY STATEMENT FOR A SPECIAL MEETING OF STOCKHOLDERS OF
LIFESTREAM TECHNOLOGIES, INC.
TO BE HELD NOVEMBER ___, 2003
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (hereinafter, the "Board") of Lifestream Technologies, Inc.
(hereinafter, the "Company"), a Nevada corporation, of proxies to be voted at a
Special Meeting of Stockholders (hereinafter, "the Special Meeting") to be held
at Red Lion Templin's Resort located at 414 East First Avenue, Post Falls, Idaho
on November ___, 2003 at 8:30 a.m. Pacific Time or at any and all adjournments
or postponements thereof, for the purpose set forth in the accompanying Notice
of Special Meeting of Stockholders (hereinafter, "the Notice"). This Proxy
Statement and the proxy card were first mailed to Stockholders on or about
October __, 2003.
VOTING RIGHTS AND SOLICITATION
The close of business on July 31, 2003 was the record date for stockholders
entitled to notice of, and to vote at, the Special Meeting. As of that date,
92,894,590 shares of the Company's common stock, $0.001 par value per share
(hereinafter "the Common Stock"), were issued and outstanding. The Company did
not have any other class of equity securities outstanding as of the record date.
All shares of the Company's Common Stock outstanding on the record date are
entitled to vote at the Special Meeting, and stockholders of record entitled to
vote at the Special Meeting will have one vote for each share so held on the
matter to be voted upon.
There will not be any matters presented at the Special Meeting other than the
proposal set forth in this Proxy Statement and accompanying Notice. Any
stockholder has the right to revoke his or her proxy at any time before it is
voted by either delivering to the Company at its principal executive offices at
510 Clearwater Loop, Suite 101, Post Falls, Idaho 83854, Attn: Chief Financial
Officer, a written notice of revocation or duly executed proxy bearing a later
date or by attending the Special Meeting and voting in person.
Approval of the proposed Amendment will require the affirmative vote of a
majority of the outstanding shares of Common Stock, cast by the Stockholders
entitled to vote at the election present in person or represented by proxy.
The cost of this solicitation will be borne by the Company. Proxies will be
solicited principally through the use of the mails, but, if deemed desirable,
may be solicited personally or by telephone, electronic mail, telegraph, or
personal interview by directors, officers and employees of the Company for no
additional compensation. Arrangements may be made with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy material to
the beneficial owners of the Company's Common Stock, and such persons may be
reimbursed for their expenses.
-1-
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE SPECIAL MEETING
WHY ARE WE CALLING THIS SPECIAL MEETING?
To approve an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock from 100,000,000 to
250,000,000. The increase in authorized shares is necessary for the Company to
comply with the terms of a recent private placement of $3,350,000 of convertible
debentures and warrants, the principal of which would be convertible into Common
Stock at $0.13 per share, and is needed so that we may seek and obtain
additional financing, in the discretion of the Board of Directors, to fund our
continuing operations. Although we believe that the market response to our
second generation product has been favorable and our financial situation is
improving, the additional authorized Common Stock is necessary and appropriate
to provide financing required to finance our continuing operating losses and
because of our need for capital to fund additional marketing efforts and the
purchase of inventory.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Stockholders of record of Common Stock at the close of business on July
31, 2003 may vote at the meeting. On July 31, 2003, 92,894,590 shares of Common
Stock were outstanding and eligible to vote.
WHAT IS THE DIFFERENCE BETWEEN A SHAREHOLDER OF RECORD AND A "STREET
NAME" HOLDER?
If your shares are registered directly in your name with Nevada Agency
& Trust Company, our transfer agent, you are considered the shareholder of
record of those shares.
If your shares are held in a stock brokerage account or by a bank or
other nominee, you are considered the beneficial owner of these shares, and your
shares are held in "street name."
HOW DO I VOTE MY SHARES?
If you are a shareholder of record, you can give a proxy to be voted at
the meeting by mailing the enclosed proxy card.
If you hold your shares in "street name," you must vote your shares in
the manner prescribed by your broker or nominee. Your broker or nominee has
enclosed or provided a voting instruction card for you to use in directing the
broker or nominee how to vote your shares.
CAN I VOTE MY SHARES IN PERSON AT THE MEETING?
Yes. If you are a shareholder of record, you may vote your shares at
the meeting by completing a ballot at the meeting
However, if you are a "street name" holder, you may vote your shares in
person only if you obtain a signed proxy from your broker or nominee giving you
the right to vote the shares.
Even if you currently plan to attend the meeting, we recommend that you
also submit your proxy as described above so that your vote will be counted if
you later decide not to attend the meeting.
WHAT IS THE RECOMMENDATION OF THE BOARD OF DIRECTORS?
The Board of Directors recommends a vote FOR the Amendment increasing
the authorized Common Stock.
-2-
WHY IS THE COMPANY SEEKING SHAREHOLDER APPROVAL FOR THE AMENDMENT?
Under Nevada law, we need shareholder approval to amend our Articles of
Incorporation to increase the number of authorized shares of common stock. The
Board believes the Company needs additional authorized but unissued shares of
common stock available to allow for conversion of outstanding convertible notes
and debentures, and so that we may make one or more additional private
placements of common stock or common stock equivalents at negotiated prices,
within the discretion of the Board. The Board has recommended that stockholders
increase the authorized shares from 100,000,000, of which 92,894,590 are
outstanding, to 250,000,000 authorized. Although we have reduced our expenses
and have received a favorable response to our second generation product, we
continue to need additional financing to fund the purchase of additional
inventory, to pay for marketing efforts and to finance our operations until our
operations are profitable. The Board believes that it is imperative that we
obtain additional financing and additional authorized stock is necessary in
order to obtain such financing.
WILL THE COMPANY BE SUBJECT TO ANY IMMEDIATE ADVERSE EFFECTS IF THE
AMENDMENT IS NOT APPROVED?
During September 2003 we offered and then closed a new private
financing by selling $3,350,000 of convertible debentures and warrants. The
terms of the sale agreement provide that we will seek shareholder approval for
an increase in our authorized shares. The debentures provide that we can pay the
quarterly interest on the debentures by issuing shares of our stock, and provide
that the debentures may be converted into common stock at a price of $0.13 per
share, avoiding the need to repay such debentures, accrued interest and related
warrants with cash. We may utilize such provisions only if we have additional
authorized shares. Furthermore, the agreement for the sale of the debentures
provides that if the shares are not authorized for issue by the stockholders at
this meeting, the debentures will be in default and may become due and payable.
A failure to obtain shareholder approval of the amendment would result in a
default in the terms of the debentures and require us to immediately repay 50%
of the amount of cash we received from the sale of the debentures, which amount
is being held in escrow. Our failure to obtain approval for the amendment could
also result in acceleration of the date for repayment of the debentures which
would result in the imposition of default provisions since we would not
otherwise have the funds to repay this other 50% of the amount of the
debentures. If we are unable to obtain approval for the increased authorized
common stock, we would also be unable to seek other equity financing or even
debt financing which also contemplated an equity factor. Our recent financing is
an example of the additional financing that we need, but that will require
additional authorized common stock for issuance in connection with the
financings, whether convertible debt or equity.
WHAT IF I DO NOT SPECIFY HOW I WANT MY SHARES VOTED?
If you do not specify on your proxy card how you want to vote your
shares, we will vote them FOR the Amendment.
CAN I CHANGE MY VOTE?
Yes. You can revoke your proxy at any time before it is exercised in
any of three ways:
o By submitting written notice of revocation to our Secretary;
o By submitting another proxy by mail with a later date and, if
by mail, that is properly signed; or
o By voting in person at the meeting.
IS THE APPROVAL BY THE SHAREHOLDERS ALREADY ASSURED?
Our Board of Directors and officers as a group, which own or control
approximately 9.7% of the voting shares, have unanimously approved and
recommended the authorization of the additional shares and have agreed to vote
for the amendment. Shareholders that also own some of the convertible
debentures, which will require approval of the amendment if the debentures are
to be converted into common stock, control approximately 14.7% of the voting
shares. There are no other agreements in place that would assure shareholder
approval of the amendment.
ARE THERE ANY OTHER MATTERS TO BE ACTED UPON AT THE MEETING?
Under our bylaws, no other business besides that specified in the
Notice may be transacted at this Special Meeting.
-3-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT (1)
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 31, 2003 by (i) each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock, (ii) each current director, and (iii) all
current directors and executive officers as a group. A person is also deemed to
be a beneficial owner of any securities to which the person has the right to
acquire beneficial ownership within sixty days. All shares are subject to the
named person's sole voting and investment power unless otherwise indicated.
Ronald A. Kiima, resigned as a director of the Company effective August 29,
2003.
SHARES PERCENT OF SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER (2) OWNED OWNED (3)
- --------------------------------------------------------- --------- -------------
DIRECTORS AND OFFICERS
Christopher Maus (4) ................................. 3,178,200 3.40%
Michael Crane (5) .................................... 6,084,254 6.53%
Robert Boyle (6) ..................................... 341,700 Less than 1%
William Gridley (7) .................................. 266,000 Less than 1%
Edward Siemens (8) ................................... 338,385 Less than 1%
Brett Sweezy (9) ..................................... 495,621 Less than 1%
Jackson Connolly (10) ................................ 160,306 Less than 1%
---------- ------------
ALL DIRECTORS AND OFFICERS AS A GROUP (7 PERSONS) (11) 10,824,466 11.42%
---------- ------------
-4-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) (1)
SHARES PERCENT OF SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER (2) OWNED OWNED (3)
- ---------------------------------------------------- ---------- -----------
OTHER BENEFICIAL OWNERS:
RAB Europe Fund Limited (12) ................. 10,082,500 9.99%
c/o RAB Capital Limited
No. 1 Adam Street
London W2CN 6LE
United Kingdom
Mercer Management (13) ....................... 7,446,226 8.00%
c/o Gordon Rock
5820 East Mercer Way
Seattle, WA 98040
Commodity Management and Research, Inc (14) . 5,992,360 6.43%
c/o Tim Mathers
1050 17th Street, Suite 2000
Denver, CO 80265
Forrest Nominees Limited (15) .................... 11,301,505 12.13%
P.O. Box 328
St. Peter Port
GY13TY Guernsey, UK
Eagle & Dominion EuroAmerican Growth Fund Ltd. 6,205,380 6.68%
9 West 57th Street
New York, NY 10019
Crescent International ....................... 5,000,000 5.38%
84 Avenue Louis-Casai
CH 1216 Cointrin Geneva, Switzerland
__________________________
(1) Based upon information furnished to the Company by the beneficial
owners or otherwise obtained from the stock transfer books of the
Company.
(2) Unless otherwise indicated, the business address for each beneficial
owner is c/o Lifestream Technologies, Inc., 510 Clearwater Loop, Suite
101, Post Falls, Idaho 83854.
(3) Percentage of ownership includes 92,894,590 actual shares of Common
Stock outstanding on July 31, 2003. Shares of Common Stock subject to
stock options or warrants that are currently exercisable or will become
exercisable after 60 days after July 31, 2003, and shares of Common
Stock subject to convertible term notes that are currently convertible
or will become convertible within 60 days of July 31, 2003, are deemed
outstanding for computing the beneficial ownership percentage of the
person or group holding such options, warrants and notes, but are not
deemed outstanding for computing the percentage of any other person or
group.
(4) Includes 572,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
-5-
(5) Includes 216,500 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003. Excludes 152,000 common shares held by Lochnau, Inc., a
privately held investment management corporation for which Mr. Crane
serves as Chairman of the Board of Directors, to which Mr. Crane
disclaims any beneficial ownership.
(6) Includes 149,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
(7) Includes 99,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
(8) Includes 334,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
(9) Includes 345,982 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
(10) Includes 137,006 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
(11) Includes 1,952,488 shares issuable upon exercise of options and
warrants that are currently exercisable or will become exercisable
within 60 days after July 31, 2003.
(12) RAB Europe Fund Ltd., as of July 31, 2003, (i) owned 2,057,500 shares
of our Common Stock, and (ii) owned convertible term notes of ours that
can be converted into 56,821,690 shares of our Common Stock. RAB Europe
Fund Ltd. does not have the right to convert any debt, to the extent
such conversion would cause RAB Europe Fund Ltd., together with its
affiliates, to have acquired a number of shares of our Common Stock
during the 60-day period ending on the date of conversion or exercise
which, when added to the number of shares of our Common Stock held at
the beginning of such 60-day period, would exceed 9.99% of the number
of shares of our Common Stock then outstanding, excluding, for the
purpose of such determination, shares of our Common Stock issuable upon
exercise of the warrants which have not been exercised. The number of
shares beneficially owned by RAB Europe Fund Ltd., in the table above,
reflects this limitation.
(13) Includes 142,500 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
(14) Includes 250,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
(15) Includes 262,500 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
July 31, 2003.
-6-
PROPOSAL 1
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED CAPITALIZATION
Our Board of Directors (the "Board") has unanimously adopted a resolution
proposing and recommending stockholder approval of an amendment to the Company's
Articles of Incorporation which will increase the Company's authorized number of
shares of common stock from 100,000,000 shares, par value $0.001 per share, to
250,000,000 shares, par value $0.001 per share. The increase in the number of
authorized common stock would not affect the authorized number of shares of
preferred stock, which would remain at 15,000,000 shares, none of which have
been issued. As of July 31, 2003, the Company had 92,894,590 shares of Common
Stock outstanding.
Our Board believes it is imperative that the Company's authorized number of
shares of common stock be increased in order to have these shares of authorized
but unissued common stock available for the exercise of our existing options and
the conversion of our convertible notes. The Board also believes that the
proposed amended capital structure is appropriate to provide for the future
financial and other needs of the Company and recommends such amendment to the
Shareholders for adoption. If the amendment is adopted, it will become effective
upon filing with the secretary of state of the State of Nevada.
BACKGROUND INFORMATION
Although we had approximately 73,000,000 unissued shares available as of
December 31, 2002, as discussed in our Annual Report for the fiscal year ended
June 30, 2002 and in the Management's Discussion and Analysis sections of our
Quarterly Reports filed with the Securities and Exchange Commission during 2003
(see "Substantial Doubt As To Our Ability to Continue As A Going Concern"),
because of our substantial accumulated operating and net losses and our negative
operating cash flows incurred by the Company since inception, our ability to
continue as a going concern has been dependent on our obtaining additional
equity infusions. In anticipation of the Company's need for additional
financing, we had requested and the shareholders had authorized the issuance of
ten million shares for a private placement, potentially at a price below the
market value of the stock, pursuant to a shareholder's vote take at the
Company's 2002 annual meeting held on December 20, 2002. We believed at that
time that this approval would cover the securities we intended to issue in the
financing then contemplated as being necessary to meet the funding needs
appropriate to produce and market our consumer monitor and assist us in
achieving net profitability and positive operating cash flow. The approval for
the issuance had been requested because the Company's common shares are traded
on the AMEX, and under the AMEX guidelines, shareholder approval or AMEX waiver
is required for the sale, issuance or potential issuance by the Company of
common stock or securities, convertible into common stock equal to 20% or more
of the presently outstanding stock, if such stock may be issued for a price less
than the greater of the book or market value of the stock. Shareholder approval
of the transactions was not required under Nevada law or other applicable law or
by our Articles of Incorporation or Bylaws. Except as set forth in the AMEX or
similar Self Regulatory Organization guidelines, the Board would have the sole
discretion to determine the terms and conditions for such financings.
-7-
Because our efforts to obtain new financing following the 2002 annual meeting
were initially unsuccessful and because the market price of our Common Stock was
decreasing as our financial condition continued to decline, we found it
necessary to continue to lower the offering price for our stock as we continued
to seek financing in the private placement market prior to May 2003. Our March
31, 2003 10-QSB reported $357.00 in available cash and a working capital
deficiency of $4,665,501. On April 18, 2003, our Board discussed the fact that
we had only been able to raise $250,000 based on the then authorized offering
price of $0.25 a share. As of April 17, 2003, our stock was trading at a price
between $0.10 and $0.12 per share. The Board therefore authorized management to
continue to seek financing with an offering price of $0.10 a share. The Board
also authorized management to seek to convert the Company's convertible debt and
accrued interest into common stock at $0.10 a share since the convertible debt
was affecting our ability to obtain additional financing. During the period from
March through June 2003, with the assistance of HPC Capital, our investment
banker, we were able to obtain necessary additional capital from the sale of
33,000,000 shares of common stock at $0.10 a share to six new accredited
investors along with eleven existing accredited Shareholders.
In addition, our ability to obtain financing, both from new investors and from
trade creditors was being adversely affected by our outstanding short term debt,
some of which was due during the period from June 1, 2003 to December 21, 2003.
The holders of our convertible debt, which was convertible into common stock at
a price of $1.00 per share, had all previously indicated they would not be
willing to convert their debt at the $1.00 price. $2,078,567 of the debt and
accrued interest was due during the period from June 1, 2003 to December 21,
2003 and the Company was not in a position to repay that debt. The remaining
$5,970,000 of outstanding convertible debt had anti-dilution protection and
would be convertible into equity at the price negotiated for the sale of stock.
Following our determination that the private placement of common stock for cash
at $0.10 a share apparently would be successfully completed, we offered the
convertible debt holders the right to convert their convertible debt to common
stock for the same price during an "incentive period". The convertible debt
holders unanimously agreed that if we were able to obtain the new financing
through the sale of additional common stock, they would agree to convert the
convertible debt into common stock at the price established in the offering. In
connection with the closing of the sale of common stock to the new investors for
$0.10 per share, the convertible debt holders holding the Company's convertible
debt also converted $2,500,000 of debt to common stock and agreed to terminate
their warrants which had provided them with the right to purchase common stock
for $1.00 per share for a term of 2 to 5 years in an amount equal to 50% percent
of the amount of the convertible debt they held. Therefore, during May and June
2003, we issued approximately 27,480,000 shares for the conversion of $2,748,000
of debt and accrued interest into Common Stock.
The Company's sale of 33,000,000 shares Common Stock for cash resulted from the
sale of $1,600,000 of stock to six accredited investors introduced to us by HPC
Capital in connection with this offering and the sale of $1,700,000 of stock to
eleven existing Shareholders who met the private placement criteria. The
existing investors who purchased additional stock in this financing owned
approximately 32% of the company pre-financing and conversion. Brett Sweezy, CFO
of the Company, who had been active in contacting potential investors agreed to
acquire $9,750 worth of stock in the financing, and Robert Boyle, a director of
the Company, agreed to purchase $5,000 of stock in the financing. Michael Crane,
the only director holding convertible debt, agreed to convert all his
convertible debt into 5,286,060 shares of Common Stock. Mr. Crane abstained from
the Board vote regarding the conversion of the convertible debt into Common
Stock.
-8-
Although our sale of stock in the May/June 2003 financing may be deemed to be
below the market price of our stock at the time of the closings, stockholders
should note that private placement investors are generally not willing to pay
market value when they purchase substantial amounts of stock which cannot be
freely traded until subsequently registered and when there is a volatile stock
with a relatively thin trading market. Furthermore, although during the period
from April 17, 2003, when our stock closed at $0.12, through June 20, 2003, the
market price of our Common Stock was increasing and reached a closing high of
$0.31 on June 5, 2003 and closed at $0.25 on June 19, 2003, we were unable, as a
practical matter, to increase the price of the stock we were offering pursuant
to the existing private placement offering during this time while we were in
active negotiations with potential investors. These factors, together with the
fact that we needed more financing than we anticipated at the time of the 2002
annual meeting resulted in our having to issue substantially more shares than
anticipated at a price below the market value at the time of closing the
financing in June 2003.
The AMEX Company Guide provided that prior to entering into transactions
involving the sale or issuance of common stock equal to 20% or more of the then
outstanding common stock for a price less than the "market value" of the stock,
listed companies obtain either advance shareholder approval or an exception to
the shareholder vote from the AMEX followed by a notice mailed to stockholders
not later than ten days before the shares are issued, advising them of the
omission to seek shareholder approval. At the time we were finally able to
successfully complete the negotiations for the necessary financing and
conversion of short term debt, it was imperative that we close the transactions
immediately in order to continue as a going concern. Although the shareholder
approval we had previously obtained only approved a fraction of the number of
shares to be issued in the closings, our financial situation at the time
required that we close the transactions immediately and we did not have the time
to seek shareholder approval for the transactions. Furthermore, although we did
issue a press release on June 20, 2003 and filed a Form 8-K with the SEC,
publicly disclosing our completion of these transactions, we believed it was in
the best interests of the Company to close the financings and utilize the
proceeds to pay our debt as soon as negotiations had been completed instead of
delaying the closing while we notified our stockholders in advance of a
prospective closing. The financing was necessary to our ability to continue
operations. Furthermore our Board believed that approval of the financings was
mandated by the fact that if the financings were not approved by the
stockholders, we would have to discontinue operations which would have resulted
in a loss of shareholder equity. Our failure to request that the AMEX exempt the
closings from the AMEX requirement for advance shareholder approval was
inadvertent and was due to our preoccupation with the urgent nature of
completing the financings immediately upon completion of the negotiations.
However, in retrospect, the requirement that we have a ten day notice period
before the financing could close and the funds would be available for our
immediate use would not appear to have been in the best interests of the
Company.
In addition to the financings described above, we also issued 4,579,407 shares
to Phillip Caldwell, one of our principal stockholders, who had previously
converted $482,500 of our outstanding convertible notes, plus interest, to
common stock at the then stated rate of $1.00 per share, at our request and for
the Company's benefit. These shares were issued to Mr. Caldwell in order that
his conversion would then be on the same basis as the conversions then being
offered by us and so that he would not be the only holder of the convertible
notes not to have had the opportunity to convert at $0.10 a share. We also
wanted to provide an inducement for him to participate as an initial cash
investor in the private placement described above. We also issued 1,000,000
shares of common stock to RAB Capital Limited, one of our substantial
shareholders, in return for cancellation of 3,000,000 warrants exercisable for
five years at $2.50. We also issued 4,567,140 shares of common stock in payment
for $472,964 of past due bills for services from unaffiliated service providers.
As a result of the above-described financings and other issuances of shares, we
had issued approximately 66,000,000 shares of Common Stock during the period of
March through June 2003. As a result, we had depleted substantially all of our
authorized but previously unissued Common Stock. We do not believe that any
change of control has occurred as a result of the issuance of stock in these
financings.
AMEX'S ASSERTION OF RULE VIOLATIONS AND OUR PENDING DELISTING
On June 27, 2003, we received a telephone call from an AMEX official who advised
us that these common share issuances may have violated AMEX Rules 711 and 713.
We had potentially violated Rule 713, which requires that a company obtain the
advance approval by its stockholders of any new issuance of common shares in
-9-
excess of 20% of its previously outstanding common shares at a price below the
then prevailing market price per share. Furthermore, because of the issuance of
shares to Michael Crane, one of our directors, in connection with the conversion
of the short term debt which he held, we may have violated Rule 711 which
requires a company obtain advance shareholder approval of any new issuance of
common shares in excess of 5% of its previously outstanding common shares to
officers, directors and key employees at a price below the then prevailing
market price per share. We immediately advised the AMEX that any such violations
were completely inadvertent and informed them in detail regarding the perilous
day-to-day financial conditions we had been operating under immediately prior to
us undertaking these issuances out of financial necessity.
On June 30, 2003, without any advance notice to us, the AMEX suspended trading
in our common shares. Upon becoming aware of such, we issued a press release
publicly announcing the AMEX's assertions regarding possible rule violations and
our request to the AMEX for an exception pursuant to its Rule 710 of the
shareholder approval requirements of its Rules 711 and 713. The AMEX allowed
trading in our common shares to resume on July 1, 2003.
On September 22, 2003, we were advised by AMEX officials in a telephone call
that they had decided to proceed with delisting and that a formal letter to that
effect was forthcoming. On September 23, 2003, our Board of Directors voted to
voluntarily withdraw our listing with the AMEX and to be traded on the
Over-The-Counter Bulletin Board ("OTC-BB"). The date on which our common shares
will no longer trade on the AMEX is currently unknown but it is anticipated to
be around the first of November. We believe that we meet the requirements for
trading on the OTC-BB and are discussing quotation on the OTC-BB with several
substantial and well respected market makers who already quote our shares in the
NASDAQ "Pink Sheets". We believe these market markers and possibly other market
makers will sponsor us on the OTC-BB upon our effective withdrawal from the
AMEX. Because our shares are already being quoted in the Pink Sheets, we believe
our stockholders will continue to be able to trade our shares without
interruption upon our delisting from the AMEX.
RECENT FINANCING
On September, 15, 2003 our Board approved the sale and issuance of $3,350,000 of
8% convertible debentures, due September 2006, with investors receiving 50%
warrant coverage, in a recent private placement. We received net proceeds of
$3,067,000 from this financing after payment of an 8% fee to HPC Capital, our
investment banker, and payment of $15,000 to the purchaser's counsel in
connection with the transaction. The debentures were purchased by the following
holders:
Number of
Shares if
Amount of Debentures are Number of
Purchaser Debentures Converted Warrants
----------------------------------------- ---------------- ---------------- ----------------
Palisades Master Fund L.P. (1)(2) $750,000 5,769,231 2,884,615
----------------------------------------- ---------------- ---------------- ----------------
Crescent International Ltd.(1)(3) $800,000 6,153,846 3,076,923
----------------------------------------- ---------------- ---------------- ----------------
Alpha Capital AG(1) $500,000 3,846,154 1,923,077
----------------------------------------- ---------------- ---------------- ----------------
Ellis International Ltd.(1) $150,000 1,153,846 576,923
----------------------------------------- ---------------- ---------------- ----------------
Bristol Investment Fund, Ltd. $450,000 3,461,538 1,730,769
----------------------------------------- ---------------- ---------------- ----------------
Congregation Mishkan Sholom $100,000 769,231 384,615
----------------------------------------- ---------------- ---------------- ----------------
Gryphon Master Fund, LP $500,000 3,846,154 1,923,077
----------------------------------------- ---------------- ---------------- ----------------
(1) Existing shareholder prior to purchase of Debentures.
(2) HPC Capital, our investment banker in the transaction, is manager
of this fund.
(3) Crescent International, Ltd. owned 5.3% of our stock at the time
of the purchase, but is otherwise not an affiliate of the Company.
-10-
The debentures are convertible into common stock at $0.13 a share. The
convertible provision was priced based upon the average closing market price for
our stock during the ten days prior to closing ($0.21) less an approximately 40%
discount for restricted stock. Interest on the debentures is payable quarterly,
but may, at the option of the Company, be paid in common stock ("PIK shares"),
based on a price equal to the lesser of $0.13 per share or 90% of the average
price of our shares over the prior 20 trading days. Our ability to pay the
interest utilizing PIK shares and the provisions for conversion of the principal
amount of the debentures into stock is subject to certain conditions. Among the
conditions are a requirement that the Company then have 250,000,000 authorized
shares, that the shares to be issued are registered for resale and that the
shares can be issued accordance with applicable market requirements. The
debentures provide that upon any default in the terms of the debentures or the
related transaction documents, including the conditions set forth above, the
principal and interest on the debentures may be due and payable in cash and the
company must pay the greater of 130% of the principal and interest or an amount
based upon the principal and accrued interest adjusted upwards in accordance
with a formula dependent upon any increase in the then market price of our
stock. In this connection, approximately $1,533,500 of the amount we received
from the sale of the debentures and warrants is being held in escrow pending
registration of the shares under the Securities Act of 1933, as amended, and
such amount will be immediately repayable to the debenture purchasers if the
additional shares are not authorized, and the shares registered for resale.
Furthermore, the entire principal amount and accrued interest may be in default
and repayable if the shares are not registered for resale within 120 days from
the date the debentures were issued.
Our agreement with the purchasers of debentures does provide that if all the
conditions to the issuance of stock are met, we will have the right to force the
conversion of the principal amount of the debentures into common stock at such
time as the average trading value of our shares exceeds the applicable
conversion price by more than 250% per share during certain 15 consecutive
trading day periods. Prior to meeting this trading value provision, the Company
cannot prepay any portion of the debentures without the approval of the holder.
The agreement also provides that additional shares may not be issued to any
debenture holder, either as PIK shares or pursuant to the conversion of
debentures or the exercise of warrants, to the extent the issuance would cause
the holder to beneficially own in excess of 4.99% of the total shares
outstanding.
Purchasers of the debentures also received warrants to purchase that number of
shares of common stock equal to 50% of the number of shares the debenture holder
could acquire if the debentures were to be converted immediately upon the
purchase of the debentures. The warrants have a term of two years from the date
of issue and are exercisable for purchase of shares of common stock for $0.2144
per share. The exercise of the warrants by the debenture holders is subject to
the same general conditions set forth above for issuance of stock pursuant to a
conversion of the debentures and the warrant shares are subject to registration
rights.
The purchase agreement for the sale of debentures provides that we will not sell
any additional common stock or debt convertible into common stock for a period
ending 120 days after the shares issuable upon conversion and pursuant to the
exercise of warrants have been registered for resale as described below. The
purchase agreement also provides that as long as any debentures are outstanding,
we agree not sell any shares or share equivalents on terms providing for an
adjustment to the conversion rate or the price per share for which the stock was
initially issued due to any subsequent sale of additional stock or stock
equivalents at a lower price per share. The debenture purchasers also received a
right of first refusal for all or a part of any proposed future financing. The
purchase agreement also provides that we will not have any reverse stock split
without the approval of a majority of the debenture holders.
-11-
The purchasers of the debentures received registration rights and shares may not
be issued either upon conversion or in lieu of cash payment of interest unless
the shares have been registered under the Securities Act of 1933, as amended for
public resale pursuant to such registration rights. We have agreed that the
initial registration will be made effective within 120 days after the debentures
were issued. If we are unable to provide for effective registration of such
shares within 120 days or such extended period as may be required by the SEC's
registration process, the debentures could be deemed to be in default and the
default provisions described above could apply. We must have additional
authorized common stock in order to have sufficient shares to issue our common
stock in any payment of interest, conversion of the debentures or exercise of
warrants.
Because we anticipate the delisting of our shares by the AMEX before any
substantial number of shares could be issued in connection with these
debentures, and because the listing maintenance requirements on both the Nasdaq
Bulletin Board and the Nasdaq Pink Sheets do not require shareholder approval
for issuing additional shares, even if the shares are deemed to be issued at
less than market price, the issuance of our shares in connection with the
debentures, will not require any approval of our stockholders other than the
amendment to the Articles authorizing sufficient shares for issuance in
connection with this transaction.
The sale of these $3,350,000 of debentures was necessary in order to provide us
with additional capital necessary to fund certain delinquent accounts payable
and to finance our ongoing operational needs and to provide some funding for our
planned inventory building and marketing initiatives designed to accelerate
sales of our second-generation total cholesterol monitor. The anticipated
approximate use of proceeds is as follows:
----------------------------------------- -------------------
Payment of past due account payable to
Roche Diagnostics GmbH, our principal
vendor $750,000
----------------------------------------- -------------------
Acquisition of additional inventory of
product $875,000
----------------------------------------- -------------------
Marketing for holiday season $600,000
----------------------------------------- -------------------
Marketing for period February through
May 2004 $600,000
----------------------------------------- -------------------
Other past due accounts payable and
operating capital $242,000
----------------------------------------- -------------------
SUMMARY OF POSSIBLE ISSUANCE OF SHARES FOR EXISTING INSTRUMENTS
As of July 31, 2003, we had 92,894,590 shares of Common Stock outstanding.
However, we already have ISO and other options outstanding for the purchase of
up to 12,561,685 more shares, although, as a practical matter most of these
options are for exercise prices above the current market price for our stock.
Furthermore, we have outstanding short term convertible notes, plus accrued
interest, in the approximate amount of $5,300,000, issued in connection with the
Company's previously existing financings (not including the "Recent Financing"
described above), which are still outstanding and which are convertible,
pursuant to the anti-dilution provisions, into 53,000,000 shares of common stock
at a price of $0.10 per share. Although RAB Capital Limited, the holder or
manager of funds holding these convertible notes, has agreed that we are not in
default even though we have not reserved shares for conversion of these notes
and do not currently have sufficient shares for the conversion, we currently are
unable to repay these convertible notes, which are due during the period from
June 2006 to December 2006, in cash. We can not convert these notes into equity
unless we have additional authorized but unissued shares. In summary, we
currently have 7,105,410 shares of existing authorized but unissued common
shares, but we have convertible notes (not including accrued interest) and
options outstanding which could require the issuance of an aggregate of
approximately 65,561,685 shares of common stock, even before the "Recent
Financing" transaction described above. The conversion of the $3,350,000 of
convertible debentures and 50% warrant coverage described in the "Recent
Financing", would require the issuance of 38,653,845 shares, not including the
shares that would be issued in payment for accrued interest. If all of the
options and the principal amount of the convertible notes and debentures were
exercised and converted into common stock, we would have approximately
53,150,000 shares of authorized but unissued shares remaining, assuming the
amendment authorizing 250,000,000 shares of common stock is approved.
-12-
REQUIREMENT FOR ADDITIONAL AUTHORIZED SHARES
Although the financings described above provided funds necessary for the Company
to continue as a going concern and provided minimal working capital for the
period of March through September 2003, we continue to need substantial
additional capital, either through substantial capital infusions or through
periodic, smaller capital infusions, both to fund current operating needs,
pending our ability to generate positive cash flow from operations, and to fund
production of our product and additional marketing efforts which we believe are
critical to our plan for achieving such positive cash flow from operations.
The approval of the Amendment by our stockholders cannot assure that we will be
able to raise any additional funds through the issuance of stock or convertible
notes, or otherwise, except for the "Recent Financing" described above. However,
following approval of the Amendment, and the improvement to our financial
statements and position that the recent financings provide, we believe we will
be in a position to obtain the additional financing necessary to continue to
implement our business plan. In addition to such increased authorized stock
being available for additional financing, our Board would have the flexibility
to use the additional authorized stock for any reasonable business and financial
purposes, including providing equity incentives to consultants, employees,
officers or directors, establishing strategic relationships with other companies
and expanding the Company's business or product lines through the acquisition of
other businesses or products. The Company has not committed to issue any shares
of stock which are the subject of this proposal except for the convertible
debentures described in the "Recent Financing" section above.
EFFECT ON EXISTING STOCKHOLDERS
The additional common stock to be authorized will have rights identical to the
currently outstanding Common Stock of the Company. Adoption of the proposed
Amendment and issuance of the Common Stock will not affect the rights of the
holders of currently outstanding Common Stock of the Company, except for the
dilutive effects incidental to issuing additional shares of Common Stock and
increasing the number of shares of Common Stock outstanding. The issuance of
additional Common Stock will have a significant dilutive effect on the ownership
interests of the Company's existing Stockholders such as dilution to any future
net income per share and any future payment of dividends per share, if and when
the Company becomes profitable, dilution to the voting rights of current holders
of Common Stock and by potentially decreasing the market value of the Common
Stock to the extent shares are sold for a price less than the current market
value of the stock. Furthermore, the increase in the number of shares of Common
Stock available for sale in the market, particularly if we agree to register
such shares for public resale, could represent an overhang on the market and
could depress the market price of our Common Stock.
Because listing maintenance requirements on both the Nasdaq Bulletin Board and
the Nasdaq Pink Sheets require timely public filings of financial and other
information, but do not require shareholder approval for issuing additional
shares, even if the transactions involve the issuance of a substantial
percentage of shares and such shares are deemed to be issued at less than market
price, following the delisting of our shares by the AMEX, the issuance of our
shares in connection with additional financings will generally be solely within
the discretion of the Board of Directors except in situations where Nevada
corporate law requires stockholder approval such as the issuance of stock in a
merger. Shares may be issued, in the discretion of the Board of Directors, in
connection with normal corporate financing and similar transactions without any
prior notice to Stockholders.
-13-
The Company's Common Stock has no preemptive rights to purchase additional
shares upon issuance of additional shares by the Company. Under Nevada law, the
Company's Stockholders are not entitled to appraisal rights with respect to the
proposed increase in the number of authorized shares.
ADDITIONAL AUTHORIZED SHARES ARE NOT SOUGHT FOR ANTI-TAKEOVER PURPOSES
Increasing the number of authorized shares of the Company's Common Stock is not
motivated by takeover concerns and is not intended by the Board to be an
anti-takeover measure. The proposed amendment is not in response to any known
effort on the part of any party to accumulate material amounts of stock to
acquire control of us or to change our management. However, the availability of
additional authorized but unissued shares of Common Stock could enable the Board
to make it more difficult for a person or group of persons to obtain control of
the Company by a proxy or tender offer, by issuing shares in a defensive manner.
Our existing Articles of Incorporation do provide for a staggered Board of
Directors, which also may have material anti-takeover effects, however, the
proposed amendment is not part of any plan by management or the Board of
Directors to impede a takeover effort and there are no plans by management to
recommend further measures to the Board of Directors or Stockholders to
discourage tender offers or takeover attempts.
BOARD RECOMMENDATION
Our Board believes it is advisable and in the Company's best interests to amend
our Articles of Incorporation to authorize 150,000,000 additional shares of
Common Stock which will be available to meet our current obligations for
convertible notes and debentures, for obtaining additional financing and for
other corporate purposes. As noted, we continue to have a negative working
capital position which we primarily attribute to our continued inability to
finance sufficient additional inventory to meet increased demand for our product
and to fund more extensive marketing activities to further increase the demand
for our product. These were the primary factors which our Board considered in
determining the need for additional shares of stock to enable us to acquire this
necessary financing. Although the issuance of additional shares will be dilutive
to existing Stockholders, our ability to finance our short and long term
business plans is believed to be critical to our continued operations and,
hopefully, our future success. Accordingly, the Board recommends that you vote
FOR the proposed amendment to our Articles of Incorporation.
VOTE REQUIRED
Approval of the amendment to the Company's Articles of Incorporation to increase
the number of the Company's authorized shares of common stock requires the
affirmative vote of a majority of our issued and outstanding shares of common
stock. Abstentions and broker non-votes will have the same effect as negative
votes.
PRICE RANGE OF THE COMMON STOCK
The table below sets forth , for the periods indicated, the high and low closing
prices of the Company's Common Stock as reported by the AMEX.
Closing Prices
-------------------------------
High Low
---- ----
Fiscal Year 2003
Quarter Ended December 31, 2002 $0.35 $0.10
Quarter Ended March 31, 2003 $0.25 $0.11
Quarter Ended June 30, 2003 $0.31 $0.10
Quarter Ended September 30, 2003 $0.25 $0.12
On October 9, 2003 the closing price of Common Stock on the AMEX was $0.18 per
share.
-14-
OTHER MATTERS
Only the Proposal set forth in the Notice for this Special Meeting of
Stockholders may be presented for vote at this meeting. In accordance with the
Company's Bylaws, stockholder proposals for the 2003 Annual Meeting of
Stockholders of the Company had to be received by the Company at its principal
executive offices not later than July 10, 2003 for inclusion in the Proxy
relating to the 2003 Annual Meeting of Stockholders, to be held later this year.
Stockholder proposals for the 2004 Annual Meeting of Stockholders of the Company
must be received by the Company at its principal executive offices at 510
Clearwater Loop, Suite 101, Post Falls, Idaho 83854, Attn: Chief Financial
Officer, not later than July 15, 2004 for inclusion in the Proxy Statement and
Proxy relating to the 2004 Annual Meeting of Stockholders
REQUEST FOR VOTE
It is important that your shares be represented at the Special Meeting,
regardless of the number of shares that you hold. YOU ARE URGED TO PROMPTLY
EXECUTE AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE THAT HAS BEEN ENCLOSED
FOR YOUR CONVENIENCE. Stockholders who are present at the Special Meeting may
revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
/s/ Christopher Maus
--------------------
Christopher Maus
Chairman of the Board of Directors,
President and Chief Executive Officer
___________, 2003
Post Falls, Idaho
-15-
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
LIFESTREAM TECHNOLOGIES, INC.
PROXY - SPECIAL MEETING OF STOCKHOLDERS - NOVEMBER ___, 2003
The undersigned stockholder of Lifestream Technologies, Inc. hereby appoints
Messrs. Christopher Maus and Robert Boyle of Lifestream Technologies, Inc., and
either of them, with full power of substitution to each, to act as
attorneys-in-fact and proxies to represent the undersigned at the Special
Meeting of Stockholders, to be held at the RED LION TEMPLIN'S RESORT LOCATED AT
414 EAST FIRST AVENUE, POST FALLS, IDAHO ON NOVEMBER ___, 2003, AT 8:30 A.M.,
local time, and at any and all adjournments thereof, and to vote all of the
shares of Common Stock of Lifestream Technologies, Inc. which the undersigned is
entitled to vote as fully as if the undersigned were present in person, in the
manner indicated below. Receipt of the Notice of Meeting and the accompanying
Proxy Statement is hereby acknowledged.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON
THIS PROXY CARD. IF NO SPECIFICATION IS MADE, A VOTE FOR THE PROPOSAL WILL BE
ENTERED.
Should the undersigned be present and elect to vote in person at the Special
Meeting or at any adjournment thereof, upon notification to the Secretary of
Lifestream Technologies, Inc. at the Meeting of the Stockholder's decision to
terminate the proxy, this power of attorney and proxy shall be deemed terminated
and of no further force and effect.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS, WHICH
RECOMMENDS A VOTE FOR THE PROPOSALS. PLEASE REFER TO THE
PROXY STATEMENT FOR A DISCUSSION OF EACH OF THESE MATTERS.
1. Proposal to amend the Lifestream Technologies, Inc. Articles of Incorporation
to increase the number of authorized shares of common stock from 100,000,000
shares to 250,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
The undersigned hereby revokes any and all prior proxies and acknowledges
receipt from the Company prior to the execution of this proxy of Notice of
Meeting, the Proxy Statement dated __________, 2003.
Please sign exactly as your name appears. When signing as attorney, executor,
administrator, trustee, or guardian, please give your full name. If shares are
held jointly, each holder should sign. Please fill in the date the proxy is
signed.
Signature ______________________________________
Signature if held jointly ___________________________________
Dated __________________________
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
SELF-ADDRESSED POSTAGE-PREPAID ENVELOPE.